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 June 30, 2008





or





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




For the
transition period from ____________ to ___________.





Commission
File Number 000-51200





Yongye
International, Inc.


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





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


6th Floor, Suite 608, Xue Yuan
International Tower,No.


1 Zhichun
Road, Haidian District Beijing, PRC


(Address
of Principal Executive Office)





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


+86 10
8232 8866


(Issuer’s
Telephone Number, Including Area Code)





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





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





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





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





As of
August 14 , 2008, 20,000,374 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 disclosure included in
our Form 10-Q for the quarter ended June 30, 2008 initially filed with
the Securities and Exchange Commission (the “Commission”) on August 15, 2008 in
response to the Commission’s comment letter dated September 1,
2009.


PagePart
      I: Financial Information:Item
      1 -Financial Statements (Unaudited):
                
                
                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
                
                
                26




2


Item
1- Financial Statements





YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS





YongyeInternational,
      Inc.and
      Subsidiaries(f/k/a
      Yongye
                                Biotechnology
                                International,
      Inc.)
                              
                              
                              The
      predecessor
                                Inner
      Mongolia
                                YongyeJUNE 30, 2008
                              
                              
                              DECEMBER 31, 2007(Unaudited)CURRENT
      ASSETSCash
      and cash equivalents
                              
                              $
                              1,350,330
                              
                              
                              $
                              376,002Accounts
      receivable
                              
                              
                              20,613,347
                              
                              
                              
                              1,630,609Inventory
                              
                              
                              5,196,266
                              
                              
                              
                              9,851,788Advance
      payments
                              
                              
                              65,453
                              
                              
                              
                              —Due
      from affiliates
                              
                              
                              —
                              
                              
                              
                              978,384Other
      receivables
                              
                              
                              216,795
                              
                              
                              
                              27,038Total
      Current Assets
                              
                              
                              27,442,191
                              
                              
                              
                              12,863,821PROPERTY
      AND EQUIPMENT, NET
                              
                              
                              551,545
                              
                              
                              
                              2,486,487INTANGIBLE
      ASSETS, NET
                              
                              
                              117,610
                              
                              
                              
                              3,665,584LONG-TERM
      INVESTMENTS
                              
                              
                              —
                              
                              
                              
                              4,115,764TOTAL
      ASSETS
                              
                              $
                              28,111,346
                              
                              
                              $
                              23,131,656CURRENT
      LIABILITIESAccounts
      payable and accrued expenses
                              
                              $
                              1,882,643
                              
                              
                              $
                              1,271,852Accounts
      payable
                              
                              
                              4,889,694
                              
                              
                              
                              —Short-term
      bank loan
                              
                              
                              —
                              
                              
                              
                              5,484,000Due
      to shareholders
                              
                              
                              —
                              
                              
                              
                              2,507,371Due
      to related parties
                              
                              
                              2,411,105
                              
                              
                              
                              —Tax
      payables
                              
                              
                              406,530
                              
                              
                              
                              893,892Other
      payables
                              
                              
                              40,424
                              
                              
                              
                              50,916Derivative
      liabilities – fair value of warrants
                              
                              
                              4,578,517
                              
                              
                              
                              —Total
      Current Liabilities
                              
                              
                              14,208,913
                              
                              
                              
                              10,208,031LONG-TERM
      SHAREHOLDER LOANS
                              
                              
                              —
                              
                              
                              
                              12,153Minority
      interest
                              
                              
                              1,135,005
                              
                              
                              
                              —STOCKHOLDERS'
      EQUITYCapital
      stock; 20,000,374 shares authorized and issued par value $.001 on June 30,
      2008
                              
                              
                              20,000
                              
                              
                              
                              —Capital
      contribution
                              
                              
                              —
                              
                              
                              
                              7,260,000Additional
      paid-in capital
                              
                              
                              6,775,898
                              
                              
                              
                              —Retained
      earnings
                              
                              
                              4,785,652
                              
                              
                              
                              4,024,111Statutory
      reserve
                              
                              
                              771,107
                              
                              
                              
                              480,629Accumulated
      other comprehensive income
                              
                              
                              414,771
                              
                              
                              
                              1,146,732Total
      Stockholders’ Equity
                              
                              
                              12,767,428
                              
                              
                              
                              12,911,472TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                              
                              $
                              28,111,346
                              
                              
                              $
                              23,131,656




3


YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES





UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME





Yongye International, Inc.and Subsidiaries(f/k/a Yongye
                    Biotechnology
                    International, Inc.)
                  
                  
                  The predecessor
                    Inner Mongolia Yongye
                  
                  
                  Yongye
                      International, Inc.
                    and Subsidiaries
                  
                  
                  The predecessor
                    Inner Mongolia YongyeFOR THREE
                    MONTHS
                    ENDED
                  
                  
                  FOR THREE
                    MONTHS
                    ENDED
                  
                  
                  FOR SIX
                    MONTHS
                    ENDED
                  
                  
                  FOR SIX
                    MONTHS
                    ENDEDJUNE 30,
                    2008
                  
                  
                  JUNE 30,
                    2007
                  
                  
                  JUNE 30,
                    2008
                  
                  
                  JUNE 30,
                    2007(Restated - Note 1(C))
                  
                  
                  
                  
                  
                  (Restated - Note 1(C))SALES
                  
                  $
                  17,598,671
                  
                  
                  $
                  7,441,212
                  
                  
                  $
                  26,986,639
                  
                  
                  $
                  8,127,718COST
                  
                  
                  7,996,521
                  
                  
                  
                  3,908,020
                  
                  
                  
                  12,419,020
                  
                  
                  
                  4,346,761GROSS
      PROFIT
                  
                  
                  9,602,150
                  
                  
                  
                  3,533,192
                  
                  
                  
                  14,567,619
                  
                  
                  
                  3,780,957SELLING
      EXPENSES
                  
                  
                  777,012
                  
                  
                  
                  62,135
                  
                  
                  
                  3,997,477
                  
                  
                  
                  71,193GENERAL
      AND ADMINISTRATIVE EXPENSES
                  
                  
                  454,697
                  
                  
                  
                  108,350
                  
                  
                  
                  812,125
                  
                  
                  
                  154,986INCOME
      FROM OPERATIONS
                  
                  
                  8,370,441
                  
                  
                  
                  3,362,707
                  
                  
                  
                  9,758,017
                  
                  
                  
                  3,554,778OTHER
      INCOME/(EXPENSES)Interest
      income
                  
                  
                  789
                  
                  
                  
                  1,278
                  
                  
                  
                  778
                  
                  
                  
                  1,291Other
      expense
                  
                  
                  (387,198
                  )
                  
                  
                  (51,191
                  )
                  
                  
                  (386,840
                  )
                  
                  
                  (197,641
                  )Change
      in fair value of derivative liabilities
                  
                  
                  (2,154,323
                  )
                  
                  
                  —
                  
                  
                  
                  (2,154,323
                  )
                  
                  
                  —TOTAL
      OTHER EXPENSES, NET
                  
                  
                  (2,540,732
                  )
                  
                  
                  (49,913
                  )
                  
                  
                  (2,540,385
                  )
                  
                  
                  (196,350
                  )INCOME
      BEFORE PROVISION FOR INCOME TAXES
                  
                  
                  5,829,709
                  
                  
                  
                  3,312,794
                  
                  
                  
                  7,217,632
                  
                  
                  
                  3,358,428PROVISION
      FOR INCOME TAXES
                  
                  
                  219,983
                  
                  
                  
                  —
                  
                  
                  
                  594,765
                  
                  
                  
                  —NET
      INCOME BEFORE MINORITY INTEREST
                  
                  
                  5,609,726
                  
                  
                  
                  3,312,794
                  
                  
                  
                  6,622,867
                  
                  
                  
                  3,358,428PROVISION
      FOR MINORITY INTEREST
                  
                  
                  603,194
                  
                  
                  
                  —
                  
                  
                  
                  1,035,005
                  
                  
                  
                  —NET
      INCOME
                  
                  
                  5,006,532
                  
                  
                  
                  3,312,794
                  
                  
                  
                  5,587,862
                  
                  
                  
                  3,358,428Foreign
      Currency Translation Adjustment
                  
                  
                  277,101
                  
                  
                  
                  127,723
                  
                  
                  
                  414,771
                  
                  
                  
                  174,195COMPREHENSIVE
      INCOME
                  
                  $
                  5,283,633
                  
                  
                  $
                  3,440,517
                  
                  
                  $
                  6,002,633
                  
                  
                  $
                  3,532,623Net
      income per share:Basic
                  
                  
                  0.27
                  
                  
                  N.A.
                  
                  
                  
                  0.37
                  
                  
                  N.A.Diluted
                  
                  
                  0.27
                  
                  
                  N.A.
                  
                  
                  
                  0.37
                  
                  
                  N.A.Weighted
      average shares used in computation:Basic
                  
                  
                  18,496,093
                  
                  
                  N.A.
                  
                  
                  
                  14,970,434
                  
                  
                  N.A.Diluted
                  
                  
                  18,496,093
                  
                  
                  N.A.
                  
                  
                  
                  14,970,434
                  
                  
                  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





YongyeInternational,
      Inc.
                      and
      Subsidiaries
                      (f/k/a
      Yongye
                      BiotechnologyInternational,
                    
                    
                    The
      predecessorInc.)
                    
                    
                    Inner
      Mongolia YongyeFOR
      SIX
                    
                    
                    FOR
      SIXMONTHS
                    
                    
                    MONTHSENDED
                    
                    
                    ENDEDJUNE
      30,
                    
                    
                    JUNE
      30,2008
                    
                    
                    2007(Unaudited)
                    
                    
                    (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income
                    
                    $
                    5,587,862
                    
                    
                    $
                    3,358,428Adjustments
      to reconcile net income to net cash used in operating
      activitiesDepreciation
      and amortization
                    
                    
                    93,263
                    
                    
                    
                    10,644Loss
      on disposal of fixed assets
                    
                    
                    —
                    
                    
                    
                    146,714Change
      in fair value of derivative liabilities
                    
                    
                    2,154,323
                    
                    
                    
                    —Provision
      for minority interest
                    
                    
                    1,035,005
                    
                    
                    
                    —Changes
      in assets and liabilities:Accounts
      receivable, net
                    
                    
                    (20,613,347
                    )
                    
                    
                    (6,557,611
                    )Inventories
                    
                    
                    (5,196,266
                    )
                    
                    
                    (319,604
                    )Other
      receivables, net
                    
                    
                    (216,795
                    )
                    
                    
                    (1,063,081
                    )Advances
      to suppliers
                    
                    
                    (65,453
                    )
                    
                    
                    352,866Prepaid
      expense
                    
                    
                    —
                    
                    
                    
                    (7,271
                    )Accounts
      payable and accrued expenses
                    
                    
                    6,772,337
                    
                    
                    
                    288,578Tax
      payable
                    
                    
                    406,530
                    
                    
                    
                    49,894Due
      to related parties
                    
                    
                    2,397,465
                    
                    
                    
                    838,369Other
      payables
                    
                    
                    40,424
                    
                    
                    
                    (1,759,915
                    )Net
      Cash Used in Operating Activities
                    
                    
                    (7,604,652
                    )
                    
                    
                    (4,661,989
                    )CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of property and equipment
                    
                    
                    (639,519
                    )
                    
                    
                    (22,380
                    )Additions
      to intangible assets
                    
                    
                    (122,899
                    )
                    
                    
                    —Net
      Cash Used in Investing Activities
                    
                    
                    (762,418
                    )
                    
                    
                    (22,380
                    )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      from short-term bank loans
                    
                    
                    —
                    
                    
                    
                    4,269,087Proceeds
      from share capital
                    
                    
                    10,100,651
                    
                    
                    
                    —Proceeds
      from shareholder loans
                    
                    
                    —
                    
                    
                    
                    1,413,004Repayment
      of long-term loans
                    
                    
                    —
                    
                    
                    
                    (6,500
                    )Payment
      for stock issuance costs
                    
                    
                    (806,159
                    )
                    
                    
                    —Net
      Cash From Financing Activities
                    
                    
                    9,294,492
                    
                    
                    
                    5,675,591EFFECT
      OF FOREIGN CURRENCY TRANSLATION ON CASH
                    
                    
                    414,771
                    
                    
                    
                    21,787NET
      INCREASE IN CASH AND CASH EQUIVALENTS
                    
                    
                    1,342,193
                    
                    
                    
                    1,013,009CASH
      AND CASH EQUIVALENTS - BEGINNING
                    
                    
                    8,137
                    
                    
                    
                    89,023CASH
      AND CASH EQUIVALENTS - ENDING
                    
                    $
                    1,350,330
                    
                    
                    $
                    1,102,032Supplemental
      cash flow information:Cash paid for income taxes
                    
                    
                    417,744
                    
                    
                    
                    —Cash
      paid for interest expense payment
                    
                    
                    —
                    
                    
                    
                    50,920




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


5





YONGYE
INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS




JUNE 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 owners of Yongye Nongfeng,
respectively. ASO has not fully injected its share of the capital into Yongye
Nongfeng and 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 1.15% and 98.85% owners, respectively, of Yongye
Nongfeng as of June 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. The Company
is in the process of terminating the Agreement after obtaining the fertilizer
license referred to in the following paragraph.


6


C.
Restatement of 2008 Financial Statements





Subsequent
to the preparation of the Company’s interim consolidated financial statements as
of and for the three and six months ended June 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 incorrectly accounted for the April 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 (see Note 8), the Company issued the “April
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


During
the six months ended June 30, 2008, the Company issued the “April Warrants” and
“Roth April Warrants. The terms of these warrants provide “Fundamental
Transaction” in which net cash settlement could occur under some circumstance
that is not within the company’s control (see Note 8).  Upon the
adoption of EITF Issue No. 00-19, April Warrants have been classified as a
liability with fair value at issuance date and would be adjusted to fair value
through earnings at each reporting dates starting from the issuance date.




As a
result, the amount of $1,731,567 should have been recognized as derivative
liabilities with fair value at issuance. The increase in fair value of
the warrants of $1,538,802 should have been recorded as a charge to
earnings for the three months and six months ended June 30, 2008.  In
addition, since the Roth Warrants issued by the Company in April 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.  Accordingly, the increase in fair value of the Roth April
Warrants from the date of issuance through June 30, 2008 of $615,521 should have
been recorded as a charge to earnings for the three and six months ended June
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
following table presents the effect of correcting this error on the consolidated
financial statements for the three months and six months ended June 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





June 30, 2008As
      Previously Reported
                    
                    
                    As
      RestatedDerivative
      liabilities
                    
                    
                    —
                    
                    
                    
                    4,578,517Total
      current liabilities
                    
                    
                    9,630,396
                    
                    
                    
                    14,208,913Additional
      paid-in capital
                    
                    
                    9,200,092
                    
                    
                    
                    6,775,898Retained
      earnings
                    
                    
                    6,939,975
                    
                    
                    
                    4,785,652Total
      Stockholders' Equity
                    
                    
                    17,345,945
                    
                    
                    
                    12,767,428





CONSOLIDATED
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME





Three
      months ended June 30, 2008
                    
                    
                    Six
      months ended June 30, 2008As
      Previously
                    
                    
                    As
      Restated
                    
                    
                    As
      Previously
                    
                    
                    As
      RestatedChange
      in fair value of derivative liabilities
                    
                    
                    —
                    
                    
                    
                    (2,154,323
                    )
                    
                    
                    —
                    
                    
                    
                    (2,154,323
                    )Total
      other expenses, net
                    
                    
                    (386,409
                    )
                    
                    
                    (2,540,732
                    )
                    
                    
                    (386,062
                    )
                    
                    
                    (2,540,385
                    )Income
      before provisions for income taxes and minority interest
                    
                    
                    7,984,032
                    
                    
                    
                    5,829,709
                    
                    
                    
                    9,371,955
                    
                    
                    
                    7,217,632Net
      income before minority interest
                    
                    
                    7,764,049
                    
                    
                    
                    5,609,726
                    
                    
                    
                    8,777,190
                    
                    
                    
                    6,622,867Net
      income
                    
                    
                    7,160,855
                    
                    
                    
                    5,006,532
                    
                    
                    
                    7,742,185
                    
                    
                    
                    5,587,862Comprehensive
      income
                    
                    
                    7,437,956
                    
                    
                    
                    5,283,632
                    
                    
                    
                    8,156,956
                    
                    
                    
                    6,002,632Net
      income per ordinary share-basic
                    
                    $
                    0.43
                    
                    
                    $
                    0.27
                    
                    
                    $
                    0.55
                    
                    
                    $
                    0.37Net
      income per ordinary share-diluted
                    
                    $
                    0.41
                    
                    
                    $
                    0.27
                    
                    
                    $
                    0.54
                    
                    
                    $
                    0.37Weighted
      average ordinary shares outstanding
                    
                    
                    16,847,741
                    
                    
                    
                    18,496,093
                    
                    
                    
                    14,146,258
                    
                    
                    
                    14,970,434Weighted
      average ordinary shares outstanding used in computing diluted
      net income per ordinary share.
                    
                    
                    17,435,896
                    
                    
                    
                    18,496,093
                    
                    
                    
                    14,265,199
                    
                    
                    
                    14,970,434




7




CONSOLIDATED
STATEMENTS OF CASH FLOWS





Six
      months ended
                      June
      30, 2008As
      Previously
                      Reported
                    
                    
                    As
                      RestatedNET
      INCOME
                    
                    
                    7,742,185
                    
                    
                    
                    5,587,862Change
      in fair value of derivative liabilities
                    
                    
                    —
                    
                    
                    
                    2,154,323




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 June 30, 2008 and
for the three and six months ended June 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 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 six months ended June 30, 2008 are not necessarily
indicative of the results for the full fiscal year ending December 31, 2008. The
unaudited consolidated interim financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto for the year ended December 31, 2007 as reported in Form
S-1.





USE OF
ESTIMATES




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





CASH AND
CASH EQUIVALENTS





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


8


ACCOUNTS
RECEIVABLE AND BAD DEBT RESERVE





The
Company performs certain credit evaluation procedures and does not require
collateral for financial instruments subject to credit risk. The Company
believes that credit risk is limited because the Company routinely assesses the
financial strength of its customers and, based upon factors surrounding the
credit risk of its customers, establishes an allowance for uncollectible
accounts receivable. As a consequence, the Company believes that its accounts
receivable credit risk exposure beyond such allowances is limited. The Company
recognizes an allowance for doubtful accounts to ensure accounts receivable are
not overstated due to 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 June
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.


9




INVENTORY




Inventory is stated at the lower of
weighted average cost or market, 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 costand 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




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 June 30, 2008 and 2007 were
$480,457 and $4,738, respectively. Advertising costs for the six months ended
June 30, 2008 and 2007 were $2,057,032 and $8,594, respectively.




IMPAIRMENT OF LONG-LIVED
ASSETS




The Company follows Statement of
Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets”(“SFAS 144”), which addresses financial accounting
and reportingfor 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 June 30, 2008 and December 31, 2007 there were no significant impairments of its 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.


10




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. Nodifferences 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 June 30, 2008 and 2007 and the six months period ended June 30, 2008 and
2007. 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, and 1.25% of gross revenue since
April 2008. Since the Predecessor is located in the economic development area in
Inner Mongolia Autonomous Region, the Predecessor is exempt from income tax
according to the tax law in China.




FOREIGN CURRENCY TRANSLATION AND
TRANSACTIONS




The financial position and results of
operations of the Company’s Chinese subsidiaries are determined
using local currency (Chinese Yuan) as the functional currency, while the
reporting currency is 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 theaverage rate of exchange during the
period. Translation adjustments arising from the use of different exchange rates
from period to period are included in the cumulative translation adjustment
account in shareholders’equity. Gains and losses resulting
fromforeign currency transactions
denominated in other than the functional current are included in operations as
incurred. Such gains and losses were immaterial for the periods ended June 30,
2008 and 2007.




In the opinion of management, these
unaudited interim financial
statements include all adjustments and disclosures considered necessary to a
fair statement of the results for the interim periods presented. All adjustments
are of a normal recurring nature.




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 from 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
June 30, 2008. The warrants are anti-dilutive for
the three and six months ended June 30, 2008 but they and other potential common
share equivalents may be dilutive in the future.




RECENTLY ISSUED ACCOUNTING
PRONOUNCEMENTS




In February 2008, the Financial
AccountingStandards Board
("FASB") issued FASB Staff Position FAS 157-2,
"Effective Date of FASB Statement No. 157("FSP FAS 157-2"), which
delays the effective dateof SFAS 157 for all nonrecurringfair 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 nonfinancial assets and liabilities. The adoption of FSP
FAS 157-2 is not expected to have a material impact on the Company's results of operations, cash flows or
financial positions.




NOTE 3-INVENTORY




Inventory at June 30, 2008 and December
31, 2007 consisted of the following:





Yongye
                  
                  
                  ThePredecessorInternational,Inc.andSubsidiaries
                  
                  
                  InnerMongoliaYongyeJUNE30,2008
                  
                  
                  DECEMBER31,2007Raw
    materials
                  
                  
                  —
                  
                  
                  
                  384,361Packing
      supplies
                  
                  
                  —
                  
                  
                  
                  195,127Work-in
    process
                  
                  
                  —
                  
                  
                  
                  4,969,350Finished
    goods
                  
                  
                  5,195,760
                  
                  
                  
                  4,302,950Consumables
                  
                  
                  506
                  
                  
                  
                  —Total
                  
                  
                  5,196,266
                  
                  
                  
                  9,851,788




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.


11




NOTE 5-PROPERTY AND
EQUIPMENT




Property and equipment at June 30, 2008 and
December 31, 2007 consisted of the following:





Yongye
                            
                            
                            ThePredecessorInternational,Inc.andSubsidiaries
                            
                            
                            InnerMongoliaYongyeJUNE30,2008
                            
                            
                            DECEMBER31,2007Buildings
                            
                            
                            —
                            
                            
                            
                            1,560,251Manufacturing
      equipment
                            
                            
                            —
                            
                            
                            
                            788,641Office equipment and
      furniture
                            
                            
                            35,005
                            
                            
                            
                            33,724Construction-in-process
                            
                            
                            386,231
                            
                            
                            
                            1,797Vehicles
                            
                            
                            —
                            
                            
                            
                            419,529Leasehold
      improvement
                            
                            
                            218,283
                            
                            
                            
                            —639,519
                            
                            
                            
                            2,803,942Less: Accumulated
      depreciation
                            
                            
                            87,974
                            
                            
                            
                            317,455Total
                            
                            
                            551,545
                            
                            
                            
                            2,486,487




Depreciation expensefor the three months period ended June
30, 2008 and 2007 was $45,190 and $3,927, respectively. Depreciation expense for
the six months period ended June 30, 2008 and 2007 was $87,974 and $5,333,
respectively.




NOTE 6- INTANGIBLE
ASSETS




Net intangible assets at June 30, 2008 and December 31,
2007 were as follows:





Yongye
                  
                  
                  ThePredecessorInternational,Inc.andSubsidiaries
                  
                  
                  InnerMongoliaYongyeJUNE30,2008
                  
                  
                  DECEMBER31,2007Rights to use
      land
                  
                  
                  —
                  
                  
                  
                  4,028,099Patent
                  
                  
                  105,787
                  
                  
                  
                  —Software
                  
                  
                  17,112
                  
                  
                  
                  —122,899
                  
                  
                  
                  4,028,099Less: accumulated
      amortization
                  
                  
                  5,289
                  
                  
                  
                  362,515Total
                  
                  
                  117,610
                  
                  
                  
                  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 expensefor the three months period ended June
30, 2008 and 2007 amounted to $5,289 and $2,486, respectively. Amortization
expense for the six months period ended June 30, 2008 and 2007 amounted to
$5,289 and $5,311, respectively. Accumulated amortization at June30, 2008 and December 31, 2007 was
$5,289 and $362,515, 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 conjunctionwith 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.


12





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
”).





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.





At June
30, 2008, there are 2,273,467 warrants outstanding with a weighted average
exercise price of $1.848.  Of this total, 2,273,467 expire in April
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
June 30, 2008 the fair value of all of our derivative liability
warrants was $4,578,519. The change in their fair values during the three
and six months ended June 30, 2008 of $2,154,323 in fair value is reported as a
non-cash charge in our condensed consolidated statement of income and
comprehensive income, respectively.


The
estimated fair values of the Company’s Investor Warrants and Roth Warrants was
determined at June 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 June
30, 2008.




Fair Value Measurements Using:Quoted Prices in
                        Active Markets for
                        Identical
      Financial
                      
                      
                      Significant Other
                      
                      
                      SignificantTotal
                      
                      
                      Assets and Liabilities
                      
                      
                      Observable Inputs
                      
                      
                      Unobservable InputsJune 30,
    2008
                      
                      
                      
                      
                      Level 1
                      
                      
                      Level 2
                      
                      
                      Level 3Liabilities at fair
      value:Derivative liabilities—warrants
                      
                      
                      4,578,517
                      
                      
                      
                      —
                      
                      
                      
                      4,578,517
                      
                      
                      
                      —Net
    Liabilities
                      
                      $
                      4,578,517
                      
                      
                      $
                      —
                      
                      
                      $
                      4,578,517
                      
                      
                      $
                      —





The fair
values of the warrants granted are as follows:





Fair
      value of Warrant per share (US$) at:
                      
                      2008
                        April OfferingApril
      17, 2008
                      
                      1.07June
      30, 2008
                      
                      2.01




13


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




April OfferingExpected
      volatility
                      
                      52.5%Expected
      dividends yield
                      
                      0%Expected
      time to maturity
                      
                      4.8
      yearsRisk-free
      interest rate per annum
                      
                      2.900%Fair
      value of underlying Common Shares (per share)
                      
                      3.50Exercise
      multiple
                      
                      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.





The
purpose of the April 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.




NOTE9- RELATED PARTY TRANSACTIONS




The Predecessor company is a 1.15%
shareholder of the Company’s main operating subsidiary, Yongye
Nongfeng, and is Yongye Nongfeng’s only vendor that provided $8,537,112
(100%) of the Company’s purchased finished goods for the three
months period ended June
30, 2008 and $17,468,749 for the six months period ended June 30. As of June
30, 2008 accounts payable to shareholder represents the credit the Company used
as of June 30, 2008 in purchasing 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 June 30, 2008, the Company has
borrowed $762,524 from Inner Mongolia Yongye Nongfeng’s 1.15% shareholder Inner MongoliaYongye (the Predecessor),
$1,638,581 in loan from Ms. Yin, the wife of CEO Mr. Zishen Wu of Inner Mongolia
Yongye Nongfeng, and $10,000 from a director of the Company. These funds are
interest free with no specific terms of repayment. As of December 31,
2007, the Predecessor has $2,507,371 in
loans 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.




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. and
                      Subsidiaries
                    
                    
                    Yongye
      International, Inc. and Subsidiaries(f/k/aYongye
      Biotechnology
                      International
      Inc.)
                    
                    
                    (f/k/a Yongye Biotechnology
      International Inc.)FOR
      THREE MONTHS ENDED
                    
                    
                    FOR
      SIX MONTHS ENDEDJUNE 30,
    2008
                    
                    
                    JUNE 30,
    2008(Restated-
      Note 1 (C))
                    
                    
                    (Restated-
      Note 1 (C))Numerator
      used in basic net income per share:Net
      income
                    
                    
                    5,006,532
                    
                    
                    
                    5,587,862Shares
      (denominator):Weighted
      average ordinary shares outstanding- basic and diluted
                    
                    
                    18,496,093
                    
                    
                    
                    14,970,434Net
      income per ordinary share – basic and diluted
                    
                    
                    0.27
                    
                    
                    
                    0.37


14




NOTE 11-CONCENTRATIONS AND CREDIT
RISKS




Five major customers accounted for 80%
and one major customer accounted for 26% of the Company’s net revenue for the three months
period ended June 30, 2008. Five major customers accounted for 89% and one
major customer accounted
for 26% of the Company’s net revenue for the six months period
ended June 30, 2008. Five major customers accounted for 98% and one major
customer accounted for 51% of the Predecessor’s net revenue for the three months
period ended June30, 2007. Five major customers
accounted for 98% and one major customer accounted for 46% of the
Predecessor’s net revenue for the six months period
ended June 30, 2007. The Company and the Predecessor’s total sales to five major customers
were $14,062,646 and $7,276,561, for the three months
period ended June 30, 2008 and 2007, respectively. The Company and the
Predecessor’s total sales to five major customers
were $24,068,529 and $7,961,977, for the six months period ended June 30, 2008
and 2007, respectively.




Yongye International
Inc.




Three Months
      Ended
                  
                  
                  Six Months
      EndedJUNE 30,
      2008
                  
                  
                  JUNE 30,
      2008Largest
                  
                  Amount
      of
                  
                  
                  %Total
                  
                  
                  Largest
                  
                  Amount
      of
                  
                  
                  %
      TotalCustomers
                  
                  Sales
                  
                  
                  Sales
                  
                  
                  Customers
                  
                  Sales
                  
                  
                  SalesWuwei
      Liangzhou
                  
                  $
                  4,643,127
                  
                  
                  
                  26
                  %
                  
                  Hebei
                  
                  
                  7,045,357
                  
                  
                  
                  26
                  %Xinjiang
      Tianfeng
                  
                  $
                  3,980,159
                  
                  
                  
                  23
                  %
                  
                  Xingjiang
      Bazhou
                  
                  
                  5,334,140
                  
                  
                  
                  20
                  %Xinjiang
      Bazhou
                  
                  $
                  2,618,526
                  
                  
                  
                  15
                  %
                  
                  Wuwei
      Liangzhou
                  
                  
                  4,960,050
                  
                  
                  
                  18
                  %Hebei
                  
                  $
                  1,780,598
                  
                  
                  
                  10
                  %
                  
                  Xinjiang
      Tianfeng
                  
                  
                  3,922,162
                  
                  
                  
                  15
                  %Bameng
                  
                  $
                  1,040,236
                  
                  
                  
                  6
                  %
                  
                  Bameng
                  
                  
                  2,806,820
                  
                  
                  
                  10
                  %Total
                  
                  $
                  14,062,646
                  
                  
                  
                  80
                  %
                  
                  Total
                  
                  
                  24,068,529
                  
                  
                  
                  89
                  %




Inner Mongolia Yongye
Predecessor


Inner Mongolia


Yongye




Three Months
      Ended
                  
                  
                  Six Months
      EndedJUNE 30,
    2007
                  
                  
                  JUNE 30,
    2007Largest
                  
                  Amount of
                  
                  
                  %Total
                  
                  
                  Largest
                  
                  Amount of
                  
                  
                  % TotalCustomers
                  
                  Sales
                  
                  
                  Sales
                  
                  
                  Customers
                  
                  Sales
                  
                  
                  SalesXinjiang
    Bazhou
                  
                  $
                  3,797,598
                  
                  
                  
                  51
                  %
                  
                  Xinjiang
    Bazhou
                  
                  $
                  3,777,495
                  
                  
                  
                  46
                  %Hebei
                  
                  $
                  1,329,159
                  
                  
                  
                  18
                  %
                  
                  Hebei
                  
                  $
                  1,772,318
                  
                  
                  
                  22
                  %Dalian
                  
                  $
                  1,082,055
                  
                  
                  
                  15
                  %
                  
                  Dalian
                  
                  $
                  1,192,757
                  
                  
                  
                  15
                  %Mengrui
                  
                  $
                  689,290
                  
                  
                  
                  9
                  %
                  
                  Mengrui
                  
                  $
                  810,609
                  
                  
                  
                  10
                  %Jiangsu
                  
                  $
                  378,459
                  
                  
                  
                  5
                  %
                  
                  Jiangsu
                  
                  $
                  408,798
                  
                  
                  
                  5
                  %Totals
                  
                  $
                  7,276,561
                  
                  
                  
                  98
                  %
                  
                  Totals
                  
                  $
                  7,961,977
                  
                  
                  
                  98
                  %




The Predecessor is the
Company’s only vender who provided 100% of the
Company purchased finished goods for the three months period and six months period ended June 30, 2008. The
Predecessor had two major vendors who provided 79% and 93% of the Predecessor raw materials for the three
months period ended June 30, 2008 and 2007. The
Predecessor had two major vendors who provided 76% and 93% of the Predecessor
raw materials for the six months period ended June 30, 2008 and 2007.
Total purchases from these vendors were $5,822,666 and
$2,258,627 for the three months period ended June 30, 2008 and 2007, respectively. Total purchases
from these vendors were $6,581,012 and $2,290,895 for the six months period
ended June 30, 2008 and 2007, respectively.


15




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




NOTE 12-Commitments




On (June 2, 2008), Yongye Nongfeng
signed two construction contracts with two Construction Companies (Hainan No. 4
Construction Engineer Company and Hohhot Saihan District Art & Landscape) to
begin construction of a new
8,000 Tons Per Annum (TPA) plant on its current contracted location. The value
of these contracts is approximately RMB 25,000,000. This addition, when added to
the current 2,000TPA capacity of Inner Mongolia Yongye Biotechnology
Company,Ltd., will increase total production
capacity to 10,000TPA and is critical to our ability to keep up with future
anticipated demand. In July 2008, the construction contractor gave notice that
it forecasts the in-service date of the facility to be the endof September 2008, which will be
sufficient to avoid any weather-related delays. We do not anticipate any other
delays.




Item 2- Management
Discussion & Analysis




MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS




Forward-Looking
Statements:




The following discussion of the
financial condition and results of operations should be read in conjunction with
the consolidated financial statements and related notes thereto. The following
discussion contains forward-looking statements. Yongye International, Inc. (f/k/a
Yongye Biotechnology International, Inc.) is referred to herein as “we”or “our.”The words or phrases “would be,”“will allow,”“expect to”, “intends to,”“will likely result,”“are expected to,”“will continue,”“isanticipated,”“estimate,”or similar expressions are intended to
identify forward-looking statements. Such statements include those concerning
our expected financial performance, our corporate strategy and operational
plans. Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of risks and uncertainties,
including: (a) those risks and uncertainties related to general economic
conditions in China, including regulatory factors that may affectsuch 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 successfullyfulfill our primary requirements for
cash which are explained below under “Liquidity and Capital Resources. Unless
otherwise required by applicable law, we do not undertake, and we specifically
disclaim any obligation, to update any forward-looking statements to reflect occurrences,
developments, unanticipated events or circumstances after the date of such
statement.




Restatement
of Financial Statements


Due to
the complexities of placing the April 2008 Escrow Shares 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 June 30, 2008 and, it was determined that since the April 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 six months ended June 30, 2008, the Company issued the “April Warrants” and
“Roth April 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.
  During
the six months ended June 30, 2008, the Company issued the “April Warrants” and
“Roth April Warrants. The terms of these warrants provide “Fundamental
Transaction” in which net cash settlement could occur under some circumstance
that is not within the company’s control (see Financial Statements Note
8).  Upon the adoption of EITF Issue No. 00-19, April Warrants
have been classified as a liability with fair value at issuance date and would
be adjusted to fair value through earnings at each reporting dates starting from
the issuance date.




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


16




Our
Business




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 us
provide a high quality product that we can control from procurement of raw
materials to final production, which we also believe may help our products to
provide reliable and predictable results from season to season.




We are
headquartered in Beijing, China and Inner Mongolia Yongye’s manufacturing plant
is located in the Inner Mongolia province of China. Currently, we sell two lines
of product based on our fulvic acid base: plant nutrition liquid compound and
animal nutrition food additive. Our products start with our fulvic Acid base
then, in addition, we add other natural substances to customize the base for use
in our plant or animal lines of products. Our plant products are intended to add
naturally occurring macro and micro nutrients such as nitrogen, phosphorus,
potassium, boron and zinc. Our animal products add natural herbs which we
believe may help to reduce bacterial inflammation (mastitis) in cows. It also
assists many animals to digest food more completely and 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
and 2009 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.




Overview
of 2nd Quarter




Demand
for our products




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




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 in the first two quarters 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


RESULTS OF
OPERATIONS




THREE MONTHS ENDED
JUNE 30, 2008 AND JUNE 30, 2007




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.





For the three months
      endedYongye International,
                    
                    
                    
                    
                    
                    IncreaseInc.
                    
                    
                    Predecessor
                    
                    
                    /(decrease)JUNE 30, 2008
                    
                    
                    Inner Mongolia
                    
                    
                    (Restated –Financial(Restated–Financial
                    
                    
                    Yongye
                    
                    
                    Statement NoteStatement Note 1(C))
                    
                    
                    JUNE 30, 2007
                    
                    
                    
                    1(C))Net Sales
                    
                    $
                    17,598,671
                    
                    
                    $
                    7,441,212
                    
                    
                    
                    137
                    %Gross
Profit
                    
                    $
                    9,602,150
                    
                    
                    $
                    3,533,192
                    
                    
                    
                    172
                    %Operating
      Income
                    
                    $
                    8,370,441
                    
                    
                    $
                    3,362,707
                    
                    
                    
                    149
                    %Net Income
                    
                    $
                    5,006,531
                    
                    
                    $
                    3,312,794
                    
                    
                    
                    51
                    %Gross
      Margins
                    
                    
                    54.56
                    %
                    
                    
                    47.48
                    %
                    
                    
                    7.08
                    %Net Margins
                    
                    
                    28,45
                    %
                    
                    
                    44.52
                    %
                    
                    
                    (16.07
                    )%EPS- Basic
                    
                    $
                    0.27
                    
                    
                    $
                    N/A
                    
                    
                    
                    N/AEPS-
Diluted
                    
                    $
                    0.27
                    
                    
                    $
                    N/A
                    
                    
                    
                    N/A




Financial position at quarter ended June
30, 2008 (unaudited) and the year ended December 31,2007:




Yongye International
                    
                    
                    PredecessorInc.
                    
                    
                    Inner MongoliaJUNE 30, 2008
                    
                    
                    Yongye(Restated–Financial
                    
                    
                    DECEMBER 31,
                    
                    
                    IncreaseStatement Note 1(C))
                    
                    
                    2007
                    
                    
                    /(decrease)Cash
                    
                    $
                    1,350,330
                    
                    
                    $
                    376,002
                    
                    
                    
                    259
                    %Accounts
      Receivable, net
                    
                    $
                    20,613,347
                    
                    
                    $
                    1,630,609
                    
                    
                    
                    1164
                    %PP&E,
      net
                    
                    $
                    551,545
                    
                    
                    $
                    2,486,487
                    
                    
                    
                    (78
                    )%Total
      assets
                    
                    $
                    28,111,346
                    
                    
                    $
                    23,131,656
                    
                    
                    
                    22
                    %Short-term Bank
      Loan
                    
                    $
                    —
                    
                    
                    $
                    5,484,000
                    
                    
                    
                    (100
                    )%Long-term
      Shareholder Loan
                    
                    $
                    —
                    
                    
                    $
                    12,153
                    
                    
                    
                    (100
                    )%Total
      stockholders’equity
                    
                    $
                    12,767,428
                    
                    
                    $
                    12,911,472
                    
                    
                    
                    (1
                    )%




Our financial condition continues to
improve as shown by an increase of22% intotal assetsduring the second quarter of 2008
increasing by$4,979,690to $28,111,346at the end of June 30, 2008 from
$23,131,656at the end of December 31, 2007. Cash
increased by 259% during the quarter and our accounts receivable increased by 1164% as a result of
increased sales volume and longer than anticipated collections on some key
accounts. Property, plant and equipment decreased by 78% during the quarter
ended June 30, 2008 compared to the prior year end December 31, 2007
because our new business model, after the
Reverse Takeover, is as a distribution and sales company and we carved out the
2,000TPA manufacturing facility from our financial structure and it remains with
the predecessor company.


18




Sales Revenue and Gross
Profit




PredecessorInner MongoliaYongye Nongfeng
                  
                  
                  YongyeJUNE 30, 2008
                  
                  
                  JUNE 30, 2007
                  
                  
                  Increase/Unaudited
                  
                  
                  Unaudited
                  
                  
                  (Decrease)Sales
                  
                  $
                  17,598,671
                  
                  
                  $
                  7,441,212
                  
                  
                  
                  137
                  %Gross
Profit
                  
                  $
                  9,602,150
                  
                  
                  $
                  3,533,192
                  
                  
                  
                  172
                  %




Sales revenue for the quarter ended
June30, 2008 was
$17,598,671, which was an increase of $10,157,459, or 137%, compared with the
corresponding period in 2007. This was also a decrease of 21% from estimated Q2
revenues of $22,205,888 which represents our quarterly seasonal sales estimates
of45% of total 2008 revenue generated in
Q2.




Gross profit for the Quarter ending June
30, 2008 was $9,602,150, and represented 55% of sales. This was an increase of
$6,068,958, or 172%, when compared with the corresponding period in 2007 which
ended at $3,533,192. When
compared as a percentage of revenues, Gross Profit Margin increased by 8% from
47% to 55% from 2007 to 2008. The overall increase in margin was largely due to
our ability to control Cost of Goods Sold through our contract manufacturing
agreement as explained
above..




Overall, compared with our results in
2007, we have increased our sales exponentially in Q2 of 2008 and we have
already exceeded our expectations in building our network for all of 2008 by
increasing the number of branded stores from 350 in Q1 of 2008 to 775 in Q2 of
2008, which is an overall increase of 19% compared to our initial estimation of
650 stores. When looking at the increase from the end of 2007, we have increased
stores by 575, which is a 288% increase. Additionally, average same store sales are approximately
the same which means our branding process has been successful across the network
and is stable. This is due in large part to our efforts to standardize the
branding process and provide service and support to all store owners and
distributors.





The
number of independently owned stores brought into our branded store network grew
to 775 in the period ended June 30, 2008 from 200 in the same period ended June
30, 2007, which was an increase of 121%. This was due in large part to continued
growth of the distribution network throughout the second quarter of 2008.




Additionally,
Yongye Nongfeng was not required to 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.





End of 2007
            End of Q1
    2008
            End of Q2
    2008Number of Branded
      Stores
            200
            350
            775Sales by Product
      Line:




YongyeInternational, Inc.JUNE 30, 2008Units Shipped
                  
                  
                  % of Total SalesPlant
                  
                  
                  159,216
                  
                  
                  
                  99.96
                  %Animals
                  
                  
                  58
                  
                  
                  
                  0.04
                  %Total
                  
                  
                  159,274
                  
                  
                  
                  100.00
                  %


19




Sales by
product and province are listed below:





Province
                  
                  Animal Product
                  
                  
                  Plant ProductUnits Shipped
                  
                  
                  % Shipped
                  
                  
                  Units Shipped
                  
                  
                  % ShippedGansu
                  
                  
                  0
                  
                  
                  
                  0
                  %
                  
                  
                  40,010
                  
                  
                  
                  25
                  %Hebei
                  
                  
                  0
                  
                  
                  
                  0
                  %
                  
                  
                  17,000
                  
                  
                  
                  11
                  %Inner
      Mongolia
                  
                  
                  0
                  
                  
                  
                  0
                  %
                  
                  
                  20,500
                  
                  
                  
                  13
                  %Others
                  
                  
                  58
                  
                  
                  
                  100
                  %
                  
                  
                  10,506
                  
                  
                  
                  7
                  %Shandong
                  
                  
                  0
                  
                  
                  
                  0
                  %
                  
                  
                  8,200
                  
                  
                  
                  5
                  %Xinjiang
                  
                  
                  0
                  
                  
                  
                  0
                  %
                  
                  
                  63,000
                  
                  
                  
                  39
                  %Totals
                  
                  
                  58
                  
                  
                  
                  100
                  %
                  
                  
                  159,216
                  
                  
                  
                  100
                  %




We are
continuing to expand our markets beyond just our plant product sales as
evidenced by the growth of our animal product.




Customers




Our
customer base is made up of the distributors working for us in each province;
these are not end users of the products. Five major customers accounted for 80% and
one major customer accounted for 26% of the Company’s net revenue for the three
months period ended June 30, 2008. Five major customers accounted
for 98% and one major customer accounted for 51% of the Predecessor’s net
revenue for the three months period ended June 30, 2007. The Company and the
Predecessor’s total sales to five major customers were $14,062,646and
$7,276,561, for the three months period ended June 30, 2008 and 2007, respectively.




Cost of
Sales





PredecessorInner Mongolia
                  
                  
                  Inner MongoliaYongye
                  
                  
                  YongyeNongfeng
                  
                  
                  BiotechnologyJUNE 30, 2008
                  
                  
                  JUNE 30, 2007
                  
                  
                  ChangeCost
      of Sales
                  
                  $
                  7,996,521
                  
                  
                  $
                  3,908,020
                  
                  
                  
                  105
                  %Percentage
      of Sales
                  
                  
                  45
                  %
                  
                  
                  53
                  %
                  
                  
                  -8
                  %




Cost of
Sales for the quarter ended June 30, 2008 was $7,996,521, which is 45% of
revenues. This is an increase of $4,088,501 over the previous period which
represents an 105% increase overall. As a percent of revenue, this represented
an overall decrease of 8% when compared with the corresponding period in 2007,
which was 53%. The overall dollar increase in cost of sales was primarily due to
the increase in our production plan to meet our overall sales goals. The
decrease in percentage of cost of sales was due to more stable pricing from our
contract manufacturing agreement.




Suppliers




Inner
Mongolia Yongye is Yongye Nongfeng’s main contract manufacturer and provided
100% of Yongye Nongfeng’s purchased finished goods for the three months period
ended June 30, 2008. We believe this manufacturer will continue to deliver the
finished goods we require at the quality levels we expect. Through our contract,
we are able to control our prices and Intellectual Property and expect to do so
for the foreseeable future.


20




Selling,
General and Administrative Expenses





Inner
                
                
                PredecessorMongolia
                
                
                Inner MongoliaYongye
                
                
                YongyeNongfeng
                
                
                BiotechnologyJUNE 30, 2008
                
                
                JUNE 30, 2007
                
                
                ChangeSelling,
      General and Administrative Expenses
                
                $
                1,231,709
                
                
                $
                170,485
                
                
                
                622
                %Percentage
      of Sales
                
                
                7
                %
                
                
                2
                %
                
                
                5
                %




Selling,
general and administrative expenses for the quarter ended June 30, 2008 were
$1,231,709, an overall increase of $1,061,224, or 622%, when compared with the
corresponding period in 2007. This was 7% of revenue which was a 5% increase
over the same period last year where these expenses were 2% of revenue. The
increase in selling, general and administrative expenses was primarily due to
increased, correlated, sales activities, such as advertising of $480,457 in the
period which is an increase of $475,719 and increased staffing expenses related
to the buildup of the executive and sales teams of $241,136 in the period which
is an increase of $187,624. Specifically, as referenced in the footnotes,
advertising expenses increased $475,719 to $480,457 in June 30, 2008 compared to
the same period in 2007 which was $4,738. This is due to our increased media
coverage in 6 provinces and print coverage in 10 provinces whereas in the same
period in 2007 advertising was primarily word of mouth.




Loss on
change in fair value of derivative liabilities




The
Company has accounted for warrants issued to investors and Roth in April
Offering in year 2008 as liability measured at fair value. The change in their
fair value during the three months ended June 30, 2008 charged to Consolidated
Statement of Income of a loss of $2,154,323. No such loss was recognized for the
three months ended June 30, 2007, as the Predecessor Company did not issue any
such security during the year 2007.. In addition, the loss recognized for the
three months ended June 30, 2008 was due to the significant increase of our
stock price at June 30, 2008 ($3.50) compared to that at April 17, 2008
($2.22).




Income
Tax




The
Company did not carry on any business and did not maintain any branch office in
the United States during the three months ended June 30, 2008 and 2007.
Therefore, no provision for withholding or U.S. federal income taxes or tax
benefits on the undistributed earnings and/or losses of the Company has been
made.





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





For
the three months ended June 30, 2008, the Company’s income tax expense was
$219,983 and income tax payable were $406,530 compared to $0 and $893,892 for
the same period in 2007.


21




Net
income




PredecessorInner MongoliaYongye Nongfeng Biotechnology
                              
                              
                              YongyeJUNE 30, 2008
                              
                              
                              JUNE 30,0
                              
                              
                              Increase/Unaudited
                              
                              
                              2007
                              
                              
                              (Decrease)Net
      income
                              
                              $
                              5,006,532
                              
                              
                              $
                              3,312,794
                              
                              
                              
                              51
                              %




Net
income was $5,006,532 for the three months ended June 30, 2008 and was 28% of
revenue for the quarter. This was an increase of $1,693,737, or 51%, when
compared to net income of $3,312,794 for the same period of 2007, and
represented 45% of revenue for the quarter. This is an overall increase of 51%,
which is the result of an increase in sales revenue due to expansion of our
number of branded stores and distribution network overall. By percentage of
revenue, however, net income is down 16% over the prior period due largely to
other expenses of $2,540,732 which is mainly the loss generated by change
in fair value of derivative liabilities, and minority interest of $603,194,
which is new for this quarter. These two expenses combined were 14% of revenue
for the quarter.




Basic and diluted earnings per share
(EPS) for the three months
endedJune30, 2008,were $0.27. The weighted average shares
outstanding used to calculate basic and diluted EPS for the period were 18.5
million.




Foreign
Currency Translation Gains




The
reporting currency of the Company is the US dollar. 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 second quarter of
2008. As a result of the appreciation of the RMB, we recognized a foreign
currency translation gain of $277,101 for the second quarter of 2008 compared to
a gain of $127,723 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. All of our revenues and expenses were denominated in RMB Yuan and
both the income statement accounts and balance sheet amounts were translated at
1 RMB Yuan to 0.1414 USD.




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 $1,350,330 and $1,102,032 as of June
30, 2008 and June 30, 2007, respectively.




Financial
Cash Flow Highlights for Six Months Ended:





For the Six Months Ended
                
                
                IncreaseJUNE 30, 2008
                
                
                JUNE 30, 2007
                
                
                /(decrease)Net
      cash used in operating activities
                
                
                (7,604,652
                )
                
                
                (4,661,989
                )
                
                
                63
                %Net
      cash used in investing activities
                
                
                (762,418
                )
                
                
                (22,380
                )
                
                
                3307
                %Net
      cash from financing activities
                
                
                9,294,492
                
                
                
                5,675,591
                
                
                
                64
                %Effect
      of exchange rate change on cash and cash equivalents
                
                
                414,771
                
                
                
                21,787
                
                
                
                1804
                %Net
      increase in cash and cash equivalents
                
                
                1,342,193
                
                
                
                1,013,009
                
                
                
                32
                %Cash
      and cash equivalents at beginning of period
                
                
                8,137
                
                
                
                89,023
                
                
                
                (91
                )%Cash
      and cash equivalents at end of period
                
                $
                1,350,330
                
                
                $
                1,102,032
                
                
                
                23
                %


22





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




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




The
Company's working capital at June 30, 2008, increased to $13,233,278 from
$2,655,790 on December 31, 2007. The increase in working capital resulted from
growth in the Company's overall business and the use of cash earnings to fund
increases in accounts receivable and inventories. Accounts receivable Days Sales
Outstanding (“DSO”) is defined as average accounts receivable for the period
divided by net sales per day and for the six months ended June 30, 2008
decreased to 69 days at June 30, 2008 from 81 days at June 30, 2007 and Days
Sales in Inventory (“DIO”) is defined as average inventory in the period divided
by the cost of sales per day and decreased by 4 days to 75 days at June 30, 2008
from 79 days at June 30, 2007. As is customary in China’s agriculture industry,
we give credit terms which allow our distributors to pay over a longer period of
time than is traditionally done in other industries.




For the
six months ended June 30, 2008, net cash used in operating activities was
$7,604,652. Reductions in cash were primarily attributable to increases of
$5,196,266 in inventories and $20,613,347 in accounts receivables. These were
offset to some degree by net income of $5,587,862, an adjustment for
depreciation of $93,263, a loss generated by change in fair value of derivative
liabilities of $2,154,323 and an increase in accounts payable and accrued
expenses of $6,772,337.




For the
six months ended June 30, 2008, net cash used in investing activities was
$762,418 and was primarily attributable to the build out of the Beijing office
with improvements of $639,519 over the first six months of 2008 and the purchase
of intangible assets (patent and accounting software) of $122,899.




For the
six months ended June 30, 2008, gross cash from financing activities was
$10,100,651 from the PIPE investment received on April 17, 2008. This was offset
by expenses incurred in issuance of stock to shareholders of $806,159 resulting
in net cash of $9,294,492.




SIX
MONTHS ENDED JUNE 30, 2008 AND JUNE 30, 2007




Financial
Highlights




In
summary, we saw the following financial performance over the last six
months:





For the six months ended
                
                
                IncreaseJUNE 30, 2008
                
                
                JUNE 30, 2007
                
                
                /(decrease)Sales
                
                $
                26,986,639
                
                
                $
                8,127,718
                
                
                
                232
                %Gross
      Profit
                
                $
                14,567,619
                
                
                $
                3,780,957
                
                
                
                285
                %Income
      from Operations
                
                $
                9,758,017
                
                
                $
                3,554,778
                
                
                
                175
                %Net
      Income
                
                $
                5,587,862
                
                
                $
                3,358,428
                
                
                
                66
                %Gross
      Margins
                
                
                54
                %
                
                
                47
                %
                
                
                7
                %Net
      Margins
                
                
                21
                %
                
                
                41
                %
                
                
                (20
                )%




Net
Sales




Sales
revenue increased by $18,858,921, or 232%, to $26,986,639 for the six months
ended June 30, 2008 from $8,127,718 for the same period ended on June 30, 2007.
This can be attributed to our investment in our distribution channels and build
up of branded stores which put more product in the hands of end users. We have
increased the number of stores from inception in 2007 to 775 stores by June 30,
2008. The Company and the Predecessor’s total sales to our five major customers
were $24,068,529 and $7,961,977, for the six months period ended June 30, 2008
and 2007, respectively.


23




Gross
Profit Margin




We
achieved gross profit of $14,567,619 for the six months ended June 30, 2008, up
285% from gross profit of $3,780,957 for the corresponding period in the prior
year. Gross profit margin for June 30, 2008 was 54%,up 7% from 47% as
compared to the corresponding period in 2007. This is largely attributed to our
fixed price contract for finished goods which has stabilized our cost of goods
sold.




Selling,
General and Administrative ("SG&A") Expenses




We
incurred total SG&A expenses of $ 4,809,602, or 18%, of revenue, for the six
months ended June 30, 2008. As compared to the same period in 2007, this
represented an increase of $4,583,423 or 2026% over SG&A expenses of
$226,179 which was 3% 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 Q1 and Q2 in order to reach customers for the
growing season starting early in Q2.




Loss
on change in fair value of derivative liabilities




The
Company has accounted for warrants issued to investors and Roth in April
Offering in year 2008 as liability measured at fair value. The change in their
fair value during the six months ended June 30, 2008 charged to Consolidated
Statement of Income of a loss of $2,154,323. No such loss was recognized for the
six months ended June 30, 2007, as the Predecessor Company did not issue any
such security during the year 2007. In addition, the loss recognized for the six
months ended June 30, 2008 was due to the significant increase of our stock
price at June 30, 2008 ($3.50) compared to that at April 17, 2008
($2.22).




Net
Income




Our net
income was $5,587,862 or 21% of revenues for this six month period in 2008 which
was $2,229,434 or 66% increase over the same six month period in 2007 which was
$3,358,428 and 41% of revenue. The increase reflected continued expansion in
sales revenue levels, continued strong demand for our products and sustained
profitability.




Basic and
diluted earnings per share (EPS) for the six months ended June 30, 2008, were
$0.37. The weighted average shares outstanding used to calculate basic and
diluted EPS for the comparative periods were 15.0 million.




Impact of
inflation




We are
subject to commodity price risks arising from price fluctuations in the market
prices of the raw materials. We have generally been able to pass on cost
increases through price adjustments. However, the ability to pass on these
increases depends on market conditions influenced by the overall economic
conditions in China. We manage our price risks through productivity improvements
and cost-containment measures. We do not believe that inflation risk is material
to our business or our financial position, results of operations or cash
flows.




Related
Party Transactions




Inner
Mongolia Yongye is a 1.15% owner of Inner Mongolia Yongye Nongfeng. Mr. Zishen
Wu controls Inner Mongolia Yongye and is CEO of Inner Mongolia Yongye Nongfeng
Biotechnology. He also sits on the boards of both companies as Chairman. During
the period ended June 30, 2008 Inner Mongolia Yongye Nongfeng entered into
several intercompany loan transactions with related party entities as described
in the footnotes to the financial statements above. Additionally, In January
2008, Inner Mongolia Yongye Nongfeng Biotechnology entered into a Cooperation
Agreement with Inner Mongolia Yongye providing for the terms of contract
manufacturing of nutrient product and has also entered into a Sales Agreement in
April 2008 providing for the sale of existing nutrient inventory. The terms of
these agreements have been disclosed in the Joint Venture contract as filed with
the SEC on April 17, 2008.




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.


24




SIGNATURES




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




Dated:
October 19, 2009





YONGYE
      INTERNATIONAL, INC.By:
                  /s/
      Zishen WuZishen
      WuPresident
      and CEOBy:
                  /s/
      Sam
      YuSam
      YuChief
      Financial
Officer


26