UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549




FORM
      10-Q




(Mark
      One)




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




For
      the
      quarterly period ended September
      30, 2008




or




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




For
      the
      transition period from ____________ to **___________** **.**




Commission
      File Number 000-51200




Yongye
      Biotechnology International, Inc..


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





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





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


No.
      1
      Zhichun Road, Haidan District Beijing, PRC


(Address
      of Principal Executive Office)




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


+86
      10
      8231 8626


(Issuer’s
      Telephone Number, Including Area Code)




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months
      (or for such shorter period that the registrant was required to file such
      reports), and (2) has been subject to such filing requirements for the past
      90
      days. Yes x No  ̈




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





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




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes  ̈ No x




As
      of
      November 12, 2008, 26,760,258 shares of common stock, par value $.0001 per
      share, were issued and outstanding.










PagePart
                  I: Financial Information:Item
                  1 -Financial Statements
              
              3Consolidated
                  Balance Sheets
              
              3Consolidated
                  Statements of Operations and Comprehensive Income
              
              4Consolidated
                  Statements of Cash Flows
              
              5Notes
                  to Consolidated Financial Statements
              
              6Item
                  2 - Management’s Discussion and Analysis of Financial Condition and
                  Results of Operations
              
              15Item
                  3 – Quantitative and Qualitative Disclosures about Market
                  Risk
              
              30Item
                  4T - Controls and Procedures
              
              30Part
                  II. Other InformationItem
                  1 - Legal Proceedings
              
              31Item
                  1A – Risk Factors
              
              31Item
                  2 - Unregistered Sales of Equity Securities and Use of
                  Proceeds
              
              31Item
                  3 - Defaults Upon Senior Securities
              
              31Item
                  4- Submission of Matters to a Vote of Security Holders
              
              31Item
                  5 - Other Information
              
              31Item
                  6 – Exhibits
              
              31Signatures
              
              32
  2
  **Item
        1- Financial Statements**
 
 
 YONGYE
        BIOTECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
  CONSOLIDATED
        BALANCE SHEETS
  Yongye
                Biotechnology
              
              The predecessorInternational, Inc.
              
              Inner Mongoliaand Subsidiaries
              
              YongyeSEPTEMBER 30,2008
              
              DECEMBER 31,
                2007(Unaudited)**CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              6,847,558
              
              $
              376,002Accounts
                  receivable
              
              
              20,678,867
              
              
              1,630,609Inventories
              
              
              2,060,532
              
              
              9,851,788Advance
                  payments
              
              
              273,722
              
              
              -Due
                  from related party
              
              
              954,431
              
              
              -Due
                  from affiliates
              
              
              -
              
              
              978,384Other
                  receivables
              
              
              1,247,929
              
              
              27,038Total
                  Current Assets
              
              
              32,063,039
              
              
              12,863,821**PROPERTY
                  AND EQUIPMENT, NET**
              
              
              **3,386,463**
              
              
              **2,486,487****INTANGIBLE
                  ASSETS, NET**
              
              
              **114,817**
              
              
              **3,665,584****LONG-TERM
                  INVESTMENTS**
              
              
              **-**
              
              
              **4,115,764****TOTAL
                  ASSETS**
              
              **$**
              **35,564,319**
              
              **$**
              **23,131,656****CURRENT
                  LIABILITIES**Accounts
                  payable and accrued expenses
              
              $
              1,503,005
              
              
              1,271,852Short-term
                  bank loans
              
              
              -
              
              
              5,484,000Due
                  to shareholders
              
              
              -
              
              
              2,507,371Due
                  to related parties
              
              
              1,646,282
              
              
              -Tax
                  payables
              
              
              414,997
              
              
              893,892Other
                  payables
              
              
              85,986
              
              
              50,916Total
                  Current Liabilities
              
              
              3,650,270
              
              
              10,208,031**LONG-TERM
                  LIABILITY**
              
              
              **204,962**
              
              
              **12,153****Minority
                  interest**
              
              
              1,192,426
              
              
              -**STOCKHOLDERS'
                  EQUITY**Capital
                  stock: 26,760,258 shares authorized and issued par value $.001
                  at
                  September 30, 2008
              
              
              26,760
              
              
              -Capital
                  contribution
              
              
              -
              
              
              7,260,000Additional
                  paid-in capital
              
              
              17,887,832
              
              
              -Retained
                  earnings
              
              
              10,918,386
              
              
              4,024,111Statutory
                  reserve
              
              
              1,263,713
              
              
              480,629Accumulated
                  other comprehensive income
              
              
              419,970
              
              
              1,146,732Total
                  Stockholders' Equity
              
              
              30,516,661
              
              
              12,911,472**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              **$**
              **35,564,319**
              
              **$**
              **23,131,656**
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  3
  YONGYE
        BIOTECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
 CONSOLIDATED
        STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
 
 Yongye
                Biotechnology
                International,
                Inc.
                and
                Subsidiaries
              
              The
                predecessor
                Inner
                Mongolia
                Yongye
              
              Yongye
                Biotechnology
                International, Inc.
                and
                Subsidiaries
              
              The
                predecessor
                Inner Mongolia
                YongyeFOR THREE
                MONTHS
                ENDED
              
              FOR THREE
                MONTHS
                ENDED
              
              FOR NINE
                MONTHS
                ENDED
              
              FOR NINE
                MONTHS
                ENDEDSEPTEMBER
                30, 2008
              
              SEPTEMBER
                30, 2007
              
              SEPTEMBER
                30, 2008
              
              SEPTEMBER
                30, 2007(Unaudited)
              
              (Unaudited)
              
              (Unaudited)
              
              (Unaudited)**SALES**
              
              $
              18,202,940
              
              $
              2,625,137
              
              $
              45,189,579
              
              $
              10,752,855**COST**
              
              
              9,278,944
              
              
              1,021,719
              
              
              21,697,964
              
              
              5,368,480**GROSS
                  PROFIT**
              
              
              8,923,996
              
              
              1,603,418
              
              
              23,491,615
              
              
              5,384,375**OPERATING
                  EXPENSES**
              
              
              3,440,036
              
              
              159,398
              
              
              7,437,513
              
              
              230,591**GENERAL
                  AND ADMINISTRATIVE EXPENSES**
              
              
              453,683
              
              
              196,386
              
              
              1,265,808
              
              
              351,372**INCOME
                  FROM OPERATIONS**
              
              
              5,030,277
              
              
              1,247,634
              
              
              14,788,294
              
              
              4,802,412**OTHER
                  INCOME (EXPENSES)**Interest
              
              
              65,785
              
              
              -
              
              
              66,563
              
              
              1,291Other
                  income (expense)
              
              
              (340,087
              )
              
              (81,827
              )
              
              (726,927
              )
              
              (279,468
              )**TOTAL
                  OTHER INCOME (EXPENSES)**
              
              
              (274,302
              )
              
              (81,827
              )
              
              (660,364
              )
              
              (278,177
              )**INCOME
                  BEFORE PROVISION FOR**
                **INCOME
                  TAXES AND MINORITY INTEREST**
              
              
              4,755,975
              
              
              1,165,807
              
              
              14,127,930
              
              
              4,524,235**PROVISION
                  FOR INCOME TAXES**
              
              
              227,537
              
              
              -
              
              
              822,302
              
              
              -**INCOME
                  BEFORE MINORITY INTEREST**
              
              
              4,528,438
              
              
              1,165,807
              
              
              13,305,628
              
              
              4,524,235**PROVISION
                  FOR MINORITY INTEREST**
              
              
              57,421
              
              
              -
              
              
              1,092,426
              
              
              -**NET
                  INCOME**
              
              
              4,471,017
              
              
              1,165,807
              
              
              12,213,202
              
              
              4,524,235Foreign
                  Currency Translation Adjustment
              
              
              5,199
              
              
              170,033
              
              
              419,970
              
              
              344,228**COMPREHENSIVE
                  INCOME**
              
              $
              4,476,216
              
              $
              1,335,840
              
              $
              12,633,172
              
              $
              4,868,463**Net
                  income per share:**Basic
              
              
              0.24
              
              
              0.10
              
              
              0.78
              
              
              0.40Diluted
              
              
              0.22
              
              
              0.10
              
              
              0.75
              
              
              0.40**Weighted
                  average shares used in computation:**Basic
              
              
              18,637,948
              
              
              11,444,775
              
              
              15,654,417
              
              
              11,444,775Diluted
              
              
              20,103,760
              
              
              11,444,775
              
              
              16,335,237
              
              
              11,444,775
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  4
  YONGYE
        BIOTECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
 CONSOLIDATED
        STATEMENTS OF CASH FLOWS
  Yongye BiotechnologyInternational, Inc.
              
              The predecessorAnd Subsidiaries
              
              Inner Mongolia YongyeFOR NINE MONTHSENDED
              
              FOR NINE MONTHSENDEDSEPTEMBER 30, 2008
              
              SEPTEMBER 30, 2007(Unaudited)
              
              (Unaudited)**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  Income
              
              $
              12,213,202
              
              $
              4,524,235Adjustments
                  to reconcile net loss to net cash used in operating
                  activitiesDepreciation
                  and amortization
              
              
              115,541
              
              
              160,978Provision
                  for minority interest
              
              
              1,092,426
              
              
              -Loss
                  on disposal of fixed assets
              
              
              -
              
              
              146,714Changes
                  in assets and liabilities:Accounts
                  receivable, net
              
              
              (20,628,654
              )
              
              (1,116,746
              )Inventories
              
              
              (2,046,871
              )
              
              (5,211,663
              )Other
                  receivables, net
              
              
              (1,247,729
              )
              
              (518,729
              )Advances
                  to suppliers
              
              
              (273,630
              )
              
              85,904Prepaid
                  expense
              
              
              -
              
              
              (4,374
              )Accounts
                  payable and accrued expenses
              
              
              1,484,826
              
              
              (77,148
              )Deposit
                  received
              
              
              120
              
              
              -Tax
                  payable
              
              
              414,009
              
              
              58,074Due
                  from related party
              
              
              (954,735
              )
              
              -Due
                  to related parties
              
              
              1,626,548
              
              
              (225,171
              )Other
                  payables
              
              
              85,783
              
              
              (1,391,508
              )**Total
                  Adjustments**
              
              
              (20,332,366
              )
              
              (8,093,669
              )**Net
                  Cash Used in Operating Activities**
              
              
              (8,119,164
              )
              
              (3,569,434
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Acquisition
                  of property and equipment
              
              
              (3,493,192
              )
              
              (96,165
              )Additions
                  to intangible assets
              
              
              (122,899
              )
              
              -**Net
                  Cash Used in Investing Activities**
              
              
              (3,616,091
              )
              
              (96,165
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Proceeds
                  from bank loans
              
              
              205,028
              
              
              4,251,841Proceeds
                  from shares issued
              
              
              19,450,651
              
              
              -Proceeds
                  from shareholder loans
              
              
              -
              
              
              831,157Repayment
                  of long-term loans
              
              
              -
              
              
              (6,500
              )Payment
                  for stock issuance costs
              
              
              (1,461,659
              )
              
              -**Net
                  Cash From Financing Activities**
              
              
              18,194,020
              
              
              5,076,498**EFFECT
                  OF FOREIGN CURRENCY TRANSLATION ON CASH**
              
              
              380,656
              
              
              32,791**NET
                  INCREASE IN CASH AND CASH EQUIVALENTS**
              
              
              6,839,421
              
              
              1,443,690**CASH
                  AND CASH EQUIVALENTS - BEGINNING**
              
              
              8,137
              
              
              89,023**CASH
                  AND CASH EQUIVALENTS - ENDING**
              
              $
              6,847,558
              
              $
              1,532,713Supplemental
                  cash flow information:Cash
                  paid for income taxes
              
              
              424,725
              
              
              -Cash
                  paid for interest expense payment
              
              
              -
              
              
              138,955
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
 5
 
 YONGYE
        BIOTECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES
  NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS
  SEPTEMBER
        30, 2008
  NOTE
        1
        -ORGANIZATION AND DESCRIPTION OF BUSINESS
  On
        April
        17, 2008, Yongye Biotechnology International Inc. (the “Company”) entered into a
        Share Exchange Agreement (the “Exchange Agreement”) with Fullmax Pacific
        Limited, a company organized on May 23, 2007 under the laws of the British
        Virgin Islands (“Fullmax”), the shareholders of Fullmax (the “ Shareholders ”),
        who together own shares constituting 100% of the issued and outstanding ordinary
        shares of Fullmax (the “Fullmax Shares”), and the Company’s then principal
        shareholder . Pursuant to the terms of the Exchange Agreement, the Shareholders
        transferred to the Company all of the Fullmax Shares in exchange for the
        issuance of 11,444,755 (the “Shares”) shares of our Common Stock (the “Share
        Exchange”). As a result of the Share Exchange, Fullmax became our wholly-owned
        subsidiary and the Shareholders acquired approximately 84.7% of our issued
        and
        outstanding Common Stock. The transaction is accounted for as a reverse
        acquisition with a public shell.
  The
        unaudited consolidated balance sheet as of September 30, 2008 includes Yongye
        Biotechnology International Inc., Fullmax, Asia Standard Oil Limited (“AOS”,
        subsidiary of Fullmax) and Yongye Nongfeng Biotechnology Co. (“Yongye Nongfeng”)
        and the unaudited consolidated statement of operations for the three months
        ended September 30, 2008 and for the nine months ended September 30, 2008
        include Yongye Nongfeng for the full periods and Fullmax, ASO and Yongye
        Biotechnology International Inc. from April 17, 2008. All the historical
        financial statements prior to January 1, 2008 are solely those of the
        predecessor, Inner Mongolia Yongye Biotechnology Company, Ltd.
  Concurrent
        with the Share Exchange, we entered into a securities purchase agreement
        (the
“April Purchase Agreement”) with certain investors (the April “Investors ”) for
        the sale in a private placement of an aggregate of 6,495,619 shares of our
        Common Stock (the “April Investor Shares ”), and warrants to purchase 1,623,905
        shares of Common Stock (the “April Warrants”) for aggregate gross proceeds equal
        to $10,000,651 (the “ Offering ”). Expenses of the April Offering were
        $1,162,022.
 
 In
        connection with the April Offering, we also entered into a registration rights
        agreement (the April “Registration Rights Agreement”) with the April Investors,
        in which we agreed to file a registration statement (the “April Registration
        Statement”) with the Securities and Exchange Commission (the “SEC”) to register
        for resale the April Investor Shares and the shares underlying the April
        Warrants, within 45 calendar days of the closing date of the April Offering,
        and
        use our best efforts to have the registration statement declared effective
        within 150 calendar days of the closing date of the April Offering. We filed
        the
        April Registration Statement on Form S-1 on May 15, 2008.
 
 In
        connection with the April Offering, we also entered into an escrow agreement
        with ROTH Capital Partners, LLC, a representative of the Investors (“ Roth ”),
        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 ATNI for the year
        ending December 31, 2008 (the 2008 “ Net Income Threshold ”). If we achieve the
        Net Income Threshold, the Escrow Shares will be released back to Full Alliance.
        If the Net Income Threshold is not achieved, the Escrow Shares will be
        distributed pro-rata to the April Investors.
 
 The
        Company’s Predecessor, Inner Mongolia Yongye Biotechnology Co., Ltd (the
“Predecessor” or “Inner Mongolia Yongye”) was formed on September 16, 2003,
        under PRC law. Its primary business is to research, manufacture, and sell
        biological products for use in plants and animal growth. The Company is located
        in the City of Hohhot, Inner Mongolia Autonomous Region, and People’s Republic
        of China (‘PRC”).
  6
  On
        September 5, 2008, we entered into a securities purchase agreement (the
“ September
        Purchase Agreement ”),
        with
        certain Qualified Institutional Buyers (the “ September
        Investors ”),
        for
        the sale in a private placement of an aggregate of 6,073,006 shares of our
        Common Stock (the “ September
        Investor Shares ”),
        and
        the issuance of 1,518,253 warrants (the “ September
        Warrants ”),
        for
        aggregate gross proceeds equal to approximately $9,350,000 (the
“September Offering ”).
        Expenses of the September Offering were $ 995,500.
 
 In
        connection with the September Offering, we also entered into a registration
        rights agreement (the “ September Registration Rights Agreement ”)
        with
        the September Investors, in which we agreed to file a registration statement
        (the “ September Registration Statement ”)
        with
        the SEC to
        register for resale the September Investor Shares and the shares underlying
        the
        September Warrants, on or prior to 45 calendar days after the closing date
        of
        the September Offering, and use our best efforts to have the September
        Registration Statement declared effective within 150 calendar days of the
        closing date of the September Offering. We registered the September Investor
        Shares and the shares underlying the September Warrants in the April
        Registration Statement by using a “piggy back” registration process. We
        requested that the SEC accelerate the effectiveness of our S-1 Registration
        Statement on September 8, 2008 which was declared effective on September
        11,
        2008.
 
 In
        connection with the September Offering, we entered into an escrow agreement
        with
        Roth, the Escrow Agent and Full Alliance (the “ September
        Escrow Agreement ”),
        pursuant to which 4,000,000 of the Shares issued to Full Alliance in the
        Share
        Exchange (the “ September
        Escrow Shares ”)
        were
        delivered to the Escrow Agent. Of the September Escrow Shares, 2,000,000
        shares (the
“Make Good Escrow Shares”) are
        being held as security for the achievement of 2008 and 2009 Make Good ATNI
        in
        the following manner. If the Company achieves (i) the 2008 Net Income Threshold,
        and (ii) fully diluted earnings per share reported in the 2008 Annual
        Report on Form 10-K filed with the SEC (the “2008 Annual Report”), of no less
        than $0.42 (the “2008 Guaranteed EPS”), then the provisions described in the
        following paragraph apply with respect to the achievement of 2009 net income
        and
        fully diluted earnings per share targets and the Make Good Escrow Shares
        will be
        retained in escrow for the achievement of certain net income and fully diluted
        earnings per share targets for the year ending December 31, 2009. If the
        Company
        does not achieve the Make Good ATNI, the Make Good Shares will be released
        pro-rata to the September Offering investors.
 
 In
        the
        event that (i) the 2009 After Tax Net Income equals or exceeds $12,649,248
        and
        is less than $15,811,560, or (ii) the fully diluted earnings per share reported
        in the 2009 Annual Report on Form 10-K filed with the SEC (the “2009 Annual
        Report”), equals or exceeds $0.42 and is less than $0.53, then Make Good Shares
        equal to the product of (i)(A) $15,811,560 minus the 2009 After Tax Net Income,
        divided by (B) $15,811,560, and (ii) the Make Good Escrow Shares, shall be
        transferred to the September Investors on a pro-rata basis, and the remaining
        Make Good Shares shall be returned to Full Alliance.
  The
        remaining 2,000,000 escrow shares are being held as security for the timely
        issuance of Yongye Biotechnology’s (the “Predecessor”) 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 manufacturer and sell fertilizer products domestically. In the event that
        (1)
        the License has not been issued to Yongye Nongfeng Biotechnology by June
        30,
        2009, or such later date as agreed to by us and the September Investors holding
        a majority of the September Investor Shares at such time (the “License Grant
        Date”), or (2) the License has been issued by the License Grant Date, but the
        CJV Restructuring is not completed by the Restructuring Completion Date,
        the
        Restructuring Make Good Shares shall be transferred in accordance with the
        September Escrow Agreement to the September Investors on a pro-rata basis
        for no
        consideration other than their respective investment amounts paid to us at
        the
        closing of September Offering. The “Restructuring Completion Date” shall be the
        date that is 132 calendar days after the License Grant Date. If the License
        is
        issued by the License Grant Date and the CJV Restructuring is completed by
        the
        Restructuring Completion Date, the Restructuring Make Good Shares shall be
        returned to Full Alliance.
 
 As
        part
        of the above private financing, the Company agreed to begin a restructuring
        process whereby our Cooperative Joint Venture ('CJV") subsidiary, Yongye
        Nongfeng Biotechnology Co. ("Yongye Nongfeng"), will acquire all of the land
        rights, buildings, equipment and permits that currently belong to our
        Predecessor and outsourced manufacturing partner Inner Mongolia Yongye. This
        will enable Yongye Nongfeng to centralize and manage the Company’s product
        research and development, manufacturing and distribution and result in a
        more
        tightly integrated business model with greater control over our product quality
        and intellectual property. The full restructuring process should be completed
        by
        approximately September 2009. We will begin by purchasing the production
        equipment used in the existing 2,000 Tonnes Per Annum (TPA) production facility,
        which was purchased from the Inner Mongolia Yongye pursuant to an Asset Transfer
        Agreement on October 31, 2008.
  7
  In
        order
        to support our future growth, we have completed the construction of a new
        8,000
        TPA production facility. This new facility is located at the same site as
        Inner
        Mongolia Yongye’s 2,000TPA production facility and has already been put into
        testing and should be into full production within the fourth quarter of 2008.
        The combined 10,000 TPA capacity of both facilities will allow the Company
        to
        produce its own finished goods in the quantities needed to fulfill its current
        and future sales goals. After the completion of the equipment purchase and
        the
        integration of the equipment with the Company’s new 8,000 TPA facility, the
        Company will discontinue its current exclusive contract manufacturing agreement
        with Inner Mongolia Yongye.
 
 On
        September 12, 2008 Roth Capital executed an irrevocable cashless exercise
        of its
        warrants and purchased 686,878 shares in the aggregate of Common Stock of
        the
        Company pursuant to the April 17, 2008 and September 5, 2008 Placement Agent
        Warrants. In exchange for the issuance of 354,987 shares, Roth surrendered
        649,562 warrants received in the April Offering and in exchange for 331,891
        shares; Roth surrendered 607,301 warrants received in the September
        Offering.
 
 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 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 September
        30,
        2008 and for the three and nine months ended September 30, 2008 and 2007
        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 small business issuers. In the opinion
        of
        management, these unaudited consolidated interim financial statements include
        all adjustments considered necessary to make the financial statements not
        misleading. The results of operations for the three and nine months ended
        September 30, 2008 are not necessarily indicative of the results for the
        full
        fiscal year ending December 31, 2008. The unaudited consolidated interim
        financial statements should be read in conjunction with the Company's audited
        consolidated financial statements and notes thereto for the year ended December
        31, 2007 as reported in Form S-1.
 
 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.
  8
  ACCOUNTS
        RECEIVABLE AND BAD DEBT RESERVE
  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 uncollectibility 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. No allowance for doubtful accounts was provided as of
        September 30, 2008.
  INVENTORY
  Inventory
        is stated at the lower of weighted average cost, which takes into account
        historical prices on a continuing basis, or market.
 
 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:
  **Estimated Useful Life**Yongye
                  Biotechnology International, Inc.Office
                  equipment and furniture
              5
                  yearsLeasehold
                  improvements
              15
                  monthsThe
                  Predecessor- Inner Mongolia YongyeBuildings
              50
                  yearsMachinery
                  and equipment
              10-20
                  yearsTransportation
                  equipment
              10
                  years
 
 REVENUE
        RECOGNITION
  Revenue
        from product sales is recognized when title has been transferred, which is
        generally at the time of shipment, 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.
  ADVERTISING
        COSTS
 Advertising
        costs are expensed as incurred. Advertising costs for three months ended
        September 30, 2008 and 2007 were $2,347,780 and $4,000, respectively.
        Advertising costs for the nine months ended September 30, 2008 and 2007 were
        $4,404,812 and $12,600, 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.
  9
  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 and the Predecessor concluded that as of September 30, 2008 and December
        31, 2007 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 basis of existing assets and liabilities based on currently enacted
        tax
        laws and tax rates in effect in the People’s Republic of China 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 and
        the
        Predecessor’s assets and liabilities, respectively, therefore, there are no
        deferred tax assets or liabilities for the three months period ended September
        30, 2008 and 2007 and the nine months period ended September 30, 2008 and
        2007.
        Yongye Nongfeng is subject to PRC Enterprise Income Tax at a rate of 25%
        of net
        income from its foundation on January 4, 2008, and 1.25% of gross revenue
        since
        April 2008. Since the Predecessor is located in the economic development
        area in
        Inner Mongolia Autonomous Region, the Predecessor is exempt from income tax
        according to the tax law in China.
  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 periods
        ended September 30, 2008 and 2007.
  FAIR
        VALUE OF FINANCIAL INSTRUMENTS
  The
        carrying amounts of cash and cash equivalents, term deposits, trade receivables,
        and accounts payable approximate their fair value due to the short-term nature
        of these instruments.
  NOTE
        3-INVENTORIES
  Inventories
        at September 30, 2008 and December 31, 2007 consisted of the following:
  Yongye Biotechnology
              
              The PredecessorInternational, Inc. and Subsidiaries
              
              Inner Mongolia YongyeSEPTEMBER 30, 2008
              
              DECEMBER 31, 2007Raw
                  materials
              
              $
              -
              
              $
              384,361Packing
                  supplies
              
              
              -
              
              
              195,127Work-in
                  process
              
              
              -
              
              
              4,969,350Finished
                  goods
              
              
              2,059,173
              
              
              4,302,950Consumables
              
              
              1,359
              
              
              -Total
              
              $
              2,060,532
              
              $
              9,851,788
  10
  NOTE
        4-DUE FROM AFFILIATES
  The
        balance due from the Predecessor’s affiliated entity, Huimin Biotechnology Co.,
        Ltd., at December 31, 2007 was $978,384. The balance had no stated terms
        for
        repayment and was not interest-bearing.
  NOTE
        5-PROPERTY AND EQUIPMENT
  Property
        and equipment at September 30, 2008 and December 31, 2007 consisted of the
        following:
 
 Yongye BiotechnologyInternational, Inc. and
                Subsidiaries
              
              The Predecessor
                Inner Mongolia YongyeSEPTEMBER 30, 2008
              
              DECEMBER 31, 2007Buildings
              
              
              -
              
              $
              1,560,251Manufacturing
                  equipment
              
              $
              1,240
              
              
              788,641Office
                  equipment and furniture
              
              
              44,057
              
              
              33,724Construction-in-process
              
              
              2,891,425
              
              
              1,797Vehicles
              
              
              338,305
              
              
              419,529Leasehold
                  improvement
              
              
              218,815
              
              
              -3,493,842
              
              
              2,803,942Less:
                  Accumulated depreciation
              
              
              107,379
              
              
              317,455Total
              
              $
              3,386,463
              
              $
              2,486,487
  Depreciation
        expense for the three months period ended September 30, 2008 and 2007 was
        $19,197 and $89,469, respectively. Depreciation expense for the nine months
        period ended September 30, 2008 and 2007 was $107,379 and $94,802, respectively.
  NOTE
        6-
        INTANGIBLE ASSETS
  Net
        intangible assets at September 30, 2008 and December 31, 2007 were as follows:
 
 Yongye BiotechnologyInternational, Inc. and
                Subsidiaries
              
              The Predecessor
                Inner Mongolia YongyeSEPTEMBER 30, 2008
              
              DECEMBER 31, 2007Rights
                  to use land
              
              $
              -
              
              $
              4,028,099Patent
              
              
              106,045
              
              
              -Software
              
              
              17,154123,199
              
              
              4,028,099Less:
                  accumulated amortization
              
              
              8,382
              
              
              362,515Total
              
              $
              114,817
              
              $
              3,665,584
  Product
        patent was acquired by the Company in March 2008 with an estimated useful
        life
        of 10 years. It is amortized using the straight-line method over its useful
        life
        commencing on April 1, 2008. Computer software was acquired by the Company
        in
        June 2008 with an estimated useful life of 10 years. It is amortized using
        the
        straight-line method over its useful life commencing on July 1, 2008.
        Amortization expense for the three months period ended September 30, 2008
        and
        2007 amounted to $3,081 and $63,060, respectively. Amortization expense for
        the
        nine months period ended September 30, 2008 and 2007 amounted to $8,382 and
        $66,176, respectively.
  11
  NOTE
        7 -
        LONG-TERM INVESTMENTS
  Long-term
        investments of the Predecessor as of December 31, 2007 consist of medicinal
        plants and trees which the Predecessor purchased in conjunction with the
        right
        to use land. These medicinal plants and trees are to be used for human medical
        treatments and the Predecessor intends to sell them in future years as they
        mature.
  NOTE
        8 – RELATED PARTY TRANSACTIONS
  The
        Predecessor company is a 0.6% shareholder of the Company’s main operating
        subsidiary, Yongye Nongfeng, and is Yongye Nongfeng’s only vendor that provided
        $6,128,774  (100%) of the Company’s purchased finished goods for the three months period
        ended September 30, 2008 and $23,597,523  for
        the
        nine months period ended September 30, 2008. As of September 30, 2008, due
        from
        related party represents the prepayment the Company made to the predecessor
        as
        of September 30, 2008 for future purchases of inventory from the Predecessor.
        According to the contract, the Predecessor sells to us at fixed prices of
        RMB
        350 per case for plant products and RMB 120 per case for animal
        products.
 
 As
        of
        September 30, 2008, the Company has borrowed $1,636,282 from Ms. Yin, the
        wife
        of CEO Mr. Zishen Wu of Inner Mongolia Yongye Nongfeng, and $10,000 from
        a
        director of the Company, Kim McElroy. These funds are interest free with
        no
        specific terms of repayment. As of December 31, 2007, the Predecessor has
        borrowed $2,507,371 from stockholders. These loans are short term in nature,
        unsecured and non-interest bearing. Also, at December 31, 2007 the Predecessor
        has $12,153 of long-term, unsecured and non-interest bearing loans from
        shareholders.
  12
  NOTE
        9-NET INCOME PER SHARE
  Basic
        net
        income per share is computed by dividing net income attributable to common
        shareholders by the weighted average number of common shares outstanding
        during
        the period, but excluding the 2,000,000 “Make Good Shares” according to the
“Make Good Escrow Agreement” in April 2008, and 4,000,000 “September Escrow
        Shares” and 2,000,000 “Restructuring Make Good Shares” according to the
“September Escrow Agreement” (see Note 1). Diluted net income per share reflects
        the potential dilution that would occur upon the exercise of outstanding
        warrants. Common share equivalents are excluded from the computation of the
        diluted net income per share in periods when their effect would be
        anti-dilutive.
  The
        following table sets forth the computation of basic and diluted income per
        share
        for the periods indicated:
 
 Yongye Biotechnology
                International, Inc.
                and Subsidiaries
              
              The predecessor
                Inner Mongolia
                Yongye
              
              Yongye
                Biotechnology
                International,
                Inc.
                and
                Subsidiaries
              
              The
                predecessor
                Inner Mongolia
                YongyeFOR THREE MONTHS
                ENDED
              
              FOR THREE
                MONTHS
                ENDED
              
              FOR NINE
                MONTHS
                ENDED
              
              FOR NINE
                MONTHS
                ENDEDSEPTEMBER 30, 2008
              
              SEPTEMBER 30,
                2007
              
              SEPTEMBER
                30, 2008
              
              SEPTEMBER
                30, 2007Numerator
                  used in basic net income per share:Net
                  income
              
              $
              4,471,017
              
              $
              1,165,807
              
              $
              12,213,202
              
              $
              4,524,235Shares
                  (denominator):Weighted
                  average ordinary shares outstanding
              
              
              18,637,948
              
              
              11,444,775
              
              
              15,654,417
              
              
              11,444,775Plus:
                  weighted average incremental shares from assumed exercise of
                  warrants
              
              
              1,465,812
              
              
              -
              
              
              680,820
              
              
              -Weighted
                  average ordinary shares outstanding used in computing
                  diluted net income per ordinary share
              
              
              20,103,760
              
              
              11,444,775
              
              
              16,335,237
              
              
              11,444,775Net
                  income per ordinary share-basic
              
              $
              0.24
              
              $
              0.10
              
              $
              0.78
              
              $
              0.40Net
                  income per ordinary share-diluted
              
              $
              0.22
              
              $
              0.10
              
              $
              0.75
              
              $
              0.40
 
 NOTE
        10
        -CONCENTRATIONS AND CREDIT RISKS
  Five
        major customers accounted for 99% and one major customer accounted for 65%
        of
        the Company’s net revenue for the three months period ended September 30, 2008.
        Five major customers accounted for 97% and one major customer accounted for
        41%
        of the Company’s net revenue for the nine months period ended September 30,
        2008. Five major customers accounted for 72% and one major customer accounted
        for 22% of the Predecessor’s net revenue for the three months period ended
        September 30, 2007. Five major customers accounted for 81% and one major
        customer accounted for 40% of the Predecessor’s net revenue for the nine months
        period ended September 30, 2007. The Company and the Predecessor’s total sales
        to five major customers were $18,091,398 and $1,895,663, for the three months
        period ended September 30, 2008 and 2007, respectively. The Company and the
        Predecessor’s total sales to five major customers were $43,766,085 and
        $8,716,457, for the nine months period ended September 30, 2008 and 2007,
        respectively.
  13


Yongye Biotechnology
                International Inc.THREE MONTHS ENDED
              SEPTEMBER 30, 2008
            
            NINE MONTHS ENDED
              SEPTEMBER 30, 2008Largest Customers
            
            Amount of Sales
            
            % Total
              Sales
            
            Largest Customers
            
            Amount of Sales
            
            % Total
              SalesHebei
            
            $
            11,824,157
            
            
            65
            %
            Hebei
            
            $
            18,697,216
            
            
            41
            %Xinjiang
            
            $
            3,834,862
            
            
            21
            %
            Xingjiang
            
            $
            13,108,763
            
            
            29
            %Inner
                Mongolia
            
            $
            1,158,951
            
            
            6
            %
            Gansu
            
            $
            5,633,389
            
            
            13
            %Shandong
            
            $
            639,144
            
            
            4
            %
            Inner
              Mongolia
            
            $
            4,708,453
            
            
            10
            %Gansu
            
            $
            634,284
            
            
            3
            %
            Shandong
            
            $
            1,618,264
            
            
            4
            %Total
            
            $
            18,091,398
            
            
            99
            %
            Total
            
            $
            43,766,085
            
            
            97
            %





The Predecessor
              Inner Mongolia YongyeTHREE MONTHS ENDED
              SEPTEMBER 30, 2007
            
            
            
            NINE MONTHS ENDED
              SEPTEMBER 30, 2007Largest
              Customers
            
            Amount of Sales
            
            %
              Total
              Sales
            
            Largest Customers
            
            Amount of
              Sales
            
            % Total
              SalesHebei
            
            $
            582,536
            
            
            22
            %
            Xinjiang
            
            $
            4,266,516
            
            
            40
            %Gansu
            
            $
            511,567
            
            
            19
            %
            Hebei
            
            $
            1,833,983
            
            
            17
            %Xinjiang
            
            $
            468,850
            
            
            18
            %
            Dalian
            
            $
            1,295,166
            
            
            12
            %Inner
                Mongolia
            
            $
            214,212
            
            
            8
            %
            Inner
              Mongolia
            
            $
            816,336
            
            
            8
            %Jiangsu
            
            $
            118,498
            
            
            5
            %
            Gansu
            
            $
            504,456
            
            
            5
            %Total
            
            $
            1,895,663
            
            
            72
            %
            Total
            
            $
            8,716,457
            
            
            81
            %





The
      Predecessor is the Company’s only vender who provided 100% of the Company
      purchased finished goods for the three months period and nine months period
      ended September 30, 2008. The Predecessor had four major vendors who provided
      100% of its raw materials for the three months period ended September 30, 2007.
      The Predecessor had four major vendors who provided 94% of its raw materials
      for
      the nine months period ended September 30, 2007. Total purchases from these
      vendors were $5,789,832 for the three months period ended September 30, 2007
      and
      $7,892,577 for the nine months period ended September 30, 2007.




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


14


**Item
      2- MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




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





**Company
      Overview**




Prior
      to
      the Share Exchange, we were a public “shell” company with nominal assets. We
      were incorporated in the State of Nevada on December 12, 2006 and engaged in
      the
      business of offering sunless tanning services and selling tanning lotions.
      In
      2008, we began to pursue an acquisition strategy, whereby we sought to acquire
      an undervalued business with a history of operating revenues in markets that
      provide room for growth.




As
      a
      result of the Share Exchange, we changed our name to Yongye Biotechnology
      International, Inc. and through our Company’s Cooperative Joint Venture
      subsidiary, Yongye Nongfeng Biotechnology Co., (“Yongye Nongfeng”), are now
      engaged in the research, development, and sales of fulvic acid based liquid
      and
      powder nutrient compounds used in the agriculture industry. Based on industry
      research and government testing, we believe our proprietary technology for
      fulvic acid extraction creates some of the purest and most bioactive fulvic
      acid
      and thus some of the most effective plant and animal nutrients on the market
      in
      China. Our contractual relationship with our predecessor company, Inner Mongolia
      Yongye, is the key to securing our own source of fulvic acid and to control
      our
      manufacturing process from procurement of raw materials to final production,
      which will allow us to provide a high quality product to our customers with
      more
      reliable results from season to season.





We
      operate our businesses in China primarily through Yongye Nongfeng Biotechnology,
      which is 99.4% owned by Asia Standard Oil and 0.6% owned by Inner Mongolia
      Yongye. To date, Inner Mongolia Yongye, the primary contract manufacturer for
      Yongye Nongfeng, has assigned its management team, customers, sales contracts
      and one of its patents to Yongye Nongfeng and became the primary contract
      manufacturer for Yongye Nongfeng.




We
      are headquartered in Beijing, China and Inner Mongolia. Yongye’s manufacturing
      plant is 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,
      which is added to other natural substances to customize the base for use in
      our
      plant or animal lines of products. Our plant products add naturally occurring
      macro and micro nutrients such as nitrogen, phosphorus, potassium, boron and
      zinc. Our animal products add natural herbs which provide antibiotic type
      properties.




Our
      predecessor company, Inner Mongolia Yongye, began recording sales of its first
      plant product in 2005 and by 2007 marketed and sold both plant product in 10
      provinces and animal product in 2 provinces in China. In 2007 Inner Mongolia
      Yongye produced approximately 1,100 tons of plant product (106,000 units) which
      represented 87% of revenue at $11.5M and sold it to approximately 125,000
      farmers. Our predecessor company also produced approximately 4 tons of our
      animal product (approximately 13,800 units) which were sold to farmers to treat
      approximately 80,000 animals. This represented 13% of revenue at $1.6M. In
      its
      highly concentrated form, our plant product was sprayed on approximately 2,667
      square kilometers of arable land in the top 4 provinces we sell in and in the
      largest of these provinces, Xinjiang, it was applied to approximately 8% of
      the
      land available for cultivation. Inner Mongolia Yongye’s top 3 provinces by
      revenue last year represented 83% of sales and were Xinjiang at $6.2M (47%),
      Inner Mongolia at $2.7M (21%), and Hebei at $2M (15%). Among these provinces,
      sales are broken up into sales to large farms at 45% and small farms at
      55%.




15




**Industry
      and Market Overview**




To
      understand our business, it is important to understand China’s economy. China is
      growing from a largely semi-subsistence economy to an urban economy. Consumers
      are demanding more agricultural products with better quality and inflation
      is
      setting in across the country. The agricultural industry in China is growing
      tremendously to keep up with this domestic demand, but added to this is a global
      demand for China’s agriculture products. This is creating much volatility in its
      supply chain and farmers are at the crux of both the problem and the solution
      for both crop and animal production and this is where our products match market
      need.




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




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




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




**“Fertilize
      the Plant and Not the Ground”**




China
      also has the world’s largest population, which it sustains on a very low amount
      of arable land on a per capita basis - 0.04 hectare. This is approximately
      50%
      of that present in the United States (Source: US Census Bureau, www.census.gov).
      This combination of limited arable land and a large and growing population
      has
      created a significant need to increase the output of crops per hectare in China.
      China’s agricultural output increased 19% from 1988 to 2004 (the total crops
      output was 394,080,000 tons in 1988 as compared to 469,469,000 tons in
      2004).





For
      the
      agricultural input industry, an increase in the use of fertilizers - 8,840,000
      tons were used in 1978 compared to 46,366,000 tons used in 2004 - has
      contributed to the growth. As a subset of the broader fertilizer market, the
      use
      of compound fertilizers in China has likewise increased, from 2,720,000 tons
      in
      1980 to 12,040,000 in 2004. Fertilizer, however, has only a 30% impact on
      Chinese crops as 70% of the nutrients are lost due to poor
      management.




This
      is a
      typical scenario in most developing nations and this has prompted the Food
      and
      Agriculture Organization of the United Nations (“UN”) in 2003 to begin educating
      farmers on proper plant nutrient management in farming. The key point is that
      the UN is encouraging farmers to increase nutrients to the plant without
      increasing the amount of fertilizer used and this supports not only our plant
      nutrient approach, but also our educational approach to selling our product-
      helping farmers to increase yields via overall education and proper use of
      input
      products.





16




**Recent
      Development**





On
      September 5, 2008, we entered into a securities purchase agreement (the
“ September
      Purchase Agreement ”),
      with
      certain qualified institutional buyers (the “ September
      Investors ”),
      for
      the sale in a private placement of an aggregate of 6,073,006 shares of our
      Common Stock (the “ September
      Investor Shares ”),
      and
      the issuance of 1,518,253 warrants for aggregate gross proceeds equal to
      approximately $9,345,000 (the “September Offering ”).
      In
      connection with the September Offering, we also entered into a registration
      rights agreement (the “ September
      Registration Rights Agreement ”)
      with
      the September Investors, in which we agreed to file a registration statement
      (the “ September
      Registration Statement ”)
      with
      the SEC to
      register for resale the September Investor Shares and the shares underlying
      the
      September Warrants, on or prior to 45 calendar days after the closing date
      of
      the September Offering, and use our best efforts to have the September
      Registration Statement declared effective within 150 calendar days of the
      closing date of the September Offering which we have completed and now our
      S-1
      is effective.


17


**Overview
      of 3** **rd** **Quarter**





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 several months. The consumer
      goods and logistics industries have been the hardest hit with increased prices
      and decreased demand which has resulted in factory closings primarily in the
      south. However, some have said this is a blessing in disguise as China aims
      to
      modify its economic structure after three decades of breakneck growth. "With
      such a high reliance on international trade, it's impossible for China to avoid
      the impact of the global turbulence, so economic slowdown is inevitable," says
      Tang Min, deputy secretary-general of the China Development Research Foundation,
      which was initiated by a policy advisory body of the Cabinet. "However, the
      crisis is a timely warning that China's growth is unsustainable in the
      traditional pattern, relying too much on external demand," says Tang. "It can
      force us to change for the better." China's economy has maintained an average
      annual growth of about 10 percent for 30 years since the reform and opening-up
      policy was adopted, compared with a mere 3.3 percent for the world economy.
      For
      the last five years, it expanded 10.6 percent each year on average.





Agriculture
      Sector





Agriculture
      continues to be a heavily invested sector in China. The news is full of stories
      about brand name investors who continue to invest into China’s agriculture space
      because they have confidence in China’s long term outlook. The market volume for
      agriculture products is huge, both for domestic sales and export and there
      is no
      set threshold for foreign investment into the sector as opposed to other
      industries, such as energy, finance, mining, and telecommunications. This is
      driven by the growing demand for higher quality food products domestically
      and
      international reliance on food products from China. Currently, China is the
      world’s biggest grower and consumer of grains and yet must boost crop yields by
      at least 1 percent a year to ensure the country has enough food to feed its
      1.3
      billion people, according to the Minister of Agriculture, Sun Zhengcai.
      Additional policy changes will include protecting farmland and working to
      increase rural incomes to retain farming interest.





The
      goal
      is to maintain self-sufficiency in food production because no other country
      can
      feed the world’s biggest population, Sun said. “Our strategy must be based on
      stable farmland, and seeking ways to improve yields,” Sun said in a speech to
      local officials, outlining the government’s near- and long-term agriculture
      policy and objectives. China, which harvested more summer crops, aims also
      to
      boost grain and oilseed output this year, Sun said. To ensure next year’s crops,
      officials must “stabilize” area planted in winter wheat and use idle land in the
      off season to grow rapeseed, Sun said.





This
      growth, however, does not come without challenges and China has faced many
      of
      these with regards to the continued concern over the quality of milk and eggs
      sold both domestically and internationally in the dairy industry, The government
      is making every effort to bring back consumer confidence in these domestically
      produced products and overall this will bring about an even stronger industry
      once new licensing and safety procedures have been put into place.





New
      Land Reform Policy





Farmland
      in China is owned by the local government, but given to local farmers under
      30
      year use contracts. With the allure of higher incomes and better living
      conditions in the city, farmers have abandoned the land and no others farmers
      have stepped in to bring it back into production. This has created a shortage
      of
      a key raw material in the agricultural supply chain- productive land. The
      government has acknowledged this issue and recently enacted a new land use
      reform policy which liberalizes the exchange of land among the nation’s farmers.
      This creates a new model for China’s 730 million farmers with the idea being to
      create more stable farmlands by shifting the country away from the single
      household farm plot model to the amalgamation of larger-scale operations which
      should be more productive due to technology and economies of scale. Farmers
      will
      be able to transfer their land-use rights to others through a new market system
      for rural land-use rights. Chinese authorities commented that, "Without
      modernizing agriculture, China cannot modernize; without stability and
      prosperity in rural areas, China cannot have stability and prosperity." The
      changes are enacted to "ensure national food security and the supply of major
      agricultural products, and promote increases in agricultural production, farm
      incomes and rural prosperity."





18




Demand
      for our products




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




According
      to the Asian Development Bank statistics, well over 60% of the nation’s 1.3
      billion total population is comprised of low-income, rural farmers. According
      to
      the 11 th Five-Year NESDP (2006-2010), raising the level of rural income is a top economic
      and social goal for the country. Many government initiatives, including removal
      of certain agricultural and local product taxes, have been implemented to spur
      rural income development. The government expects annual rural income to grow
      between 5% and 10% through 2010.





With
      this
      in mind and the recent developments in our related industries, we continue
      to
      see our market potential expand and the demand for our products expand as well.
      With the new farmland policy, new land will be brought back into production
      which gives us more opportunity to sell product. With the dairy industry issues,
      farmers will be even more interested in keeping their cows productive which
      also
      gives us continued opportunity for sales.





One
      key
      strategy we have to increase the demand for our products is to reach the village
      level farmer and we do this through our Yongye Branded Stores. We sell to
      distributors who in turn sell through distribution channels to our final selling
      point which is our branded store. These stores are previously existing,
      independently owned, agricultural product stores which carry our products in
      a
      more prominent way than other products. We put up banner signs outside and
      inside and these attract more attention than other products. We also advertise
      through infomercials on local stations and on computers we provide the stores
      as
      part of our advertising. This has been a key reason we have had exponential
      growth and we will continue to grow the number of branded stores in the
      future.





Supply
      of Finished Goods


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





Seasonality




The
      third
      quarter of the year is typically our second strongest quarter with approximately
      35% of total annual revenues. For the three months ended September 30, 2008
      we
      saw exceptionally strong sales of $18,202,940, which is 593% growth over the
      same period last year of $2,625,137. This was atypical in that our seasonal
      revenue patterns usually see a decline over the previous quarter, however,
      in
      the third quarter we actually increased sales over the second quarter by 3%.
      Our
      major activities in the fourth quarter are to finalize sales contracts and
      prepare finished goods for sale in the first half of 2009 and thus we expect
      to
      see a decline in sales over the prior two quarters.





19




**Financial
      Highlights**





Yongye
              Biotechnology
            
            The
              predecessor
            
            Yongye
              Biotechnology
            
            The
              predecessorInternational,
              Inc.
            
            Inner
              Mongolia
              Yongye
            
            International,
              Inc.
            
            Inner
              Mongolia
              Yongyeand
              Subsidiaries
            
            
            
            and
              SubsidiariesFOR THREE
              MONTHS
              ENDED
            
            FOR THREE
              MONTHS
              ENDED
            
            FOR NINE
              MONTHS
              ENDED
            
            FOR NINE
              MONTHS
              ENDEDSEPTEMBER
              30, 2008
            
            SEPTEMBER
              30, 2007
            
            SEPTEMBER
              30, 2008
            
            SEPTEMBER
              30, 2007(Unaudited)
            
            (Unaudited)
            
            (Unaudited)
            
            (Unaudited)**SALES**
            
            $
            18,202,940
            
            $
            2,625,137
            
            $
            45,189,579
            
            $
            10,752,855**COST**
            
            
            9,278,944
            
            
            1,021,719
            
            
            21,697,964
            
            
            5,368,480**GROSS
                PROFIT**
            
            
            8,923,996
            
            
            1,603,418
            
            
            23,491,615
            
            
            5,384,375**OPERATING
                EXPENSES**
            
            
            3,440,036
            
            
            159,398
            
            
            7,437,513
            
            
            230,591**GENERAL
                AND ADMINISTRATIVE EXPENSES**
            
            
            453,683
            
            
            196,386
            
            
            1,265,808
            
            
            351,372**INCOME
                FROM OPERATIONS**
            
            
            5,030,277
            
            
            1,247,634
            
            
            14,788,294
            
            
            4,802,412**OTHER
                INCOME (EXPENSES)**Interest
            
            
            65,785
            
            
            -
            
            
            66,563
            
            
            1,291Other
                income (expense)
            
            
            (340,087
            )
            
            (81,827
            )
            
            (726,927
            )
            
            (279,468
            )**TOTAL
                OTHER INCOME (EXPENSES)**
            
            
            (274,302
            )
            
            (81,827
            )
            
            (660,364
            )
            
            (278,177
            )**INCOME
                BEFORE PROVISION FOR****INCOME
                TAXES AND MINORITY INTEREST**
            
            
            4,755,975
            
            
            1,165,807
            
            
            14,127,930
            
            
            4,524,235**PROVISION
                FOR INCOME TAXES**
            
            
            227,537
            
            
            -
            
            
            822,302
            
            
            -**INCOME
                BEFORE MINORITY INTEREST**
            
            
            4,528,438
            
            
            1,165,807
            
            
            13,305,628
            
            
            4,524,235**PROVISION
                FOR MINORITY INTEREST**
            
            
            57,421
            
            
            -
            
            
            1,092,426
            
            
            -**NET
                INCOME**
            
            
            4,471,017
            
            
            1,165,807
            
            
            12,213,202
            
            
            4,524,235




20




Strategies
      we are in the process of implementing include:





 ̈
            Our
                increase in production capacity from 2,000TPA to 10,000TPA via our
                new
                8,000TPA expansion gives us a 400% increase in capacity for the coming
                year. We intend to significantly deepen our penetration in current
                markets
                to strengthen our leadership position. We will continue to expand
                our
                distribution base and increase the capability of our distribution
                partners. This will enable us to continue to expand our current market
                share.




 ̈
            We
                will also continue to increase the number of Branded Stores and provide
                on-going advertising, service and support to these stores so that
                they can
                increase their sales base, increase the pull of product through the
                distribution channels and strengthen our Brand Recognition province
                by
                province.




21




**RESULTS
      OF OPERATIONS**





**THREE
      MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007**





Our
      business for the three months ended September 30, 2008 exceeded previous
      estimates and grew at 593% rate in sales over the same period in 2007. This
      demonstrated our ability to develop robust revenue growth in the first three
      quarters of 2008. This was primarily driven by higher volumes shipped through
      the third quarter. Numerous factors contributed to our strong growth: strong
      market demand, continued cost containment and steady pricing model, government
      policy support, industry growth, and sales and marketing leadership in our
      markets.





*Three
      months ended September 30, 2008 (Yongye Nongfeng) compared with three months
      ended September 30, 2007 (Predecessor)*





The
      following table shows, for the periods indicated, information derived from
      our
      consolidated statements of income.





THREE MONTHS ENDEDYongye Nongfeng
            
            Predecessor
              Inner Mongolia Yongye(Unaudited)
            
            (Unaudited)SEPTEMBER 30, 2008
            
            SEPTEMBER 30, 2007
            
            Increase /(decrease)Net Sales
            
            $
            18,202,940
            
            $
            2,625,137
            
            
            593
            %Gross Profit
            
            $
            8,923,996
            
            $
            1,603,418
            
            
            457
            %Operating
                Income
            
            $
            5,030,277
            
            $
            1,247,634
            
            
            303
            %Net
                Income
            
            $
            4,471,017
            
            $
            1,165,807
            
            
            284
            %*Gross
                Margins*
            
            
            49
            %
            
            61
            %
            
            -12
            %*Net
                Margins*
            
            
            25
            %
            
            44
            %
            
            -19
            %EPS-
                Basic
            
            $
            0.24
            
            $
            0.10
            
            
            140
            %EPS-
                Diluted
            
            $
            0.22
            
            $
            0.10
            
            
            120
            %





**Net
      Sales**





Sales
      of
      $18,202,940 in the third quarter of 2008 was an increase of $15,577,803 from
      $2,625,137 in the same period in 2007, which was an overall increase of 593%.
      Our increased sales was primarily attributable to a 428% increase in total
      volume of units sold of both plant and animal products, up 147,512 to 182,009,
      over the previous three months ended September 30, 2007 figure of 34,497. This
      volume growth was driven by strong customer demand at our Branded Store level
      which resulted in strong pull through our distribution channels.





As
      of
      September 30, 2008, the receivable balance due from our five largest customers
      represented 96% of total accounts receivable, up 7% from 89% as compared to
      the
      corresponding period in 2007. We routinely extend unsecured credit to our major
      customers with good credit histories. Management reviews its accounts receivable
      on a regular basis to determine if the allowance for doubtful accounts is
      adequate at each quarter-end. We have not seen any accounts receivable go
      uncollected beyond 180 days or experienced any write-off of accounts receivable
      in the past. Thus, we elected not to make any provision for doubtful accounts
      and consider all accounts receivable collectable.




22




Our
      financial position at quarter ended September 30, 2008 (unaudited) and the
      year
      ended December 31, **** 2007:





PredecessorYongye Nongfeng
            
            Inner MongoliaYongye****SEPTEMBER 30, 2008
            
            DECEMBER 31, 2007
            
            Increase(Unaudited)
            
            
            
            /(decrease)Cash
            
            $
            6,847,558
            
            $
            376,002
            
            
            1,721
            %Accounts receivable, net
            
            $
            20,678,867
            
            $
            1,630,609
            
            
            1,168
            %Fixed
                assets, net
            
            $
            3,386,463
            
            $
            2,486,487
            
            
            36
            %Total
                assets
            
            $
            35,564,319
            
            $
            23,131,656
            
            
            54
            %Short-term
                bank loan
            
            
            -
            
            $
            5,484,000
            
            
            -100
            %Long-term
                liabilities
            
            $
            204,962
            
            $
            12,153
            
            
            1,587
            %Total
                stockholders’ equity
            
            $
            30,516,661
            
            $
            12,911,472
            
            
            136
            %




We
      increased our cash position to $6,847,558 at the end of September 30, 2008
      from
      $376,002 at the end of December 31, 2007, which is an overall increase of
      $6,471,556, or 1,721%. This was primarily due to increased cash sales,
      collections of accounts receivable, and the recent PIPE transaction on September
      5, 2008. Accounts receivable increased by 1,168% to $20,678,867 as of September
      30, 2008 from $1,630,609 as of December 31, 2007 due to increased growth in
      sales for the current period. Property, plant and equipment increased to
      $3,386,463 at September 30, 2008 from $2,486,487 at December 31, 2007, which
      was
      a 36% increase and was largely due to Construction In Process (CIP) related
      to
      the 8,000TPA facility under construction in the third quarter. Additionally,
      shareholders’ equity increased by $17,605,189 to $30,516,661 as of September 30,
      2008, which is an overall 136% increase compared to $12,911,472 on December
      31,
      2007, and was due primarily to the influx of our two PIPE transactions on April
      17, 2008 and September 5, 2008.





Sales
      Revenue and Gross Profit





*Three
      months ended September 30, 2008 (Yongye Nongfeng) compared with three months
      ended September 30, 2007 (Predecessor)*





THREE MONTHS ENDEDPredecessorYongye Nongfeng
            
            Inner MongoliaYongyeSEPTEMBER 30, 2008
            
            SEPTEMBER 30, 2007
            
            **Increase/**(Unaudited)
            
            (Unaudited)
            
            **(Decrease)**Sales
            
            $
            18,202,940
            
            $
            2,625,137
            
            
            593
            %Gross Profit
            
            $
            8,923,996
            
            $
            1,603,418
            
            
            457
            %Gross Margin
            
            
            49
            %
            
            61
            %
            
            -12
            %





Sales
      revenue increased by $15,577,803 to $18,202,940 in the period ended September
      30, 2008 from $2,625,137 in the same period ended September 30, 2007 which
      is a
      593% increase overall. Gross Profit also increased 457% over the prior period,
      which is an increase from $1,603,418 to $8,923,996 or $7,320,578 over the prior
      period. There was an overall decrease of 12% in gross margin in the period
      ended
      September 30, 2008 from 49% to the same period ended September 30, 2007 which
      saw the Predecessor earn 61%. This was primarily due to substantial discounts
      given to valued distributors in the quarter.




23




THREE MONTHS ENDEDThe PredecessorInner MongoliaYongye Nongfeng
            
            YongyeSEPTEMBER 30, 2008
            
            SEPTEMBER 30, 2007
            
            IncreaseNumber of Branded Stores
            
            
            775
            
            
            200
            
            288%





Our number of branded stores grew to 775 in the period
      ended September 30, 2008 from 200 in the same period ended September 30, 2007
      which was an increase of 288%.





Sales
      by
      Product Line


THREE MONTHS ENDEDYongye Biotechnology
                  International Inc.
              
              The Predecessor
                Inner Mongolia
                YongyeSEPTEMBER 30, 2008
              
              SEPTEMBER 30, 2007Units Shipped
              
              Total Sales
              
              % of Total Sales
              
              Units Shipped
              
              Total Sales
              
              % of Total SalesAnimals
              
              
              512
              
              $
              17,931
              
              
              0.10
              %
              
              20,350
              
              $
              672,383
              
              
              25.61
              %Plant
              
              
              181,497
              
              $
              18,185,009
              
              
              99.90
              %
              
              14,147
              
              $
              1,952,754
              
              
              74.39
              %Total
              
              
              182,009
              
              $
              18,202,940
              
              
              100.00
              %
              
              34,497
              
              $
              2,625,137
              
              
              100.00
              %





Sales
      of
      animal product decreased in this period ended September 30, 2008 to 512 from
      20,350 in the same period ended September 30, 2007. Sales of plant product
      increased to 181,497 for the three months ended September 30, 2008 from 14,147,
      which is an 1183% increase over the same period ended September 30,
      2007.





Customers





*Three
      months ended September 30, 2008 (Yongye Nongfeng) compared with three months
      ended September 30, 2007 (Predecessor)*





Five
      major customers accounted for 99% and one major customer accounted for 65%
      of
      the Company’s net revenue for the three months period ended September 30, 2008.
      Five major customers accounted for 72% and one major customer accounted for
      22%
      of the Predecessor’s net revenue for the three months period ended September 30,
      2007. The Company and the Predecessor’s total sales to five major customers were
      $18,091,398 and $1,895,663, for the three months period ended September 30,
      2008
      and 2007, respectively.





Cost
      of Sales





*Three
      months ended September 30, 2008 (Yongye Nongfeng) compared with three months
      ended September 30, 2007 (Predecessor)*





THREE MONTHS ENDEDInner Mongolia
            
            The PredecessorYongye Nongfeng
            
            Inner MongoliaYongye Biotechnology**SEPTEMBER 30, 2008**
            
            **SEPTEMBER 30, 2007**
            
            **Change**(Unaudited)
            
            (Unaudited)Cost of Sales
            
            
            9,278,944
            
            
            1,021,719
            
            
            808
            %Percentage
                of Sales
            
            
            51
            %
            
            39
            %
            
            12
            %




24




Cost
      of
      sales increased in the recent period ended September 30, 2008 by $8,257,225
      to
      $9,278,944 from $1,021,719 in the same period ended September 30, 2007. This
      is
      an 808% increase over the previous period and was due to the overall increase
      in
      sales as noted above. Cost of sales as a percentage of net sales increased
      over
      this quarter ended September 30, 2008 to 51% from 39% in the previous period
      ended September 30, 2007, and this 12% change was primarily due to the fixed
      rate fee charged by our dedicated supplier which included a financing mark-up
      which the predecessor company did not include in its cost structure in the
      previous period. Additionally, due to increased handling costs and discounts
      given to our key distributors in this period ended September 30, 2008, the
      margin between sales and cost of sales decreased as compared to the same period
      ended September 30, 2007.





Selling,
      General and Administrative Expenses





*Three
      months ended September 30, 2008 (Yongye Nongfeng) compared with three months
      ended September 30, 2007 (Predecessor)*





THREE MONTHS ENDEDInner Mongolia
            
            PredecessorYongye Nongfeng
            
            Inner MongoliaYongye Biotechnology**SEPTEMBER 30, 2008**
            
            **SEPTEMBER 30, 2007**
            
            **Change**(Unaudited)
            
            (Unaudited)Selling, 
                General and Administrative Expenses
            
            
            
            
            $
            3,893,719
            
            $
            355,784
            
            
            994
            %Percentage
                of Sales
            
            
            
            
            
            21
            %
            
            14
            %
            
            7
            %





Selling,
      general and administrative (“S,G&A”) expenses increased by $3,537,935 to
      $3,893,719 in the period ended September 30, 2008 from $355,784 in the previous
      period in 2007, which is a 994% change. As a percentage of Sales for this period
      ended September 30, 2008, SG&A increased 7% to 21% as compared to 14% in the
      period ended September 30, 2007. This increase in overall percentage of sales
      was due to increased advertising, executives salaries and freight costs of
      $
      3,408,813 in this period ended September 30, 2008 as compared to $140,205 in
      the
      same period in 2007, which is an increase of $3,268,608, or 2331% overall.
      While
      the predecessor company did have a similar cost structure to Yongye Nongfeng,
      it
      was expansive much smaller business with a smaller staff, market size and
      shipping requirements. This is especially true in the area of freight, where
      the
      number of provinces has now increased to 10 in this period ended September
      30,
      2008 from 4 in the previous period ended September 30, 2007.





Income
      Tax





*Three
      months ended September 30, 2008 (Yongye Nongfeng) compared with three months
      ended September 30, 2007 (Predecessor)*





The
      Company did not carry on any business and did not maintain any branch office
      in
      the United States during the three months ended September 30, 2008 and 2007
      and
      does not intend to repatriate any earnings from the Chinese operations.
      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.





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 Predecessor is subject to PRC Enterprise Income
      Tax at a rate of 33% of net income before year 2008 and 25% of the net income
      since January 1, 2008. Since the Predecessor is located in the economic
      development area in Inner Mongolia Autonomous Region, the Predecessor is exempt
      from income tax according to the tax law in China.


25





For
      the
      three months ended September 30, 2008, the Company’s income tax expense was
      $227,537 and income tax payable as of September 30, 2008 was $414,997 compared
      to $0 and $0 for the same period in 2007.





Net
      income





*Three
      months ended September 30, 2008 (Yongye Nongfeng) compared with three months
      ended September 30, 2007 (Predecessor)*





THREE MONTHS ENDEDYongye Nongfeng Biotechnology
            
            PredecessorInner MongoliaYongye**SEPTEMBER 30, 2008**
            
            **SEPTEMBER 30, 2007**
            
            Increase/(Unaudited)
            
            (Unaudited)
            
            (Decrease)Net
                income
            
            
            4,471,017
            
            
            1,165,807
            
            
            284
            %Percentage
                of Sales
            
            
            25
            %
            
            44
            %
            
            -19
            %





Net
      income for the period ended September 30, 2008 increased by $3,305,210 to
      $4,471,017 from $1,165,807 in the same period ended September 30, 2007, which
      is
      a 284% increase. However, this also represented a decrease in the overall
      percentage of net income to sales of 19% to 25% in the period ended September
      30, 2008 from 44% in September 30, 2007. This was primarily due to increased
      SG&A and cost of goods sold over the period as described above.





Basic
      and
      diluted earnings per share (EPS) for the three months ended September 30, 2008,
      were $0.24 and $0.22, 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 were 18.6 million and 20.1
      million and 11.4 million and 11.4 million, respectively.





**Foreign
      Currency Translation Gains**





The
      reporting currency of the Company is the US dollar (“USD”). We use our local
      currency, Renminbi (RMB), as our functional currency. Results of operations
      and
      cash flow are translated at average exchange rates during the period, and assets
      and liabilities are translated at the unified exchange rate at the end of the
      period. Translation adjustments resulting from this process are included in
      accumulated other comprehensive income in the statement of shareholders’ equity.
      Transaction gains and losses that arise from exchange rate fluctuations on
      transactions denominated in a currency other than the functional currency are
      included in the results of operations as incurred. The
      value
      of the USD versus the RMB continued to decline during the third quarter of
      2008.
      As a result of the appreciation of the RMB, we recognized a foreign currency
      translation gain of $5,199 for the third quarter of 2008 compared to a gain
      of
      $170,033 for the same quarter last year. Given the uncertainty of exchange
      rate
      fluctuations, we cannot estimate the effect of these fluctuations on our future
      business, product pricing, and results of operations or financial condition.





**Liquidity
      and Capital Resources**





Inner
      Mongolia Yongye has historically financed our operations and capital
      expenditures principally through shareholder loans, bank loans, and cash
      provided by operations. As is customary in the industry, we provide payment
      terms to most of our distributors which typically exceed the terms that we
      ourselves receive from our finished goods suppliers. Therefore, the Company’s
      liquidity needs have generally consisted of working capital necessary to finance
      receivables and raw material inventory. We believe that our existing cash,
      cash
      equivalents and cash flows from operations and from the September Offering
      will
      be sufficient to meet our anticipated future cash needs for the remaining
      growing season. We may, however, require additional cash resources due to
      changing business conditions or other future developments, including any
      investments or acquisitions we may decide to pursue. Therefore, there can be
      no
      assurance that such additional investment will be available to us, or if
      available, that it will be available on terms acceptable to us.


26


**NINE
      MONTHS ENDED SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007**





**Financial
      Cash Flow Highlights for Nine months Ended:**





*Nine
      Months Ended September 30, 2008 as compared to December 31,
      2007*





Working
      capital for the first nine months period ended September 30, 2008 increased
      by
      $25,756,979 to $28,412,769, as compared to $ 2,655,790 in the twelve month
      period ended December 31, 2007. While comparing working capital between the
      CJV
      and the predecessor company is not exactly comparing like items, we do it here
      to show the differences between the two business models. The changes in working
      capital over this nine month period are primarily due to a decrease in inventory
      of $ 7,791,256 due to the finished goods only nature of our business model,
      an
      increase in cash of $ 6,471,556 due significantly to our two financings,
      increased sales capability in the period, and a large accounts receivable
      increase of $ 19,048,258 due to larger sales volume.





Accounts
      receivable days sales outstanding increased 68 days to 103 days from 35 days
      which is due to several large distributors going beyond the normal terms of
      their agreements. Days Sales in Inventory decreased to 13 days from 213 days
      due
      to our current business model focusing on the sales of finished goods which
      are
      shipped from the manufacturer to our customers.





*Nine
      Months Ended September 30, 2008 as compared to September 30,
      2007*





NINE MONTHS ENDEDYongye Nongfeng
              Biotechnology
            
            Predecessor
              Inner Mongolia
              YongyeSEPTEMBER 30, 2008
            
            SEPTEMBER 30, 2007
            
            Increase
              /(decrease)(Unaudited)
            
            (Unaudited)Net
                cash used in operating activities
            
            
            (8,119,164
            )
            
            (3,569,434
            )
            
            127
            %Net
                cash used in investing activities
            
            
            (3,616,091
            )
            
            (96,165
            )
            
            3,660
            %Net
                cash from financing activities
            
            
            18,194,020
            
            
            5,076,498
            
            
            258
            %Effect
                of exchange rate change on cash and cash equivalents
            
            
            380,656
            
            
            32,791
            
            
            844
            %Net
                increase in cash and cash equivalents
            
            
            6,839,421
            
            
            1,443,690
            
            
            374
            %Cash
                and cash equivalents at beginning of period
            
            
            8,137
            
            
            89,023
            
            
            (91
            %)Cash
                and cash equivalents at end of period
            
            
            6,847,558
            
            
            1,532,713
            
            
            347
            %





Net
      cash
      used in operating activities increased in the period ended September 30, 2008
      by
      $4,549,730 to $8,119,164 from $3,569,434 at the end of the period September
      30,
      2007, which represents a 127% increase over the prior period. The increase
      of
      $4,549,730 between the periods was mainly brought about by changes as follows:
      an increase in accounts receivable of $19,511,908, a decrease in inventories
      of
      $3,164,792 and an increase in accounts payable and accrued expenses of
      $1,561,974, which were off-set by a change in net income of $7,688,967. 
Net cash used in investing activities increased to $3,616,091 from $96,165
      mainly due to construction in progress of $2,891,425.


27





Cash
      from
      financing activities in the period ended September 30, 2008 increased by 258%
      over the previous period’s amount of $5,076,498. This was due to the April and
      September Offerings which amounted to $19,450,651 and was offset by payments
      for
      stock issuance of $1,461,659. This is compared to the previous period ended
      September 30, 2007 where financing activities amounted to short-term bank loan
      proceeds of $4,251,841 and shareholder loan proceeds of $831,157.


.


NINE MONTHS ENDEDYongye Nongfeng
              Biotechnology
            
            Predecessor
              Inner Mongolia
              YongyeSEPTEMBER 30, 2008
            
            SEPTEMBER 30,2007
            
            Increase
              /(decrease)(Unaudited)
            
            (Unaudited)Sales
            
            
            45,189,579
            
            
            10,752,855
            
            
            320
            %Gross
                Profit
            
            
            23,491,615
            
            
            5,384,375
            
            
            336
            %Income
                from Operations
            
            
            14,788,294
            
            
            4,802,412
            
            
            208
            %Net
                Income
            
            
            12,213,202
            
            
            4,524,235
            
            
            170
            %Gross
                Margins
            
            
            52
            %
            
            50
            %
            
            2
            %Net
                Margins
            
            
            27
            %
            
            42
            %
            
            -15
            %





**Net
      Sales**





Sales
      revenue increased by $34,436,724 or 320%, to $45,189,579 for the nine months
      ended September 30, 2008 from $10,752,855 for the same period ended September
      30, 2007. This can be attributed to our investment in our distribution channels
      and build up of Branded Stores which put more products in the hands of end
      users. We have increased the number of stores from inception in 2007 to 775
      stores by September 30, 2008. The Company and the Predecessor’s total sales to
      our largest customers are as follows:





THREE MONTHS ENDED
            
            NINE MONTHS ENDEDYongye Nongfeng
              Biotechnology
            
            Predecessor
              Inner Mongolia
              Yongye
            
            Yongye Nongfeng
              Biotechnology
            
            Predecessor
              Inner Mongolia
              YongyeSEPTEMBER 30, 2008
            
            SEPTEMBER 30,
              2007
            
            SEPTEMBER 30, 2008
            
            SEPTEMBER 30,
              2007%
            
            Sales
            
            %
            
            Sales
            
            %
            
            Sales
            
            %
            
            Sales5
                Major Customers
            
            
            99%
            
            $
            18,091,398
            
            
            72%
            
            $
            1,895,663
            
            
            97%
            
            $
            43,766,085
            
            
            81%
            
            $
            8,716,4571
                Major Customer
            
            
            65%
            
            $
            11,824,157
            
            
            22%
            
            $
            582,536
            
            
            41%
            
            $
            18,697,216
            
            
            40%
            
            $
            4,266,516


28


**Gross
      Profit Margin**





We
      achieved gross profit of $23,491,615 for the nine months ended September 30,
      2008, up $18,107,240, or 336%,
      from gross profit of $5,384,375 for the corresponding period in the prior year.
      Gross profit margin for nine months ended September 30, 2008 was 52%, up 2%
      from
      50% as compared to the corresponding period in 2007. This resulted from the
      predecessor company having less control over the fluctuations in raw materials
      pricing which impacted the overall gross margin.





**Selling,
      General and Administrative Expenses**





We
      incurred total SG&A expenses of $8,703,321 or 19%, of revenue, for the nine
      months ended September 30, 2008. As compared to the same period in 2007, this
      represents an increase of $8,121,358 or 1,396% ,over SG&A expenses of
      $581,963 for the nine months ended September 30, 2007, which was 5.4% of
      revenue. Much of this increase is due to increased expenses for operating as
      a
      public company, hiring additional executive team members and increased
      advertising expenses which, due to the seasonal nature of our business, must
      be
      expended in the first and second quarters of 2008 in order to reach customers
      for the growing season starting early in the second quarter.





**Net
      Income**





Our
      net
      income was $12,213,202 or 27% of revenues, for this nine month period ended
      September 30, 2008. This was $7,688,967 or a 170% increase, over the same nine
      month period in 2007, which was $4,524,235 and 42% of revenue. The increase
      reflects continued expansion in sales revenue levels, continued strong demand
      for our products and sustained profitability. Decrease in overall net margin
      as
      a percent of sales of 15% in the nine months ended September 30, 2008 was due
      to
      higher costs of SG&A due to marketing costs, salaries and transportation as
      mentioned above.




Basic
      and
      diluted earnings per share (EPS) for the nine months ended September 30, 2008,
      were $0.78 and $0.75, respectively, compared to $0.40 and $0.40, in the same
      period last year, respectively. The weighted average shares outstanding used
      to
      calculate basic and diluted EPS for the comparative periods were 15.6 million
      and 16.3 million and 11.4 million and 11.4 million, respectively.





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.





**Related
      Party Transactions**





The
      Predecessor is a 0.6% shareholder of the Company’s main operating subsidiary,
      Yongye Nongfeng, and is Yongye Nongfeng’s only vendor that provided
      $6,128,774 (100%) of the Company’s purchased finished goods for the three
      months period ended September 30, 2008 and $23,597,523 for the nine months
      period ended September 30, 2008. As of September 30, 2008, due from related
      party represents the prepayment the Company made to the Predecessor as of
      September 30, 2008 for future purchases of inventory from the Predecessor.
      According to the contract, the Predecessor sells to us at fixed prices of RMB
      350 per case for plant products and RMB 120 per case for animal
      products.





As
      of
      September 30, 2008, the Company has borrowed $1,636,282 from Ms. Yin, the wife
      of CEO Mr. Zishen Wu of Inner Mongolia Yongye Nongfeng, and $10,000 from a
      director of the Company, Kim McElroy. These funds are interest free with no
      specific terms of repayment. As of December 31, 2007, the Predecessor had
      borrowed $2,507,371 from stockholders. These loans are short term in nature,
      unsecured and non-interest bearing. Also, at December 31, 2007 the Predecessor
      had $12,153 of long-term, unsecured and non-interest bearing loans from
      shareholders.


29





**Off
      Balance Sheet Arrangements**





We
      do not
      have any off-balance sheet arrangements as defined by standards issued by the
      Financial Accounting Standards Board, and accordingly, no such arrangements
      are
      likely to have a current or future effect on our financial position, revenues
      or
      expenses, results of operations, liquidity, capital expenditures or capital
      resources.


**ITEM
        3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
        RISK**





Not
      required.




**ITEM
      4** **T.
      CONTROLS AND PROCEDURES.**




We
      maintain “disclosure controls and procedures,” as such term is defined under
      Exchange Act Rule 13a-15(e), that are designed to ensure that information
      required to be disclosed in our Exchange Act reports is recorded, processed,
      summarized, and reported within the time periods specified in the SEC’s rules
      and forms, and that such information is accumulated and communicated to our
      management, including our Chief Executive Officer and Principal Financial
      Officer, as appropriate, to allow timely decisions regarding required
      disclosures. In designing and evaluating the disclosure controls and procedures,
      our management recognized that any controls and procedures, no matter how well
      designed and operated, can provide only reasonable assurance of achieving the
      desired control objectives and in reaching a reasonable level of assurance
      our
      management necessarily was required to apply its judgment in evaluating the
      cost-benefit relationship of possible controls and procedures. We have carried
      out an evaluation as required by Rule 13a-15(d) under the supervision and with
      the participation of our management, including our Chief Executive Officer
      and
      Principal Financial Officer, of the effectiveness of the design and operation
      of
      our disclosure controls and procedures as of September 30, 2008. Based upon
      their evaluation and subject to the foregoing, the Chief Executive Officer
      and
      Principal Financial Officer concluded that as of September 30, 2008 our
      disclosure controls and procedures were effective in ensuring that material
      information relating to us, is made known to the Chief Executive Officer and
      Principal Financial Officer by others within our company during the period
      in
      which this report was being prepared.




There
      were no changes in our internal controls over financial reporting identified
      in
      connection with the evaluation that occurred during the quarter ended September
      30, 2008 that has materially affected, or is reasonably likely to materially
      affect, our internal controls over financial reporting.


30




**PART
      I.**




**OTHER
      INFORMATION**




**ITEM
              1.**
            **LEGAL
                PROCEEDINGS**




None.




**ITEM
              1A**
            **RISK
                FACTORS**




As
      a
      smaller reporting company, the Company is not required to make disclosures
      under
      this Item 1A.




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




Not
      applicable.




**ITEM
              3.**
            **DEFAULTS
                UPON SENIOR SECURITIES**




None.




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




None.




**ITEM
              5.**
            **OTHER
                INFORMATION**




None.




**ITEM
              6.**
            **EXHIBITS**





**Exhibit
                No.**
            
            **Description**31.1
            
            Certification
                of the Chief Executive Officer (Principal Executive Officer) pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of the Chief Financial Officer (Principal Financial Officer) pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002




31




**SIGNATURES**




In
      accordance with the requirements of the Securities Exchange Act of 1934, the
      registrant caused this report to be signed on its behalf by the undersigned,
      thereunto duly authorized.







Yongye
                Biotechnology International, Inc.Dated:
                November 13, 2008
            By:
            /s/
              Zishen WuName:
                Zishen WuTitle:
                Chief Executive Officer and PresidentBy:
            /s/
              Larry GilmoreName:
                Larry GilmoreTitle:
                Principal Financial Officer


32