UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-Q/A


(Amendment
No.1)




(Mark
One)




ý
            Quarterly
      report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934




For
      the quarterly period ended March 31,
2009




or




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




For the
transition period from ____________ to ___________.




Commission
File Number 000-51200




Yongye
International, Inc.


(Exact
Name of Small Business Issuer as Specified in Its Charter)





Nevada
              20-8051010(State
      or other Jurisdiction of
              (I.R.S.
      EmployerIncorporation
      or Organization)
              Identification
      No.)




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


No. 1
Zhichun Road, Haidian District Beijing, PRC


(Address
of Principal Executive Office)




(Former
address of Principal Executive Office, if changed since last
report)


+86 10
8232 8866


(Issuer’s
Telephone Number, Including Area Code)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes oNo
x




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





Large accelerated filer ̈
              Accelerated filer ̈Non-accelerated
      filer  ̈
      (Do not check if a smaller reporting company)
              Smaller
      reporting company ý




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





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes oNo x As of May 7, 2009,
28,058,960 shares of common stock, par value $.001 per share, were issued and
outstanding.









EXPLANATORY
NOTE
  We are
filing this Quarterly Report on Form 10-Q/A (the “Amendment”) to amend Part I,
Item 1, Financial Statements and Item 2, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, in the original Quarterly Report
on Form 10-Q, filed with the Securities and Exchange Commission (“SEC”). This
Amendment has been filed to correct an error in the manner in which we
calculated the number of shares outstanding in determining earnings per share,
and another error in which we should have reclassified warrants issued as a
derivative liability, and the financial statements contained herein are being
restated accordingly. In addition, certain revisions are being made to the
disclosures included in our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2009 initially filed with the Securities and Exchange Commission (the
“Commission”) on May 7, 2009 in response to the Commission’s comment letter
dated September 1, 2009.


PagePart
      I: Financial Information:Item
      1 -Financial StatementsConsolidated
      Balance Sheets
                1Consolidated
      Statements of Income and Comprehensive Income
                2Consolidated
      Statements of Cash Flows
                3Notes
      to Consolidated Financial Statements
                4Item
      2 - Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
                17Signatures
                26







Item
1- Financial Statements




YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES




CONSOLIDATED
BALANCE SHEETS





March 31, 2009
                                                          
                                                          
                                                          December 31, 2008(Unaudited)
                                                            (Restated
      - Note 1(C))
                                                          
                                                          
                                                          (Restated
      - Note 1(C))CURRENT
      ASSETSCash
      and cash equivalents
                                                          
                                                          $
                                                          1,424,268
                                                          
                                                          
                                                          $
                                                          4,477,477Accounts
      receivable, net
                                                          
                                                          
                                                          6,128,346
                                                          
                                                          
                                                          
                                                          2,748,042Inventories
                                                          
                                                          
                                                          22,201,250
                                                          
                                                          
                                                          
                                                          20,708,193Advance
      payments
                                                          
                                                          
                                                          62,937
                                                          
                                                          
                                                          
                                                          44,051Due
      from related party
                                                          
                                                          
                                                          274,758
                                                          
                                                          
                                                          
                                                          192,741Prepaid
      expenses
                                                          
                                                          
                                                          91,968
                                                          
                                                          
                                                          
                                                          189,478Other
      receivables
                                                          
                                                          
                                                          256,554
                                                          
                                                          
                                                          
                                                          680,752Total
      Current Assets
                                                          
                                                          
                                                          30,440,081
                                                          
                                                          
                                                          
                                                          29,040,734PROPERTY
      AND EQUIPMENT, NET
                                                          
                                                          
                                                          6,717,213
                                                          
                                                          
                                                          
                                                          5,368,074INTANGIBLE
      ASSETS, NET
                                                          
                                                          
                                                          92,918
                                                          
                                                          
                                                          
                                                          95,453TOTAL
      ASSETS
                                                          
                                                          $
                                                          37,250,212
                                                          
                                                          
                                                          $
                                                          34,504,261CURRENT
      LIABILITIESLong-term
      loans- current portion
                                                          
                                                          
                                                          166,448
                                                          
                                                          
                                                          
                                                          167,652Accounts
      payable- related party
                                                          
                                                          $
                                                          90,169
                                                          
                                                          
                                                          $
                                                          46,739Taxes
      payable
                                                          
                                                          
                                                          508,262
                                                          
                                                          
                                                          
                                                          366,981Advance
      from customers
                                                          
                                                          
                                                          82,037
                                                          
                                                          
                                                          
                                                          1,869,400Accrued
      expenses
                                                          
                                                          
                                                          1,636,175
                                                          
                                                          
                                                          
                                                          583,880Other
      payables
                                                          
                                                          
                                                          697,806
                                                          
                                                          
                                                          
                                                          626,910Derivative
      liabilities – fair value of warrants
                                                          
                                                          
                                                          1,899,920
                                                          
                                                          
                                                          
                                                          2,107,931Total
      Current Liabilities
                                                          
                                                          
                                                          5,080,817
                                                          
                                                          
                                                          
                                                          5,769,493LONG-TERM
      LOANS
                                                          
                                                          
                                                          291,498
                                                          
                                                          
                                                          
                                                          230,121STOCKHOLDERS'
      EQUITYCapital stock: par value
      $.001; 75,000,000
      shares authorized; 26,760,258 shares issued and outstanding at March 31,
      2009 and December 31, 2008
                                                          
                                                          
                                                          26,760
                                                          
                                                          
                                                          
                                                          26,760Additional
      paid-in capital- Common stock
                                                          
                                                          
                                                          13,633,604
                                                          
                                                          
                                                          
                                                          13,633,604Retained
      earnings
                                                          
                                                          
                                                          15,128,297
                                                          
                                                          
                                                          
                                                          12,102,882Statutory
      reserve
                                                          
                                                          
                                                          1,489,281
                                                          
                                                          
                                                          
                                                          1,207,912Accumulated
      other comprehensive income
                                                          
                                                          
                                                          379,045
                                                          
                                                          
                                                          
                                                          329,445Total
      Stockholders' Equity
                                                          
                                                          
                                                          30,656,987
                                                          
                                                          
                                                          
                                                          27,300,603Noncontrolling
      interest
                                                          
                                                          
                                                          1,220,910
                                                          
                                                          
                                                          
                                                          1,204,044Total
      Equity
                                                          
                                                          
                                                          31,877,897
                                                          
                                                          
                                                          
                                                          28,504,647TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                          
                                                          $
                                                          37,250,212
                                                          
                                                          
                                                          $
                                                          34,504,261




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


1


YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


Yongye
      International, Inc.
                    
                    
                    Yongyeand
      Subsidiaries
                    
                    
                    Nongfeng(f/k/a
      Yongye Biotechnology
                      International,
      Inc.)For
      the Three Months Ended
                    
                    
                    For
      the Three Months EndedMarch 31, 2009
                    
                    
                    March 31, 2008(Unaudited)
                    
                    
                    (Unaudited)(Restated
      - Note 1(C))SALES
                    
                    $
                    12,435,775
                    
                    
                    $
                    9,528,055COST
      OF SALES
                    
                    
                    5,902,607
                    
                    
                    
                    4,484,261GROSS
      PROFIT
                    
                    
                    6,533,168
                    
                    
                    
                    5,043,794SELLING
      EXPENSES
                    
                    
                    2,620,298
                    
                    
                    
                    3,192,797RESEARCH
      & DEVELOPMENT EXPENSES
                    
                    
                    288,572
                    
                    
                    
                    —GENERAL
      AND ADMINISTRATIVE EXPENSES
                    
                    
                    345,157
                    
                    
                    
                    357,192INCOME
      FROM OPERATIONS
                    
                    
                    3,279,141
                    
                    
                    
                    1,493,805OTHER
      EXPENSES (INCOME)Interest
      expenses
                    
                    
                    5,958
                    
                    
                    
                    —Other
      expenses
                    
                    
                    441
                    
                    
                    
                    97Change
      in fair value of derivative liabilities
                    
                    
                    (208,011
                    )
                    
                    
                    —TOTAL
      OTHER EXPENSES
                    
                    
                    (201,612
                    )
                    
                    
                    97INCOME
      BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING
    INTEREST
                    
                    
                    3,480,753
                    
                    
                    
                    1,493,708PROVISION
      FOR INCOME TAXES
                    
                    
                    155,447
                    
                    
                    
                    373,427NET
      INCOME
                    
                    
                    3,325,306
                    
                    
                    
                    1,120,281LESS:
      NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTERST
                    
                    
                    18,522
                    
                    
                    
                    —NET
      INCOME ATTRIBUTABLE TO YONGYE BIOTECHNOLOGY INTERNATIONAL,
      INC.
                    
                    
                    3,306,784
                    
                    
                    
                    1,120,281OTHER
      COMPREHENSIVE INCOMEForeign
      Currency Translation Adjustment
                    
                    
                    47,945
                    
                    
                    
                    30,531COMPREHENSIVE
      INCOME
                    
                    $
                    3,354,729
                    
                    
                    $
                    1,150,812Net
      income per share:Basic
                    
                    $
                    0.12
                    
                    
                    $
                    0.10Diluted
                    
                    $
                    0.12
                    
                    
                    $
                    0.10Weighted
      average shares used in computation:Basic
                    
                    
                    26,760,258
                    
                    
                    
                    11,444,755Diluted
                    
                    
                    26,760,258
                    
                    
                    
                    11,444,755





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


2




YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS





Yongye International, Inc.
                                      
                                      
                                      Yongyeand Subsidiaries
                                      
                                      
                                      Nongfeng(f/k/a Yongye Biotechnology
                                        International, Inc.)For the Three Months Ended
                                      
                                      
                                      For the Three Months EndedMarch 31, 2009
                                      
                                      
                                      March 31, 2008(Unaudited)
                                      
                                      
                                      (Unaudited)(Restated - Note 1(C))CASH FLOWS FROM OPERATING ACTIVITIESNet
      income
                                      
                                      $
                                      3,306,784
                                      
                                      
                                      $
                                      1,120,281Adjustments
      to reconcile net income to net cash (used in)/provided by operating
      activitiesDepreciation
      and amortization
                                      
                                      
                                      107,236
                                      
                                      
                                      
                                      42,784Reversal
      of bad debt provision
                                      
                                      
                                      (73,701
                                      )
                                      
                                      
                                      —Net
      income attributable to the noncontrolling interest
                                      
                                      
                                      18,522
                                      
                                      
                                      
                                      —Change
      in fair value of derivative liabilities
                                      
                                      
                                      (208,011
                                      )
                                      
                                      
                                      —Changes
      in assets and liabilities:Accounts
      receivable
                                      
                                      
                                      (3,302,662
                                      )
                                      
                                      
                                      (7,200,057
                                      )Inventories
                                      
                                      
                                      (1,466,830
                                      )
                                      
                                      
                                      (4,556,216
                                      )Advances
      payments
                                      
                                      
                                      (18,828
                                      )
                                      
                                      
                                      —Due
      from related party
                                      
                                      
                                      (72,763
                                      )
                                      
                                      
                                      138,693Prepaid
      expense
                                      
                                      
                                      97,734
                                      
                                      
                                      
                                      —Other
      receivables
                                      
                                      
                                      424,992
                                      
                                      
                                      
                                      (86,738
                                      )Accounts
      payable- related party
                                      
                                      
                                      43,366
                                      
                                      
                                      
                                      6,967,770Taxes
      payable
                                      
                                      
                                      140,799
                                      
                                      
                                      
                                      381,255Advance
      from customers
                                      
                                      
                                      (1,789,453
                                      )
                                      
                                      
                                      80Accrued
      expenses
                                      
                                      
                                      1,051,410
                                      
                                      
                                      
                                      3,371,935Other
      payables
                                      
                                      
                                      70,298
                                      
                                      
                                      
                                      14,853Net
      Cash (Used in)/Provided by Operating Activities
                                      
                                      
                                      (1,671,107
                                      )
                                      
                                      
                                      194,640CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of property and equipment
                                      
                                      
                                      (1,446,782
                                      )
                                      
                                      
                                      (213,919
                                      )Net
      Cash Used in Investing Activities
                                      
                                      
                                      (1,446,782
                                      )
                                      
                                      
                                      (213,919
                                      )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from bank loans
                                      
                                      
                                      89,534
                                      
                                      
                                      
                                      —Repayment
      of bank loans
                                      
                                      
                                      (29,870
                                      )
                                      
                                      
                                      —Proceeds
      from share capital
                                      
                                      
                                      —
                                      
                                      
                                      
                                      150,000Net
      Cash Provided by Financing Activities
                                      
                                      
                                      59,664
                                      
                                      
                                      
                                      150,000EFFECT
      OF FOREIGN CURRENCY TRANSLATION ON CASH
                                      
                                      
                                      5,016
                                      
                                      
                                      
                                      26,858NET
      (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
                                      
                                      
                                      (3,053,209
                                      )
                                      
                                      
                                      157,579CASH
      AND CASH EQUIVALENTS – BEGINNING
                                      
                                      
                                      4,477,477
                                      
                                      
                                      
                                      —CASH
      AND CASH EQUIVALENTS - ENDING
                                      
                                      $
                                      1,424,268
                                      
                                      
                                      $
                                      157,579Supplemental
      cash flow information:Cash
      paid for income taxes
                                      
                                      
                                      22,464
                                      
                                      
                                      
                                      —Cash
      paid for interest expense payment
                                      
                                      
                                      9,833
                                      
                                      
                                      
                                      —Noncash
      investing and financing activities:




During
the three months ended March 31, 2008, the minority shareholder of Yongye
Nongfeng contributed a patent valued at $100,000 to that company.




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


3




YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES




NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS




MARCH 31,
2009 AND 2008




NOTE 1
-ORGANIZATION AND DESCRIPTION OF BUSINESS




A.
Organization




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




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




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




In May
2008, upon the agreement among Inner Mongolia Yongye, ASO and Yongye Nongfeng,
the ownership of Yongye Nongfeng was revised, pursuant to which Inner Mongolia
Yongye and ASO became 0.5% and 99.5% equity interests owner of Yongye Nongfeng,
respectively. ASO has not fully injected its share of the capital into Yongye
Nongfeng as it isn’t required to do so for 2 years after the CJV is established.
Based upon actual capital injection into Yongye Nongfeng, Inner Mongolia Yongye
and ASO were 0.6% and 99.4% owners, respectively, of Yongye Nongfeng as of
December 31, 2008.




B. Nature
of Business




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





Yongye
Nongfeng and Inner Mongolia Yongye also entered into certain lease-exchange
arrangements related to land-use rights, buildings and equipment. (See Note
14)




C.
Restatement of Financial Statements




Subsequent
to the filing of the Company’s interim consolidated financial statements as of
and for the three months ended March 31, 2009 on Form 10-Q, management
identified an error in the Company’s basic and diluted net income per share
presented in its previously issued consolidated financial statements. The
Company has incorrectly accounted for the April Escrow Shares and September
Escrow Shares (See Note 8) as contingently issuable shares for purposes of
calculating earnings per share and excluded such outstanding shares that were
placed in escrow from the calculation of the weighted average number of common
shares outstanding. It was determined that since April Escrow Shares and
September Escrow Shares are neither contingently cancellable nor contingently
returnable to the Company, the shares should have been included in the
denominator in computing the Company’s basic and diluted net income per
share.


4




In
connection with the April Offering and September Offering in 2008 (see Note8),
the Company issued the “April Warrants” and “September Warrants” to certain
investors and Roth Capital Partners, LLC (“Roth”). 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 accordance with
Emerging Issues Task Force Issue (EITF) No. 00-19, Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock, such potential cash payments that are not within the Company’s control
would preclude equity classification and therefore the warrants should have been
classified as a liability and adjusted to fair value through earnings at each
reporting dates starting from the issuance date.  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.  Upon the adoption of EITF Issue No. 07-5, Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock,
effective January 1, 2009, these warrants are no longer considered to be indexed
to the Company’s own stock and should be classified as a liability.




As of
December 31, 2008, a liability of $2,107,931 representing the fair value of the
April Warrants and the September Warrants should have been recorded and the
retained earnings should have been increased by $2,118,797 representing the net
decrease in fair value of these warrants through December 31, 2008 from their
respective dates of issuance. For the three months ended March 31, 2009, the
aggregate fair value of the April Warrants and September Warrants decreased by
$108,862 and $99,149, respectively. These fair value adjustments should have
been recorded through earnings for the respective periods.




The
restatement adjustments, as summarized below, had no impact on the Company’s
previously reported income tax amounts because the changes in fair value of the
warrants issued to the investors are not expected to result in future income tax
consequences.




The
following table presents the effect of correcting this error on the consolidated
financial statements for the three months ended March 31, 2009 and the year
ended December 31, 2008.




CONSOLIDATED
BALANCE SHEETS




March 31, 2009AsPreviously
                      Reported
                    
                    
                    As
                      RestatedDerivative
      liabilities – Fair value of warrants
                    
                    
                    —
                    
                    
                    
                    1,899,920Total
      Current Liabilities
                    
                    
                    3,180,897
                    
                    
                    
                    5,080,817Additional
      paid-in capital-Common stock
                    
                    
                    13,976,900
                    
                    
                    
                    13,633,604Additional
      paid-in capital-Warrant
                    
                    
                    3,883,432
                    
                    
                    
                    —Retained
      earnings
                    
                    
                    12,801,489
                    
                    
                    
                    15,128,297Total
      Stockholders' Equity
                    
                    
                    32,556,907
                    
                    
                    
                    30,656,987Total
      Equity
                    
                    
                    33,777,817
                    
                    
                    
                    31,877,897





CONSOLIDATED
BALANCE SHEET




December 31, 2008AsPreviously
                      Reported
                    
                    
                    AsRestatedDerivative
      liabilities – Fair value of warrants
                    
                    
                    —
                    
                    
                    
                    2,107,931Total
      current liabilities
                    
                    
                    3,661,563
                    
                    
                    
                    5,769,493Additional
      paid-in capital- Common stock
                    
                    
                    13,976,900
                    
                    
                    
                    13,633,604Additional
      paid-in capital- Warrants
                    
                    
                    3,883,432
                    
                    
                    
                    —Retained
      earnings
                    
                    
                    9,984,085
                    
                    
                    
                    12,102,882Total
      Stockholders' Equity
                    
                    
                    29,410,189
                    
                    
                    
                    27,300,603Total
      Equity
                    
                    
                    30,612,577
                    
                    
                    
                    28,504,647


5





CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME




Three months ended
                                    March 31, 2009As Previously
                                    Reported
                                  
                                  
                                  As
                                    RestatedChange
      in fair value of derivative liabilities
                                  
                                  
                                  —
                                  
                                  
                                  
                                  (208,011
                                  )TOTAL
      OTHER EXPENSES (INCOME)
                                  
                                  
                                  6,399
                                  
                                  
                                  
                                  (201,612
                                  )INCOME
      BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING
    INTEREST
                                  
                                  
                                  3,272,742
                                  
                                  
                                  
                                  3,480,753NET
      INCOME
                                  
                                  
                                  3,117,295
                                  
                                  
                                  
                                  3,325,306NET
      INCOME ATTRIBUTABLE TO YONGYE BIOTECHNOLOGY INTERNATIONAL,
      INC.
                                  
                                  
                                  3,098,773
                                  
                                  
                                  
                                  3,306,784COMPREHENSIVE
      INCOME
                                  
                                  
                                  3,146,718
                                  
                                  
                                  
                                  3,354,729Net
      income per share-Basic and diluted
                                  
                                  
                                  0.14
                                  
                                  
                                  
                                  0.12Weighted
      average shares used in computation- basic and diluted
                                  
                                  
                                  22,760,258
                                  
                                  
                                  
                                  26,760,258




CONSOLIDATED
STATEMENTS OF CASH FLOWS




Three months ended
                        March 31, 2009As Previously
                        Reported
                      
                      
                      As
                        RestatedNET
      INCOME
                      
                      
                      3,098,773
                      
                      
                      
                      3,306,784Change
      in fair value of derivative liabilities
                      
                      
                      —
                      
                      
                      
                      (208,011
                      )


6




NOTE 2
-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




PRINCIPLES
OF CONSOLIDATION AND BASIS OF PRESENTATION




The
accompanying consolidated financial statements of the Company have been prepared
in accordance with generally accepted accounting principles in the United States
of America (“GAAP”) and include the financial statements of the Company and its
majority-owned subsidiaries. All significant intercompany transactions and
balances are eliminated on consolidation.




The
accompanying unaudited consolidated financial statements as of March 31, 2009
and for the three months ended March 31, 2009 and 2008 have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 8-03 of Regulation
S-X applicable to smaller reporting companies. In the opinion of management,
these unaudited consolidated interim financial statements include all
adjustments considered necessary to ensure the financial statements are not
misleading. The results of operations for the three months ended March 31, 2009
are not necessarily indicative of the results for the full fiscal year ending
December 31, 2009. The unaudited consolidated interim financial statements
should be read in conjunction with the Company's audited and consolidated
financial statements and notes thereto for the year ended December 31, 2008 that
are included in the Company’s 2008 annual report on 10-K/A filed with the
Securities and Exchange Commission on October 19, 2009.




USE OF
ESTIMATES




The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, expenses, and related disclosures at the date of the
financial statements and during the reporting period. Actual results could
differ from those estimates.




CASH AND
CASH EQUIVALENTS




In
accordance with Statement of Financial Accounting Standards ("SFAS") No. 95,
“Statement of Cash Flows,” the Company and the Predecessor considers all highly
liquid instruments with original maturities of three months or less to be cash
and cash equivalents.




ACCOUNTS
RECEIVABLE AND BAD DEBT ALLOWANCE




The
Company performs certain credit evaluation procedures and does not require
collateral for financial instruments subject to credit risk. The Company
believes that credit risk is limited because the Company routinely assesses the
financial strength of its customers and, based upon factors surrounding the
credit risk of its customers, establishes an allowance for uncollectible
accounts receivable. As a consequence, the Company believes that its accounts
receivable credit risk exposure beyond such allowances is limited. The Company
recognizes an allowance for doubtful accounts to ensure accounts receivable are
not overstated due to uncollectability and are maintained for all customers
based on a variety of factors, including the length of time the receivables are
past due, significant one-time events and historical experience. Based on the
age of the receivables, the Company reserves 10% of accounts receivable balances
that have been outstanding for more than 6 months but less than one year, 20% of
accounts receivable balances that have been outstanding between one year and two
years, 50% of receivable balances that have been outstanding between two year
and three years, and 100% of receivable balances that have been outstanding for
more than three years. An additional reserve for individual accounts is recorded
when the Company becomes aware of a customer’s inability to meet its financial
obligation, such as in the case of bankruptcy filings or deterioration in the
customer’s operating results or financial position. If circumstances related to
customers change, estimates of the recoverability of receivables would be
further adjusted.




The
payment term offered to our major customers is typically 90 days, while we ask
our other customers to pay either up front or upon receipt. We based the CJV’s
Accounts Receivable and Bad Debt Reserve policy on the historical experience of
the Predecessor company’s sale and collection rates for the same
products.




INVENTORY




Inventory
is stated at the lower of weighted average cost, which takes into account
historical prices on a continuing basis, or market. Cost is determined by the
weighted average method. Provision for diminution in value on inventories is
made using the specific identification method.




PROPERTY
AND EQUIPMENT




Property
and equipment other than leasehold improvements are stated at cost and
depreciated using the straight-line method over the estimated useful lives of
the assets. Leasehold improvements are stated at cost and depreciated using the
straight-line method over the estimated useful life or lease period, whichever
is shorter. Estimated useful lives are as follows:


7





Estimated Useful Life




Buildings
      and structures
                          30
      yearsOffice
      equipment and furniture
                          5
      yearsMachinery
      and equipment
                          10
      yearsVehicles
                          10
      yearsSoftware
                          10
      yearsLeasehold
      improvements
                          3
      years




REVENUE
RECOGNITION




Our
distributors are classified as our customers. Revenue from product sales is
recognized when title has been transferred, which is generally at the time of
customer’s receipt of product, the risks and rewards of ownership have been
transferred to the customer, the fee is fixed and determinable, and the
collection of the related receivable is probable. The Company reports revenue
net of value added taxes if applicable.




If the
product has expired or the package is broken at the time of receipt, the
distributor has the right to exchange it for a new product with intact package;
and distributors do not have the right to return unused, intact product to us
after it has been delivered.




ADVERTISING
COSTS




Advertising
costs are expensed as incurred. Advertising costs for the three months ended
March 31, 2009 and 2008 were $1,902,351 and $ 1,560,835,
respectively.




RESEARCH
AND DEVELOPMENT COSTS




Research
and development costs are expensed as incurred. Research and development costs
for the three months ended March 31, 2009 and 2008 were $288,572 and $0,
respectively.




IMPAIRMENT
OF LONG-LIVED ASSETS




The
Company follows SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. Per SFAS 144, the
Company is required to periodically evaluate the carrying value of
long-lived assets and to record an impairment loss when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the asset’s carrying amounts.




In that
event, a loss is recognized based on the amount by which the carrying amount
exceeds the fair market value of the long-lived assets. Loss on long-lived
assets to be disposed of is determined in a similar manner, except that fair
market values are reduced for the cost of disposal. Based on its review, the
Company concluded that as of March 31, 2009 and December 31, 2008 there were no
significant impairments of their long-lived assets.




INCOME
TAXES




Deferred
income taxes are computed using the asset and liability method, such that
deferred tax assets and liabilities are recognized for the expected future tax
consequences of temporary differences between financial reporting amounts and
the tax bases of existing assets and liabilities based on currently enacted tax
laws and tax rates in effect in the PRC for the periods in which the differences
are expected to reverse. Income tax expense is the tax payable for the period
plus the change during the period in deferred income taxes.




A
valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. No material
differences were noted between the book and tax bases of the Company assets and
liabilities, respectively, therefore, there are no deferred tax assets or
liabilities as of March 31, 2009 and December 31, 2008. Yongye Nongfeng is
subject to PRC Enterprise Income Tax at a rate of 25% of net income from its
foundation on January 4, 2008 to March 31, 2008, and 1.25% of gross revenue
since April 1, 2008.


8






FOREIGN CURRENCY TRANSLATION AND
TRANSACTIONS




The financial position and results of
operations of the Company’s Chinese subsidiaries are determined
using the local currency (Chinese Yuan) as the functional currency, while
the reporting currency is the US dollar. Assets and liabilities of the
subsidiaries are translated at the prevailing exchange rate in effect at each
period end. Contributed capital accounts are translated using the historical rate of exchange when capital is
injected. Income statement accounts are translated at the average rate of
exchange during the period. Translation adjustments arising from the use of
different exchange rates from period to period are included in the cumulative translation adjustment
account in shareholders’equity. Gains and losses resulting from
foreign currency transactions denominated in other than the functional currency
are included in operations as incurred. Such gains and losses were
immaterial for the three months ended March 31,
2009 and 2008.




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




FAIR VALUE OF FINANCIAL
INSTRUMENTS




The carrying amounts of cash and cash
equivalents, trade, related party and other receivables, accounts and other
payables approximate their
fair value due to the short-term nature of these
instruments.




NET INCOME PER SHARE




Basic net income per share is computed
by dividing net income attributable to common shareholders by the weighted
average number of common shares outstanding during the period.Diluted net income per share reflects
the potential dilution that would occur upon the exercise of outstanding
warrants at March 31, 2009. The warrants are anti-dilutive for the three months
ended March 31, 2009 but they andother potential common share equivalents
may be dilutive in the future.




RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS




In September 2006, the Financial
Accounting Standards Board (“FASB”) issued Statement No. 157,
“Fair Value
Measurement”(FAS 157).
While this statement does
not require new fair value measurements, it provides guidance on applying fair
value and expands required disclosures. FAS157 is effective for the Company
beginning in fiscal 2008, for fair value measurements of financial assets and
financial liabilities and for fair value
measurements of nonfinancial items that are recognized or disclosed at fair
value in the financial statements on a recurring basis, and is effective
beginning in fiscal 2009, for fair value measurements of nonfinancial
assets and nonfinancial liabilities that
are recognized or disclosed at fair value in the financial statements on a
nonrecurring basis. The impact of the adoption of FAS 157 on the
Company’s financial statement is included in
Note8to consolidated financialstatements.




In February 2007, the FASB issued
Statement No.159,
“The Fair Value Option for
Financial Assets and Financial Liabilities”(FAS 159). The statement, which is expected to expand fair value
measurement, permits entities to choose to measure many financial instruments
and certain others items at fair value. FAS 159 is effective for the Company beginning
in this first quarter of 2009. This pronouncement does not have a material
impact on the Company’s financial statements.




In March 2008, the FASB issued SFAS
No.161, “Disclosures about Derivative
Instruments and Hedging
Activities—an amendment of FASB Statement
No.133”(“SFAS No.161”), which required enhanced disclosures
about an entity’s derivative and hedging activities and
was intended to improve the transparency of financial reporting.  SFAS
No.161 applies to all
derivative instruments, including bifurcated derivative instruments and related
hedging items accounted for under SFAS No. 133 and its related
interpretations.  SFAS No. 161 amends and expands the disclosure
requirements of SFAS No. 133with the intent to provide users of
financial statements with an enhanced understanding of:  (i) how and
why an entity uses derivative instruments; (ii) how derivative instruments
and related hedged items are accounted for under SFAS No. 133 and its
related interpretations; and (iii) how
derivative instruments and related hedged items affect an entity’s financial position, financial
performance and cash flows.  The provisions of this standard do not require
disclosures for earlier periods presented for comparative purposes at initial
adoption.  SFAS No. 161 was effective for fiscal years and interim
periods beginning after November 15, 2008.  The Company adopted this
new standard effective January 1, 2009.  The required disclosures are
included in note8toconsolidated financial
statements.




NOTE 3-ACCOUNTS
RECEIVABLE




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





March 31, 2009
                  
                  
                  December 31, 2008Account
      receivable
                  
                  $
                  6,360,356
                  
                  
                  $
                  3,053,380Less:
      allowance for doubtful accounts
                  
                  
                  (232,010
                  )
                  
                  
                  (305,338
                  )Total
                  
                  $
                  6,128,346
                  
                  
                  $
                  2,748,042




9





Three months ended March 31,
      2009Balance at beginning of
                                              period
                                            
                                            
                                            Additions
                                            
                                            
                                            Reversal
                                            
                                            
                                            Balance at end
                                              of
      periodAllowance
      for doubtful accounts
                                            
                                            
                                            305,338
                                            
                                            
                                            
                                            —
                                            
                                            
                                            $
                                            (73,328
                                            )
                                            
                                            $
                                            232,010




Of the accounts receivable at March 31,
2009, $2,191,189 was paid by a customer on March 30, 2009, but due to the
transfer process between its bank and ours, the Company was credited for theamount on April 1,
2009.




A bad debt provision of $73,701 was
reversed for the three months ended March 31, 2009.




NOTE 4-INVENTORIES




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





March 31, 2009
                  
                  
                  December 31, 2008Finished
    goods
                  
                  
                  22,152,212
                  
                  
                  
                  20,664,930Consumables
                  
                  
                  49,038
                  
                  
                  
                  43,263Total
                  
                  $
                  22,201,250
                  
                  
                  $
                  20,708,193




NOTE 5-PROPERTY AND
EQUIPMENT




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





March 31, 2009
                  
                  
                  December 31, 2008Buildings
      and structures
                  
                  $
                  3,661,586
                  
                  
                  $
                  3,656,992Machinery
      and equipment
                  
                  
                  1,481,827
                  
                  
                  
                  673,480Office
      equipment and furniture
                  
                  
                  202,272
                  
                  
                  
                  85,087Vehicles
                  
                  
                  1,347,461
                  
                  
                  
                  824,013Software
                  
                  
                  17,178
                  
                  
                  
                  17,156Leasehold
      improvements
                  
                  
                  219,119
                  
                  
                  
                  218,8446,929,443
                  
                  
                  
                  5,475,572Less:
      Accumulated depreciation
                  
                  
                  212,230
                  
                  
                  
                  107,498Total
                  
                  $
                  6,717,213
                  
                  
                  $
                  5,368,074




Depreciation expense for the three
months ended March 31, 2009 and 2008 was $104,582 and $42,784, respectively.




Among the vehicles, 14 cars in the
initial amount of $865,514 were pledged for the initial long-term banks loans of
$528,661 which were received for purchasing those cars (see Note
7).




NOTE 6- INTANGIBLE
ASSETS




Net intangible assets at March 31, 2009 and December 31, 2008
were as follows:





March 31, 2009
                  
                  
                  December 31, 2008Patent
                  
                  $
                  106,192
                  
                  
                  $
                  106,059Less: accumulated
      amortization
                  
                  
                  13,274
                  
                  
                  
                  10,606Total
                  
                  $
                  92,918
                  
                  
                  $
                  95,453




Product patent was acquiredby the Company in March 2008 with an
estimated useful life of 10 years. It is amortized using the straight-line
method over its useful life commencing on April 1, 2008. Amortization expense
for the three months ended March 31, 2009 and 2008 amounted to $2,654 and $0, respectively. The estimated
aggregate amortization expense for each of the five succeeding fiscal years is
$10,606.


10




NOTE 7 - LONG-TERM
LOANS




From August 2008 to March 2009, the
Company financed the purchase of 14 cars with initial bankloans of $528,661. The Company pledged
those 14 cars with an initial value of $865,541 to the loans. The loans all have
3-year terms and are paid in monthly installments. Interest on the loans ranges
from 5.45% to 14.80% annually. These loans were
obtained by individuals who
are employees of the Company on behalf of the Company. The Company and the
individuals entered into agreements of trust whereby the Company is entitled to
the cars and is responsible for payments on the loans. Under the loan
agreements, the Company must make specified
payments monthly. The aggregate amount of such required payments at March 31,
2009 is as follows:




2009
                  
                  $
                  152,8562010
                  
                  
                  203,8072011
                  
                  
                  157,2612012
                  
                  
                  5,991Total
                  
                  
                  519,915Less: Amount representing
      interest
                  
                  
                  (61,969
                  )Total at present
      value
                  
                  $
                  457,946





For the period ended, March 31, 2009,
the current portion of long-term loans was $166,448 which is scheduled to be
repaid on or before March 31, 2010, while the long-term portion is $291,498. The
Company's total payments
under the agreements were $44,955, which included interest expense of $9,833,
during the three months ended March 31, 2009.




NOTE 8 -
CAPITAL STOCK




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





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





Warrants





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





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





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





In
accordance with the warrant agreements, if the Company, at any time the warrants
are outstanding, issues any common stock or common stock equivalents, as
defined, at an effective price less than the then warrant exercise price, the
exercise price of the warrants will be reduced to the effective price of the
newly issued common stock or common stock equivalents.




At March
31, 2009, there are 3,142,158 warrants outstanding with a weighted average
exercise price of $1.848.  Of this total, 1,623,905 expire in April
2013, and 1,518,253 expire in September 2013.





As of
March 31, 2009 the fair value of all of our outstanding derivative
liability warrants was $1,899,920. The change in their fair values during the
three months ended March 31, 2009 of $208,011 in fair value is reported as a
non-cash gain in our consolidated statement of income and comprehensive
income.





In
January 2008, the Company adopted SFAS No. 157 “Fair Value Measurements” (“SFAS
No. 157”). SFAS No. 157 states that a fair value measurement should be based on
the assumptions that market participants would use in pricing the asset or
liability and establishes a fair value hierarchy that ranks the inputs used to
measure fair value by their reliability. The three levels of the fair value
hierarchy defined by SFAS No. 157 are as follows:





Level 1—quoted prices
(unadjusted) in active markets for identical assets or liabilities that a
company has the ability to access at the measurement date.


Level 2—inputs other than
quoted prices included within Level 1 that are observable for similar assets or
liabilities, either directly or indirectly.


11





Level 3—unobservable inputs
for the asset or liability. Unobservable inputs are used to measure fair value
to the extent that observable inputs are not available, thereby allowing for
situations in which there is little, if any, market activity for the asset or
liability at the measurement date.





The
estimated fair values of the Company’s Investor Warrants and Roth Warrants were
determined at March 31, 2009 and December 31, 2008 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 accounted for at fair value as of
March 31, 2009 and December 31, 2008.




Fair Value
      Measurements Using:Quoted Prices in
                                                Active Markets for
                                                Identical
      Financial
                                              
                                              
                                              Significant Other
                                              
                                              
                                              SignificantTotal
                                              
                                              
                                              Assets and Liabilities
                                              
                                              
                                              Observable Inputs
                                              
                                              
                                              Unobservable InputsMarch31,
      2009
                                              
                                              
                                              
                                              
                                              Level
      1
                                              
                                              
                                              Level
      2
                                              
                                              
                                              Level
      3Liabilities at
      fair value:Derivative
      liabilities—warrants
                                              
                                              
                                              1,899,920
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              1,899,920
                                              
                                              
                                              
                                              —Net
      Liabilities
                                              
                                              $
                                              1,899,920
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              1,899,920
                                              
                                              
                                              $
                                              —


Fair Value
      Measurements Using:Quoted Prices in
                                    Active Markets for
                                    Identical
      Financial
                                  
                                  
                                  Significant Other
                                  
                                  
                                  SignificantTotal
                                  
                                  
                                  Assets and Liabilities
                                  
                                  
                                  Observable Inputs
                                  
                                  
                                  Unobservable InputsDecember31, 2008
                                  
                                  
                                  
                                  
                                  Level
      1
                                  
                                  
                                  Level
      2
                                  
                                  
                                  Level
      3Liabilities at
      fair value:Derivative
      liabilities—warrants
                                  
                                  
                                  2,107,931
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  2,107,931
                                  
                                  
                                  
                                  —Net
      Liabilities
                                  
                                  $
                                  2,107,931
                                  
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  2,107,931
                                  
                                  
                                  $
                                  —




The fair
values of the warrants granted are as follows:


Fair
      value of Warrant per share (USD) at:
                  
                  2008
                    April
      Warrants
                  
                  
                  2008
                    September
      WarrantsApril
      17, 2008
                  
                  $
                  1.07
                  
                  
                  $
                  N/ASeptember
      5, 2008
                  
                  
                  N/A
                  
                  
                  
                  2.08December
      31, 2008
                  
                  
                  0.66
                  
                  
                  
                  0.68March
      31, 2009
                  
                  $
                  0.59
                  
                  
                  $
                  0.62





The fair
values of the warrants as of March 31, 2009 were determined based on the
Binominal option pricing model, using the following assumptions:





April Offering
                  
                  
                  September
                    OfferingExpected
      volatility
                  
                  
                  62.0
                  %
                  
                  
                  61.0
                  %Expected
      dividends yield
                  
                  
                  0
                  %
                  
                  
                  0
                  %Expected
      time to maturity
                  
                  4.05
      years
                  
                  
                  4.44
      yearsRisk-free
      interest rate per annum
                  
                  
                  1.474
                  %
                  
                  
                  1.474
                  %Fair
      value of underlying Common Shares (per share)
                  
                  
                  1.50
                  
                  
                  
                  1.50Exercise
      multiple
                  
                  
                  2.4
                  
                  
                  
                  2.4


12


Escrow
shares





In connection with the April Offering,
we also entered into an escrow agreement with Roth as a representative of the
Investors, Tri-State Title & Escrow LLC (the “Escrow Agent”) and Full Alliance International
Limited (The “Full Alliance”), one of the Shareholders (the
“April Escrow
Agreement”), pursuant to which 2,000,000 of the
Shares (the “April Escrow
Shares”) were delivered to the Escrow Agent.
The Escrow Shares are being held as security for the achievement of $10,263,919 after tax net income
(“ATNI”) for the year ended December 31, 2008
(the 2008 “Net Income
Threshold”). As shown in the 2008 Form 10-K, the
ATNI threshold has been achieved. The releasing back of Escrow Shares to Full
Alliance was not completed
as of March 31, 2009.





In connection with the September
Offering, we entered into an escrow agreement with Roth, the Escrow Agent and
Full Alliance (the “September Escrow Agreement”), pursuant to which 4,000,000 of the
Shares issued to Full Alliancein the Share Exchange (the
“September Escrow
Shares”) were delivered to the Escrow Agent. Of
the September Escrow Shares, 2,000,000 shares(the “Make Good Escrow Shares”)are being held as security for the
achievement of 2008 and 2009 Make Good ATNI in the following manner. If the Company
achieves (i) the 2008 Net Income Threshold, and (ii) fully
dilutedearnings per
share reported in the 2008 Annual Report on Form 10-K filed with the SEC (the
“2008 Annual
Report”), of no less than
$0.42 (the “2008
Guaranteed EPS”), then the provisions described in the
following paragraph apply with respect to the achievement of 2009 net income and
fully diluted earnings per share targets and the Make Good Escrow Shares will be
retained in escrow for the achievement ofcertain net income and fully diluted
earnings per share targets for the year ending December 31, 2009. If the Company
does not achieve the Make Good ATNI, the Make Good Shares will be released
pro-rata to the September Offering investors. As shown in the2008 Form 10-K, the ATNI and EPS
thresholds have been achieved.





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




The remaining 2,000,000 escrow shares
are being held as security for the timely issuance of Inner Mongolia
Yongye’s fertilizer License into the name of
Yongye Nongfeng Biotechnology Co. and completion of the CJV Restructuring as
defined below (the
“Restructuring Make Good
Shares”). This license is
issued by the Ministry of Agriculture and gives the owner the right to
manufacture and sell fertilizer products domestically. In the event that (1) the
License has not been issued to YongyeNongfeng Biotechnology by June 30, 2009,
or such later date as agreed to by us and the September Investors holding a
majority of the September Investor Shares at such time (the “License Grant Date”), or (2) the License has been issued by
the License GrantDate, but the CJV Restructuring is not
completed by the Restructuring Completion Date, the Restructuring Make Good
Shares shall be transferred in accordance with the September Escrow Agreement to
the September Investors on a pro-rata basis for no consideration other than their respective
investment amounts paid to us at the closing of September Offering. The
“Restructuring Completion
Date”shall be the date
that is 132 calendar days after the License Grant Date. If the License is issued
by the License GrantDate and the CJV Restructuring is
completed by the Restructuring Completion Date, the Restructuring Make Good
Shares shall be returned to Full Alliance.




NOTE 9 - NONCONTROLLING
INTEREST




The Company’s main operating subsidiary was
incorporated on January 4,
2008 under the corporate laws of the PRC by Inner Mongolia Yongye and ASO, a
Hong Kong based company. During the year ended December 31, 2008, the
Predecessor invested $100,000 in Yongye Nongfeng by contributing a patent and
ASO made 4 cash investmentstotaling $ 16,778,741. No additional
investment in CJV was made by Inner Mongolia Yongye or ASO during the three
months ended March 31, 2009.


13




Inner Mongolia Yongye was a 0.5% owner
of Yongye Nongfeng and ASO 99.5% pursuant to a Sino-Foreign Cooperative
Joint Venture Contract (the
“Contract”). However, ASO didn’t fully pay the contractual registered
capital into Yongye Nongfeng. Based upon actual capital injection into the CJV,
Inner Mongolia Yongye is a 0.6% owner of Yongye Nongfeng Biotechnology and
ASOis a 99.4% owner. For the three months
ended March 31, 2009, net income attributable to noncontrolling interest was
$18,522.




NOTE 10 - STATUTORY COMMON WELFARE
FUND




As stipulated by the PRC, net income
after taxation can only be distributed as dividendsafter appropriation has been made for
the following:




(i)
            Making up
      cumulative prior years’losses, if
      any;


(ii)
            Allocations to
      the “Statutory surplus
      reserve”of at least
      10% of income after tax, as determined under PRC accounting rules and
      regulations, until
      the


fund amounts to
      50% of the Company’s registered
      capital;


(iii)
            Allocation of
      5-10% of income after tax, as determined under PRC accounting rules and
      regulations, to the Company’s “Statutory common
      welfare


fund”, which is
      established for thepurpose of
      providing employee facilities and other collective benefits to the
      Company’s employees.
      Chinese


companies
      invested in by companies registered outside mainland China, including
      joint ventures, are exempted from contributing to this
      fund;


(iv)
            Allocations
      to the discretionary surplus reserve, if approved in the
      shareholders’annual
      general meeting.




The Company’s subsidiary, Yongye Nongfeng, provided
$281,369 to the statutory surplus reserve for the three months ended March 31,
2009. Yongye Nongfeng did
not provide a reserve for the welfare fund for the three months ended March 31,
2008.




NOTE 11 EMPLOYEE BENEFIT
PLANS




The employees of the Company who are
domiciled in the PRC receive coverage under a comprehensive benefit plan as
required by the local
social security governing bureau. The calculation for
contribution by eligible employees is based on 20% of the base salary. The
contribution paid by the Company and Yongye Nonfeng on behalf of their
employees for this defined benefit plan was$12,205 and $5,366 for the three months
ended March 31, 2009 and 2008, respectively.




In addition, the Company is required to
contribute a portion of the employees’base salary for those employees
domiciled in Beijing in the following manner - approximately 10% for medical benefits, 1.5% for
unemployment benefits and 1.3% for workers compensation. Contributions for the
employees located in Inner Mongolia for these benefits are not required for the
three months ended March 31, 2009 and 2008. The PRC government is directly responsible for the
payments of the benefits to these employees. The amounts contributed by the
Company and Yongye Nonfeng were $5,870 and $2,802 for the three months ended
March 31, 2009 and 2008, respectively.




NOTE 12 - INCOME
TAXES




A reconciliation between taxes computed at
the United States statutory rate of 34% and the Company’s and Yongye Nongfeng’s effective tax rates is as
follows:


Yongye
                            
                            YongyeInternational, Inc. and
      Subsidiaries
                            
                            NongfengThree months ended March 31, 2009
                            
                            Three months ended March 31, 2008Income
      before income taxes
                            $
                            
                            3,480,753
                            
                            $
                            
                            1,493,708Income
      tax on pretax income at statutory rate
                            
                            
                            1,183,456
                            
                            
                            
                            507,861Effect
      of different tax rates of subsidiary operating in other
      jurisdictions
                            
                            
                            (1,028,009
                            )
                            
                            
                            (134,434
                            )Income
      tax at effective rate
                            $
                            
                            155,447
                            
                            $
                            
                            373,427


14




NOTE 13 - LEASE
COMMITMENTS




The Company entered into a building
lease to secure the Beijing office. The lease for the Beijing office spans from
January 1, 2008 to December 31, 2010. Thelease expense for the Beijing office
was $62,262 and $55,338 for the three months ended March 31, 2009 and 2008,
respectively. Future minimum lease payments under non-cancellable operating
lease agreements at March 31, 2009 are as follows:





December
      31, 2009
                  
                  $
                  176,147December
      31, 2010
                  
                  
                  231,484Total
                  
                  $
                  407,631




NOTE 14 - RELATED PARTY TRANSACTIONS AND
BALANCES




As of March 31, 2009, the Predecessor is
a 0.6% shareholder of the Company’s main operating subsidiary, Yongye
Nongfeng, and is Yongye Nongfeng’s only vendor, providing $7,363,768
(100%) and $8,946,780 (100%) of the Company’s purchased finished goods for the three
months ended March 31, 2009 and 2008, respectively. According to the contract,
the Predecessor sells to Yongye Nongfeng at fixed prices of RMB 350 per case for plant
products and RMB 120 per case for animal products.




As of March 31, 2009 and December 31,
2008, due to the contract manufacturer (Predecessor Company) was $90,169 and
$46,739, respectively, and represented the payable generated in purchasing inventory. Due from
related party was $274,758 which represented the payment the Company made for
the Predecessor for its professional fees and research and development fee of
$192,983. It also included $81,775 paid for individual income tax for employees which was
subsequently collected through salary deductions. As of December 31, 2008, due
from related party is $192,741 and represents the payment the Company made for
the Predecessor for its professional fees and research and development fee. The amounts are unsecured and
non-interest bearing, and have no defined payment terms.




Yongye Nongfeng and the Predecessor
entered a lease-exchange arrangement to lease land, buildings and equipment to
each other. On June 1, 2008, a land lease agreement was entered into in which Yongye
Nongfeng would lease land of 74,153 square meters from the Predecessor from June
1, 2008 to May 31, 2009. On September 28, 2008, a building lease agreement and
an equipment lease agreement were entered into in whichthe Predecessor would lease a building
of 3,967 square meters and a set of equipment from Yongye Nongfeng from
September 28, 2008 to September 27, 2009. The estimated value of rentals of land
lease and the combination of building and equipment lease arenot materially different. Therefore,
pursuant to the agreements, both Yongye Nongfeng and the Predecessor would not
charge any rental to each other for the lease. Additionally, the rental income
to be received by the Company and the rental expense to be paid are not material to the
Company’s 2009 and 2008 results of operations
and therefore have not been included.




In March 2009, Yongye Nongfeng purchased
a set of machinery and equipment, vehicles and office equipment in the amount of
$940,531 from Inner Mongolia Yongye (See Note 5 for details of
property and equipment).




NOTE 15-NET INCOME PER
SHARE




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




Yongye
      International, Inc.and
      Subsidiaries(f/k/a Yongye Biotechnology
                        International, Inc.)
                      
                      
                      Yongye
                        NongfengThree months ended
                      
                      
                      Three months endedMarch 31, 2009
                      
                      
                      March 31, 2008(Restated - Note 1(C))Numerator
      used in basic net income per share:Net
      income
                      
                      $
                      3,306,784
                      
                      
                      $
                      1,120,281Shares
      (denominator):Weighted
      average ordinary shares outstanding
                      
                      
                      26,760,258
                      
                      
                      
                      11,444,755Plus:
      weighted average incremental shares from assumed exercise of
      warrants
                      
                      
                      —
                      
                      
                      
                      —Weighted
      average ordinary shares outstanding used in computing diluted
       net income per ordinary share
                      
                      
                      26,760,258
                      
                      
                      
                      11,444,755Net
      income per ordinary share-basic
                      
                      $
                      0.12
                      
                      
                      $
                      0.10Net
      income per ordinary share-diluted
                      
                      $
                      0.12
                      
                      
                      $
                      0.10


15




NOTE 16 -CONCENTRATIONS AND CREDIT
RISKS




At March 31, 2009 and December 31, 2008, the Company had a credit
risk exposure of uninsured cash in banks of approximately $1,424,268 and
$4,477,477, respectively. The Company does not require collateral or other
securities to support financial instruments that are subject to
creditrisk.




Five major customers accounted for 90%
and one major customer accounted for 39% of the Company’s net revenue for the three months ended
March 31, 2009. Five major customers accounted for 99% and one major customer
accounted for 55% of Yongye Nongfeng’s net revenue for the three months ended
March 31, 2008. The Company and Yongye Nongfeng’s total sales to five major customers
were $11,179,457 and $9,431,953 for the three months ended March 31, 2009 and
2008, respectively.




Yongye International, Inc.and
      Subsidiaries
                  
                  
                  Yongye(f/k/a Yongye Biotechnology
      International, Inc.)
                  
                  
                  NongfengThree months ended March 31,
      2009
                  
                  
                  Three months ended March 31,
      2008Largest
      Customers
                  
                  Amount of
    Sales
                  
                  
                  %Total
Sales
                  
                  
                  Largest
      Customers
                  
                  Amount of
    Sales
                  
                  
                  %Total SalesCustomer A
                  
                  $
                  4,852,042
                  
                  
                  
                  39
                  %
                  
                  Customer A
                  
                  $
                  5,194,640
                  
                  
                  
                  55
                  %Customer B
                  
                  $
                  2,220,083
                  
                  
                  
                  18
                  %
                  
                  Customer E
                  
                  $
                  2,720,548
                  
                  
                  
                  29
                  %Customer C
                  
                  $
                  1,739,657
                  
                  
                  
                  14
                  %
                  
                  Customer C
                  
                  $
                  1,007,885
                  
                  
                  
                  10
                  %Customer D
                  
                  $
                  1,290,789
                  
                  
                  
                  10
                  %
                  
                  Customer F
                  
                  $
                  379,941
                  
                  
                  
                  4
                  %Customer E
                  
                  $
                  1,076,886
                  
                  
                  
                  9
                  %
                  
                  Customer D
                  
                  $
                  128,939
                  
                  
                  
                  1
                  %Total
                  
                  $
                  11,179,457
                  
                  
                  
                  90
                  %
                  
                  Total
                  
                  $
                  9,431,953
                  
                  
                  
                  99
                  %




The Predecessor is the
Company’s only vender who provided 100% of the
Company purchased finished goods for the three months ended March 31, 2009 and
2008 in the amount of $7,363,768 and $8,946,780,
respectively.




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




The Company’s operations are carried out in the PRC.
Accordingly, the Company and the Predecessor’s business, financial condition and
results of operations may be influenced bythe political, economic and legal
environments in the PRC as well as by the general state of the PRC’s economy. The business may be
influenced by changes in governmental policies with respect to laws and
regulations, anti-inflationary measures, currency conversion and remittance abroad, and
rates and methods of taxation, among other things.




NOTE 17 -
RECLASSIFICATIONS




Certain reclassifications have been made
to the December 31, 2008 balances in order to conform to the current
period’s presentation.


16




Item
2. Management’s
Discussion and Analysis of Operations and Financial
Conditions.




The following discussion of the
financial condition and results of operations should be read in conjunction with
the consolidated financial statements and related notes thereto. The following discussion
contains forward-looking statements. Yongye International, Inc. (f/k/a Yongye
Biotechnology International, Inc.) is referred to herein as “we”or “our.”The words or phrases “would be,”“will allow,”“expect to”, “intends to,”“will likely result,”“are expected to,”“will continue,”“is anticipated,”“estimate,”or similar expressions are intended to
identify forward-looking statements. Such statements include those concerning
our expected financial performance, our corporate strategy and operational plans.
Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of risks and uncertainties,
including: (a) those risks and uncertainties related to general
economicconditions 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 sustainand 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.




Restatement
of Financial Statements




Due to
the complexities of placing the April 2008 Escrow Shares and September 2008
Escrow Shares into escrow and subsequently accounting for the performance
measures and potential transfer of such shares, the Company believed and
accounted for such shares as contingently issuable shares for purposes of
calculating earnings per share and excluded such outstanding escrowed shares
from the calculation of the weighted average number of common shares
outstanding.  However, after further examination, it was determined
that since the April 2008 Escrow Shares and September 2008 Escrow Shares are
neither contingently cancellable nor contingently returnable to the Company, the
shares should have been included in the denominator in computing the Company’s
basic and diluted net income per share. The correcting adjustments had no impact
on the Company’s previously issued consolidated balance sheet as of March 31,
2008 and consolidated statement of cash flows for the three months then
ended.




Subsequent
to the preparation of the Company’s interim consolidated financial statements as
of and for the three
months ended March 31, 2009, management
identified an error in the Company’s basic and diluted net income per share
presented in its previously issued consolidated financial statements.
The Company has incorrectly accounted for the April Escrow Shares and September
Escrow Shares (See Financial Statements Note 8) as contingently issuable shares
for purposes of calculating earnings per share and excluded such outstanding
shares that were placed in escrow from the calculation of the weighted average
number of common shares outstanding. It was determined that since April Escrow
Shares and September Escrow Shares are neither contingently cancellable nor
contingently returnable to the Company, the shares should have been included in
the denominator in computing the Company’s basic and diluted net income per
share.




In
connection with the April Offering and September Offering in 2008, the Company
issued the “April Warrants” and “September Warrants” to certain investors
and Roth Capital Partners, LLC (“Roth”) (See Financial Statements Note
8). 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 accordance with EITF No. 00-19 , such potential cash
payments that are not within the Company’s control would preclude equity
classification and therefore the warrants should have been classified as a
liability and adjusted to fair value through earnings at each reporting dates
starting from the issuance date.  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.  Upon the adoption of EITF Issue No. 07-5, effective January
1, 2009, these warrants are no longer considered to be indexed to the Company’s
own stock and should be classified as a liability.




As of
December 31, 2008, a liability of $2,107,931 representing the fair value of the
April Warrants and the September Warrants should have been recorded and the
retained earnings should have been increased by $2,118,797 representing the net
decrease in fair value of these warrants through December 31, 2008 from their
respective dates of issuance. For the three months ended March 31, 2009, the
aggregate fair value of the April Warrants and September Warrants decreased by
$108,862 and $99,149, respectively. These fair value adjustments should have
been recorded through earnings for the respective periods. Refer to Note 1(C) to
the accompanying consolidated financial statements for details.




Company
Overview




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




We are
headquartered in Beijing, China and Inner Mongolia Yongye’s manufacturing plant
is located in the Inner Mongolia province of China. Currently, we sell two lines
of product based on our fulvic acid base: plant nutrition liquid compound and
animal nutrition food additive. Our products start with our fulvic Acid base
then, in addition, we add other natural substances to customize the base for use
in our plant or animal lines of products. Our plant products are intended to add
naturally occurring macro and micro nutrients such as nitrogen, phosphorus,
potassium, boron and zinc. Our animal products add natural herbs which we
believe may help to reduce bacterial inflammation (mastitis) in cows. It also
assists many animals to digest food more completely and thus we believe that our
animal products may help animals who use them to be healthier.




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


17


Currently, crop production in China is
limited to only 155 million hectares of arable farm land which is about 10% of
all of China’s land source. The high population density in China requires
that each hectare of land feed an average of 10 people versus the 4.4 world
average, which means farm land is being used at close to capacity levels just
for domestic production levels. Exports push this to maximumcapacity levels so further growth in
farming capacity must come from new input technologies.




Also, with the growth of the economy has
come consumers’demand for a wider choice of food
options and one key area of growth is the demand for dairy products.
TheChinese Government has
now attached great importance to the development of this industry and it is now
growing after being dormant for many years. However, average yield per cow is
only about 2,000kg, indicating relatively low productivity. One major
reason for this low production is Mastitis,
which is an inflammation of the teats which slows down milk production. This is
an industry wide problem where 35-40 cows out of 100 have some form of Mastitis
and it is typically treated with antibiotics.




With thisas a backdrop, we began selling our
plant and animal nutrient products into the agriculture industry to help farmers
increase their farming outputs. In crop production, our product assists farmers
in generating higher yields from their crops and our firstline of animal product for dairy cows
assists with the reduction of Mastitis to increase milk
production.




Recent
Developments




We have recently begun working with
distributors in five new provinces, Yunnan, Hainan, Liaoning, Jilin and
Heilongjiang, and these
distributors are beginning to put our products into a trials
process in each province. While we do not expect these provinces to generate a
significant portion of our revenue for 2009, our plan is for them to begin to generate
revenue in the same manner as our other provinces: strong
growth after several growing seasons due to a successful trials process carried out by our distributors.
Two of these provinces are in regions with less seasonality impacts on farming
and this would help mitigate someor the seasonality on sales which we experience
annually. Additionally, we began packaging our animal product into larger
containers for bulk sales into farming areas.




Overview
of First Quarter




Demand
for our products




One
major tenet of the PRC government’s 11th Five-Year National Economic and Social
Plan (the “NESDP”) (2006-2010) is the focus towards developing China’s western
region.  This is one of the top-five economic priorities of the
nation. The goal is to increase rural income growth which will in turn increase
demand for more food and agriculture products. Currently, a large majority of
our products are sold in this western region and we hope that   this
government focus will increase our opportunity to sell more plant and animal
nutrients to farmers who have to keep up with the demand for higher quantity and
higher quality of products.




According
to World Bank statistics, well over 45% of the nation’s total workforce at the
end of 2008 was comprised of low-income, rural farmers. According to the NESDP
(2006-2010), raising the level of rural income is a top economic and social goal
for the country. Many government initiatives, including removal of certain
agricultural and local product taxes, have been implemented to spur rural income
development. The government expects annual rural income to grow between 5% and
10% through 2010 (according to a study issued by the Chinese Academy of
Sciences, in April 2009). Additionally, according to the National Population and
Family Planning Commission, China’s population will reach 1.5 billion by 2030.
Therefore, the country has the challenge of producing approximately 100 million
more tons of crops needed to feed the additional 200 million people, which has
put pressure on the agricultural system to increase production
capacity.




Supply
of Finished Goods




Currently,
we purchase our finished goods from our main supplier, Inner Mongolia Yongye,
and then sell them through our distribution system. In order to generate greater
profit margins, we set out to control our cost of goods sold and have put into
place a fixed rate contract with our main supplier and this will extend over the
next five years. Each quarter we will go through a review process with our
supplier to adjust the fixed rate for the next quarter. We did not receive any
rate increases in 2008, or to date in 2009.




Earthquake
in Sichuan




The
earthquake in Sichuan was a devastating event in the recent history of China.
While the impact was felt all the way to Beijing, the disruption of business and
the ensuing relief efforts were largely contained to the province itself and
mainly to the areas nearest the epicenter. Because of this, the impact to our
business was minimal. China’s Agriculture Minister Sun Zhengcai said in an
interview with Xinhua that agriculture production would not be widely changed
due to the earthquake in Sichuan primarily because the local output of the
impacted area was quite small. He also mentioned that harvesting had been
stepped up to ensure food security nationwide.




Seasonality




We
typically face the seasonal demand patterns similar to other companies in our
sector. In general, the first and fourth quarters are typically our slowest
quarters and in 2008 we brought in approximately 20% and 6% of sales in these
quarters. The second and third quarters drive the bulk of our overall sales with
36% and 38% respectively of the year’s net sales. Our Shengmingsu plant line
faces the most seasonality of our two product lines with our Shengmingsu for
animals experiencing less fluctuation during the year as a result of seasonal
buying patterns. This year, while we did experience fluctuations by quarter of
our animal line, we believe that this was due more in part to fluctuations in
our sales and marketing efforts than due to seasonal buying patterns. We do not
expect to face this type of revenue fluctuation for our animal product, which
doesn’t typically experience the same seasonal tapering that our plant product
faces.




Drought




In
the last six months of 2008, it was widely reported that China faced substantial
drought conditions in important agricultural areas (as noted by The Economist in
its “China’s Dry Patch” article dated February 6, 2009). This led many to the
conclusion that this weather condition would have an overall negative impact on
China’s annual agricultural output for 2008 and potentially for 2009 which would
then have an impact on our company’s revenue. At the time, we did not believe
this to be the case and set out to corroborate this with related government
agencies, our sales and support staff, distributors, and branded store network
owners in our provincial locations. We then gathered localized information about
ways the drought might impact our distributors, their customers and our end
users and found that they believed it would not create an impact on their sales
and thus on our revenue for 2008. We also do not believe it will impact our
sales activities in 2009 at this point in time.




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


18


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




Agriculture
Sector




Agriculture
continues to be a heavily invested sector in China. Brand name investors
continue to invest into China’s agriculture space because they have confidence
in China’s long term outlook. The market volume for agriculture products is
large, both for domestic sales and export and there is no set threshold for
foreign investment into the sector as opposed to other industries, such as
energy, finance, mining, and telecommunications. This is driven by the growing
demand for higher quality food products domestically and international reliance
on food products from China. Currently, China is the world’s biggest grower and
consumer of grains and yet must boost crop yields by at least 1 percent a year
to ensure the country has enough food to feed its 1.3 billion people, according
to the Minister of Agriculture, Sun Zhengcai (China Economic Net, July 21,
2008).




Additional
policy changes are expected to include protecting farmland and working to
increase rural incomes to retain farming interest with the goal being to
maintain self-sufficiency in food production by improving yields based on stable
farmland. This extended to ensuring crop production for 2009 by targeting idle
farmland to grow new crops.




New Land
Reform Policy




Farmland
in China is owned by the local government, but given to local farmers under 30
year use contracts. With the allure of higher incomes and better living
conditions in the city, farmers have abandoned the land and no others farmers
have stepped in to bring it back into production. This has created a shortage of
productive agricultural land. The government has acknowledged this issue and
recently enacted a new land use reform policy which liberalizes the exchange of
land among the nation’s farmers. This creates a new model for China’s 730
million farmers with the idea being to create more stable farmland by shifting
the country away from the single household farm plot model to the amalgamation
of larger-scale operations which should be more productive due to technology and
economies of scale. Farmers will be able to transfer their land-use rights to
others through a new market system for rural land-use rights. This will ensure
national food security through increasing the supply of agricultural
products


19




RESULTS OF
OPERATIONS




Financial Highlights




YONGYE INTERNATIONAL, INC. AND
SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME




Yongye
      International, Inc.and
      Subsidiaries(f/k/a Yongye
      Biotechnology
                                                  International,
      Inc.)
                                                
                                                
                                                Yongye
                                                  NongfengFor the Three Months Ended
                                                
                                                
                                                For the Three Months EndedMarch 31, 2009
                                                
                                                
                                                March 31, 2008(Unaudited)
                                                
                                                
                                                (Unaudited)(Restated–Financial Statements
                                                  Note 1(C))SALES
                                                
                                                $
                                                12,435,775
                                                
                                                
                                                $
                                                9,528,055COST
      OF SALES
                                                
                                                
                                                5,902,607
                                                
                                                
                                                
                                                4,484,261GROSS
      PROFIT
                                                
                                                
                                                6,533,168
                                                
                                                
                                                
                                                5,043,794SELLING
      EXPENSES
                                                
                                                
                                                2,620,298
                                                
                                                
                                                
                                                3,192,797RESEARCH
      & DEVELOPMENT EXPENSES
                                                
                                                
                                                288,572
                                                
                                                
                                                
                                                —GENERAL
      AND ADMINISTRATIVE EXPENSES
                                                
                                                
                                                345,157
                                                
                                                
                                                
                                                357,192INCOME
      FROM OPERATIONS
                                                
                                                
                                                3,279,141
                                                
                                                
                                                
                                                1,493,805OTHER
      EXPENSES (INCOME)Interest
      expenses
                                                
                                                
                                                5,958
                                                
                                                
                                                
                                                —Other
      expenses
                                                
                                                
                                                441
                                                
                                                
                                                
                                                97Change
      in fair value of derivative liabilities
                                                
                                                
                                                (208,011
                                                )
                                                
                                                
                                                —TOTAL
      OTHER EXPENSES
                                                
                                                
                                                (201,612
                                                )
                                                
                                                
                                                97INCOME
      BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING
    INTEREST
                                                
                                                
                                                3,480,753
                                                
                                                
                                                
                                                1,493,708PROVISION
      FOR INCOME TAXES
                                                
                                                
                                                155,447
                                                
                                                
                                                
                                                373,427NET
      INCOME
                                                
                                                
                                                3,325,306
                                                
                                                
                                                
                                                1,120,281LESS:
      NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTERST
                                                
                                                
                                                18,522
                                                
                                                
                                                
                                                —NET
      INCOME ATTRIBUTABLE TO YONGYE BIOTECHNOLOGY INTERNATIONAL,
      INC.
                                                
                                                
                                                3,306,784
                                                
                                                
                                                
                                                1,120,281OTHER
      COMPREHENSIVE INCOMEForeign
      Currency Translation Adjustment
                                                
                                                
                                                47,945
                                                
                                                
                                                
                                                30,531COMPREHENSIVE
      INCOME
                                                
                                                $
                                                3,354,729
                                                
                                                
                                                $
                                                1,150,812Net
      income per share:Basic
                                                
                                                $
                                                0.12
                                                
                                                
                                                $
                                                0.10Diluted
                                                
                                                $
                                                0.12
                                                
                                                
                                                $
                                                0.10Weighted
      average shares used in computation:Basic
                                                
                                                
                                                26,760,258
                                                
                                                
                                                
                                                11,444,755Diluted
                                                
                                                
                                                26,760,258
                                                
                                                
                                                
                                                11,444,755


20


THREE
MONTHS ENDED MARCH 31, 2009 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2008
  Our
business for the three months ended March 31, 2009 remained on track with our
estimates due to the growth in revenue of 31% and the overall growth of net
income of 195% over the same period in 2008. This demonstrates that while the
first quarter is one of our slower quarters due to seasonality, we were still
able to increase sales to meet our overall growth plans. This is due largely to
the Company selling over 97,465 units of its plant nutrient product in the
quarter ended March 31, 2009, which was a 26% increase over the 75,596 units
sold in the corresponding period in 2008. This increase in units sold was due
primarily to expansion of the distribution network, and a strong performance by
the distributors who develop and maintain the independently owned, branded store
network which sells our plant products.
 
 The
approximate 2,000 retail stores selling Shengmingsu products have been assembled
into a network of stores through the work of our distributors. These stores have
typically been in existence for many years and sell many other agriculture
products including competitive products and we do not receive payment from the
owner and they do not pay Yongye Nongfeng any fees or distribute any profits to
us. Each distributor works to source successful, independently owned
agricultural product stores to bring them into their segment of the branded
store network. Our distributors work with the store owner to feature Yongye
products in a prominent fashion and will also display brochures and
advertisements for our products. Some stores will feature a computer which runs
our current infomercials. Before the store is brought into the Branded Store
network, it may be selling Yongye products as a “non-branded” store as arranged
with our distributors. To become a “branded store” the distributor may require
the store to go through a trials process to ensure the store reaches certain
performance standards set by the distributor and the distributor will alone
determine whether or not the store is considered a branded store. While we work
with all of our distributors to standardize this model so that a minimum level
of similarity is replicated across all the branded stores, it is implemented by
the distributor.
  Net
Sales
  Sales of
$12,435,775 in the first quarter of 2009 was an increase of $2,907,720 from
$9,528,055 in the same period in 2008, which was an overall increase of 31% in
revenue. This increase was driven by increased customer demand throughout our
distribution channels including an increase in the number independently owned
stores brought into our network which are now selling our product. Included in
the 31% increase is 6% attributable to appreciation of Chinese Yuan related to
US dollar in three months ended March 31, 2009 compared to three months ended
March 31, 2008.
  Sales
Revenue and Gross Profit
  Sales
revenue increased by $2,907,720 to $12,435,775 in the period ended March 31,
2009 from $9,528,055 in the same period ended March 31, 2008 which was a 31%
increase overall. Gross Profit also increased 30% over the prior period, which
was an increase from $5,043,794 to $6,533,168, or $1,489,374, over the period
ended March 31, 2008. Gross Margin stayed flat between the two periods and was
primarily due to our fixed rate contract with our finished goods supplier which
has remained constant in price since it was established.
  The
number of independently owned stores brought into our branded store network grew
to 2,000 in the period ended March 31, 2009 from 350 in the same period ended
March 31, 2008, which was an increase of 471%. This was due in large part to
continued growth of the network throughout 2008 and the conversion of many
non-branded stores into branded stores. Additionally, another 1,500 of these
stores were brought into our network and either carry our product as a retail
sales point or are on a “trials” basis and will be evaluated by the distributor
as to their qualifications to become a branded store. This brings the total
number of stores selling our Shengmingsu product to 3,500.
  21
  Sales by
Product Line
  The
revenue of our plant product increased 32% and the revenue of our animal product
increased 22% in the period ended March 31, 2009 compared to the same period in
2008.
  Selling,
General and Administrative Expenses
  Selling,
general and administrative (“SG&A”) expenses decreased by $295,962 to
$3,254,027 in the period ended March 31, 2009 from $3,549,989 in the previous
period in 2008, which was a 8% decrease. As a percentage of sales for this
period ended March 31, 2008, SG&A decreased 11% to 26% as compared to 37% in
the period ended March 31, 2008. This decrease in overall percentage of sales
was due primarily to one-time going public company expenses incurred by the
Company in the period ended March 31, 2008.
  Research
and Development
  Additionally,
we incurred $288,572 of research and development fees in the period ended March
31, 2009 as compared to $0 in the period ended March 31, 2008. This is a planned
increase in the scope of our business as contemplated in the cooperation
agreement when the CJV was established and will enable the Company to further
develop the Shenmingsu brand of products.
  Change in
fair value of derivative liabilities
  The
Company has accounted for warrants issued to investors in April Offering and
September Offering in year 2008 as liabilities measured at fair value. The
change in their fair value during the three months ended March 31, 2009 was
recorded in Consolidated Statement of Operation as a gain of
$208,011.
  Income
Tax
  The
Company did not carry on any business and did not maintain any branch office in
the United States during the three months ended March 31, 2009 and 2008.
Therefore, no provision for withholding or U.S. federal income taxes or tax
benefits on the undistributed earnings and/or losses of the Company has been made.
 
 The
Company’s Cooperative Joint Venture subsidiary, Yongye Nongfeng Biotechnology
Co. (“Yongye Nongfeng”), is subject to PRC Enterprise Income Tax at a rate of
25% of net income from its foundation on January 4, 2008 to March 31, 2008, and
1.25% of gross revenue since April 1, 2008.  The difference in tax
rates occurred because, while the CJV was entitled to the “Check and Ratify”
taxation method rate, and did apply for it, the CJV did not receive approval for
such rate until the second quarter of 2008. Under the PRC taxation system, the
enterprise income taxation is conducted on a quarter by quarter basis and,
therefore, we were subject to the rate of 25% of net income for the full first
quarter of 2008 and computed the tax at 1.25% of gross revenue for the remaining
three quarters of 2008 and this first quarter of 2009. Subsequent to initial
filing of our Form 10-Q for the quarter ended March 31, 2009, the PRC tax
authorities notified us that the “Check and Ratify” taxation method is no longer
valid for the CJV and it is now subject to 25% of net income before tax from
January 1, 2009.
  For the
three months ended March 31, 2009, the Company’s income tax expense was $
155,447 and income tax payable as of March 31, 2009 was $352,644 compared to
$373,427 and $381,255 for the same period in 2008.
  Net
income
  Net
income for the period ended March 31, 2009 increased by $2,186,503 to $3,306,784
from $1,120,281 in the same period ended March 31, 2008, which was a 195%
increase. However, this also represented an increase in net margin of 15% in the
period ended March 31, 2009 to 27% compared to 12% in the same period ended
2008. This is due to a more normal operating cycle of expenses as mentioned
above.
  Basic and diluted earnings per share
(EPS) for the three months ended March 31, 2009, were $0.12 and $0.12,
respectively, compared to
$0.10 and $0.10, in the same period last year. The weighted average shares
outstanding used to
calculate basic and diluted EPS for the comparative periods were26,8million and26.8million and 11.4 million and 11.4
million, respectively.
  Foreign
Currency Translation and Transactions
  The
financial position and results of operations of the Company’s Chinese
subsidiaries are determined using the local currency (Chinese Yuan) as the
functional currency, while the reporting currency is the US dollar. Assets and
liabilities of the subsidiaries are translated at the prevailing exchange rate
in effect at each period end. Contributed capital accounts are translated using
the historical rate of exchange when capital is injected. Income statement
accounts are translated at the average rate of exchange during the period.
Translation adjustments arising from the use of different exchange rates from
period to period are included in the cumulative translation adjustment account
in shareholders’ equity. Gains and losses resulting from foreign currency
transactions denominated in other than the functional currency are included in
operations as incurred. Such gains and losses were immaterial for the three
months ended March 31, 2009 and 2008.
  The PRC
government imposes significant exchange restrictions on fund transfers out of
the PRC that are not related to business operations. These restrictions have not
had a material impact on the Company because it has not engaged in any
significant transactions that are subject to the restrictions.
  22
  Liquidity
and Capital Resources
  Inner
Mongolia Yongye has historically financed its operations and capital
expenditures principally through shareholder loans, bank loans, and cash
provided by operations. As a newly formed Cooperative Joint Venture, Yongye
Nongfeng, has used the net proceeds of both the April and September Offerings of
approximately $20 million to finance the purchase of raw materials and finished
inventory from Inner Mongolia Yongye, capital equipment and an expansion of our
facilities and production, build out of our distribution network through
advertising and marketing programs and their associated expenses, and increasing
the number of our branded stores that distributors will do once they have more
product available and more advertising coverage. We believe customers will
increase, product will be pulled through the channels and distributors will
penetrate the market with more branded stores to accommodate and spur sales
growth.
  As is
customary in the industry, we provide payment terms to most of our distributors
which typically exceed the terms that we ourselves receive from our finished
goods suppliers.  We typically provide 90 day terms to our provincial
level customers and ask for all others to make cash payments up front or upon
delivery.  Therefore, the Company’s liquidity needs have generally
consisted of working capital necessary to finance receivables and raw material
inventory. We believe that over the next 12 months our existing cash, cash
equivalents and cash flows from operations will be sufficient to meet our
anticipated future cash needs. We may, however, require additional cash
resources due to changing business conditions or other future developments,
including any investments or acquisitions we may decide to pursue. We will
determine how to meet these specific cash flow needs as they arise. Therefore,
there can be no assurance that such additional investment will be available to
us, or if available, that it will be available on terms acceptable to us. Cash
and Cash Equivalents balance amounted to $1,424,268 and $157,579 as of March 31,
2009 and March 31, 2008 respectively.
  Financial
Cash Flow Highlights Three Months Ended
 
 Yongye
                    
                    
                    YongyeInternational, Inc.
                    
                    
                    Nongfeng
                    
                    
                    Increase /March 31, 2009
                    
                    
                    March 31, 2008
                    
                    
                    (decrease)Net
      cash (used in)/provided by operating activities
                    
                    $
                    (1,671,107
                    )
                    
                    $
                    194,640
                    
                    
                    
                    (959
                    )%Net
      cash used in investing activities
                    
                    $
                    (1,446,782
                    )
                    
                    $
                    (213,919
                    )
                    
                    
                    576
                    %Net
      cash provided by financing activities
                    
                    $
                    59,664
                    
                    
                    $
                    150,000
                    
                    
                    
                    (60
                    )%Effect
      of exchange rate change on cash and cash equivalents
                    
                    $
                    5,016
                    
                    
                    $
                    26,858
                    
                    
                    
                    (81
                    )%Net
      (Decrease)/increase in cash and cash equivalents
                    
                    $
                    (3,053,209
                    )
                    
                    $
                    157,579
                    
                    
                    
                    (2,038
                    )%Cash
      and cash equivalents at beginning of period
                    
                    $
                    4,477,477
                    
                    
                    $
                    —
                    
                    
                    
                    N/ACash
      and cash equivalents at end of period
                    
                    $
                    1,424,268
                    
                    
                    $
                    157,579
                    
                    
                    
                    804
                    %
  In
summary, our cash flows were:
  Net cash
used in operating activities decreased in the period ended March 31, 2009 by
$1,865,747 to $1,671,107 from net cash provided by operating activities of
$194,640 for the period ended March 31, 2008, which represented a 959% decrease
over the prior period.
  Although
our sales in the first quarter of 2009 increased $2,907,720 compared to the
first quarter of 2008, the cash used in accounts receivables decrease $3,897,
395 which was mainly because as we has build up our brand name among farmers, we
do not provide such long credit terms to the new distributors but require them
to pay most of the amounts in advance. This change in credit policy caused us to
receive large advances from customers $1,869,400 at December 31, 2008. As the
customers used these advance payments to purchase our products in the current
quarter, the cash provided by advance from customer decreased $1,789,533
compared to the three months ended March, 31, 2008.
  When
compared to the first quarter of 2008, we experienced increased sales and a
higher turnover rate which caused the cash used for inventories to decrease by
$3,089,386. On the other side, to insure the manufacturing quantity and goods
supply from our only supplier, we made quicker payments to our supplier, which
caused the cased provided by accounts payable decreased 6,924,404. Cash provided
by accrued expenses of 2,320,525 was mainly due to significant going-listed
expenses during the first quarter of 2008, which did not occurred in 2009. This
was off-set by an increase in net income of $2,203,917 or an increase of 195%
over the prior period ended March 31, 2008. Additionally, as mentioned above,
payments to offset accounts receivable outstanding would have increased
substantially more by the end of March 31, 2009, however, a payment of
$2,191,189 was remitted by one customer on March 30, 2009, but due to an
elongated cross bank transfer process, the Company didn’t receive the payment
until April 1, 2009.
  Net cash
used in investing activity increased by $1,232,863 in the period ended March 31,
2009 compared to the same period ended in 2008 which is due to our acquisition
of machinery and equipment and vehicles from Inner Mongolia Yongye and third
parties.
  Net cash
provided by financing activities decreased by $90,336 to $59,664 in the period
ended March 31, 2009 compared to the same period ended in 2008. This was because
during the three months ended March 31, 2008, Yongye Nongfeng’s shareholder ASO
invested $150,000 into Yongye Nongfeng, while during the three months ended
March 31, 2009, we only financed $89,534 from the bank loans which was off-set
by the $29,870 repayment to the bank loan during the period.
  The
Financial Crisis
  While in
many ways imperceptible to the general populace in China, the global credit
crisis has indeed impacted China over the past six to nine months. The consumer
goods and logistics industries have been the hardest hit with increased prices
and decreased demand which has resulted in factory closings primarily in the
south. However, some have said this is a blessing in disguise as China aims to
modify its economic structure after three decades of breakneck growth (Reuters,
February 5, 2009). This is because, China will find it impossible to avoid the
global downturn due to its reliance on international trade and this will
indicate to China that this reliance is not healthy and it needs to change these
unhealthy trade patterns. (Xinhua, October 13, 2008). China’s economy has
maintained an average annual growth of about 10 percent for 30 years since the
reform and opening-up policy was adopted, compared with a mere 3.3 percent for
the world economy. For the last five years, it expanded 10.6 percent each year
on average.
  23
  Financial
position at quarter ended March 31, 2009 (unaudited) and the year ended December
31, 2008:
 
 March 31, 2009
                            Unaudited
                          
                          
                          December 31, 2008
                          
                          
                          Increase/(decrease)(Restated- Financial
                            Statement Note 1(C))
                          
                          
                          (Restated- Financial
                            Statement Note 1(C))Cash
                          
                          $
                          1,424,268
                          
                          
                          $
                          4,477,477
                          
                          
                          
                          (68
                          )%Accounts
      Receivable, net
                          
                          $
                          6,128,346
                          
                          
                          $
                          2,748,042
                          
                          
                          
                          123
                          %PP&E,
      net
                          
                          $
                          6,717,213
                          
                          
                          $
                          5,368,074
                          
                          
                          
                          25
                          %Total
      assets
                          
                          $
                          37,250,212
                          
                          
                          $
                          34,504,261
                          
                          
                          
                          8
                          %Long
      term debt
                          
                          $
                          291,498
                          
                          
                          $
                          230,121
                          
                          
                          
                          27
                          %Total
      stockholders’ equity
                          
                          $
                          30,656,987
                          
                          
                          $
                          27,300,603
                          
                          
                          
                          12
                          %
  Cash
decreased to $1,424,268 at the end of March 31, 2009 from $4,477,477 at the end
of December 31, 2008 which was an overall decrease of $3,053,209, or 68%. This
was primarily due to an increase in accounts receivable, and payments for the
increase in property, plant and equipment. Accounts receivables increased by
123% to $6,128,346 as of March 31, 2009 from $2,748,042 as of December 31, 2008,
due to increased growth in sales for the recent period. Of the accounts
receivable outstanding on March 31, 2009, a payment of $2,191,189 was remitted
by one customer on March 30, 2009, but due to an elongated cross bank transfer
process, the Company didn’t receive the payment until April 1,
2009.
  The
changes described above were generally due to the fact that our largest
customers typically pay us 90 days after we ship products to them,
which is according to the terms set in the agreements with
them.  Because we are constrained by the seasonal forces and the
elongated payment terms of the agriculture industry, we slowly build up accounts
receivable starting in the first quarter and more rapidly add to this throughout
the peak season of the second and third quarter. As the end of the year
approaches, we typically have had the ability to collect a great deal of our
receivables so as to start the new year with a much lower balance.
  Because
of the seasonal nature of agriculture industry, the peak season for the sale of
our product is in the second and third quarters of the year. We normally build
up inventory in the first and fourth quarters to prepare for shipments to
customers as they order product for the peak selling season in the second and
third quarters. The significant increase in the balance of inventory we recently
experienced was in line with this business practice. Additionally, our contract
manufacturer brought on increased capacity from 2,000TPA to 10,000TPA in
preparation for increased sales of the product which we expect to occur. We
expect that we will maintain a similar balance in the future year
ends.
  Property,
plant and equipment increased to $6,717,213 at March 31, 2009 from $5,368,074 at
December 31, 2008, which was a 25% increase and was largely due to the
restructuring effort put underway as part of the September Financing whereby we
were required to acquire the Predecessor’s 2000TPA equipment after being valued
by an independent valuation company.
  Additionally,
shareholders’ equity increased by $3,356,384 to $30,656,987 at the end of March
31, 2009, which was an overall 12% increase compared to $27,300,603 at
December 31, 2008 and was due primarily to an increase in retained earnings of
$3,025,415 or 25% in March 31, 2009 over the period ending December 31,
2008.
  Accounts
receivable Days Sales Outstanding (“DSO”) is defined as average accounts
receivable for the period divided by net sales per day and decreased 2 days to
32 days for the period ended March 31, 2009 from 34 days in the same period
ended 2008, which is due to our increased efforts to collect accounts receivable
and gain more advanced payments from distributors. Days Sales in Inventory
(“DIO”) is defined as average inventory in the period divided by the cost of
sales per day and increased to 341 days in the period ended March 31, 2009 from
91 days in the same period ended 2008 due to our build up of inventory to
prepare for the major selling season starting in the second
quarter.
  Impact of
inflation
  We are
subject to commodity price risks arising from price fluctuations in the market
prices of the raw materials. We have generally been able to pass on cost
increases through price adjustments. However, the ability to pass on these
increases depends on market conditions influenced by the overall economic
conditions in China. We manage our price risks through productivity improvements
and cost-containment measures. We do not believe that inflation risk is material
to our business or our financial position, results of operations or cash flows
at this time.
  Off
Balance Sheet Arrangements
  We do not
have any off-balance sheet arrangements as defined by standards issued by the
Financial Accounting Standards Board, and accordingly, no such arrangements are
likely to have a current or future effect on our financial position, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources.
  Use of
estimates
  The
preparation of financial statements in conformity with generally accepted
accounting principles of the United States of America requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Significant accounting estimates reflected in
the Company’s financial statements include the useful lives of and impairment
for property, plant and equipment, and potential losses on uncollectible
receivables. Actual results could differ from these estimates.
  We
estimate the useful lives of our property, plant and equipment (“PP&E”)
under the assumption that they are capable for use in the period commonly
observed for the similar type of PP&E, and there is no indication that
revolutionary technology will appear in the foreseeable future that would cause
them to be obsolete.
  24
  As we
discussed in the notes to financial statements, we routinely assesses the
financial strength of its customers and, based upon factors surrounding the
credit risk of our customers, establishes an allowance for uncollectible
accounts receivable. As a consequence, we believe that our accounts receivable
credit risk exposure beyond such allowances is limited. The Company recognizes
an allowance for doubtful accounts to ensure accounts receivable are not
overstated due to uncollectability and are maintained for all customers based on
a variety of factors, including the length of time the receivables are past due,
significant one-time events and historical experience. Based on the age of the
receivables, the Company reserves 10% of accounts receivable balances that have
been outstanding for more than 6 months but less than one year, 20% of accounts
receivable balances that have been outstanding between one year and two years,
50% of receivable balances that have been outstanding between two year and three
years, and 100% of receivable balances that have been outstanding for more than
three years. An additional reserve for individual accounts is recorded when the
Company becomes aware of a customer's inability to meet its financial
obligation, such as in the case of bankruptcy filings or deterioration in the
customer's operating results or financial position. If circumstances related to
customers change, estimates of the recoverability of receivables would be
further adjusted. We base the Accounts Receivable and Bad Debt Reserve policy on
the historical experience of the Predecessor company’s sale and collection rates
for the same products.
  We
believe that the accounting estimates related to useful lives of PP&E and
potential losses on uncollectible receivables are “critical accounting estimate”
because: (1) It is susceptible to change from period to period because it
requires company management to make assumptions about future sales and cost of
sales over the lives of the PP&E; and (2) the impact that recognizing an
allowance for uncollectible accounts receivables would have on the assets
reported on our balance sheet as well as our net profit/loss would be material.
Management's assumptions about future sales prices and future sales volumes
require significant judgment because actual sales prices and volumes have
fluctuated in the past and are expected to continue to do so. Management has
discussed the development and selection of this critical accounting estimate
with the audit committee of our board of directors and the audit committee has
reviewed the company's disclosure relating to it in this
MD&A.
  25
  SIGNATURES
  In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
 
 Yongye
      International, Inc.Dated:
      October 19, 2009
                            By:
                            /s/
      Zishen WuName:
      Zishen WuTitle:
      Chief Executive Officer and PresidentBy:
                            /s/ Sam
      YuName:
      Sam YuTitle: Chief Financial
      Officer
  26