UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-Q
 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
 o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934For the
transition period from ________________ to
________
  
 Commission
file number:  000-15893
 
 CHINA
YINGXIA INTERNATIONAL, INC.
 (Exact
name of registrant as specified in its charter)
 
 Florida
              
              65-0664961(State
      or other jurisdiction of
              
              (I.R.S.
      Employerincorporation
      or organization)
              
              Identification
      No.)Harbin
      Yingxia Industrial Co., Ltd,
                300
      Xidazhi Street, Nangang District, Harbin, Heilongjiang, People’s Republic
      of China
              
              150001(Address
      of principal executive offices)
              
              (Zip
      Code)
 
 86
451 86310948
 (Registrant’s
telephone number, including area code)
 
 None
 (Former
name, former address and former fiscal year, if changed since last
report)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
 Yes
[   ]No  [   ]
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.Large accelerated filer [   ]Accelerated
filer  [   ]Non-accelerated
filer  [   ]
 Smaller
Reporting Company x
 Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes [   ]No  [ x
]
 
 Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
 
 Class
              
              Outstanding
      at  August 13, 2008Common
      Stock, $0.001 par value per share
              
              44,469,787shares
 
  CHINA
YINGXIA INTERNATIONAL, INC.
 FORM
10-Q
 
 TABLE
OF CONTENTS
  
 
 PART I - FINANCIAL
      INFORMATION
              3Item
      1. Financial Statements
              3Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
              14Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk
              19Item
      4T. Controls and Procedures
              20PART
      II - OTHER INFORMATION
              20Item
      1. Legal Proceedings
              20Item
      1A. Risk Factors
              20Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds
              20Item
      3. Defaults Upon Senior Securities
              20Item
      4. Submission of Matters to a Vote of Security
    Holders
              20Item
      5. Other Information
              20Item
      6. Exhibits
              20SIGNATURES
              21
  Except as otherwise required by the
context, all references in this report to "we", "us”, "our", “CYXI”, “China Yingxia”or "Company" refer to the
consolidated operations
of China Yingxia International, Inc., a Florida corporation, and its wholly
owned subsidiaries.
   2
  Item
1. Financial Statements.
  CHINA
YINGXIA INTERNATIONAL, INC.
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
  
 ASSETS
              
              30-Jun-08
              
              
              31-Dec-07(Unaudited)
              
              
              (Audited)Current
      assets:Cash
      and cash equivalents
              
              $
              2,513,855
              
              
              $
              736,683Account
      receivables, net of allowance for doubtful accounts $847,948 &
      $1,558,597 respectively
              
              
              3,580,094
              
              
              
              20,081Inventory
              
              
              8,307,331
              
              
              
              5,527,135Tax
      Receivable
              
              
              -
              
              
              
              32,317Short-term
      loan receivable
              
              
              -
              
              
              
              2,194,774Other
      receivables
              
              
              3,624,368
              
              
              
              3,150,777Advances
      to suppliers
              
              
              934,190
              
              
              
              1,434,059Loan
      Receivable from related parties
              
              
              93,310
              
              
              
              2,037,551Total
      Current Assets
              
              
              19,053,148
              
              
              
              15,133,377Property
      and equipment, net of accumulated depreciation
              
              
              22,190,190
              
              
              
              15,515,896Other
      AssetsGoodwill
              
              
              57,447
              
              
              
              -Deposits
      on buildings and land
              
              
              1,344,154
              
              
              
              1,718,077Investment
      Advance
              
              
              291,583
              
              
              
              4,112,631Intangible
      assets, net
              
              
              743,256
              
              
              
              666,785Total
      other assets
              
              
              2,436,440
              
              
              
              6,497,493Total
      Assets
              
              $
              43,679,777
              
              
              $
              37,146,766LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Accounts
      payable
              
              $
              152,190
              
              
              $
              2,911Unearned
      revenue
              
              
              44,198
              
              
              
              6,509Tax
      Payable
              
              
              127,668
              
              
              
              -Accrued
      expenses and other payables
              
              
              357,398
              
              
              
              357,976Total
      Current Liabilities
              
              
              681,454
              
              
              
              367,396Total
      Liabilities
              
              
              681,454
              
              
              
              367,396Stockholders'
      EquityPreferred
      stock, $0.001 par value, 10,000,000 shares authroized; - 0 -
      sharesoutstanding
      at  June 30,2008 and December 31, 2007
              
              
              -
              
              
              
              -Common
      stock, $0.001 par value, 100,000,000 shares
    authorized;44,469,787
      and 44,439,787 shares outstanding at June 30,2008and
      December 31, 2007, respectively
              
              
              44,480
              
              
              
              44,440Additional
      paid in capital
              
              
              16,841,627
              
              
              
              16,799,667Accumulated
      other comprehensive income
              
              
              5,309,478
              
              
              
              2,885,038Statutory
      reserves
              
              
              901,463
              
              
              
              901,463Retained
      earnings
              
              
              19,901,275
              
              
              
              16,148,762Total
      Stockholders' Equity
              
              
              42,998,323
              
              
              
              36,779,370Total
      Liabilities and Stockholders' Equity
              
              $
              43,679,777
              
              
              $
              37,146,766
  See
accompanying notes to the condensed consolidated Financial
Statements.
  3
  CHINA
YINGXIA INTERNATIONAL, INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 
 Six
      Months Ended June 30,
              
              
              Three
      Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007(Unaudited)
              
              
              (Unaudited)
              
              
              (Unaudited)
              
              
              (Unaudited)Sales
              
              $
              8,527,496
              
              
              $
              6,867,039
              
              
              $
              6,415,592
              
              
              $
              5,227,933Cost
      of Sales
              
              
              3,672,909
              
              
              
              3,099,185
              
              
              
              2,848,275
              
              
              
              2,317,113Gross
      Profit
              
              
              4,854,587
              
              
              
              3,767,855
              
              
              
              3,567,317
              
              
              
              2,910,820Operating
      ExpensesResearch
      & Development Expense
              
              
              13,171
              
              
              
              134,739
              
              
              
              13,171
              
              
              
              135,452Selling,
      general and administrative
              
              
              899,669
              
              
              
              628,236
              
              
              
              409,329
              
              
              
              311,605Income
      before other Income and (Expenses)
              
              
              3,941,748
              
              
              
              3,004,880
              
              
              
              3,144,818
              
              
              
              2,463,763Other
      Income and (Expenses)Interest
      Income
              
              
              1,324
              
              
              
              -
              
              
              
              1,202
              
              
              
              -Other  Income
              
              
              -
              
              
              
              318
              
              
              
              -
              
              
              
              364Other
      Expense
              
              
              (315
              )
              
              
              -
              
              
              
              (177
              )
              
              
              -Other
      Income and Expenses Total Other Income and
(Expenses)
              
              
              1,009
              
              
              
              318
              
              
              
              1,026
              
              
              
              364Income
      Before Income Taxes (Benefits)
              
              
              3,942,757
              
              
              
              3,005,198
              
              
              
              3,145,844
              
              
              
              2,464,127Provision
      for Income Taxes (Benefits)
              
              
              190,244
              
              
              
              -
              
              
              
              105,701
              
              
              
              -Net
      Income
              
              $
              3,752,513
              
              
              $
              3,005,198
              
              
              $
              3,040,143
              
              
              $
              2,464,127Other
      Comprehensive IncomeForeign
      Currency Translation Adjustment
              
              
              2,424,440
              
              
              
              526,991
              
              
              
              940,385
              
              
              
              322,712Comprehensive
      Income
              
              $
              6,176,953
              
              
              $
              3,532,189
              
              
              $
              3,980,528
              
              
              $
              2,786,839Basic
      and Diluted Income per common shareBasic
              
              $
              0.08
              
              
              $
              0.09
              
              
              $
              0.07
              
              
              $
              0.07Diluted
              
              $
              0.08
              
              
              $
              0.09
              
              
              $
              0.06
              
              
              $
              0.07Weighted
      average common share outstandingBasic
              
              
              44,457,260
              
              
              
              33,608,857
              
              
              
              44,469,787
              
              
              
              33,608,857Diluted
              
              
              49,724,025
              
              
              
              33,608,857
              
              
              
              49,736,552
              
              
              
              33,608,857
  See
accompanying notes to the condensed consolidated Financial
Statements.   4
  CHINA
YINGXIA INTERNATIONAL, INC.
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 
 Six
      Months Ended June 30,2008
              
              
              2007(Unaudited)
              
              
              (Unaudited)Cash
      Flows From Operating Activities:Net
      income
              
              $
              3,752,513
              
              
              $
              3,005,198Adjustments
      to reconcile net income to net cashprovided
      by (used in) operating activities:Depreciation
      and amortization
              
              
              533,859
              
              
              
              337,794Amortization
      of stock-based compensation
              
              
              42,000
              
              
              
              -Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (3,560,013
              )
              
              
              1,314Inventory
              
              
              (2,780,196
              )
              
              
              (892,553
              )Tax
      Receivable
              
              
              32,317
              
              
              
              -Prepaid
      expenses
              
              
              -
              
              
              
              95,479Other
      receivable
              
              
              (473,591
              )
              
              
              (1,273,102
              )Advances
      to suppliers
              
              
              499,868
              
              
              
              (3,364,596
              )Accounts
      payable
              
              
              149,280
              
              
              
              1,247,610Unearned
      revenue
              
              
              37,689
              
              
              
              1,314Taxes
      payable
              
              
              127,668
              
              
              
              48,397Accrued
      expenses and other payables
              
              
              (578
              )
              
              
              (41,184
              )Cash
      used in operating activities
              
              
              (1,639,185
              )
              
              
              (834,331
              )Cash
      Flows From Investing Activities:Purchase
      of property and equipment
              
              
              (962,387
              )
              
              
              (57,864
              )Purchase
      of patent/land use right
              
              
              
              
              
              
              (102,282
              )Investment
      advance to India Company
              
              
              (283,322
              )Acquisition
      of Chichi Company
              
              
              (174,950
              )Collection
      of Short term loan
              
              
              2,194,774
              
              
              
              -Deposits
      on buildings and land
              
              
              (297,488
              )
              
              
              -Collections
      on loans to related party
              
              
              1,944,241
              
              
              
              1,198,676Additions
      to construction in process
              
              
              (161,604
              )
              
              
              (545,353
              )Cash
      provided by investing activities
              
              
              2,259,264
              
              
              
              493,176Cash
      Flows From Financing Activities:None
              
              
              -
              
              
              
              -Cash
      provided by (used in) financing activities
              
              
              -
              
              
              
              -Effect
      of exchange rate changes on cash and cash
equivalents
              
              
              1,157,094
              
              
              
              363,584Increase
      in cash and cash equivalents
              
              
              1,777,172
              
              
              
              22,429Cash
      and Cash Equivalents - Beginning of period
              
              
              736,683
              
              
              
              77,867Cash
      and Cash Equivalents - End of period
              
              $
              2,513,855
              
              
              $
              100,296
 
 See
accompanying notes to the condensed consolidated Financial
Statements.   5
  CHINA
YINGXIA INTERNATIONAL INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 (UNAUDITED)
 
  1.  ORGANIZATION
AND DESCRIPTION OF BUSINESS
 
 China
Yingxia International, Inc. (the “Company” or “China Yingxia”) was incorporated
in the State of Florida on May 6, 1996 and formerly known as Agronix, Inc.
(“Agronix”).
  On May
12, 2006, the Company entered into a share exchange agreement with Warner
Nutraceutical International, Inc. (‘WNI”), which is the parent company to Harbin
Yingxia Industrial Group Co, Ltd. ("Harbin Yingxia"). Pursuant to the share
exchange agreement, the Company issued to WNI shareholders 54,811,475 shares of
Common Stock, par value $0.001 per share, and 1,473,649.074 shares of Class A
Preferred Stock, par value $0.001 per share, of which each share is convertible
into five hundred (500) shares of the Company’s Common Stock. As a result of the
transactions, there was a change in control of the Company as the shareholders
of WNI became the majority shareholders of the Company.
  For
accounting purpose, the transaction was accounted for as a reverse acquisition
under the purchase method. Accordingly, WNI and its subsidiary are treated as
the continuing entity for accounting purposes. Following the merger, Agronix
filed a Certificate of Amendment and changed its name to China Yingxia
International, Inc.
  On July
21, 2006, the Company’s board of directors approved a reverse stock split on
both common stock and preferred stock.  Each 24.9 shares of the
Company's Common Stock and Class A Preferred Stock were converted into one (1)
share of Common Stock and one (1) share of Class A Preferred Stock,
respectively. Simultaneously, all of the preferred shares were converted into
common shares at ration of 1 to 500 and the preferred shares were
cancelled.
 
 On
February 28, 2008, the Company signed a letter of Intent with Guangzhou Chichi
Network Technology Development Co., Ltd. (“Guangzhou Technology”), and Guangzhou
Chichi Network Supermarket Chain Co., Ltd. (“Guangzhou Supermarket Chain”),
together known as the Chichi Wang companies.  Subsequent to this
agreement, the Company spent RMB 1,200,000 (approximately US$171,000) to
finalize the acquisition on April 25, 2008. The Company intends to expand
its distribution channel, customer base and sales revenue by utilizing Chi Chi
Wang’s online network in Southern China.
 
 The
Company operates its business through its wholly-owned subsidiary Harbin Yingxia
Industrial Group, Ltd. (" Harbin Yingxia"), a joint stock corporation organized
and existing under the laws of the People's Republic of China (“PRC”) in 1998.
Harbin Yingxia is engaged in the development, manufacture and distribution of
organic nutritional food products and dietary supplements.
  The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the requirements of Item 8-03 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 2008 and 2007 are not
necessarily indicative of the results that may be expected for the full years.
The information included in this Form 10-Q should be read in conjunction with
Management’s Discussion and Analysis and the financial statements and notes to
thereto included in the Company’s 2007 Form 10-KSB.
  2.   SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
  Principles
of consolidation
 
 The
consolidated financial statements of China Yingxia International, Inc. include
the accounts of the Company and its wholly owned subsidiaries, WNI and Harbin
Yingxia.  All significant inter-company balances and transactions are
eliminated in consolidation.
   6
  CHINA
YINGXIA INTERNATIONAL INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 (UNAUDITED)
   2.   SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Basis
of presentation
  The
Company’s condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America (“US GAAP”). This basis of accounting differs in certain material
respects from that used for the preparation of the books of account of the
Company’s principal subsidiary, which are prepared in accordance with the
accounting principles and the relevant financial regulations applicable to
enterprises with limited liabilities established in the PRC, the accounting
standards used in the places of their domicile.  The accompanying
consolidated financial statements reflect necessary adjustments not recorded in
the books of account of the Company’s subsidiary to present them in conformity
with US GAAP.
  Use
of estimates
 
 In
preparing the financial statements in conformity with US GAAP, management makes
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the dates of
the financial statements, as well as the reported amounts of revenues and
expenses during the reporting year. Significant estimates, required by
management, include the recoverability of long-lived assets and the valuation of
inventories.  Actual results could differ from those
estimates.
 
 Cash
and cash equivalents
 
 For
purposes of the statement of cash flow, the Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
 
 Accounts
receivables
 
 Accounts
receivables are stated at net realizable value. This value includes an
appropriate allowance for estimated uncollectible accounts. The allowance is
calculated based upon the evaluation and the level of past due accounts and the
relationship with and the economic status of the customers.  The
allowance for doubtful accounts was $847,948 as of June 30,
2008.  Although account receivables increased significantly during the
second quarter, the Company does not maintain a large balance of accounts
receivable due to the nature of its business, and the collections on the
Company’s accounts receivable has been generally good. Except for the above
reserved allowance, the Company has not encountered any uncollected accounts
receivable.
 
 The
increase in account receivables for the second quarter mainly represents cactus
seedlings given to the farmers to expand cactus production, which will be
collected in the form of lower purchase prices before the 2nd quarter
of 2009 when the cacti are harvested and purchased from the
farmers.
  Inventories
 
 Inventories
are composed of raw materials and packing materials for manufacturing, work in
process, and finished goods. Inventories are valued at the lower of cost or
market with cost determined on a first-in first-out basis. Management compares
the cost of inventory with the market value and an allowance is made for writing
down the inventory to its market value, if lower than cost.
 
 Property
and equipment
 
 Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation
is computed using the straight-line method over the estimated useful lives as
below:
  Category
              Estimated
      Useful LivesMachinery
      & Equipment
              4-5    yearsAutomobiles
              7       yearsBuildings
              15-40
      years
 
 Advance
to suppliers
 
 Advance
to suppliers represent the payments made and recorded in advance for goods and
services received. The Company makes advances to certain vendors’ inventory
purchases, construction projects and equipment purchases. The advance to
suppliers totaled $934,190 as of June 30, 2008.
   7
  CHINA
YINGXIA INTERNATIONAL INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 (UNAUDITED)
 2.   SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Impairment
of long-lived assets
  Long-lived
assets, which include property, plant and equipment and intangible assets, are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
  Recoverability
of long-lived assets to be held and used is measured by a comparison of the
carrying amount of an asset to the estimated undiscounted future cash flows
expected to be generated by the asset.   If the carrying amount
of an asset exceeds its estimated undiscounted future cash flows, an impairment
charge is recognized by the amount by which the carrying amount of the asset
exceeds the fair value of the assets.  Fair value is generally
determined using the asset’s expected future discounted cash flows or market
value, if readily determinable.
 
 Goodwill
  Goodwill
represents the excess of the purchase price over the fair value of the net
tangible and identifiable intangible assets of the business acquired. Goodwill
is not subject to amortization, but is generally subject to an annual assessment
for impairment, applying a fair-value based test. Goodwill is also tested in
between annual test dates if events or circumstances indicate that the carrying
amount of goodwill exceeds its implied fair value.
  Income
taxes
 
 The
Company accounts for income tax under the provisions of SFAS No.109 "Accounting
for Income Taxes", which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of the events that have
been included in the financial statements or tax returns.  Deferred
income taxes are recognized for all significant temporary differences between
tax and financial statements bases of assets and
liabilities.  Valuation allowances are established against net
deferred tax assets when it is more likely than not that some portion or all of
the deferred tax asset will not be realized.
 
 The
Company does not have any long-term deferred tax assets or liabilities in China
that will exist once the tax holiday (See Note 11) expires. The Company does not
have any significant deferred tax asset or liabilities that relate to tax
jurisdictions not covered by the tax holiday.
 
 Revenue
recognition
  The
Company recognizes revenue on product sales when products are delivered and the
title passes to the customers and collection is reasonably assured.
  Cost
of revenues
  Cost of
revenues consists primarily of material costs, employee compensation,
depreciation and related expenses, which are directly attributable to the
production of products.  Write-down of inventory to lower of cost or market
is also recorded in cost of revenues.
 
 Stock-based
compensation
 
 Effective
January 1, 2007, the Company adopted the provisions of Financial Accounting
Standards Board Statement of Financial Accounting Standards (“SFAS”) No. 123(R),
“Share-Based Payments,” which establishes the accounting for employee
stock-based awards. Under the provisions of SFAS No. 123(R), stock-based
compensation is measured at the grant date, based on the calculated fair value
of the award. And it is recognized as an expense over the requisite employee
service period (generally the vesting period of the grant).
 
 The
Company measures compensation expense for its non-employee stock-based
compensation under the Financial Accounting Standards Board (FASB) Emerging
Issues Task Force (EITF) Issue No. 96-18, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services”.  The fair value of the option
issued is used to measure the transaction, as this is more reliable than the
fair value of the services received.  Fair value is measured as the
value of the Company’s common stock on the date that the commitment for
performance by the counterparty has been reached or the counterparty’s
performance is complete.  The fair value of the equity instrument is
charged directly to compensation expense and additional paid-in
capital.
   8
  CHINA
YINGXIA INTERNATIONAL INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 (UNAUDITED)
   2.   SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
  Concentration
of credit risk
 
 Financial
instruments that potentially subject the Company to concentration of credit risk
consist primarily of accounts receivable and other receivables.  The
Company does not require collateral or other security to support these
receivables.  The Company conducts periodic reviews of its clients'
financial condition and customer payment practices to minimize collection risk
on accounts receivable.
 
 The
operations of the Company are located in the PRC. Accordingly, the Company's
business, financial condition, and results of operations may be influenced by
the political, economic, and legal environments in the PRC, as well as by the
general state of the PRC economy.
 
 Fair
value of financial instruments
 
 The
carrying amounts of certain financial instruments, including cash and cash
equivalents, accounts receivable, other receivables, accounts payable, accrued
expenses, taxes payable, notes payable and other loans payable approximate fair
value due to the short-term nature of these items.  The carrying
amounts of bank borrowings approximate the fair value based on the Company's
expected borrowing rate for debt with similar remaining maturities and
comparable risk.
 
 Foreign
currency translation
  The
Company’s functional currency is the Renminbi (“RMB”). For financial reporting
purposes, RMB has been translated into United States dollars ("USD") as the
reporting currency. Assets and liabilities are translated at the exchange rate
in effect at the balance sheet date. Revenues and expenses are translated at the
average rate of exchange prevailing during the reporting period. Translation
adjustments arising from the use of different exchange rates from period to
period are included as a component of stockholders' equity as "Accumulated other
comprehensive income". Gains and losses resulting from foreign currency
transactions are included in accumulated other comprehensive income.  There
is no significant fluctuation in exchange rate for the conversion of RMB to USD
after the balance sheet date.
  Research
and Development
 
 Research
and development costs are related primarily to the Company developing its
intellectual property. Research and development costs are expenses as incurred.
The costs of material and equipment that are acquired or constructed for
research and development activities and have alternative future uses are
classified as plant and equipment and depreciated over their estimated useful
lives.
 
 Start-up
Costs
 
 In
accordance with the American Institute of Certified Public Accountants Statement
of Position 98-5, “Reporting on the Costs of Start-up Activities”, the Company
expenses all costs incurred in connection with the start-up and organization of
the Company.
 
 Earnings
per share
 
 Basic
earnings per share are computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share is computed similar to basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
There are 5,362,565 warrants outstanding for dilution purposes as of June 30,
2008
  9
  CHINA
YINGXIA INTERNATIONAL INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 (UNAUDITED)
 2.   SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 New
accounting pronouncements
  In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities—Including an amendment of FASB Statement No.
115 (“FAS 159”). FAS 159 permits companies to choose to measure many financial
instruments and certain other items at fair value that   are not currently
required to be measured at fair value. The objective of FAS 159 is to provide
opportunities to mitigate volatility in reported earnings caused by  
measuring related assets and liabilities differently without having to
apply hedge accounting provisions. FAS 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between companies
that choose different measurement attributes for similar types of assets
and liabilities. SFAS 159 will be effective in the first quarter of fiscal 2009.
The Company is evaluating the impact that this statement will have on its
consolidated financial   statements.
  In June
2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services Received for use in Future
Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
nonrefundable advance payments for goods or services that used or rendered for
research and development activities should be expensed when the advance payment
is made or when the research and development activity has been performed. The
Company has adopted FSP EITF 07-3 and expensed the research and development
as it incurred.
 
 In
December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51” (“SFAS 160”), which establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
non-controlling interest, changes in a parent’s ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated. The Statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the non-controlling owners. SFAS
160 is effective for fiscal years beginning after December 15, 2008. The Company
has not determined the effect that the application of SFAS 160 will have on its
consolidated financial statements.
 
 In
December 2007, Statement of Financial Accounting Standards No. 141(R), Business Combinations, was
issued. SFAS No. 141R replaces SFAS No. 141, Business Combinations.SFAS
141R retains the fundamental requirements in SFAS 141 that the acquisition
method of accounting (which SFAS 141 called the purchase method) be used for
all business combinations and for an acquirer to be identified for each business
combination. SFAS 141R requires an acquirer to recognize the assets acquired,
the liabilities assumed, and any non-controlling interest in the acquiree at the
acquisition date, measured at their fair values as of that date, with limited
exceptions. This replaces SFAS 141’s cost-allocation process, which required the
cost of an acquisition to be allocated to the individual assets acquired
and liabilities assumed based on their estimated fair values. SFAS 141R also
requires the acquirer in a business combination achieved in stages (sometimes
referred to as a step acquisition) to recognize the identifiable assets and
liabilities, as well as the non-controlling interest in the acquiree, at the
full amounts of their fair values (or other amounts determined in accordance
with SFAS 141R). SFAS 141R applies prospectively to business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. An entity may not
apply it before that date. The Company has adopted SFAS No.
141R.
 
 In March
2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”)
No. 161, Disclosures about Derivative Instruments and Hedging Activities,
an amendment of FASB Statement No. 133, which requires additional
disclosures about the objectives of the derivative instruments and hedging
activities, the method of accounting for such instruments under SFAS
No. 133 and its related interpretations, and a tabular disclosure of the
effects of such instruments and related hedged items on our financial position,
financial performance, and cash flows. SFAS No. 161 is effective beginning
January 1, 2009. We
are currently assessing the potential impact that adoption of SFAS No. 161
may have on our financial statements.
 10
  CHINA
YINGXIA INTERNATIONAL INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 (UNAUDITED)
   3.   INVENTORY
  June
      30, 2008
              
              
              December
      31, 2007Packing
      Materials
              
              $
              99,635
              
              
              $
              102,707Raw
      Materials
              
              
              5,991,259
              
              
              
              2,660,601Work
      in process
              
              $
              177,513
              
              
              
              210,864Finished
      Goods
              
              
              2,038,923
              
              
              
              2,552,963Total
              
              $
              8,307,331
              
              
              $
              5,527,135
 
 No
allowance for inventory was made for the six months ended June 30, 2008 and
December 31, 2007.
  4.   PROPERTY,
PLANT AND EQUIPMENT, NET
 
 Property,
plant and equipment consist of the following at June 30, 2008 and December 31,
2007:
 
 June
      30, 2008
              
              
              December
      31, 2007Machinery
      & Equipment
              
              $
              7,544,107
              
              
              $
              2,906,024Automobiles
              
              
              430,771
              
              
              
              405,054Buildings
              
              
              15,956,194
              
              
              
              13,358,530Sub
      total
              
              
              23,881,369
              
              
              
              16,669,608Less:
      Accumulated Depreciation
              
              
              (4,120,538
              )
              
              
              (3,371,764
              )Construction
      in progress
              
              
              2,379,656
              
              
              
              2,218,052Total
      property, plant & Equipment, net
              
              $
              22,190,190
              
              
              $
              15,515,896
 
 Depreciation
expense for the six months ended June 30, 2008 and 2007 was $519,543 and
$337,794, respectively.
 
  5. INTANGIBLE
ASSETS
 Intangible
assets include land use right and patent right.
 
 Land use
right – all land in the People’s Republic of China is government owned and
cannot be sold to any individual or company. Instead, the government grants the
user a “Land use right” (the Right) to use the land. The Company has the right
to use the land for 50 years and amortized the Right on a straight-line basis
over 50 years.
 
 Patent –
capitalized patent costs represent the acquisition costs paid for exclusive use
of the patented organic rice seeds.  Capitalized patent costs are
amortized on a straight method over the related patent term of 15
years.
 
 Net
intangible assets at June 30, 2008 and December 31, 2007 were as
follows:
  June
      30, 2008
              
              
              December
      31, 2007Land
      use right
              
              $
              451,209
              
              
              $
              424,271Patent
              
              
              291,583
              
              
              
              274,175Brandname
      (Chichi Network)
              
              
              48,867Less:
      Accumulated amortization
              
              
              (
      48,404)
              
              
              
              (31,661)Intangible
      assets, net
              
              $
              743,256
              
              
              $
              666,785
 
 Amortization
expense for the six months ended June 30, 2008 and 2007 amounted to $14,315 and
$0, respectively.
 
 6.  OTHER
RECEIVABLES
 
 Other
receivables typically represent cash advances to employees and sales
representatives for normal business purposes. As of June 30, 2008 the Company
has other receivables in the amount of $3,624,368. The increase in other
receivables primarily attributes to 1). An increase in cash deposits to retail
stores to expand soybean milk sales, which will be collectable by the end of the
year; 2). Deposits to the farmers in Jiangsu for seeds and fertilizers for their
rice, which will be collectable when the rice crops are harvested and purchased
by Yingxia.
 
 An
allowance in the amount of $489,080 was recorded as of June 30,
2008.
  7.
RELATED PARTY LOANS
 
 As of
June 30, 2008, the Company has loans receivable from related parties in the
amount of $93,310. All related party loans are provided to the affiliated retail
stores or companies to facilitate the initial establishment of their businesses
for selling the Company’s products. These loans are interest free and unsecured
and are due upon demand. The Company expects to collect most of the outstanding
loans in the next few months. As many stores are closing down and turned
into online stores, the loans are becoming much smaller compared with the first
quarter of 2008.
 11
  CHINA
YINGXIA INTERNATIONAL INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 (UNAUDITED)
  8.  DEPOSITS
ON BUILDINGS AND LAND
 
 The
Company made separate deposits in the total amount of $1,344,154 on one office
space in Beijing and a piece of land in Anhui Province it intends to purchase.
All purchases are evidenced by purchase agreements and the transactions were not
finalized as of June 30, 2008. Once the Company completes the title transfers,
the deposits will be reclassified to Property, Plant and Equipment
account.
 
 9.
INVESTMENT ADVANCE
 
 On
January 23, 2008, the Company registered ‘China Xianhe India Private Limited” in
New Deli, India. RMB 2,000,000 was made an advance as initial start up cost.
.. The Company intends to expand its dietary supplement products into Indian
market in the next several months.
 
 As of
June 30, 2008, this Indian subsidiary has not started operations yet. It is
waiting for the license of direct sales from the Indian
authorities.
 
 10.
GOODWILL
 
 On
February 28, 2008, the Company signed an agreement with Guangzhou Chichi Network
Technology Development Co., Ltd. (“Guangzhou Technology”), and Guangzhou Chichi
Network Supermarket Chain Co., Ltd. (“Guangzhou Supermarket Chain”), together
known as the Chichi Wang Companies.  Subsequent to this agreement, the
Company spent RMB 1,200,000 (approximately US$171,000) to finalize the
acquisition on April 25, 2008.
 
 The
operating results of Chichi Wang Companies have been consolidated into the
financial statements of China Yingxia in this 10-Q.
 
 The
Company intends to expand its distribution channel, customer base and sales
revenue by utilizing Chi Chi Wang’s online network in Southern
China.
  The
accompanying consolidated financial statements include the allocation of the
acquisition cost to the net assets acquired based on their respective fair
values. The net assets were estimate by the Company’s management. If the
final valuation, which is expected to be completed within 12 months from the
closing of the acquisition, derives different amounts from our estimate, we
will adjust these amounts to goodwill.
 
 Goodwill
represents the excess of the purchase price over the fair value of the net
tangible and identifiable intangible assets of the 100% interest in Chichi
Network Companies acquired.  The following represents the allocation
of the acquisition cost to the net assets acquired based on their respective
fair values:
  Current
      assets
              
              $
              88,880Construction
      in process
              
              $
              -Fixed
      assets
              
              $
              48,430Other
      non-current asset
              
              $
              55,227Total
      liabilities assumed
              
              $
              75,034Net
      assets acquired
              
              $
              117,503Total
      consideration paid
              
              $
              174,950Goodwill
              
              $
              57,447
  11.  INCOME
TAXES
 
 The
Company is governed by the Income Tax Law of the People’s Republic of China
concerning the private-run enterprises, which are subject to tax at a statutory
rate of 25% and were, until January 2008, subject to tax at a statutory rate of
33% (30% state income tax plus 3% local income tax) on its taxable
income.
 
 In 2006,
the Company obtained its foreign-owned entity (“WOFE”) status upon completion of
the reverse acquisition. According to the Provisional Regulations of the
People’s Republic of China on Income Tax, the Document of Reductions and
Exemptions of Income Tax for the Company has been approved by the local tax
bureau and the Management Regulation of Harbin Economic and Technological
Development Zone for the reporting period. The Company was granted the status of
WOFE and therefore is exempt from income tax from January 1, 2004 through
December 31, 2007. The Company has also been approved to have its tax rate
reduced by 50% from January 1, 2008 to December 31, 2010.
 
 On
March 16, 2007, the National People’s Congress of China approved the
Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”),
which is effective from January 1, 2008. Under the new CIT law, the
corporate income tax rate applicable to all Companies, including both domestic
companies and foreign-invested companies, is 25%, replacing the prior
applicable tax rate of 33%. However, companies previously approved for any
income holiday will not be subject to the new enacted tax rate until the holiday
runs out.
 
 To
continue with its WOFE tax holiday of tax rate reduction by 50% for three years,
the Company is subject to 12.5% of income tax rate from January 1, 2008 to
December 31, 2010.  For the six months ended June 30, 2008, the
Company has income tax provision of $190,244
  One of
our product categories, cactus raw materials, is also exempted from corporate
income tax and value-added tax.
 
 12.
STATUTORY RESERVES
 
 Pursuant
to the laws of People’s Republic of China, the Company is required to maintain
certain statutory reserves by appropriating from its after-tax profit before
declaration or payment of dividends. The statutory reserves include surplus
reserve fund, common welfare fund and the enterprise fund. These statutory
reserves represent restricted retained earnings.
 12
 CHINA
YINGXIA INTERNATIONAL INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 (UNAUDITED)
  12. STATUTORY
RESERVES (CONTINUED)
  Surplus reserve
fund
 
 The
Company is generally required to transfer 10% of its net income, as determined
under PRC accounting rules and regulations, to a statutory surplus reserve fund
until such reserve balance reaches 50% of the Company’s registered capital.
However, the laws exclude the companies owned by foreign entities. The Company’s
operating subsidiary, Harbin Yingxia, became a foreign owned entity in 2007 upon
acquisition by the Company. Therefore, it is exempted from making any more
mandatory reserves. It is at the management’s discretion whether to make any
additional reserves.  For the six months end June 30, 2008, the
Company elected not to make any additional funds to this reserve.
 
 The
surplus reserve fund is non-distributable other than during liquidation and can
be used to fund previous years’ losses, if any, and may be utilized for business
expansion or converted into share capital by issuing new shares to existing
shareholders in proportion to their shareholding or by increasing the par value
of the shares currently held by them, provided that the remaining reserve
balance after such issue is not less than 25% of the registered
capital.
 
 Common welfare
fund
 
 The
Company is required to transfer 5% to 10% of its net income, as determined in
accordance with the PRC accounting rules and regulations, to the statutory
common welfare fund. Making any additional common welfare reserve becomes
voluntary for the Company because of its foreign entity status. For the six
months ended June 30, 2008, the Company elected not to make any additional funds
to this reserve.
 
 This fund
can only be utilized on capital items for the collective benefit of the Company’
s employees, such as construction of dormitories, cafeteria facilities, and
other staff welfare facilities. This fund is non-distributable other than upon
liquidation.
  Enterprise
fund
 
 The
enterprise fund may be used to acquire fixed assets or to increase the working
capital to expend on production and operation of the business. No minimum
contribution is required and the Company did not make any contribution to this
fund during the six months ended June 30, 2008
 
 The
following represents the accumulated balances of the appropriations as of June
30, 2008:
  Surplus
      Reserve
              
              $
              600,975Common
      Welfare Reserve
              
              
              300,488Total
              
              $
              901,463
 
  13.
SEGMENT REPORTING
 
 The
company operates in one operating segment in accordance with the provisions of
SFAS No. 131, “Disclosures about Segments of an Enterprise and Related
Information”. Although the Company develops, manufactures and commercializes
various products such as nutritional food products, dietary supplements,
cosmetic products, raw cactus plants and personal care products etc., the
Company’s chief operating decision maker reviews and evaluates one set of
combined financial information deciding how to allocate resources and in
assessing performance.
 
 For the
six months ended June 30, 2008 and 2007, the Company’s sales revenue from
various products are as follows:
 
 June
      30, 2008
              
              
              June
      30, 2007Nutritional
      Food Products
              
              $
              2,104,183
              
              
              $
              1,207,912Dietary
      Supplements
              
              
              1,804,973
              
              
              
              566,531Cosmetic
      Products
              
              
              152,578
              
              
              
              221,805Cactus
      products
              
              
              4,206,724
              
              
              
              3,469,228Personal
      Care Products & others
              
              
              154,147
              
              
              
              1,402,249Chichi
      Network companies
              
              
              104,891
              
              
              
              --Total
              
              $
              8,527,496
              
              
              $
              6,867,039
  All the
Company’s revenue were generated in China. The Company’s sales in foreign
nations represent pilot programs that as of yet have not become full-scale
operations.
 13
 CHINA
YINGXIA INTERNATIONAL INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 (UNAUDITED)
  14. STOCKHOLDERS’EQUITY
 
 A.
Issuance of Common
Stock
 
 July
2007 Private Placement
 
 On July
16, 2007, the Company entered into a stock subscription and warrant agreement,
(“Subscription Agreement”), with three (3) accredited investors. Pursuant to the
Subscription Agreement, the investors purchased 1,000,000 units, each unit
consisting of (a) two shares of common stock and (b) one common stock purchase
warrant, at a purchase price of $2.00 per unit. The Company received net
proceeds of $1,980,000 in connection with this private placement.
 
 With the
warrants attached to the units sold in the private placement, the investors are
entitled to purchase an aggregate of 1,000,000 shares of common stock at an
exercise price of $1.50 per share. All these warrants are exercisable for five
years from the effective date of registration statement.
 
 Upon
completion of the placement, the Company incurred approximately $20,000 in legal
and other expenses.
 
 August
2007 Private Placement
 
 On August
9, 2007, the Company completed another private placement of its securities to
accredited investors pursuant to Regulation D under the Securities Act of 1933,
as amended. The Company entered into a stock subscription agreement and warrant
agreement (“Subscription Agreement”), with twenty (20) accredited investors.
Pursuant to the Subscription Agreement, the investors purchased 34.90052 units,
each unit consisting of (a) 250,000 shares of common stock and (b) a 5-year
stock purchase warrant to purchase 125,000 shares of common stock exercisable at
$2.00 per share. The units were sold for a price of $250,000 per unit, yielding
gross proceeds of $8,725,130 from the sale of the units. The Company paid fees
and commissions in the aggregate amount of $1,398,387 in connection with this
offering.
 
 B.
Warrants
 
 Upon the
execution of the both Subscription Agreements, the Company issued to the
investors (i) 1,000,000 warrants under July 2007 Private Placement and
(ii)4,362,565 warrants under August 2007 Private Placement. All warrants do not
contain a cashless exercise provision. Accordingly, in accordance with EITF
00-19, the warrants are classified as equity.
  
 The fair
value of the warrants was calculated using the Black-Scholes options pricing
model using the following assumptions: Volatility 63%, risk free interest rate
5.050% for July 2007 Placement and 4.790% for August 2007 Placement, and
expected term of 5 years.
 
 Following
is a summary of the status of warrants outstanding as of June 30,
2008:
 
 Outstanding
      WarrantsExercise
      Price
              
              Number
              Average
      Remaining Life$
              1.50
              
              1,000,000
              4.00$
              2.00
              
              4,362,565
              4.085,362,565
  14
 CHINA
YINGXIA INTERNATIONAL INC.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
 (UNAUDITED)
 14. STOCKHOLDERS ’ EQUITY (CONTINUED)
  C.
Stock issued for
consulting services
 
 In 2007,
105,800 shares of common stock were issued as full compensation to several
consultants for certain consulting services provided to the Company.  An
amount of $212,744, which represents the aggregate fair value of the shares
issued in excess of par value, was included in additional paid-in capital. The
full amount was expensed and included in the Statements of Income as a part of
general and administrative expenses.
 
 On
February 26, 2008, 40,000 shares of common stock were issued as full
compensation to certain consultants for consulting services provided to the
Company. An amount of $41,960, which represents the aggregate fair value of the
shares issued in excess of par value, was included in additional paid-in
capital. The full amount was amortized and included in the Statements of Income
as a part of general and administrative expenses.
 
 As a
result of these offerings, the Company issued a total of 10,840,930 shares of
its common stock. As of June 30, 2008, there are 44,469,787 shares of common
stock outstanding and no preferred stock.
 
 15.
COMMITMENTS AND CONTINGENCIES
 
 The
Company’s operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in the North America
and Western Europe. These include risks associated with, among others, the
political, economic and legal environments and foreign currency exchange. The
Company’s results may be adversely affected by changes in governmental policies
with respect to laws and regulations, anti-inflationary measures, currency
conversion and remittance abroad, and rates and methods of taxation, among other
things.
 
 The
Company’s sales, purchases and expenses transactions are denominated in RMB and
all of the Company’s assets and liabilities are also denominated in RMB. The PRC
government imposes controls on the convertibility of Renminbi into foreign
currencies and, in certain cases, the remittance of currency outside of the
PRC. We receive substantially all of our revenues in Renminbi. Under existing
PRC foreign exchange regulations, payments of current account items, including
profit distributions, interest payments and expenditures from trade-related
transactions, can be made in foreign currencies without prior approval from the
PRC State Administration of Foreign Exchange by complying with certain
procedural requirements.
  15
  Item
2.  Management’s Discussion and Analysis of Financial Condition and Results
of Operations.
  The
following discussion should be read in conjunction with the Financial Statements
and Notes thereto appearing elsewhere in this Form 10-Q.
  Safe Harbor Regarding
Forward-Looking Statements
  The
following discussion contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 relating to future events or our future performance. Actual
results may materially differ from those projected in the forward-looking
statements as a result of certain risks and uncertainties set forth in this
prospectus. Although management believes that the assumptions made and
expectations reflected in the forward-looking statements are reasonable, there
is no assurance that the underlying assumptions will, in fact, prove to be
correct or that actual results will not be different from expectations expressed
in this report.
 
 Overview
 
 The
Company operates its business through its wholly-owned subsidiary Harbin Yingxia
Business Group, Ltd. (" Harbin Yingxia"), a joint stock corporation organized
and existing under the laws of the People's Republic of China (“PRC”). Harbin
Yingxia is engaged in the development, production, and sale of health food
products, including soybean meals and drinks, cactus based foods, rice products,
and beauty cosmetics. Sales within China comprise 100% of total
revenue.
  Results of
Operations
 
 For the Six Months Ended June 30,
2008 compared to the Six Months Ended June 30,
2007:
 
 Revenue
 
 The
Company generated $8,527,496 in net sales for the six months
ended June 30, 2008, an increase of $1,660,457 or 24.18% as compared
to the revenue of $6,867,039 for the six months ended June 30,
2007.
 
 A
breakdown of sales by product categories and as a percentage of total sales, as
well as their respective gross margins for both first half of 2008 and the
second quarter of 2008 are listed below:
  Q1
      + Q2 2008
                Revenue
              
              Percentage
      of Revenue
              Gross
      MarginsNutritional
      Foods
              
              $
              2,104,183
              
              24.68
      %
              49.39
      %Dietary
      Supplements
              
              $
              1,804,973
              
              21.17
      %
              65.43
      %Cosmetic
      Products
              
              $
              152,578
              
              1.79
      %
              71.9
      2%Cactus
      Materials
              
              $
              4,206,724
              
              49.33
      %
              61.58
      %Personal
      Care and Other Products
              
              $
              154,147
              
              1.81
      %
              75.00
      %Chichi
      Network Companies
              
              $
              104,891
              
              1.23 %
              19.50
      %Total
              
              $
              8,527,496
              
              100 %
              60.85
      %
 
 
 Q2
      2008
                Revenue
              
              Percentage
      of Revenue
              Gross
      MarginsNutritional
      Foods
              
              $
              1,399,571
              
              21.82
      %
              49.13
      %Dietary
      Supplements
              
              $
              578,290
              
              9.01
      %
              67.73
      %Cosmetic
      Products
              
              $
              49,151
              
              0.77
      %
              69.59
      %Cactus
      Materials
              
              $
              4,144,189
              
              64.60
      %
              56.28
      %Personal
      Care and Other Products
              
              $
              139,500
              
              2.17
      %
              70.11
      %Chichi
      Network Companies
              
              $
              104,891
              
              1.64
      %
              19.50-%Total
              
              $
              6,415,592
              
              100 %
              56.16
      %
 
  16
  Within
the two of the major categories:
 
 Nutritional
      Foods
              
              Q2
      2008
                Revenue
              
              
              Percentage
      of Nutritional Food SalesOrganic
      Rice
              
              $
              713,792
              
              
              
              52.18
              %Soybean
      Milk and Yogurt
              
              $
              385,385
              
              
              
              28.17
              %Long
      Gu Millet
              
              $
              41,449
              
              
              
              3.03
              %
   Dietary
      Supplements
              
              Q2
      2008
                Revenue
              
              
              Percentage
      of Dietary Supplements SalesCactus
      Based Supplements
              
              $
              164,285
              
              
              
              29.07
              %Cactus
      Crystal Drink
              
              $
              99,886
              
              
              
              17.67
              %Wild
      Herbal Supplements
              
              $
              103,688
              
              
              
              18.35
              %
 
 
 Our
operations have clear seasonality.  The fact that the second quarter
revenue triples that of the first quarter attributes to much larger harvests of
cactus crops in the second quarter and large increase in nutritional products
sales which is part of our production position strategy.
 
 Our
general production strategy is to grow our revenue year over year at a healthy
and steady rate, at the same time rationalizing the product
portfolio.
 
 Compared
with the same period last year, nutritional and green food category has the
biggest increase of over 630%. This represents the shift of the production focus
toward products that are more value-added and have larger market
potentials.
 
 Meanwhile,
the company continues to expand its distribution network and has created 230 new
franchisees stores during the 2nd quarter. The distribution of
the new stores is as follows:
 
 Region
              City
              
              #
      of stores
              
              
              Revenue
      contribution in Q2
              
              
              Note
                P-Provincial
      level
                M-City
      level
                C-County
      levelNortheast
              
              
              
              123
              
              
              $
              530,363Harbin
              
              
              48
              
              
              
              
              
              
              
              PDaqing
              
              
              27
              
              
              
              
              
              
              
              CQiqihar
              
              
              21
              
              
              
              
              
              
              
              CMudanjiang
              
              
              16
              
              
              
              
              
              
              
              CSuihua
              
              
              11
              
              
              
              
              
              
              
              CNorthern
      China
              
              
              
              11
              
              
              $
              48,156
              
              
              
              CBeijing
              
              
              11
              
              
              
              
              
              
              
              CEastern
      China
              
              
              
              21
              
              
              $
              90,563
              
              
              
              CShanghai
              
              
              16
              
              
              
              
              
              
              
              CHefei
              
              
              5
              
              
              
              
              
              
              
              CSouthern
      China
              
              
              
              43
              
              
              $
              185,438
              
              
              
              CGuangzhou
              
              
              27
              
              
              
              
              
              
              
              CShenzhen
              
              
              16
              
              
              
              
              
              
              
              CNorthwest
              
              
              
              5
              
              
              $
              21,816
              
              
              
              CLanzhou
              
              
              5
              
              
              
              
              
              
              
              CSouthwest
              
              
              
              20
              
              
              $
              86,270
              
              
              
              CChongqing
              
              
              20
              
              
              
              
              
              
              
              CSouthcentral
              
              
              
              7
              
              
              $
              30,879
              
              
              
              CWuhan
              
              
              7
              
              
              
              
              
              
              
              CTotal
              
              
              
              230
              
              
              $
              993,486
              
              
              
              C
 17
  Order
sizes over $30,000 make the store provincial level store, $22,400 municipal
level, $15,000 county level, and $5,910 trial stores. A trial store does not
have physical store space and is usually an individual selling from his/her
home. All stores must reorder within every three months and the company provides
incentives, such as rebates, to larger orders.
 
 Provincial
stores are mostly stand alone shops or a counter in a major supermarket. Most of
the stores opened during the second quarter in Harbin are provincial stores. The
stores opened in other cities are mostly county level and trial
stores.
 
 The
company is rapidly building an online sales force. Many previous stores also
turned online to save costs and taxes. When the customers order online, the
company takes the payments and the nearby stores deliver the
products.
 
 Cost
of Sales
 
 The cost
of sales was $3,672,909 for the six months ended June 30,
2008, an increase of $573,724 or 18.51% as compared to
the cost of sales of $3,099,185 for the six months ended June 30,
2007.
 
 As a
percentage of total sales, cost of sales decreased to 43.07% from 45.13% during
the first six months of 2008 compared to same period in 2007. This is a
continued improvement of our overall gross margins. While we are increasing the
production and sales of our green food product category, which we believe has
the best market potential but also has relative lower margins than other product
categories that China Yingxia manufactures, we are also improving our overall
production efficiency, such as continuing to reduce the portion of the
production that is contracted out to the third party manufacturers (11.76% in
the second quarter), and strategic control of our raw materials prices.
Therefore we expect to maintain our overall gross margin at the high 50’s
percentile.
  Total
Operating Expenses
 
 Total
operating  expenses were $912,840 for the six months ended June 30,
2008,  an increase  of  $149,865 or 19.64% as  compared to
total  operating expenses of  $762,975  for the six 
months  ended  June 30, 2007.  This is a proportionally smaller
increase than the increase in revenue. There was a $36,263 drop in selling
expense from the first quarter, which is a holiday quarter and usually requires
high expenses [due to compensation expenses associated with the Chinese New Year
holiday.
 
  18
  Net
Income
 
 Net
income for the six months ended June 30, 2008 increased by $747,315 to
$3,752,513 or 24.87% from $3,005,198 for the six months ended June 30, 2007. The
increase in net income is the direct result of an increase in revenue and
proportionally smaller increases in costs and expenses.
 
 Liquidity and Capital
Resources
  As of
June 30, 2008, the Company had cash and cash equivalents of $2,513,855, as
compared to $736,683 at December 31, 2007. As of June 30, 2008, the Company had
working capital of $18,371,694, as compared to $ 14,765,981 as ofDecember 31,
2007.
 
 Net cash
used in operating activities totaled $1,639,185 for the six months ended June
30, 2008, as compared to cash used by operating activities of $834,331 for the
six months ended June 30, 2007. The net cash used in operations was largely
impacted by the increase in account receivable of $3,560,013 and inventory of
$2,780,196.
 
 The cause
for the account receivable increase is the expansion of cactus growing areas. We
provide the farmers with cactus seedlings as a loan and enter the dollar amount
into account receivables. When the farmers harvest the cactus crops and sell
them to the company, we collect the loan as a deduction in the purchase
price.  We expect the collection from the third quarter of 2008 to the
second quarter of 2009.
 
 High
inventory results from continued stocking of raw materials of agricultural
products, which is usually carried out during the first and second
quarter.
 
 Net cash
provided by investing activities totaled $2,259,264 for the six months ended
June 30, 2008 as compared to net cash provided of $493,176 for the six months
ended June 30, 2007. During the six month period ended June 30, 2008, we were
able to collect short term loans of $2,194,774 and loans to related parties of
$1,944,241. These collections are related to the short term loans we made to the
farmers of our Hulan production base to finance the construction of well sinkers
during the drought in 2007.
 
 These
collections offset purchase of property and equipment, investment advance to
support our India subsidiary’s working capital, deposits on buildings and land
along with investment made toward the development of our business in southern
China with Chichi Wang companies.
 
 On
January 23, 2008, the Company registered ‘China Xianhe India Private Limited” in
New Deli, India.   RMB 2,000,000 (approximately US$283,322) was
made an advance as initial start up cost as of June 30, 2008.  The
Company intends to expand its dietary supplement products into Indian market in
the next several months. It is currently waiting for the business license of
direct sales from Indian authorities.
 
 On
February 28, 2008, the Company signed an agreement with Guangzhou Chichi Network
Technology Development Co., Ltd. (“Guangzhou Technology”), and Guangzhou Chichi
Network Supermarket Chain Co., Ltd. (“Guangzhou Supermarket Chain”), together
known as the Chichi Wang companies.  Subsequent to this agreement, the
Company spent RMB 1,200,000 (approximately US$174,950) to finalize the
acquisition on April 25,2008. The operating results of Chichi Network Companies
have been consolidated into China Yingxia’s financial statements in this
10-Q.
 
 Net cash
used in financing activities were $0 for both six month periods ended June 30,
2008 and June 30, 2007.
  Item
3.  Quantitative and Qualitative Disclosures About Market Risk
 
 The
Company is subject to certain market risks, including changes in interest rates
and currency exchange rates.  The Company does not undertake any specific
actions to limit those exposures.
 19
  Item 4T. Evaluation
of Disclosure Controls and Procedures
 
 Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”),
the Company carried out an evaluation, with the participation of the Company’s
management, including the Company’s Chief Executive Officer (“CEO”) and Chief
Accounting Officer (“CAO”) (the Company’s principal financial and accounting
officer), of the effectiveness of the Company’s disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this report. Based upon that evaluation, the
Company’s CEO and CAO concluded that the Company’s disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that the Company files or submits under the Exchange
Act, is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to the Company’s management, including the Company’s CEO and
CAO, as appropriate, to allow timely decisions regarding required
disclosure.
  Management’s Report on Internal
Controls over Financial Reporting
  Internal
control over financial reporting is a process to provide reasonable assurance
regarding the reliability of consolidated financial reporting and the
preparation of financial statements for external purposes in accordance with
U.S. generally accepted accounting principles.  There has been no change in
the Company’s internal control over financial reporting during the quarter ended
June 30, 2008 that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
  The
Company’s management, including the Company’s CEO and CAO, does not expect that
the Company’s disclosure controls and procedures or the Company’s internal
controls will prevent all errors and all fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of the
controls can provide absolute assurance that all control issues and instances of
fraud, if any, within the Company have been detected.
 
 
 PART
II - OTHER INFORMATION
 Item
1.    Legal Proceedings.
  None.
 
 Item
1A.    Risk Factors.
 
 
 Item
2.    Unregistered Sales of Equity Securities and Use of
Proceeds.
  None.
  Item
3.    Defaults Upon Senior Securities.
  None.
  Item
4.   Submission of Matters to a Vote of Security Holders.
  None.
  Item
5.   Other Information.
  None.
  Item
6.   Exhibits.
  Exhibit No.
              
              Title
      of Document31.1
              
              Certification
      of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended31.2
              
              Certification
      of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended32.1
              
              Certification
      pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Chief Executive
      Officer)32.2
              
              Certification
      pursuant to Section 906 of Sarbanes Oxley Act of 2002 (Chief Financial
      Officer)
 20
 SIGNATURES
  In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, there unto duly
authorized.
   CHINA
      YINGXIA INTERNATIONAL, INC.August
      14, 2008
              By:
              /s/ Yingxia
      JiaoYingxia
      JiaoChief
      Executive Officer
  August
      14, 2008
              By:
              /s/ Ren
      HuRen
      HuChief
      Financial Officer
                (Principal
      Financial and Accounting Officer)
         21