UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q/A


(Amendment
No. 1)





(Mark One)




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


For the quarterly period ended
      September 30, 2008





or




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




___________.




Commission
File Number 000-51200





Yongye
International, Inc.


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





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





6thFloor, Suite 608, Xue Yuan
International Tower, No. 1 Zhichun Road, Haidian District
Beijing, PRC


(Address
of Principal Executive Office)





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


+86 10
8232 8866


(Issuer’s
Telephone Number, Including Area Code)





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





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





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




Indicate by check mark whether the
registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). Yes ̈Noý




As of November 12, 2008, 26,760,258
shares of common stock, par value $.001 per share, were issued and
outstanding.












EXPLANATORY
NOTE
 We are
filing this Quarterly Report on Form 10-Q/A (the “Amendment”) to amend Part I,
Item 1, Financial Statements and Item 2, Management’s Discussion and Analysis of
Financial Condition and Results of Operations, in the original Quarterly Report
on Form 10-Q, filed with the Securities and Exchange Commission (“SEC”). This
Amendment has been filed to correct an error in the manner in which we
calculated the number of shares outstanding in determining earnings per share,
and another error in which we should have reclassified warrants issued as a
derivative liability, and the financial statements contained herein are being
restated accordingly. In addition, certain revisions are being made to
the disclosures included in our Form 10-Q for the quarter ended September
30, 2008 initially filed with the Securities and Exchange Commission (the
“Commission”) on November 13, 2008 in response to the Commission’s comment
letter dated September 1, 2009.


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
                16Signatures
                29


2


Item
1- Financial Statements




YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES





CONSOLIDATED
BALANCE SHEETS




Yongye
                                                  International, Inc.
                                                  and Subsidiaries
                                                  (f/k/a
      Yongye
                                                  Biotechnology
                                                  International,
      Inc.)
                                                
                                                
                                                The predecessor
                                                  Inner Mongolia
      YongyeSEPTEMBER 30,
      2008
                                                
                                                
                                                DECEMBER 31,
      2007(Unaudited)(Restated-
      Note 1(C))CURRENT
      ASSETSCash
      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
                                                
                                                
                                                
                                                12,863,821PROPERTY
      AND EQUIPMENT, NET
                                                
                                                
                                                3,386,463
                                                
                                                
                                                
                                                2,486,487INTANGIBLE
      ASSETS, NET
                                                
                                                
                                                114,817
                                                
                                                
                                                
                                                3,665,584LONG-TERM
      INVESTMENTS
                                                
                                                
                                                -
                                                
                                                
                                                
                                                4,115,764TOTAL
      ASSETS
                                                
                                                $
                                                35,564,319
                                                
                                                
                                                $
                                                23,131,656CURRENT
      LIABILITIESAccounts
      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
                                                
                                                
                                                
                                                50,916Derivative
      liabilities – fair value of warrants
                                                
                                                
                                                2,762,470
                                                
                                                
                                                
                                                -Total
      Current Liabilities
                                                
                                                
                                                6,412,740
                                                
                                                
                                                
                                                10,208,031LONG-TERM
      LIABILITY
                                                
                                                
                                                204,962
                                                
                                                
                                                
                                                12,153Minority
      interest
                                                
                                                
                                                1,192,426
                                                
                                                
                                                
                                                -STOCKHOLDERS'
      EQUITYCapital
      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
                                                
                                                
                                                13,661,106
                                                
                                                
                                                
                                                -Retained
      earnings
                                                
                                                
                                                12,382,642
                                                
                                                
                                                
                                                4,024,111Statutory
      reserve
                                                
                                                
                                                1,263,713
                                                
                                                
                                                
                                                480,629Accumulated
      other comprehensive income
                                                
                                                
                                                419,970
                                                
                                                
                                                
                                                1,146,732Total Stockholders’
      Equity
                                                
                                                
                                                27,754,191
                                                
                                                
                                                
                                                12,911,472TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY
                                                
                                                $
                                                35,564,319
                                                
                                                
                                                $
                                                23,131,656




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


3


YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME


Yongye
                  
                  
                  The
      predecessor
                  
                  
                  Yongye
                  
                  
                  The
      predecessorInternational,
                    Inc.
                  
                  
                  Inner
      Mongolia
                    Yongye
                  
                  
                  International,
                    Inc.
                  
                  
                  Inner
      Mongolia
                    Yongyeand
      Subsidiaries
                  
                  
                  
                  
                  
                  and
      Subsidiaries(f/k/a
      Yongye
                    Biotechnology
                    International,
                    Inc.)
                  
                  
                  
                  
                  
                  (f/k/a
      Yongye
                    Biotechnology
                    International,
                    Inc.)FOR
      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)(Restated
      – Note
                    1
      (C))
                  
                  
                  
                  
                  
                  (Restated
      – Note
                    1
      (C))SALES
                  
                  $
                  18,202,940
                  
                  
                  $
                  2,625,137
                  
                  
                  $
                  45,189,579
                  
                  
                  $
                  10,752,855COST
                  
                  
                  9,278,944
                  
                  
                  
                  1,021,719
                  
                  
                  
                  21,697,964
                  
                  
                  
                  5,368,480GROSS
      PROFIT
                  
                  
                  8,923,996
                  
                  
                  
                  1,603,418
                  
                  
                  
                  23,491,615
                  
                  
                  
                  5,384,375OPERATING
      EXPENSES
                  
                  
                  3,440,036
                  
                  
                  
                  159,398
                  
                  
                  
                  7,437,513
                  
                  
                  
                  230,591GENERAL
      AND ADMINISTRATIVE EXPENSES
                  
                  
                  453,683
                  
                  
                  
                  196,386
                  
                  
                  
                  1,265,808
                  
                  
                  
                  351,372INCOME
      FROM OPERATIONS
                  
                  
                  5,030,277
                  
                  
                  
                  1,247,634
                  
                  
                  
                  14,788,294
                  
                  
                  
                  4,802,412OTHER
      INCOME (EXPENSES)Interest
                  
                  
                  65,785
                  
                  
                  
                  -
                  
                  
                  
                  66,563
                  
                  
                  
                  1,291Other
      income (expense)
                  
                  
                  (340,087
                  )
                  
                  
                  (81,827
                  )
                  
                  
                  (726,927
                  )
                  
                  
                  (279,468
                  )Change
      in fair value of derivative liabilities
                  
                  
                  3,618,579
                  
                  
                  
                  -
                  
                  
                  
                  1,464,256
                  
                  
                  
                  -TOTAL
      OTHER INCOME (EXPENSES)
                  
                  
                  3,344,277
                  
                  
                  
                  (81,827
                  )
                  
                  
                  803,892
                  
                  
                  
                  (278,177
                  )INCOME
      BEFORE PROVISION FORINCOME
      TAXES AND MINORITY INTEREST
                  
                  
                  8,374,554
                  
                  
                  
                  1,165,807
                  
                  
                  
                  15,592,186
                  
                  
                  
                  4,524,235PROVISION
      FOR INCOME TAXES
                  
                  
                  227,537
                  
                  
                  
                  -
                  
                  
                  
                  822,302
                  
                  
                  
                  -NET
      INCOME BEFORE MINORITY INTEREST
                  
                  
                  8,147,017
                  
                  
                  
                  1,165,807
                  
                  
                  
                  14,769,884
                  
                  
                  
                  4,524,235PROVISION
      FOR MINORITY INTEREST
                  
                  
                  57,421
                  
                  
                  
                  -
                  
                  
                  
                  1,092,426
                  
                  
                  
                  -NET
      INCOME
                  
                  
                  8,089,596
                  
                  
                  
                  1,165,807
                  
                  
                  
                  13,677,458
                  
                  
                  
                  4,524,235Foreign
      Currency Translation Adjustment
                  
                  
                  5,199
                  
                  
                  
                  170,033
                  
                  
                  
                  419,970
                  
                  
                  
                  344,228COMPREHENSIVE
      INCOME
                  
                  $
                  8,152,216
                  
                  
                  $
                  1,335,840
                  
                  
                  $
                  15,189,854
                  
                  
                  $
                  4,868,463Net
      income  per share:Basic
                  
                  
                  0.37
                  
                  
                  
                  N/A
                  
                  
                  
                  0.80
                  
                  
                  
                  N/ADiluted
                  
                  
                  0.20
                  
                  
                  
                  N/A
                  
                  
                  
                  0.69
                  
                  
                  
                  N/AWeighted
      average shares used in computation:Basic
                  
                  
                  21,594,470
                  
                  
                  
                  N/A
                  
                  
                  
                  17,194,563
                  
                  
                  
                  N/ADiluted
                  
                  
                  22,807,756
                  
                  
                  
                  N/A
                  
                  
                  
                  17,699,747
                  
                  
                  
                  N/A




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


4


YONGYE INTERNATIONAL, INC. AND
SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH
FLOWS





Yongye Biotechnology
                      International,
      Inc.
                      And
      Subsidiaries
                      (f/k/a
      Yongye International, Inc.)
                      FOR
      NINE MONTHS ENDED
                      SEPTEMBER
      30, 2008
                      (Unaudited)
                    
                    
                    The
      predecessor
                      Inner Mongolia
      Yongye
                      FOR
      NINE MONTHS ENDED
                      SEPTEMBER
      30, 2007
                      (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      Income
                    
                    $
                    13,677,458
                    
                    
                    $
                    4,524,235Adjustments
      to reconcile net loss to net cash used in operating
    activitiesDepreciation
      and amortization
                    
                    
                    115,541
                    
                    
                    
                    160,978Change
      in fair value of derivative liabilities
                    
                    
                    (1,464,256
                    )
                    
                    
                    -Loss
      on disposal of fixed assets
                    
                    
                    -
                    
                    
                    
                    146,714Provision
      for minority interest
                    
                    
                    1,092,426
                    
                    
                    
                    -Changes
      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
                    )Net
      Cash Used in Operating Activities
                    
                    
                    (8,119,164
                    )
                    
                    
                    (3,569,434
                    )CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      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 ACTIVITIESProceeds
      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
                    
                    
                    
                    5,076,498EFFECT
      OF FOREIGN CURRENCY TRANSLATION ON CASH
                    
                    
                    380,656
                    
                    
                    
                    32,791NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                    
                    
                    6,839,421
                    
                    
                    
                    1,443,690CASH
      AND CASH EQUIVALENTS - BEGINNING
                    
                    
                    8,137
                    
                    
                    
                    89,023CASH
      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 INTERNATIONAL,INC. AND
SUBSIDIARIES NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS




SEPTEMBER
30, 2008





NOTE 1
-ORGANIZATION AND DESCRIPTION OF BUSINESS




A.
Organization




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




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




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




In May
2008, upon the agreement among Inner Mongolia Yongye, ASO and Yongye Nongfeng,
the ownership of Yongye Nongfeng was revised, pursuant to which Inner Mongolia
Yongye and ASO became 0.5% and 99.5% equity interest owner of Yongye Nongfeng,
respectively. ASO has not fully injected its share of the capital into Yongye
Nongfeng as it is not required to do so until 2 years after the establishment of
the CJV. Based upon actual capital injection into Yongye Nongfeng, Inner
Mongolia Yongye and ASO were 0.6% and 99.4% owners, respectively, of Yongye
Nongfeng as of September 30, 2008.




B. Nature
of Business




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





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 Capital Partners, LLC (“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.


6


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. The Company will also terminate the contract
manufacturing agreement after obtaining the fertilizer license referred to
above. The total liability incurred for payments to the Predecessor company is
limited to USD$6M and thus far USD$.95M has been paid to the predecessor
company.





In order
to support our future growth, we are in the process of constructing 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.





C.
Restatement of Financial Statements





Subsequent
to the preparation of the Company’s interim consolidated financial
statements as of and for the three and nine months ended September 30,
2008, management identified an error in the Company’s basic and diluted net
income per share presented in its previously issued consolidated financial
statements. The Company has incorrectly accounted for the April Escrow Shares
and September Escrow Shares (See Note 8) as contingently issuable shares for
purposes of calculating earnings per share and excluded such outstanding shares
that were placed in escrow from the calculation of the weighted average number
of common shares outstanding. It was determined that since April Escrow Shares
and September Escrow Shares are neither contingently cancellable nor
contingently returnable to the Company, the shares should have been included in
the denominator in computing the Company’s basic and diluted net income per
share.




In
connection with the April Offering and September Offering in 2008 (see Note 8),
the Company issued the “April Warrants” and “September Warrants” to certain
investors and Roth Capital Partners LLC (“Roth”). According to the terms of
these warrants, the Company could be required to pay cash to the warrant holders
under certain events that are not within the control of the Company.
Specifically, upon the occurrence of certain “fundamental transactions” as
defined, the warrant holders (but not the shareholders of the Company’s common
stock) are entitled to receive cash equal to the value of the warrants to be
determined based on an option pricing model and certain specified assumptions
set forth in the warrant agreement. In accordance with Emerging
Issues Task Force Issue (EITF) No. 00-19, Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, such
potential cash payments that are not within the Company’s
control would preclude equity classification and therefore the warrants
should have been classified as a liability and adjusted to fair value
through earnings at each reporting date starting from the issuance date.
  As a
result, the amounts of $1,731,567 and $3,150,375 should have been recognized as
derivative liabilities with fair value at issuance April 17, 2008 and September
5, 2008, respectively. The decrease in fair value of the warrants of $3,658,274
and $2,119,470 should have been recorded as a gain to earnings for the three
months and six months ended September 30, 2008, respectively. In addition, since
the Roth Warrants issued by the Company in April and September 2008 (see Note 8)
also contains the “Fundamental Transactions”, such warrants should have been
accounted for as a liability with changes in fair value also reported in
earnings. Roth exercised these warrant during the three months ended September,
30, 2008 (see Note8). Accordingly, the increase in fair value of the Roth April
Warrants from June 30, 2008 to the exercise date and the increase in fair value
of the Roth September Warrants from the date of issuance through the exercise
date of $39,694 should have been recorded as a charge to earnings for the three
months ended September 30, 2008. The increase in fair value of the Roth April
and September Warrants from issuance date to the exercise date of should have
been recorded as a charge to earnings for the nine months ended September 30,
2008. These restatement adjustments had no impact on the Company’s previously
reported income tax amounts because the profit or loss associated with these
warrants for financial reporting purposes, as described herein, are not expected
to result in future income tax consequences.


7


The
following table presents the effect of correcting this error on the consolidated
financial statements for the three months and nine months ended September 30,
2008. As the correcting adjustments had no impact on the amounts previously
reported for the Company’s operating, investing or financing cash flows, the
adjustments to the components of consolidated cash flow statement to reconcile
net income to net cash used by operating activities are not
presented.





CONSOLIDATED
BALANCE SHEET





September
      30, 2008As
      Previously
                                  Reported
                                
                                
                                As
      RestatedDerivative
      liabilities
                                
                                
                                -
                                
                                
                                
                                2,762,470Total
      current liabilities
                                
                                
                                3,650,270
                                
                                
                                
                                6,412,740Additional
      paid-in capital
                                
                                
                                17,887,832
                                
                                
                                
                                13,661,106Retained
      earnings
                                
                                
                                10,918,386
                                
                                
                                
                                12,382,642Total
      Stockholders' Equity
                                
                                
                                30,516,661
                                
                                
                                
                                27,754,191




CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


Three months ended September
      30,
                  2008
                
                
                Nine months ended September
30,
                  2008As
      Previously
                
                
                As
      Restated
                
                
                As
      Previously
                
                
                As
                  RestatedChange
      in fair value of derivative liabilities
                
                
                -
                
                
                
                3,618,579
                
                
                
                -
                
                
                
                1,464,256Total
      other expenses, net
                
                
                (274,302
                )
                
                
                3,344,277
                
                
                
                (660,364
                )
                
                
                803,892Income
      before provisions for income taxes and noncontrolling
    interest
                
                
                4,755,975
                
                
                
                8,374,554
                
                
                
                14,127,930
                
                
                
                15,592,186Net
      income before minority interest
                
                
                4,528,438
                
                
                
                8,147,017
                
                
                
                13,305,628
                
                
                
                14,769,884Net
      income
                
                
                4,471,017
                
                
                
                8,089,596
                
                
                
                12,213,202
                
                
                
                13,677,458Comprehensive
      income
                
                
                4,476,216
                
                
                
                8,152,216
                
                
                
                12,633,172
                
                
                
                15,189,854Net
      income per ordinary share-basic
                
                $
                0.24
                
                
                $
                0.37
                
                
                $
                0.78
                
                
                $
                0.80Net
      income per ordinary share-diluted
                
                $
                0.22
                
                
                $
                0.20
                
                
                $
                0.75
                
                
                $
                0.69Weighted
      average ordinary shares outstanding
                
                
                18,637,948
                
                
                
                21,594,470
                
                
                
                15,654,417
                
                
                
                17,194,563Weighted
      average ordinary shares outstanding used in computing diluted netincome
      per ordinary share.
                
                
                20,103,760
                
                
                
                22,807,756
                
                
                
                16,335,237
                
                
                
                17,699,747


8





CONSOLIDATED
STATEMENTS OF CASH FLOWS





Nine months ended
                    September 30, 2008As Previously
                    Reported
                  
                  
                  As
                    RestatedNET
      INCOME
                  
                  
                  12,213,202
                  
                  
                  
                  13,677,458Decrease
      in fair value of derivative liabilities
                  
                  
                  -
                  
                  
                  
                  (1,464,256
                  )





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 ofthe 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 December31, 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.





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 uncollectability and are maintained for all customers
based on a variety of factors, including the length of time the receivables are
past due, significant one-time events and historical experience. Based on the
age of the receivables, the Company reserves 10% of accounts receivable balances
that have been outstanding for more than 6 months but less than one year, 20% of
accounts receivable balances that have been outstanding between one year and two
years, 50% of receivable balances that have been outstanding between two year
and three years, and 100% of receivable balances that have been outstanding for
more than three years. An additional reserve for individual accounts is recorded
when the Company becomes aware of a customer’s inability to meet its financial
obligation, such as in the case of bankruptcy filings or deterioration in the
customer’s operating results or financial position. If circumstances related to
customers change, estimates of the recoverability of receivables would be
further adjusted . No allowance for doubtful accounts was provided as of
September 30, 2008.




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





INVENTORY




Inventory
is stated at the lower of weighted average cost, which takes into account
historical prices on a continuing basis, or market. 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 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


9


REVENUE
RECOGNITION





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





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





ADVERTISING
COSTS


Advertising costs are expensed as incurred.
Advertising costs for 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.





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 aredetermined 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 exchangerates 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 operationsas incurred. Such gains and losses were
immaterial for the periods ended September 30, 2008 and
2007.





FAIR
VALUE OF FINANCIAL INSTRUMENTS




The
Company follows Statement of Financial Accounting Standards (“SFAS”) 157, Fair
Value Measurements. SFAS 157 clarifies the definition of fair value, prescribes
methods for measuring fair value, and establishes a fair value hierarchy to
classify the inputs used in measuring fair value as follows:
  Level 1-
Inputs are unadjusted quoted prices in active markets for identical assets or
liabilities available at the measurement date.
 
 Level 2 -
Inputs are unadjusted quoted prices for similar assets and liabilities in active
markets, quoted prices for identical or similar assets and liabilities in
markets that are not active, inputs other than quoted prices that are
observable, and inputs derived form or corroborated by observable market
data.
 
 Level 3 -
Inputs are unobservable inputs which reflect the reporting entity’s own
assumptions on what assumptions the market participants would use in pricing the
asset or liability based on the best available information.





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 The Company uses level 2
inputs to value its derivative liabilities.





NET
INCOME PER SHARE




Basic net
income per share is computed by dividing net income attributable to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted net income per share reflects the potential dilution that
would occur upon the exercise of outstanding warrants at September 30, 2008.





RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS




In
February 2008, the Financial Accounting Standards Board ("FASB")
issued FASB Staff Position FAS 157-2. "Effective Date of
FASB Statement No. 157" ("FSP FAS 157-2"), which delays
the effective date
of  SFAS 157 for all nonrecurring fair value measurements of
nonfinancial assets and liabilities until fiscal years beginning after November
15, 2008. The Company has elected to defer the adoption of the
nonrecurring fair value measurement disclosures of nonfinancial assets and
liabilities. The adoption of FSP FAS 157-2 is not expevted to have a material
impact on the Company’s results of operations, cash flows or financial
positions.





NOTE 3-INVENTORIES





Inventories
at September 30, 2008 and December 31, 2007 consisted of the
following:





Yongye
                    
                    
                    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:





YongyeInternational,
      Inc. and
                  
                  
                  The
      PredecessorSubsidiaries
                  
                  
                  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:





YongyeInternational,
      Inc. and
                  
                  
                  The
      PredecessorSubsidiaries
                  
                  
                  Inner
      Mongolia YongyeSEPTEMBER
      30, 2008
                  
                  
                  DECEMBER
      31, 2007Rights
      to use land
                  
                  $
                  -
                  
                  
                  $
                  4,028,099Patent
                  
                  
                  106,045
                  
                  
                  
                  -Software
                  
                  
                  17,154
                  
                  
                  
                  -123,199
                  
                  
                  
                  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.





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 -
CAPITAL STOCK





Capital
stock





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





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





Warrants





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





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


11


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





At
September 30, 2008, there are 3,142,158 warrants outstanding with a weighted
average exercise price of $1.848.  Of this total, 1,623,905 expire in
April 2013, 1,518,253 expire in September 2013.





Pursuant
to these warrant agreements, in the event of a “Fundamental Transaction” that is
(1) an all cash transaction, (2) a “Rule 13e-3 transaction” as defined in Rule
13e-3 under the Exchange Act, or (3) a Fundamental Transaction involving a
person or entity not traded on a national securities exchange, the Nasdaq Global
Select Market, the Nasdaq Global Market, or the Nasdaq Capital Market, the
Company or any successor entity shall pay at the warrants holders’ option,
exercisable at any time concurrently with or within 30 days after the
consummation of the Fundamental Transaction, an amount of cash equal to the
value of this Warrant .





As of
September 30, 2008 the fair value of all of our outstanding derivative
liability warrants was $2,762,470. The change in their fair values during the
three and nine months ended September 30, 2008 of $3,658,274 and $2,119,470 in
fair value is reported as a non-cash gain in our condensed consolidated
statement of income and comprehensive income, respectively. The increase in fair
value of the Roth April Warrants from June 30, 2008 to the exercise date and the
increase in fair value of the Roth September Warrants from the date of issuance
through the exercise date of $39,694 have been recorded as a charge to earnings
for the three months ended September 30, 2008. The increase in fair value of the
Roth April and September Warrants from issuance date to the exercise date of
have been recorded as a charge to earnings for the nine months ended September
30, 2008.





The
estimated fair values of the Company’s Investor Warrants were determined at
September 30, 2008 using Binominal Option Pricing Model with Level 2
inputs.





The
following table sets forth, by level within the fair value hierarchy, the
Company’s financial liabilities that were accounted for at fair value as of
September 30, 2008.





Fair
      Value Measurements Using:Total
                                                        
                                                        Quoted Prices in
                                                          Active Markets for
                                                          Identical
      Financial
                                                          Assets and Liabilities
                                                        
                                                        Significant Other
                                                          Observable Inputs
                                                        
                                                        Significant
                                                          Unobservable InputsSeptember30, 2008
                                                        
                                                        
                                                        
                                                        Level
      1
                                                        
                                                        Level
      2
                                                        
                                                        Level
      3Liabilities
      at fair value:Derivative
      liabilities—warrants
                                                        
                                                        
                                                        2,762,470
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        2,762,470
                                                        
                                                        
                                                        —Net
      Liabilities
                                                        
                                                        $
                                                        2,762,470
                                                        
                                                        $
                                                        —
                                                        
                                                        $
                                                        2,762,470
                                                        
                                                        $
                                                        —





The fair
values of the warrants granted are as follows:


Fair
      value of Warrant per share (US$) at:
                    
                    2008
                      April Offering
                    
                    
                    2008
                      September
      OfferingApril
      17, 2008
                    
                    
                    1.07
                    
                    
                    
                    N/AJune
      30, 2008
                    
                    
                    2.01
                    
                    
                    
                    N/ASeptember
      5, 2008
                    
                    
                    N/A
                    
                    
                    
                    2.08September
      30, 2008
                    
                    
                    0.88
                    
                    
                    
                    0.87


12




The fair
values of the warrants as of September 30, 2008 were determined based on the
Binominal option pricing model using the following assumptions:





April Offering
                    
                    
                    September
                      OfferingExpected
      volatility
                    
                    
                    52.5
                    %
                    
                    
                    51.5
                    %Expected
      dividends yield
                    
                    
                    0
                    %
                    
                    
                    0
                    %Expected
      time to maturity
                    
                    4.55
      years
                    
                    
                    4.93
      yearsRisk-free
      interest rate per annum
                    
                    
                    1.411
                    %
                    
                    
                    1.411
                    %Fair
      value of underlying Common Shares (per share)
                    
                    
                    2.00
                    
                    
                    
                    2.00Exercise
      multiple
                    
                    
                    2.4
                    
                    
                    
                    2.4





Escrow
shares





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




In
connection with the September Offering, the Company entered into an escrow
agreement with Roth, the Escrow Agent and Full Alliance (the “September Escrow
Agreement”), pursuant to which 4,000,000 shares of the Company issued to Full
Alliance in the Share Exchange (the “September Escrow Shares”) were delivered to
the Escrow Agent. Of the September Escrow Shares, 2,000,000
shares  (the “Make Good Escrow Shares”)  are being held for
the Company’s achievement of 2008 and 2009 financial targets described
below:





If the
Company achieves (i) the 2008 Net Income Threshold, and (ii) fully
diluted earnings per share reported in the Company’s 2008 Annual Report on
Form 10-K filed with the SEC (the “2008 Annual Report”) of no less than $0.42
(the “2008 Guaranteed EPS”), then the provisions described in the following
sentence apply with respect to the achievement of 2009 net income and fully
diluted earnings per share targets and the Make Good Escrow Shares will be
retained in escrow for the achievement of certain net income and fully diluted
earnings per share targets for the year ending December 31, 2009. In the event
that (i) the 2009 ATNI is less than $12,649,248, or the fully diluted earnings
per share reported in 2009 Annual Report on Form 10-K filed with the SEC (the
“2009 Annual Report”) is less than $0.42, all of the 2,000,000 Make Good Escrow
Shares shall be distributed to the September Investors on a pro-rata basis, (ii)
the 2009 ATNI equals or exceeds $12,649,248 and is less than $15,811,560, or the
fully diluted earnings per share reported in the 2009 Annual Report, equals or
exceeds $0.42 and is less than $0.53, then the Make Good Shares equal to the
product of  (i)(A) $15,811,560 minus the 2009 ATNI, divided by (B)
$15,811,560, and (ii) the Make Good Escrow Shares, shall be transferred to the
September Investors on a pro-rata basis, and the remaining share shall be
returned to Full Alliance, (iii) the 2009 ATNI exceeds $15,811,560, the
2,000,000 Make Good Escrow Shares will be released back to Full
Alliance.





If the
Company does not achieve (i) the 2008 Net Income Threshold, or (ii) 2008
Guaranteed EPS, the Make Good Escrow Shares will be released pro-rata to the
September Offering investors.




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





In the
event that (1) the fertilizer license has not been issued to Yongye Nongfeng by
June 30, 2009, or such later date as agreed to by the Company and the September
Investors holding a majority of the September Investor Shares at such time (the
“License Grant Date”), or (2) the fertilizer license has been issued by the
License Grant Date, but the Yongye Nongfeng Restructuring is not completed by
the Restructuring Completion Date, the Restructuring Make Good Shares shall be
transferred in accordance with the September Escrow Agreement to the September
Investors on a pro-rata basis for no consideration. The “Restructuring
Completion Date” shall be the date that is 132 calendar days after the License
Grant Date.




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





NOTE 9 -
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 350per 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.


13


NOTE10-NET INCOME PER
SHARE





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


Yongye International, Inc.
                            
                            
                            Yongye International, Inc.and Subsidiaries
                            
                            
                            and SubsidiariesFOR THREE MONTHS
                              ENDED
                            
                            
                            FOR NINE MONTHS
                              ENDEDSEPTEMBER 30, 2008
                            
                            
                            SEPTEMBER 30, 2008(Restated - Note 1(C))
                            
                            
                            (Restated - Note 1(C))Numerator
      used in basic net income per share:Net
      income
                            
                            $
                            8,089,596
                            
                            
                            $
                            13,677,458Change
      in fair value of derivative liabilities
                            
                            
                            (3,618,579
                            )
                            
                            
                            (1,464,256
                            )Numerator
      used in diluted net income per share
                            
                            
                            4,471,017
                            
                            
                            
                            12,213,202Shares
      (denominator):Weighted
      average ordinary shares outstanding
                            
                            
                            21,594,470
                            
                            
                            
                            17,194,563Plus:
      weighted average incremental shares from assumed exercise of
      warrants
                            
                            
                            1,213,286
                            
                            
                            
                            505,184Weighted
      average ordinary shares outstanding used in computing
      diluted net income per ordinary share
                            
                            
                            22,807,756
                            
                            
                            
                            17,699,747Net
      income per ordinary share-basic
                            
                            $
                            0.37
                            
                            
                            $
                            0.80Net
      income per ordinary share-diluted
                            
                            $
                            0.20
                            
                            
                            $
                            0.69





NOTE 11
-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 thePredecessor’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.


14


Yongye
International, Inc.


THREE
      MONTHS ENDED
                                                                SEPTEMBER
      30, 2008
                                                              
                                                              NINE
      MONTHS ENDED
                                                                SEPTEMBER
      30, 2008%
      Total
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              
                                                              %
      TotalLargest
      Customers
                                                              
                                                              Amount
      of Sales
                                                              
                                                              
                                                              Sales
                                                              
                                                              Largest
      Customers
                                                              
                                                              Amount of Sales
                                                              
                                                              
                                                              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 Yongye





THREE
      MONTHS ENDED
                                                  SEPTEMBER
      30, 2007
                                                
                                                NINE
      MONTHS ENDED
                                                  SEPTEMBER
      30, 2007Largest
                                                
                                                
                                                
                                                
                                                %
                                                  Total
                                                
                                                
                                                
                                                Amount
      of
                                                
                                                
                                                %
      TotalCustomers
                                                
                                                Amount
      of Sales
                                                
                                                
                                                Sales
                                                
                                                Largest
      Customers
                                                
                                                Sales
                                                
                                                
                                                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 provided94% 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.





TheCompany 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.


15




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 relatednotes thereto. The following
discussion contains forward-looking statements. Yongye International, Inc.
(f/k/a Yongye Biotechnology International, Inc.) is referred to herein as
“we”or “our.”The words or phrases “would be,”“will allow,”“expect to”, “intends to,”“will likely result,”“are expected to,”“will continue,”“is anticipated,”“estimate,”or similar expressions are intended to
identify forward-looking statements. Such statements include those concerning
our expected financial performance, ourcorporate 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 wespecifically disclaim any obligation, to
update any forward-looking statements to reflect occurrences, developments,
unanticipated events or circumstances after the date of such
statement.




Restatement of
Financial Statements




Due to
the complexities of placing the April 2008 Escrow Shares and September 2008
Escrow Shares into escrow and subsequently accounting for the performance
measures and potential transfer of such shares, the Company believed and
accounted for such shares as contingently issuable shares for purposes of
calculating earnings per share and excluded such outstanding escrowed shares
from the calculation of the weighted average number of common shares outstanding. However, after further
examination subsequent to the original filing of our Form 10-Q for the period
ended September 30, 2008 and it was determined that since theApril 2008 Escrow Shares and September
2008 Escrow Shares are neither contingently cancellable nor contingently
returnable to the Company, the shares should have been included in the
denominator in computing the Company’s basic and diluted net income per
share.





During
the nine months ended September 30, 2008, the Company issued the “April
Warrants”, “September Warrants” (“Investor Warrants”) and “Roth April Warrants”,
“Roth September Warrants” (“Roth Warrants”). According to the terms of these
warrants, the Company could be required to pay cash to the warrant holders under
certain events that are not within the control of the Company. Specifically,
upon the occurrence of certain “fundamental transactions” as defined, the
warrant holders (but not the shareholders of the Company’s common stock) are
entitled to receive cash equal to the value of the warrants to be determined
based on an option pricing model and certain specified assumptions set forth in
the warrant agreement. In accordance with Emerging Issues Task Force Issue
(EITF) No. 00-19, Accounting for Derivative Financial Instruments Indexed to,
and Potentially Settled in, a Company’s Own Stock, such potential cash payments
that are not within the Company’s control would preclude equity classification
and therefore the warrants should have been classified as a liability and
adjusted to fair value through earnings at each reporting date starting from the
issuance date.
  As a
result, the amounts of $1,731,567 and $3,150,375 should have been recognized as
derivative liabilities with fair value at issuance April 17, 2008 and September
5, 2008, respectively. The decrease in fair value of the warrants of $3,658,274
and $2,119,470 should have been recorded as a gain to earnings for the three
months and nine months ended September 30, 2008,
respectively.  In addition, since the Roth Warrants issued by the
Company in April and September 2008 (see Note 8) also contains the “Fundamental
Transactions”, such warrants should have been accounted for as a liability with
changes in fair value also reported in earnings. Roth exercised these warrant
during the three months ended September, 30, 2008 (see Note8). Accordingly, the
increase in fair value of the Roth April Warrants from June 30, 2008 to the
exercise date and the increase in fair value of the Roth September Warrants from
the date of issuance through the exercise date of $39,694 should have been
recorded as a charge to earnings for the three months ended September 30, 2008.
The increase in fair value of the Roth April and September Warrants from
issuance date to the exercise date of should have been recorded as a charge to
earnings for the nine months ended September 30, 2008. These restatement
adjustments had no impact on the Company’s previously reported income tax
amounts because the profit or loss associated with these warrants for financial
reporting purposes, as described herein, are not expected to result in future
income tax consequences.




The correcting adjustments had no
impact on the Company’s previously issued consolidated statement of
cash flows for the nine months endedSeptember 30, 2008.





Company
Overview




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





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





The
financial statements we are reporting for 2007 are for our predecessor company,
Inner Mongolia Yongye, which has now transferred all Shengmingsu related 2008
sales contracts and income, intellectual property and patents, and personnel,
exclusive of manufacturing personnel, into the name of Yongye Nongfeng
Biotechnology, the new Cooperative Joint Venture. After this transfer, Inner
Mongolia Yongye became the primary contract manufacturing company for the new
Cooperative Joint Venture and provided product at a cost plus price for the
entire year of 2008. Inner Mongolia Yongye also kept the existing assets and
long-term liabilities on its balance sheet.


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.




Overview of
3rdQuarter




Demand
for our products




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




Supply
of Finished Goods




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




Earthquake
in Sichuan




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




Seasonality




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


17




Financial
Highlights


Yongye
                  
                  
                  The predecessor
                  
                  
                  Yongye
                  
                  
                  The predecessorInternational,
                    Inc.
                  
                  
                  Inner Mongolia
                    Yongye
                  
                  
                  International,
                    Inc.
                  
                  
                  Inner Mongolia
                    Yongyeand Subsidiaries
                  
                  
                  
                  
                  
                  and Subsidiaries(f/k/a Yongye
                    Biotechnology
                    International,
                    Inc.)
                  
                  
                  
                  
                  
                  (f/k/a Yongye
                    Biotechnology
                    International,
                    Inc.)FOR 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)(Restated –
                    Financial
                    Statement Note
                    1(C))
                  
                  
                  
                  
                  
                  (Restated –
                    Financial
                    StatementNote
                    1 (C))SALES
                  
                  $
                  18,202,940
                  
                  
                  $
                  2,625,137
                  
                  
                  $
                  45,189,579
                  
                  
                  $
                  10,752,855COST
                  
                  
                  9,278,944
                  
                  
                  
                  1,021,719
                  
                  
                  
                  21,697,964
                  
                  
                  
                  5,368,480GROSS
      PROFIT
                  
                  
                  8,923,996
                  
                  
                  
                  1,603,418
                  
                  
                  
                  23,491,615
                  
                  
                  
                  5,384,375OPERATING
      EXPENSES
                  
                  
                  3,440,036
                  
                  
                  
                  159,398
                  
                  
                  
                  7,437,513
                  
                  
                  
                  230,591GENERAL
      AND ADMINISTRATIVE EXPENSES
                  
                  
                  453,683
                  
                  
                  
                  196,386
                  
                  
                  
                  1,265,808
                  
                  
                  
                  351,372INCOME
      FROM OPERATIONS
                  
                  
                  5,030,277
                  
                  
                  
                  1,247,634
                  
                  
                  
                  14,788,294
                  
                  
                  
                  4,802,412OTHER
      INCOME (EXPENSES)Interest
                  
                  
                  65,785
                  
                  
                  
                  -
                  
                  
                  
                  66,563
                  
                  
                  
                  1,291Other
      income (expense)
                  
                  
                  (340,087
                  )
                  
                  
                  (81,827
                  )
                  
                  
                  (726,927
                  )
                  
                  
                  (279,468
                  )Change
      in fair value of derivative liabilities
                  
                  
                  3,618,579
                  
                  
                  
                  -
                  
                  
                  
                  1,464,256
                  
                  
                  
                  -TOTAL
      OTHER INCOME (EXPENSES)
                  
                  
                  3,344,277
                  
                  
                  
                  (81,827
                  )
                  
                  
                  803,892
                  
                  
                  
                  (278,177
                  )INCOME
      BEFORE PROVISION FORINCOME
      TAXES AND MINORTY INTEREST
                  
                  
                  8,374,554
                  
                  
                  
                  1,165,807
                  
                  
                  
                  15,592,186
                  
                  
                  
                  4,524,235PROVISION
      FOR INCOME TAXES
                  
                  
                  227,537
                  
                  
                  
                  -
                  
                  
                  
                  822,302
                  
                  
                  
                  -NET
      INCOME BEFORE MINORITY INTEREST
                  
                  
                  8,147,017
                  
                  
                  
                  1,165,807
                  
                  
                  
                  14,769,884
                  
                  
                  
                  4,524,235PROVISION
      FOR MINORITY INTEREST
                  
                  
                  57,421
                  
                  
                  
                  -
                  
                  
                  
                  1,092,426
                  
                  
                  
                  -NET
      INCOME
                  
                  
                  8,089,596
                  
                  
                  
                  1,165,807
                  
                  
                  
                  14,769,884
                  
                  
                  
                  4,524,235Foreign
      Currency Translation Adjustment
                  
                  
                  5,199
                  
                  
                  
                  170,033
                  
                  
                  
                  419,970
                  
                  
                  
                  344,228COMPREHENSIVE
      INCOME
                  
                  $
                  8,152,216
                  
                  
                  $
                  1,335,840
                  
                  
                  $
                  15,189,854
                  
                  
                  $
                  4,868,463Net
      income  per share:Basic
                  
                  
                  0.37
                  
                  
                  
                  N/A
                  
                  
                  
                  0.80
                  
                  
                  
                  N/ADiluted
                  
                  
                  0.20
                  
                  
                  
                  N/A
                  
                  
                  
                  0.69
                  
                  
                  
                  N/AWeighted
      average shares used in computation:Basic
                  
                  
                  21,594,470
                  
                  
                  
                  N/A
                  
                  
                  
                  17,194,563
                  
                  
                  
                  N/ADiluted
                  
                  
                  22,807,756
                  
                  
                  
                  N/A
                  
                  
                  
                  17,699,747
                  
                  
                  
                  N/A


18




Strategies we are in the process of
implementing include:




●
            Our increase in production
      capacity from 2,000TPA to 10,000TPA viaour 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
      increasethe 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
      strengthenour Brand
      Recognition province byprovince.


19




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.





We
believe that presenting a comparison of the results of our operations to our
predecessor helps to provide a meaningful understanding of the underlying
business since it enables a comparison of operations periodically. However, due
to the transition from the predecessor to the Company that resulted in
differences between our current operating model and our predecessor’s, the
comparison of our information with the historical information of our predecessor
might not be sufficient to be indicative of our future financial position,
results of operations or cash flows. In particular, certain assets and
liabilities of our predecessor differ significantly from our assets and
liabilities.




The
approximate 775 retail stores selling Shengmingsu products have been assembled
into a network of stores through the work of our distributors. These stores have
typically been in existence for many years and sell many other agriculture
products including competitive products and we do not receive payment from the
owner and they do not pay Yongye Nongfeng any fees or distribute any profits to
us. Each distributor works to source successful, independently owned
agricultural product stores to bring them into their segment of the branded
store network. Our distributors work with the store owner to feature Yongye
products in a prominent fashion and will also display brochures and
advertisements for our products. Some stores will feature a computer which runs
our current infomercials. Before the store is brought into the Branded Store
network, it may be selling Yongye products as a “non-branded” store as arranged
with our distributors. To become a “branded store” the distributor may require
the store to go through a trials process to ensure the store reaches certain
performance standards set by the distributor and the distributor will alone
determine whether or not the store is considered a branded store. While we work
with all of our distributors to standardize this model so that a minimum level
of similarity is replicated across all the branded stores, it is implemented by
the distributor.




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


THREE MONTHS ENDEDYongye
                              
                              
                              The predecessorInternational, Inc.
                              
                              
                              Inner Mongolia Yongyeand Subsidiaries(f/k/a Yongye Biotechnology International, Inc.)FOR THREE MONTHS ENDED
                              
                              
                              FOR THREE MONTHS ENDEDSEPTEMBER 30, 2008
                              
                              
                              SEPTEMBER 30, 2007(Unaudited)
                              
                              
                              (Unaudited)
                              
                              
                              Increase /(decrease)(Restated – Financial Statements Note 1 (C))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
                              
                              $
                              8,089,596
                              
                              
                              $
                              1,165,807
                              
                              
                              
                              594
                              %Gross
      Margins
                              
                              
                              49
                              %
                              
                              
                              61
                              %
                              
                              
                              -12
                              %Net
      Margins
                              
                              
                              44
                              %
                              
                              
                              44
                              %
                              
                              
                              -EPS-
      Basic
                              
                              $
                              0.37
                              
                              
                              
                              N/A
                              
                              
                              
                              N/AEPS-
      Diluted
                              
                              $
                              0.20
                              
                              
                              
                              N/A
                              
                              
                              
                              N/A




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.


20




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.


21


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





PredecessorYongye
      Nongfeng
                      
                      
                      Inner
      MongoliaYongyeSEPTEMBER
      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
                      
                      $
                      27,754,191
                      
                      
                      $
                      12,911,472
                      
                      
                      
                      115
                      %




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 $14,842,718 to $27,754,190 as of September 30,
2008, which is an overall 115% 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 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 a593% 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 30,2008comparedto 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.




The
number of independently owned stores brought into our branded store network 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%. This was due in large part to
continued growth of the network throughout the third quarter of 2008.




Additionally,
Yongye Nongfeng was not required pay VAT for the plant products sold, which
increased its gross sales in 2008, whereas Inner Mongolia Yongye paid VAT for
all products sold in 2007, which led to an approximate 4% decrease in gross
sales. Once the product is recognized by the tax bureau as belonging in the
agricultural fertilizer category, it is exempted from VAT taxation for all its
future sales. Under the PRC taxation law, our product is categorized as an
agricultural fertilizer and as such is exempted from VAT taxation. Our plant
product was recognized by the tax bureau as agricultural fertilizer in 2008, so
Yongye Nongfeng did not pay VAT for it. We expect this trend will continue as
long as Yongye sells plant products.


22




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 ENDEDThe
      PredecessorInner
      MongoliaYongye
      International, Inc.
                    
                    
                    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




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


23




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 this12% 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 costsand 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 ENDEDInner
      Mongolia
                                  
                                  
                                  PredecessorYongye
      Nongfeng
                                  
                                  
                                  Inner
      MongoliaYongye
      BiotechnologySEPTEMBER
      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 of $2,347,780 in the period which is an
increase of $2,343,780, salaries of $235,385 in the period which is an increase
of $120,265 and freight costs of $602,066 in the period which is an increase of
$580,980.  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.




Gain on
change in fair value of derivative liabilities




The
Company has accounted for warrants issued to investors and Roth in April
Offering and September Offering in year 2008 as liability measured at fair
value. The change in their fair value during the three months ended September
30, 2008 added to Consolidated Statement of Income of a gain of $3,618,579.
No such gain was recognized for the three months ended September 30, 2007, as
the Predecessor Company did not issue any such security during the year 2007. In
addition, the gain recognized for the three months ended June 30, 2008 was
due to the significant decrease of our stock price at September 30, 2008 ($2.00)
compared to that at June 30, 2008 ($3.50) and September 5, 2008
($3.75).




Income Tax




The Company did not carry on any
business and did not maintain any branch office in the United States during the
three months ended 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.





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.





The
Company’s Cooperative Joint Venture subsidiary, Yongye Nongfeng Biotechnology
Co. (“Yongye Nongfeng ”), is subject to PRC Enterprise Income Tax at a rate of
25% of net income from its foundation on January 4, 2008 to March 31, 2008, and
1.25% of gross revenue since April 1, 2008.  The difference in tax
rates occurred because, while the CJV was entitled to the “Check and Ratify”
taxation method rate, and did apply for it, the CJV did not receive approval for
such rate until the second quarter of 2008. Under the PRC taxation system, the
enterprise income taxation is conducted on a quarter by quarter basis and,
therefore, we were subject to the rate of 25% of net income for the full first
quarter of 2008 and computed the tax at 1.25% of gross revenue for the remaining
three quarters of 2008.


24


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 ENDEDYongye
      Nongfeng Biotechnology
                                    
                                    
                                    PredecessorInner
      MongoliaYongyeSEPTEMBER
      30, 2008
                                    
                                    
                                    SEPTEMBER
      30, 2007
                                    
                                    
                                    Increase/(Unaudited)
                                    
                                    
                                    (Unaudited)
                                    
                                    
                                    (Decrease)Net
      income
                                    
                                    
                                    8,089,596
                                    
                                    
                                    
                                    1,165,807
                                    
                                    
                                    
                                    594
                                    %Percentage
      of Sales
                                    
                                    
                                    44
                                    %
                                    
                                    
                                    44
                                    %
                                    
                                    
                                    0
                                    %




Net
income for the period ended September 30, 2008 increased by $6,923,789 to
$8,089,596 from $1,165,807 in the same period ended September 30, 2007, which is
a 594% increase. However, this also represented a stable overall percentage of
net income to sales of 44% in the period ended September 30, 2008 compared to
44% in September 30, 2007. This was primarily due to increased SG&A and cost
of goods sold over the period, offset by the gain generated by change in fair
value of derivative liabilities as described above.




Basic and diluted earnings per share
(EPS) for the three months
ended September 30, 2008,were $0.37 and $0.20, respectively. The
weighted average shares outstanding used to calculate basic and diluted EPS for
theperiods were21.6millionand 22.8 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, the predecessor company, has historically financed its
operations and capital expenditures principally through shareholder loans, bank
loans, and cash provided by operations. As a newly formed Cooperative Joint
Venture, Yongye Nongfeng, has used the net proceeds of both the April and
September Offerings of approximately $20 million to finance the purchase of raw
materials and finished inventory from Inner Mongolia Yongye, capital equipment
and an expansion of our facilities and production, build out of our distribution
network through advertising and marketing programs and their associated
expenses, and increasing the number of our branded stores that distributors will
do once they have more product available and more advertising coverage. We
believe customers will increase, product will be pulled through the channels and
distributors will penetrate the market with more branded stores to accommodate
and spur sales growth.






As is
customary in the industry, we provide payment terms to most of our distributors
which typically exceed the terms that we ourselves receive from our finished
goods suppliers.  We typically provide 90 day terms to our provincial
level customers and ask for all others to make cash payments up front or upon
delivery.  Therefore, the Company’s liquidity needs have generally
consisted of working capital necessary to finance receivables and raw material
inventory. We believe that over the next 12 months our existing cash, cash
equivalents and cash flows from operations will be sufficient to meet our
anticipated future cash needs. We may, however, require additional cash
resources due to changing business conditions or other future developments,
including any investments or acquisitions we may decide to pursue. We will
determine how to meet these specific cash flow needs as they arise. Therefore,
there can be no assurance that such additional investment will be available to
us, or if available, that it will be available on terms acceptable to us. Cash
and Cash Equivalents balance amounted to $6,847,558 and $1,532,713 as of
September 30 2008 and the corresponding period of 2007,
respectively.


25


NINE MONTHS ENDED
SEPTEMBER 30, 2008 AND SEPTEMBER 30, 2007Financial 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
$22,994,508 to $25,650,298, 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.




The
changes described above were generally due to the fact that our largest
customers typically pay us 90 days after we ship products to
them. Because we are constrained by the seasonal forces and the elongated
payment terms of the agriculture industry, we slowly build up accounts
receivable starting in the first quarter and more rapidly add to this throughout
the peak season of the second and third quarter. As the end of the year
approaches, we typically have had the ability to collect a great deal of our
receivables so as to start the new year with a much lower balance.




Because
of the seasonal nature of agriculture industry, the peak season for the sale of
our product is in the second and third quarters of the year. We normally build
up inventory in the first and fourth quarters to prepare for shipments to
customers as they order product for the peak selling season in the second and
third quarters. The significant increase in the balance of inventory we recently
experienced was in line with this business practice. Additionally, we are in the
process of increasing capacity from 2,000TPA to 10,000TPA in preparation for
increased sales of the product which we expect to occur. We expect that we will
maintain a similar balance in the future year ends.






Accounts
receivable Days Sales Outstanding (“DSO”) is defined as average accounts
receivable for the period divided by net sales per day and 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 (“DIO”) is defined
as average inventory in the period divided by the cost of sales per day and
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 ENDEDPredecessorYongye
      Nongfeng
                
                
                Inner
      MongoliaBiotechnology
                
                
                YongyeIncreaseSEPTEMBER
      30, 2008
                
                
                SEPTEMBER
      30, 2007
                
                
                /(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 $10,245,649. Net
cash used in investing activities increased to $3,616,091 from $96,165 mainly
due to construction in progress of $2,891,425.




26




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 ENDEDPredecessorYongye
      Nongfeng
                
                
                Inner
      MongoliaBiotechnology
                
                
                YongyeIncreaseSEPTEMBER
      30, 2008
                
                
                SEPTEMBER
      30,2007
                
                
                /(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
                
                
                13,677,458
                
                
                
                4,524,235
                
                
                
                202
                %Gross
      Margins
                
                
                52
                %
                
                
                50
                %
                
                
                2
                %Net
      Margins
                
                
                30
                %
                
                
                42
                %
                
                
                -12
                %




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 Companyand the Predecessor’s total sales to our largest customers
are as follows:





THREE
      MONTHS ENDED
                
                
                NINE
      MONTHS ENDEDPredecessor
                
                
                
                
                
                PredecessorYongye
      Nongfeng
                
                
                Inner
      Mongolia
                
                
                Yongye
      Nongfeng
                
                
                Inner
      MongoliaBiotechnology
                
                
                Yongye
                
                
                Biotechnology
                
                
                YongyeSEPTEMBER
      30,
                
                
                
                
                
                SEPTEMBER
      30,SEPTEMBER
      30, 2008
                
                
                2007
                
                
                SEPTEMBER
      30, 2008
                
                
                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


27




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 grossmargin.




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.




Gain
on change in fair value of derivative liabilities




The
Company has accounted for warrants issued to investors and Roth in April
Offering and September Offering in year 2008 as liability measured at fair
value. The change in their fair value during the nine months ended September 30,
2008 added to Consolidated Statement of Income of a gain of $1,464,256. No
such gain was recognized for the nine months ended September 30, 2007, as the
Predecessor Company did not issue any such security during the year 2007. In
addition, the gain recognized for the nine months ended September 30,
2008 was due to the significant decrease of our stock price at September
30, 2008 ($2.00) compared to that at issuance date April 17, 2008 ($2.22) and
September 5, 2008 ($3.75).




Net
Income




Our net income was $13,677,458or30% of revenues, for this nine month
period ended September 30, 2008. This was $9,153,223or a202% 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 12% 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$0.80 and $0.69, respectively. The
weighted average shares outstanding used to calculate basic and diluted
EPSfor the periods
were17.2millionand 17.7 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 priceadjustments. 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 believethat 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.




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.


28




SIGNATURES




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




Yongye
      International, Inc.Dated:
      October 19, 2009
            By:
            /s/ Zishen
      WuName:
      Zishen WuTitle: Chief Executive Officer
      and PresidentBy:
            /s/ Sam
      YuName:
      Sam YuTitle: Chief Financial
      Officer




29