Yongye International (YONG) 10-Q 2010 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2010

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 registrant as specified in its charter)

Nevada (State or other jurisdiction of incorporation or organization 20-8051010 (I.R.S. Employer Identification No.)

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

No. 1 Zhichun Road, Haidian District Beijing, PRC

(Address of principal executive offices)

(Former name, former address and former fiscal year, if changed since last report)

+86 10 8232 8866

(Registrant’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 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     x     No    ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). * Yes o o No o *The registrant has not yet been phased into the interactive data requirements.

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 x   (Do not check if a smaller reporting company)	Smaller reporting company  ¨

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

Yes ¨    No x

As of November 15, 2010, there were 49,370,711 shares of common stock, par value $.001 per share, issued and outstanding.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION		1
ITEM 1.	FINANCIAL STATEMENTS	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITIONS.	17
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	25
ITEM 4.	CONTROLS AND PROCEDURES	25
PART II. OTHER INFORMATION		27
ITEM 1.	LEGAL PROCEEDINGS	27
ITEM 1A.	RISK FACTORS	27
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	27
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	27
ITEM 4.	(REMOVED AND RESERVED)	27
ITEM 5.	OTHER INFORMATION	27
ITEM 6.	EXHIBITS	28

ii

PART I.

FINANCIAL INFORMATION

ITEM 1. Financial Statements

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

	Note	September 30, 2010		December 31, 2009
Current assets
Cash		$	24,967,963	$	65,518,181
Restricted cash			40,000		-
Accounts receivable, net of allowance for doubtful accounts	3		75,643,791		6,161,796
Inventories	4		39,932,889		42,033,261
Prepayments	5		9,453,220		6,211,896
Prepaid expenses			843,515		112,879
Other receivables			232,627		383,841
Total Current Assets			151,114,005		120,421,854
Property, plant and equipment, net	6		16,977,565		9,156,915
Intangible assets, net	7		23,980,305		85,058
Land use right, net	8		4,186,126		4,166,987
Prepayment for mining project	9		29,381,466		-
Other assets	10		7,553,159		2,029,012
Goodwill			10,152,408		9,945,862
Total Assets		$	243,345,034	$	145,805,688
Current liabilities
Short-term bank loan	11	$	-	$	2,925,174
Long-term loans and payables - current portion	12		462,178		331,693
Accounts payable - related party	18		-		880,026
Accounts payable - third parties			725,074		344,774
Income tax payable	15		7,875,660		4,082,424
Advance from customers			1,446,210		29,157
Accrued expenses			10,947,119		479,609
Due to a related party	18		-		1,663,191
Other payables	7		5,113,861		553,286
Derivative liabilities – fair value of warrants	13		837,663		1,380,205
Total Current Liabilities			27,407,765		12,669,539
Long-term loans and payables	12		443,808		545,327
Total Liabilities			27,851,573		13,214,866
Equity
Common stock: par value $.001; 75,000,000 shares authorized; 48,187,044 shares issued and outstanding at September 30, 2010 and 44,532,241 shares issued and outstanding at December 31, 2009	13		48,187		44,532
Additional paid-in capital	13		140,289,199		118,583,308
Subscription receivable	13		-		(8,550,000	)
Retained earnings			61,701,706		15,506,445
Accumulated other comprehensive income			4,083,848		329,139
Total equity attributable to Yongye International, Inc.			206,122,940		125,913,424
Noncontrolling interest			9,370,521		6,677,398
Total Equity			215,493,461		132,590,822
Total Liabilities and Equity		$	243,345,034	$	145,805,688

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

1

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

		For the Three Months Ended						For the Nine Months Ended
	Note	September 30, 2010			September 30, 2009			September 30, 2010		September 30, 2009
Sales		$	71,752,069		$	29,279,473		$	186,101,173	$	87,986,792
Cost of sales			29,639,662			13,435,326			80,095,965		41,274,810
Gross profit			42,112,407			15,844,147			106,005,208		46,711,982
Selling expenses			15,574,981			2,644,715			38,206,314		11,715,707
Research and development expenses			2,170,951			69,871			4,509,847		1,482,888
General and administrative expenses			3,530,638			1,365,075			6,996,584		2,495,797
Income from operations			20,835,837			11,764,486			56,292,463		31,017,590
Other income/(expenses)
Interest expense, net			(6,612)			(9,080)			(21,341)		(25,538)
Government subsidy			1,427,259			185,039			1,751,732		237,366
Other income/(expenses), net			2,067			(10,446	)		(84,294)		(50,036)
Change in fair value of derivative liabilities	13		(12,077	)		(15,836,189	)		157,393		(20,905,136	)
Total other income/ (expenses), net			1,410,637			(15,670,676	)		1,803,490		(20,743,344	)
Earnings /(losses) before income tax expense			22,246,474			(3,906,190	)		58,095,953		10,274,246
Income tax expense	15		3,705,985			3,089,047			9,389,307		7,836,270
Net income/(loss)			18,540,489			(6,995,237	)		48,706,646		2,437,976
Less: Net income attributable to the noncontrolling interest			962,222			46,028			2,511,385		128,284
Net income/(loss) attributable to Yongye International, Inc.		$	17,578,267		$	(7,041,265	)	$	46,195,261	$	2,309,692
Earnings per share:
Basic	19	$	0.37		$	(0.22	)	$	1.02	$	0.08
Diluted	19	$	0.37		$	(0.22	)	$	1.01	$	0.08
Weighted average shares used in computation:
Basic	19		47,130,522			32,730,054			45,423,109		29,926,052
Diluted	19		47,248,570			32,730,054			45,541,985		29,926,052

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

2

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF EQUITY AND COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

		Common Stock
	Note	Shares of Common Stock		Common Stock Amount		Additional Paid-in Capital		Subscription Receivable			Retained Earnings		Accumulated Other Comprehensive Income		Equity attributable to Yongye International, Inc.		Noncontrolling Interest		Total Equity
Balance as of January 1, 2010			44,532,241		44,532		118,583,308		(8,550,000	)		15,506,445		329,139		125,913,424		6,677,398		132,590,822
Net income			-		-		-		-			46,195,261		-		46,195,261		2,511,385		48,706,646
Foreign currency exchange translation adjustment, net of nil income taxes			-		-		-		-			-		3,754,709		3,754,709		181,738		3,936,447
Comprehensive income																49,949,970		2,693,123		52,643,093
Subscription received			-		-		-		8,550,000			-		-		8,550,000		-		8,550,000
Stock issued to acquire assets July 1, 2010	13		3,600,000		3,600		21,236,400		-			-		-		21,240,000		-		21,240,000
Warrants exercised	13		54,803		55		469,491		-			-		-		469,546		-		469,546
Balance as of September 30, 2010			48,187,044		48,187		140,289,199		-			61,701,706		4,083,848		206,122,940		9,370,521		215,493,461

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

3

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Nine Months Ended
	September 30, 2010			September 30, 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	48,706,646		$	2,437,976
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		2,249,302			385,337
Reversal of bad debt provision		-			(305,338	)
Change in fair value of derivative liabilities		(157,393	)		20,905,136
Changes in operating assets and liabilities:
Accounts receivable-related party		-			23
Accounts receivable-third parties		(68,136,061	)		(40,270,694	)
Inventories		2,932,733			(10,190,333	)
Prepayments		(3,102,063	)		(116,740	)
Prepaid expenses		(719,328	)		65,754
Other receivables		156,678			366,797
Other assets		(5,954,038	)		-
Accounts payable-related party		(880,505	)		5,569,674
Accounts payable-third parties		352,970			6,625,498
Income tax payable		3,626,988			7,065,369
Advance from customers		1,391,839			(1,733,928	)
Accrued expenses		10,250,425			2,223,070
Other payables		(59,319	)		130,644
Net Cash Used in Operating Activities		(9,341,126	)		(6,841,755	)
CASH FLOWS FROM INVESTING ACTIVITIES
Change in restricted cash		(40,000	)		-
Prepayment for mining project		(28,866,259	)		-
Proceeds from sale of property, plant and equipment		92,629			-
Purchase of property, plant and equipment		(6,464,728	)		(2,655,816	)
Purchase of property, plant and equipment-related party		(1,663,769	)		-
Net Cash Used in Investing Activities		(36,942,127	)		(2,655,816	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans		-			276,331
Repayment of long-term loans and payables		(447,800	)		(121,877	)
Repayment of short-term loans		(2,925,675	)		-
Proceeds from common stock issued		8,550,000			9,222,157
Proceeds from warrants exercised		84,397			-
Payment for common stock issuance costs		-			(836,456	)
Net Cash Provided by Financing Activities		5,260,922			8,540,155
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH		472,113			(11,653	)
NET DECREASE IN CASH		(40,550,218	)		(969,069	)
Cash and cash equivalent at beginning of period		65,518,181			4,477,477
Cash and cash equivalent at end of period	$	24,967,963		$	3,508,408
Supplemental cash flow information:
Cash paid for income taxes	$	5,765,758		$	770,652
Cash paid for interest expense	$	70,960		$	33,236

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

4

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010

NOTE 1 -ORGANIZATION AND DESCRIPTION OF BUSINESS

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 and the Company’s principal shareholder entered into a share exchange agreement (the “Exchange Agreement”) with Fullmax Pacific Limited (“Fullmax”), a privately held investment holding company organized on May 23, 2007 under the laws of the British Virgin Islands and all the shareholders of Fullmax (the “Fullmax Shareholders”). Pursuant to the terms of the Exchange Agreement, the Fullmax Shareholders transferred all of their shares to the Company in exchange for 11,444,755 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 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. 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 entered into a Sino-Foreign cooperative joint venture contract with Inner Mongolia Yongye Biotechnology Co., Ltd. (“Inner Mongolia Yongye”) to form Yongye Nongfeng, pursuant to which, Inner Mongolia Yongye and ASO were 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 equity interest in Inner Mongolia Yongye.

In connection with the September Offering (See Note 13), the Company entered into agreements to acquire the productive assets of Shengmingsu manufacturing business from Inner Mongolia Yongye (the “Acquisition”). In October 2009, the Company completed the Acquisition. The reason for the Acquisition was to expand the Company’s manufacturing business.

On July 20, 2010, Yongye Nongfeng set up a wholly-owned subsidiary, Inner Mongolia Yongye Fumin Biotechnology Co., Ltd. (“Yongye Fumin”), with an initial investment cost of $2,946,376 (equivalent to RMB 20 million). Yongye Fumin is to be engaged in the manufacturing and sale of fulvic acid based liquid and powder nutrient compounds. As of September 30, 2010, the production plant of Yongye Fumin was in final stage of construction and has not started official operation.

 NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted as permitted by rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). The December 31, 2009 condensed consolidated balance sheet was derived from the audited consolidated financial statements of the Company. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the December 31, 2009 audited consolidated financial statements of the Company included in the Company’s annual report on Form 10-K for the year ended December 31, 2009.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the financial position as of September 30, 2010, and the results of operations for the three and nine months ended September 30, 2009 and 2010, and cash flows for the nine months ended September 30, 2009 and 2010, have been made. 

The Company's business is subject to seasonal variations; thus, the results of operations for the three and nine months ended September 30, 2010 is not necessarily indicative of the results for the full fiscal year ending December 31, 2010. Generally, the second and third quarters are peak sales periods, and first and fourth quarters are low sales periods for the Company.

B. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income attributable to the Company by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that would occur upon the exercise of outstanding warrants. Common share equivalents are excluded from the computation of the diluted earnings per share when their effect would be anti-dilutive.

5

C. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In October 2009, the FASB issued Accounting Standards Update (“ASU”) 2009-13, Revenue Recognition (Topic 605):  Multiple-Deliverable Revenue Arrangements (EITF Issue No. 08-1, Revenue Arrangements with Multiple Deliverables ). ASU 2009-13 amends ASC 605-25 to eliminate the requirement that all undelivered elements have vendor specific objective evidence of selling price (“VSOE”) or third party evidence of selling price (“TPE”) before an entity can recognize the portion of an overall arrangement fee that is attributable to items that already have been delivered. In the absence of VSOE or TPE for one or more delivered or undelivered elements in a multiple-element arrangement, entities will be required to estimate the selling prices of those elements. The overall arrangement fee will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling price. Application of the “residual method” of allocating an overall arrangement fee between delivered and undelivered elements will no longer be permitted upon adoption of ASU 2009-13. Additionally, the new guidance will require entities to disclose more information about their multiple-element revenue arrangements. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. Management is currently evaluating the potential impact, if any, of adopting ASU 2009-13 on the Company’s financial position and results of operations.

NOTE 3 – ACCOUNTS RECEIVABLE

Accounts receivable at September 30, 2010 and December 31, 2009 consisted of the following:

	September 30, 2010			December 31, 2009
Accounts receivable		$	75,643,791		$	6,161,796
Less: allowance for doubtful accounts			-			-
Total		$	75,643,791		$	6,161,796

An allowance for doubtful accounts of $0 and $305,338 was reversed for the three and nine months ended September 30, 2009, respectively. No provision for allowance for doubtful accounts was recorded during the three and nine months ended September 30, 2010 as management believes no accounts are uncollectible as of September 30, 2010.

6

NOTE 4 – INVENTORIES

Inventories at September 30, 2010 and December 31, 2009 consisted of the following:

	September 30, 2010		December 31, 2009
Finished goods	$	36,989,474	$	31,734,252
Work in progress		2,486,869		6,024,323
Raw materials		355,533		3,771,366
Consumables and packing supplies		101,013		503,320
Total	$	39,932,889	$	42,033,261

NOTE 5 – PREPAYMENTS

In order to secure inventory supplies of raw materials, the Company makes prepayments to certain suppliers. As of September 30, 2010 and December 31, 2009, the prepayments to suppliers amounted to $9,317,065 and $6,070,458, respectively.

NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment at September 30, 2010 and December 31, 2009 consisted of the following:

	September 30, 2010		December 31, 2009
Buildings	$	10,117,355	$	5,644,213
Machinery and equipment		1,743,488		1,535,189
Office equipment and furniture		429,535		356,560
Vehicles		2,082,890		2,037,130
Software		18,900		17,199
Leasehold improvements		223,944		219,388
Construction-in-process		3,562,951		-
		18,179,063		9,809,679
Less: Accumulated depreciation		1,201,498		652,764
Total	$	16,977,565	$	9,156,915

Depreciation expense for the three months ended September 30, 2010 and 2009 was $189,548 and $137,875, respectively. Depreciation expense for the nine months ended September 30, 2010 and 2009 was $539,793 and $377,369, respectively.

As of September 30, 2010, vehicles with a carrying amount of $1,050,619 were pledged as security for the long-term loans of $372,418 (See Note 12).

As of December 31, 2009, vehicles with a carrying amount of $1,122,845 were pledged as security for the long-term loans of $532,425 (See Note 12). As of December 31, 2009, an apartment with a carrying value of $102,551 was pledged as security for a long-term loan of $71,618 (See Note 12).

As of December 31, 2009, buildings with an original carrying amount of $2,718,269 were pledged as security for the short-term bank loan of $2,925,174 (See Note 11).  The short-term bank loan was repaid in February 2010.

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NOTE 7 – INTANGIBLE ASSETS, NET

Intangible assets at September 30, 2010 and December 31, 2009 consisted of the following:

	September 30, 2010		December 31, 2009
Patent	$	108,531	$	106,323
Customer List		24,584,523		-
		24,693,054		106,323
Less: Accumulated amortization		712,749		21,265
Total	$	23,980,305	$	85,058

Amortization expense for the three months ended September 30, 2010 and 2009 was $677,302 and $2,657, respectively. Amortization expense for the nine months ended September 30, 2010 and 2009 was $682,630 and $7,968, respectively. The estimated annual amortization expense for intangible assets in each of the next five years is $2,709,208.

On July 1, 2010, Yongye Nongfeng entered into an agreement with its provincial level distributor in Hebei Province, the PRC (“Seller”) to purchase the customer list from Seller (“Customer List”). The acquisition of the Customer List will allow Yongye Nongfeng to sell its products to sub-provincial level distributors in Hebei Province directly. The consideration of the Customer List was 3,600,000 shares of common stock of the Company which was issued in July 2010 and $3 million cash (payable on or before March 1, 2011). The Customer List is amortized over its estimated useful life for 9 years with nil residual value. A straight-line amortization method is used, as management believes that the pattern of economic benefits of the Customer List cannot be reliably determined.

NOTE 8 – LAND USE RIGHT, NET

As of September 30, 2010 and December 31, 2009, land use right represented:

	September 30, 2010			December 31, 2009
Land use right		$	4,275,989	$	4,188,995
Less: Accumulated amortization			89,863		22,008
Total		$	4,186,126	$	4,166,987

As of December 31, 2009, the land use right was pledged as security for the short-term bank loan of $2,925,174 (See Note 11).  The loan was repaid in February 2010.

NOTE 9 - PREPAYMENT FOR MINING PROJECT

On March 1, 2010, Yongye Nongfeng entered into an agreement with Wuchuan Shuntong Humic Acid Company Ltd (“Wuchuan Shuntong”) to acquire from Wuchuan Shuntong the right to develop certain lignite coal resources in Wuchuan area for a cash consideration of approximately $35 million. As of September 30, 2010, Yongye Nongfeng has made prepayment of $29,381,466 to Wuchuan Shuntong. As of September 30, 2010, the legal procedures for the transfer of the right to develop have not yet been completed.

NOTE 10 – OTHER ASSETS

The Company has entered into agreements with certain distributors, including sub-distributors (the “Distribution Agreement”), pursuant to which the Company provided the distributor a free vehicle in exchange for the distributor agreeing to comply with certain sales conditions during the term of the agreement of five years.  The sales conditions included (1) meeting the annual sales target set by the Company; (2) not selling the products at a price lower than the price stipulated by the Company; and (3) selling the products only in Company’s approved territories.  To the extent the distributor fails any one of these conditions during the term of the agreement; the Company has the right to have the vehicles return back to the Company.

The cost of these vehicles has been recorded as “Other assets” which is expensed over a five years period.

8

NOTE 11 – SHORT-TERM BANK LOAN

On October 9, 2009, Yongye Nongfeng obtained a short-term bank loan of $2,925,174 from China Citic Bank that bears a fixed annual interest rate of 5.31% and is due on September 26, 2010. The short-term loan was pledged by the land use right and buildings with carrying amount of $4,166,987 and $2,718,269, respectively as of December 31, 2009. On February 4, 2010, Yongye Nongfeng repaid the short-term bank loan, and the pledge of the buildings and land use right was released.

The interest expense for the three and nine months ended September 30, 2010 was $0 and $14,737, respectively.

NOTE 12 – LONG-TERM LOANS AND PAYABLES

As of September 30, 2010 and December 31, 2009, the long-term loans and payables consisted of the following:

	September 30, 2010		December 31, 2009
Vehicle-employees	$	372,418	$	532,425
Mortgage loan		-		71,618
Vehicle-distributors		533,568		272,977
Total	$	905,986	$	877,020

As of September 30, 2010, vehicle-employees loans of $372,418 were secured by twenty-five vehicles with initial carrying amount of $1,231,501. The vehicle loans are payable in monthly installments over three to five years. Interest rates on the loans range from 5.4% to 14.54% annually, and are subject to the change of the base interest rate prescribed by People’s Bank of China. The vehicle loans were obtained by individual employees of the Company after the Company made the initial down payment of the purchase price of the vehicles. The Company and the individual employees entered into trust agreements that stipulate that (i) the vehicles are legally registered under the individuals’ name, (ii) the Company has the rights of official use, (iii) the Company has the rights to the legal title of the vehicles at the time of termination of the employment relationship with the individual, (iv) the Company assumes the risk of loss, damage, penalty and other obligations related to the operation and ownership of the vehicle, including repairs and maintenance, (v) the individuals have no right to sell, lease, lend or pledge the vehicles to any other person or entity, and (vi) the Company is required to repay the loans in full. Consequently, the Company has recognized the cost of the vehicles as assets and the loans as liabilities in its consolidated balance sheet.

Vehicle loans-distributors represent loans that were initially obtained by the distributors from banks and financial institutions. The Company and the distributors entered into agreements, pursuant to which the Company would assume the full repayment of the loans on behalf of these distributors in exchange for the distributors agreeing to comply with certain sales conditions (See Note 10). The loans have two or three years terms and are payable in monthly installments. Interest rates on the loans range from 5.40% to 13.20% annually, subject to the change of the base interest rate prescribed by People’s Bank of China.

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NOTE 13 - 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”) and 1,623,905 warrants (See below) for aggregate gross proceeds equal to $10,000,651 (the “April Offering”).

On September 5, 2008, the Company entered into a securities purchase agreement with certain investors (the “September Investors”), for the sale in a private placement of an aggregate of 6,073,006 shares of the Company’s common stock, par value $0.001 per share (the “September Investor Shares”) and 1,518,253 warrants (See below) for aggregate gross proceeds equal to approximately $9,350,000 (the “September Offering”).

On May 8, 2009, the Company entered into a securities purchase agreement with certain investors (the “May Investors”), for the sale in a private placement of an aggregate of 5,834,083 shares of the Company common stock, par value $0.001 per share (the “May Shares”) for aggregate gross proceeds equal to $8,984,595 (the “May Offering”).

On September 26, 2009, the Company entered into an underwriting agreement with Roth Capital Partner, LLC (“Roth”) and Oppenheimer and Company Inc. (the “Underwriters”), pursuant to which the Company agreed to issue and sell 8,000,000 shares of common stock (the “Firm Stock”), par value $0.001 per share, to the Underwriters at a price per share of $7.50 (the ”December Offering”). The sale of the Firm Stock was consummated on December 17, 2009 and closed on December 22, 2009. The aggregate proceeds from the offering were $60,000,000. Underwriting discounts and commissions and offering expenses were $3,692,000 and were recorded as a reduction of additional paid-in capital.

The Company also granted the Underwriters an option to purchase up to an additional 1,200,000 shares to cover over-allotments, if any, at the same price as the Firm Stock. On December 31, 2009 the Underwriters agreed to purchase the over-allotment for gross proceeds of $9,000,000, which after net of commissions and underwriting discounts of $450,000, were received on January 4, 2010.

In connection with the acquisition of Customer List (See note 7), the Company issued 3,600,000 shares of common stock of the Company in July 2010 to the Seller as part of the consideration.

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 five years exercise period with an initial exercise price of $1.848. In addition, 649,562 warrants were issued to Roth as the placement agent with terms and exercise price identical to the warrants issued to the April Investors.

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

On September 12, 2008, Roth executed an irrevocable cashless exercise of its warrants. In exchange for the issuance of 354,987 shares of the Company, Roth surrendered 649,562 warrants received in the April Offering; and in exchange for the issuance of 331,891 shares of the Company, Roth surrendered 607,301 warrants received in the September Offering.

Concurrent with the offering of the “May Shares”, the Company issued to Roth as the placement agent, 246,224 warrants (“May Warrants”).  The warrants have a five years exercise period and an initial exercise price of $1.848. On November 9, 2009, Roth executed an irrevocable cashless exercise of all the “May Warrants”. The Company issued 198,247 shares of common stock of the Company in exchange for the surrender of all the May Warrants.

During the three and nine months ended September 30, 2010, nil and 54,803 “April Warrants” and “September Warrants” were exercised by April Investors and September Investors. In connection with the exercise, the Company issued 54,803 shares of common stock and received $84,397 from warrant holders.

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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 addition, the terms of the warrants include a “down-round” provision under which the exercise price could be affected by future equity offerings undertaken by the Company.  If the Company issues any common stock or common stock equivalents, as defined, at any time the warrants are outstanding, at an effective price less than the then warrant exercise price, the exercise price of warrants will be reduced to the effective price of newly issued common stock or common stock equivalents.  In the “May Offering”, the Company issued new common stock at a price of $1.54 per share and accordingly, the exercise price of the April Warrants and the September Warrants was reduced to $1.54 per share. As of September 30, 2010, there were 148,172 warrants outstanding, of which 48,714 and 99,458 warrants will expire if unexercised by April 2013 and September 2013, respectively.

The potential cash payments and the down-round provision preclude the classification of these warrants as equity. Accordingly, the warrants are accounted for as a liability and adjusted to fair value through earnings at each reporting date. The loss resulting from the increase in fair value of warrants was $12,077 for the three months ended September 30, 2010. The gain resulting from the decrease in fair value of warrants was $157,393 for the nine months ended September 30, 2010. The loss resulting from the increase in fair value of warrants was $15,836,189 and $20,905,136 for the three and nine months ended September 30, 2009, respectively.

The estimated fair values of the warrants issued to April Investors and September Investors were determined at September 30, 2010 and December 31, 2009 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 measured at fair value on a recurring basis as of September 30, 2010 and December 31, 2009.

			Fair Value Measurements Using:
			Quoted Prices in Active Markets for Identical Financial Assets and Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
September, 2010	Total		Level 1		Level 2		Level 3
Liabilities at fair value:
Derivative liabilities—warrants	$	837,663		-	$	837,663		-

			Fair Value Measurements Using:
			Quoted Prices in Active Markets for Identical Financial Assets and Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
December 31, 2009	Total		Level 1		Level 2		Level 3
Liabilities at fair value:
Derivative liabilities—warrants	$	1,380,205		-	$	1,380,205		-

The fair values of the warrants are summarized as follows:

	April Warrants		September Warrants
Fair value of Warrant per share (US$) at:
Date of issuance	$	1.07	$	2.08
December 31, 2009	$	6.78	$	6.81
September 30, 2010	$	5.64	$	5.66

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The fair values of the warrants outstanding as of September 30, 2010 and December 31, 2009 were determined based on the Binominal option pricing model, using the following key assumptions:

	September 30, 2010						December 31, 2009
	April Warrants			September Warrants			April Warrants			September Warrants
Expected volatility		57.3	%		57.0	%		61.0	%		60.0	%
Expected dividends yield		0	%		0	%		0	%		0	%
Time to maturity	2.6 years			3.0 years			3.3 years			3.7 years
Risk-free interest rate per annum		1.764	%		1.764	%		2.218	%		2.218	%
Fair value of underlying common shares (per share)	$	7.06		$	7.06		$	8.13		$	8.13

Escrow shares

In connection with the September Offering, the Company entered into an escrow agreement with Roth, the escrow agent and Full Alliance (the “September Escrow Agreement”), pursuant to which 4,000,000 shares of the Company issued to Full Alliance in the Share Exchange (the “September Escrow Shares”) were delivered to the escrow agent. Of the September Escrow Shares, 2,000,000 shares (the “Make Good Escrow Shares”) were held and to be released back to Full Alliance upon the Company’s achievement of both 2008 and 2009 financial targets, as defined in the September Escrow Agreement. The remaining 2,000,000 escrow shares were held and to be released back to Full Alliance upon the Company obtaining the approval from Ministry of Agriculture of Inner Mongolia in relation to the transfer of fertilizer license to Yongye Nongfeng from Inner Mongolia Yongye and the completion of Yongye Nongfeng’s restructuring (the “Restructuring Make Good Shares”). In June 2010, both Make Good Escrow Shares and Restructuring Make Good Shares were released to Full Alliance.

NOTE 14 – STATUTORY RESERVE

Yongye Nongfeng is required to allocate at least 10% of its after tax profits as determined under generally accepted accounting principal in the PRC to a statutory surplus reserve until the reserve balance reaches 50% of its registered capital. For the nine months ended September 30, 2010 and 2009, Yongye Nongfeng made appropriations to this statutory reserve of $5,051,225 and $2,328,546, respectively. The accumulated balance of the statutory reserve of Yongye Nongfeng as of September 30, 2010 and December 31, 2009 was $9,116,795 and $4,065,570, respectively.

In accordance with the PRC laws and regulations, Yongye Nongfeng is restricted in its ability to transfer a portion of its net assets to the Company in the form of dividends, which amounted to $8,660,955, representing the amount of accumulated balance of statutory reserve of Yongye Nongfeng attributable to the Company, as of September 30, 2010.

NOTE 15 – INCOME TAXES

The Company and its subsidiaries file separate income tax returns.

The United States of America

Yongye International, Inc. is incorporated in the State of Nevada in the U.S., and is subject to a gradual U.S. federal corporate income tax of 15% to 35%. The State of Nevada does not impose any corporate state income tax.

British Virgin Islands

Fullmax is incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, Fullmax is not subject to tax on income or capital gains. In addition, upon payments of dividends by Fullmax, no British Virgin Islands withholding tax is imposed.

Hong Kong

ASO is incorporated in Hong Kong. ASO did not earn any income that was derived in Hong Kong and therefore was not subject to Hong Kong Profits Tax. The payments of dividends by Hong Kong companies are not subject to any Hong Kong withholding tax.

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PRC

Effective from January 1, 2008, the PRC’s statutory income tax rate is 25%. According to an approval from the Inner Mongolia Autonomous Region National Tax Authority on December 11, 2009, Yongye Nongfeng, being a foreign investment enterprise located in the Western Region of the PRC, is entitled to a preferential income tax rate of 15% for the years ended December 31, 2009 and 2010.

The Company’s effective income tax rate was 16.66% and 16.16% for the three months and nine months ended September 30, 2010, respectively. The difference between effective tax rate and statutory tax rate primarily represented the tax effects on non-taxable income and non-deductible expenses.

The Company had deferred tax assets of approximately $389,318 as of September 30, 2010 that consisted of tax loss carryforwards. The Company had no other temporary differences as of September 30, 2010. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which those tax loss carryforwards are available. The Company considers projected future taxable income and tax planning strategies in making its assessment. At present, the Company does not have a sufficient operation in the United States to conclude that it is more-likely-than-not that the Company will be able to realize all of its tax benefits in the near future and therefore a valuation allowance was established for the full value of the deferred tax asset as of September 30, 2010.

NOTE 16 – FAIR VALUE MEASUREMENTS

	September 30, 2010				December 31, 2009
	Carrying				Carrying
	amount		Fair value		amount		Fair value
Financial assets:
Cash	$	24,967,963	$	24,967,963	$	65,518,181	$	65,518,181
Restricted cash		40,000		40,000		-		-
Accounts receivable		75,643,791		75,643,791		6,161,796		6,161,796
Other receivables	$	232,627	$	232,627	$	383,841	$	383,841
Financial liabilities:
Short-term bank loan	$	-	$	-	$	2,925,174	$	2,925,174
Long-term loans and payables - current portion		462,178		462,178		331,693		331,693
Accounts payable - related party		-		-		880,026		880,026
Accounts payable - third parties		725,074		725,074		344,774		344,774
Accrued expenses		10,947,119		10,947,119		479,609		479,609
Due to a related party		-		-		1,663,191		1,663,191
Other payables		5,113,861		5,113,861		553,286		553,286
Derivative liabilities		837,663		837,663		1,380,205		1,380,205
Long-term loans and payables	$	443,808	$	443,808	$	545,327	$	545,327

The fair values of the financial instruments shown in the above table as of September 30, 2010 and December 31, 2009 represent the estimated amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount rates, available observable and unobservable inputs.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash, accounts receivable, other receivables, short-term bank loan, long-term loans and payables – current portion, accounts payables, accrued expenses, due to a related party and other payables: The carrying amounts approximate fair value because of the short maturity of these instruments.

Derivative liabilities: The method and assumptions used to estimate the fair value of derivative liabilities are set out in Note 13.

Long-term loans and payables: The fair value of the Company’s long-term loans and payables is estimated by discounting future cash flows using current market interest rates offered to the Company and its subsidiaries for debts with substantially the same characteristics and maturities.

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NOTE 17 – LEASE COMMITMENTS

The Company entered into an operating lease for an office space in Beijing, PRC for the period from January 1, 2008 to December 31, 2010. The lease expense for the Beijing office was $58,428 and $57,909 for the three months ended September 30, 2010 and 2009, respectively. The lease expense for the Beijing office was $174,354 and $165,448 for the nine months ended September 30, 2010 and 2009, respectively. As of September 30, 2010, future minimum lease payments under this non-cancellable operating lease agreement for the next twelve months are $59,145.

NOTE 18 – RELATED PARTY TRANSACTIONS AND BALANCES

For the three and nine months ended September 30, 2009, Yongye Nongfeng, purchased inventories from Inner Mongolia Yongye amounting to $0 and $37,923,422, respectively. In January 2008, upon receiving governmental approval of its establishment, Yongye Nongfeng entered into an agreement (the “Agreement”) with Inner Mongolia Yongye, pursuant to which Yongye Nongfeng agreed to purchase finished products from Inner Mongolia Yongye at a fixed price of RMB 350 per case for fulvic acid based plant products and RMB 120 per case for fulvic acid based animal products.  The term of the Agreement was for the period from January 15, 2008 to January 14, 2013. Pursuant to the Agreement, the Company could terminate the Agreement by giving one month notice to Inner Mongolia Yongye. Upon Yongye Nongfeng obtaining its own fertilizer license, the Agreement was terminated in July 2009.

As of December 31, 2009, accounts payable to related party was $880,026, and represented the payable for the purchase of inventories from Inner Mongolia Yongye. The accounts payable was repaid in the nine months ended September 30, 2010.

As of December 31, 2009, the amount due to a related party was $1,663,191, which mainly represented the payable for the Acquisition from Inner Mongolia Yongye. The amount due to a related party was repaid in the nine months ended September 30, 2010.

During the nine months ended September 30, 2010, the Company sold three vehicles with net book value of $135,191 and an apartment with net book value of $102,263 to Inner Mongolia Yongye. In addition, the long-term loans of $144,513 that were secured by these assets were assumed by Inner Mongolia Yongye. Upon disposal, no gain or loss was recorded and the Company received cash of $92,941.

Yongye Nongfeng and Inner Mongolia Yongye entered a series of lease arrangements to lease land, buildings and equipment to and from each other as follows:

● On June 1, 2008, a land lease agreement was entered into in which Yongye Nongfeng would lease land of 74,153 square meters from Inner Mongolia Yongye from June 1, 2008 to May 31, 2009. On June 1, 2009, upon the expiry of this agreement, Yongye Nongfeng and Inner Mongolia Yongye entered into another lease agreement in which Yongye Nongfeng would lease a land of 79,920 square meters and a production building from Inner Mongolia Yongye from June 1, 2009 to October 10, 2009.

● On September 28, 2008, a building lease agreement and an equipment lease agreement were entered into in which Inner Mongolia Yongye would lease a building and certain equipment from Yongye Nongfeng from September 28, 2008 to September 27, 2009. The agreements were terminated on June 1, 2009 upon Yongye Nongfeng obtaining the fertilizer license from Ministry of Agriculture.

● On March 15, 2009, an equipment lease agreement was entered into in which Inner Mongolia Yongye would lease a set of production equipment from Yongye Nongfeng from March 15, 2009 to May 31, 2009. The equipment lease agreement was not renewed upon expiration.

Pursuant to these agreements, both Yongye Nongfeng and Inner Mongolia Yongye did not charge any rental to each other for the lease.  Additionally, the estimated rental income to be received and the rental expense to be paid by the Yongye Nongfeng are not material to the results of operations for the three and nine months ended September 30, 2009 and therefore have not been included.

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NOTE 19 - EARNINGS PER SHARE

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

	For the Three Months Ended				For the Nine Months Ended
	September 30, 2010		September 30, 2009		September 30, 2010		September 30, 2009
Numerator used in basic net income per share:
Net income/(loss) attributable to Yongye International, Inc.	$	17,578,267	$	(7,041,265)	$	46,195,261	$	2,309,692
Change in fair value of derivative liabilities		12,077		-		(157,393)		-
Numerator used in diluted net income per share		17,590,344		(7,041,265)		46,037,868		2,309,692
Shares (denominator):
Weighted average ordinary shares outstanding-basic		47,130,522		32,730,054		45,423,109		29,926,052
Plus: weighted average incremental shares from assumed exercise of warrants		118,048		-		118,876		-
Weighted average ordinary shares outstanding used in computing diluted net income per ordinary share		47,248,570		32,730,054		45,541,985		29,926,052
Net income per ordinary share-basic	$	0.37	$	(0.22)	$	1.02	$	0.08
Net income per ordinary share-diluted	$	0.37	$	(0.22)	$	1.01	$	0.08

As of September 30, 2009, the Company had 3,161,051 warrants outstanding that was excluded in the computation of diluted earnings per share as their effect would have been anti-dilutive.

NOTE 20 - CONCENTRATIONS AND CREDIT RISKS

At September 30, 2010 and December 31, 2009, the Company held cash in banks of approximately $25,007,963 and $65,518,181, respectively that is uninsured by the government authority. To limit exposure to credit risk relating to deposits, the Company primarily places cash deposits only with large financial institution in the PRC with acceptable credit rating.

Five major customers accounted for 55% and one major customer accounted for 21% of the Company’s revenue for the three months ended September 30, 2010. Five major customers accounted for 59% and one major customer accounted for 17% of the Company’s revenue for the nine months ended September 30, 2010. Five major customers accounted for 92% and one major customer accounted for 51% of the Company’s revenue for the three months ended September 30, 2009. Five major customers accounted for 83% and one major customer accounted for 31% of the Company’s revenue for the nine months ended September 30, 2009. The Company’s total sales to five major customers were $39,197,220 and $112,111,180 for the three and nine months ended September 30, 2010, respectively. The Company’s total sales to five major customers were $26,724,973 and $73,451,769 for the three and nine months ended September 30, 2009, respectively. All these major customers are distributors in the PRC agriculture industry.

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For the three months ended September 30, 2010						For the nine months ended September 30, 2010
Largest Customers	Amount of Sales		% Total Sales			Largest Customers	Amount of Sales		% Total Sales
Customer A	$	15,313,847		21	%	Customer F	$	32,370,197		17	%
Customer B		7,214,600		10	%	Customer G		28,093,886		15	%
Customer C		6,888,311		10	%	Customer C		19,139,975		10	%
Customer D		5,060,233		7	%	Customer H		17,193,243		9	%
Customer E		4,720,229		7	%	Customer A		15,313,847		8	%
Total	$	39,197,220		55	%	Total	$	112,111,180		59	%

For the three months ended September 30, 2009						For the nine months ended September 30, 2009
Largest Customers	Amount of Sales		% Total Sales			Largest Customers	Amount of Sales		% Total Sales
Customer G	$	14,840,002		51	%	Customer F	$	27,230,124		31	%
Customer H		4,614,438		16	%	Customer H		15,902,407		18	%
Customer F		3,672,634		13	%	Customer G		14,840,002		17	%
Customer I		1,900,374		6	%	Customer J		9,775,088		11	%
Customer C		1,697,525		6	%	Customer K		5,704,148		6	%
Total	$	26,724,973		92	%	Total	$	73,451,769		83	%

Three major suppliers accounted for 86% ($26,529,521) and one major supplier accounted for 64% ($19,771,633) of the Company’s inventory purchase for the three months ended September 30, 2010. Three major suppliers accounted for 87% ($73,219,730) and one major supplier accounted for 69% ($57,856,688) of the Company’s inventory purchase for the nine months ended September 30, 2010. Inner Mongolia Yongye supplied 0% ($0) and 67% ($37,923,422) of the Company’s inventories for the third quarter of 2009 and nine months ended September 30, 2009, respectively. If these suppliers terminate their supply relationship with the Company, the Company may be unable to purchase sufficient raw material on acceptable terms, and finally the Company’s financial results may be adversely affected.

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

NOTE 21 – SUBSEQUENT EVENT

In October 2010, the Company granted 1,183,667 restricted shares to management and independent directors of the Company in accordance with Yongye International, Inc. 2010 Omnibus Securities and Incentive Plan, as an incentive to such individuals to promote the success of the Company’s business. Shares vest on the six month anniversary of the date of grant. Management was granted shares of 1,137,000 on October 8, 2010, and the independent directors were granted shares of 46,667 on October 15, 2010.

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

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

Company Overview

In April 2008, we entered into a share exchange transaction (the “Share Exchange”) prior to which we were a public “shell” company with nominal assets.  Following the Share Exchange, we changed our name to Yongye International, Inc. and through our Cooperative Joint Venture subsidiary, Yongye Nongfeng Biotechnology Co. Ltd. (“Yongye Nongfeng”), are engaged in the research and development, manufacturing, distribution and sales 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 feed 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. Our plant products add naturally occurring macro and micro nutrients such as nitrogen, phosphorus, potassium, boron and zinc. Our animal products add natural herbs which help to reduce bacterial inflammation (mastitis) in cows. It also assists various animals digest food more completely and thus be more healthy. Based on industry research and government testing, 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 believe our fulvic acid has a very light weight molecular composition, which may improve the overall permeability of cell walls, thus it allowing more complete transport of nutrients across plant membranes, and effectively strengthening the overall health of plants. We believe our patented processes for mixing our plant nutrient and animal nutrient are key differentiators in the market. We believe this will help us ensure that we have a high quality product that we can control from procurement of raw materials to final production. We believe this also ensures our products provide reliable results from season to season.

In the three months ended September 30, 2010, we sold approximately 6,352 tons of plant product, which represented 99.9% of our total revenue or $71,647,884. We also sold approximately 18 tons of our animal product, which represented 0.1% of our total revenue or $104,185. 

Recent Developments

In March 2010, Yongye Nongfeng signed a preliminary agreement with a local supplier of humic acid to purchase an undeveloped lignite coal resources project in Inner Mongolia, PRC. Consummation of the acquisition requires the satisfaction of certain customary closing conditions, including receipt of governmental approval.  The preliminary agreement with Wuchuan Shuntong Humic Acid Trading Company Limited ("Shuntong") provides for the acquisition of Shuntong's development rights to a currently undeveloped lignite coal resource project located in Wuchuan County, a suburb located outside the city of Hohhot, Inner Mongolia, where the Company's major operations reside in the PRC. According to a third party valuation report, the project area is estimated to contain over 40 million cubic meters of surface level lignite coal which can supply the Company's long-term needs. According to the agreement, Nongfeng will pay Shuntong RMB240 million ($35.1 million) to acquire the development rights for this project. This acquisition will not be completed until Nongfeng makes full payment to Shuntong and receives in return the full, unencumbered title to the development rights. Nongfeng is still in the process of obtaining the related titles.

17

In June 2010, Yongye Nongfeng entered into an agreement to acquire the Shengmingsu distribution network from its provincial level distributor in Hebei Province which is solely comprised of a customer list, which was completed in July 2010. The Company has issued 3.6 million shares of common stock and will pay an additional $3.0 million in cash to the seller on or before March 2011, as consideration for the acquisition. The Company has commenced to trade with these customers in July 2010. The customer list is comprised of all of the sub-provincial level distributors who sell the Company's Shengmingsu plant and animal nutrient products in Hebei Province, which is Yongye's largest regional market in China, representing approximately 30% and 28.8% of the Company's revenues in 2009 and the nine months periods in 2010, respectively. Previously, in Hebei Province, Yongye sold its products to its provincial level distributor who then resold those products to lower level distributors. After the acquisition of the customer list, Yongye sold directly to those sub-provincial level distributors in Hebei Province.

On July 20, 2010, Yongye Nongfeng set up a wholly owned subsidiary, Inner Mongolia Yongye Fumin Biotechnology Co., Ltd. (“Yongye Fumin”), in a nearby economic development zone located near the coal resources project, with investment of $2,946,376 (RMB 20 million). Yongye Fumin is to be engaged in manufacturing and sale of fulvic acid based liquid and powder nutrient compounds and will have 20,000 tons of plant nutrient product and 10,000 tons animal nutrient product annual capacity. As of September 30, 2010, Yongye Fumin is in final stage of construction and has not started official operation.

In October 2010, the Company granted 1,183,667 restricted shares to management and independent directors of the Company in accordance with the Yongye International, Inc. 2010 Omnibus Securities and Incentive Plan, as an incentive to such individuals to promote the success of the Company’s business. Shares vest on the six-month anniversary of the date of grant. Management was granted shares of 1,137,000 on October 8, 2010, and the independent directors were granted shares of 46,667 on October 15, 2010.

Factors affecting our operating results

Demand for Our Products

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

According to the Asian Development Bank statistics, well over 60% of the nation’s total population of 1.3 billion people is comprised of low-income, rural farmers. According to the NESDP (2006-2010), raising the level of rural income is a top economic and social goal for the country. Many government initiatives, including removal of certain agricultural and local product taxes, have been implemented to spur rural income development. The government expects annual rural income to grow between 5% and 10% through 2010 (according to a study issued by the Chinese Academy of Sciences, in April 2009). Additionally, according to the National Population and Family Planning Commission, China’s population will reach 1.5 billion by 2030. Therefore, the country has the challenge of producing approximately 100 million more tons of crops needed to feed the additional 200 million people, which has put pressure on the agricultural system to increase production capacity.

Supply of Finished Goods

Before June 1, 2009, we purchased our finished goods from our main supplier, Inner Mongolia Yongye and then sold them through our distribution system. Upon obtaining the fertilizer license on June 1, 2009, we commenced the manufacturing of our product.

Seasonality

Our Shengmingsu products face seasonality in our sector. In general, the first and fourth quarters are typically our slowest quarters. 13% and 10% of our total net sales for the year 2009 were from these quarters, respectively. The second and third quarters drove the bulk of our overall sales in 2009 with 47% and 30%, respectively, of the total 2009 year’s net sales.

18

Agriculture Sector

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

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

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

New Land Reform Policy

Farmland in China is owned by the local government, but given to local farmers under 30 year use contracts. With the allure of higher incomes and better living conditions in the city, farmers have abandoned the land and no other farmers have stepped in to bring it back into production. This has created a shortage of a key raw material in the agricultural supply chain productive land. The government has acknowledged this issue and recently enacted a new land use reform policy which liberalizes the exchange of land among the nation’s farmers. This creates a new model for China’s 730 million farmers with the idea being to create more stable farmland by shifting the country away from the single household farm plot model to the amalgamation of larger-scale operations which should be more productive due to technology and economies of scale. Farmers will be able to transfer their land-use rights to others through a new market system for rural land-use rights. Chinese authorities commented that, “Without modernizing agriculture, China cannot modernize; without stability and prosperity in rural areas, China cannot have stability and prosperity. These changes are enacted to “ensure national food security and the supply of major agricultural products, and promote increases in agricultural production, farm incomes and rural prosperity.” (China’s Ongoing Agriculture Modernization, USDA, April 2009)

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RESULTS OF OPERATIONS

Summary Statement of Income Data

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2010			September 30, 2009			September 30, 2010			September 30, 2009
Sales	$	71,752,069		$	29,279,473		$	186,101,173		$	87,986,792
Cost of sales		29,639,662			13,435,326			80,095,965			41,274,810
Gross profit		42,112,407			15,844,147			106,005,208			46,711,982
Selling expenses		15,574,981			2,644,715			38,206,314			11,715,707
Research and development expenses		2,170,951			69,871			4,509,847			1,482,888
General and administrative expenses		3,530,638			1,365,075			6,996,584			2,495,797
Income from operations		20,835,837			11,764,486			56,292,463			31,017,590
Other income/(expenses)
Interest expense, net		(6,612	)		(9,080	)		(21,341	)		(25,538	)
Government subsidy		1,427,259			185,039			1,751,732			237,366
Other income/(expenses), net		2,067			(10,446	)		(84,294	)		(50,036	)
Change in fair value of derivative liabilities		(12,077	)		(15,836,189	)		157,393			(20,905,136	)
Total other income/(expenses), net		1,410,637			(15,670,676	)		1,803,490			(20,743,344	)
Earnings /(losses) before income tax expense		22,246,474			(3,906,190	)		58,095,953			10,274,246
Income tax expense		3,705,985			3,089,047			9,389,307			7,836,270
Net income/(loss)		18,540,489			(6,995,237	)		48,706,646			2,437,976
Less: Net income attributable to the noncontrolling interest		962,222			46,028			2,511,385			128,284
Net income/(loss) attributable to Yongye International, Inc.	$	17,578,267		$	(7,041,265	)	$	46,195,261		$	2,309,692
Earnings per share:
Basic	$	0.37		$	(0.22	)	$	1.02		$	0.08
Diluted	$	0.37		$	(0.22	)	$	1.01		$	0.08
Weighted average shares used in computation:
Basic		47,130,522			32,730,054			45,423,109			29,926,052
Diluted		47,248,570			32,730,054			45,541,985			29,926,052

20

THREE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 2009

Net Sales

Sales of $71,752,069 in the third quarter of 2010 was an increase of $42,472,596 from $29,279,473 in the same period of 2009, which was an overall increase of 145%.

This increase was driven by higher demand throughout our market area, including an increase in the number of branded stores developed by our distributors, and the growth of several new markets, which resulted in almost all of such growth being due to an increase in the quantity of product sold while our prices remained relatively stable. Additionally, after the acquisition of Hebei customer list, we are selling at a higher price directly to lower level distributors in Hebei, which is Yongye's largest regional market in China, representing approximately 30% of the our revenues in the third quarter of 2010.

Gross profit in the third quarter of 2010 increased 166%, from $15,844,147 to $42,112,407, or $26,268,260, over the three months ended September 30, 2009.

Gross margin increased between the two periods from 54% to 59%, or an overall 5% increase in margin. The increase in gross profit was mainly due to the benefits from economics of scale. Moreover, after the acquisition of Hebei customer list,our margin for the sales made in Hebei province increased to 63% from 56%, which also resulted in the increase of gross profit ratio.

Cost of Goods Sold

Cost of goods sold for the three months ended September 30, 2010 was $29,639,662 which is 41% of revenues. This is an increase of $16,204,336 over the previous period of $13,435,326 and represents an 121% increase overall. As a percent of revenue, this represented a decrease of 5% when compared with the corresponding period in 2009, which was 46%. The decrease in cost of goods sold as a percentage of revenue for the third quarter of 2010 was mainly due to the benefits from economics of scale, as well as the acquisition of the customer list.

Sales by Product Line

In the three months ended September 30, 2010, we sold approximately 6,352 tons of plant product, which represented 99.9% of our total revenue or $71,647,884. We also sold approximately 18 tons of our animal product. This represented 0.1% of our total revenue or $104,185. The revenue of our plant product increased to $71,647,884 from $29,276,377 or 145% in the three months ended September 30, 2010 as compared to the same period in 2009 and the revenue of our animal product increased to $104,185 from $3,096, or 3265%, in the three months ended September 30, 2010 compared to the same period in 2009.

Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses increased by $15,095,829 to $19,105,619 in the three months ended September 30, 2010 from $4,009,790 in the corresponding period in 2009. As a percentage of sales for the three months ended September 30, 2010, SG&A increased by 13% to 27% as compared to 14% of net sales in the three months ended September 30, 2009, due to an increase of $6,457,053 in advertising expenses mainly resulted from more promotional activities in 2010, as we entered into more geographic markets and conducted several nation-wide joint programs with China Central Television Station (CCTV). Also an increase in amortization expenses of $1,111,617 that mainly resulted from the amortization of customer list, as well as the increase in training expenses of $4,738,743 for various levels of distributors and staff education.

21

Research and Development

We incurred $2,170,951 of research and development expenses in the three months ended September 30, 2010 as compared to $69,871 in the three months ended September 30, 2009. While we expanded our geographic coverage to several new provinces in 2010, the Research and Development (“R&D”) expenses consist of expenses related to making investments in future new products and conducting various field tests in the Company’s new sales territories. This increase in expenses is mainly the result of more field test areas for different product to both our plant and animal products in the three months ended September 30, 2010 compared to the same period in 2009.

Loss/gain on change in fair value of warrants

The warrants issued in our private financings in 2008 and 2009 are accounted for as derivative liabilities and measured at fair value at each reporting date. The increase in fair value during the three months ended September 30, 2010 resulted in a loss of $12,077. The increase in fair value of the warrants was primarily due to the increase in our stock price from $6.89 per share at June 30, 2010 to $7.06 at September 30, 2010. The change in fair value of the warrants for the three months ended September 30, 2009 resulted in a loss of $15,836,189.

Income Tax

The Company did not carry on any business and did not maintain any branch office in the United States during the three months ended September 30, 2010 and 2009 and does not intend to repatriate any earnings from the Chinese operations. Therefore, no provision for withholding taxes for the undistributed earnings of foreign subsidiaries or U.S. federal income taxes or deferred income tax benefits has been made.

Effective from January 1, 2008, the PRC’s statutory income tax rate is 25%. According to an approval from the Inner Mongolia Autonomous Region National Tax Authority issued on December 11, 2009, Yongye Nongfeng, being a foreign investment enterprise located in the Western Region of the PRC, is entitled to a preferential income tax rate of 15% for the year ended December 31, 2009 and year ended December 31, 2010. The Company’s effective income tax rate was 16.66% and 16.16% for the three months and nine months ended September 30, 2010, respectively. The difference between effective tax rate and statutory tax rate primarily represented the tax effects of certain non-taxable income and non-deductible expenses.

For the three months ended September 30, 2010, the Company’s income tax expense was $3,705,985 as compared to $3,089,047 for the three months ended September 30, 2009.

Net Income

Net income for the three months ended September 30, 2010 was $18,540,489 (representing a net profit margin of 26%) compared to a net loss of $6,995,237 in the same period ended September 30, 2009. The increase in our net profit margin is primarily due to the impact of the fair value changes of derivative warrants as well as the increase in sales in the three months ended September 30, 2010 as compared to the corresponding period in 2009.

NINE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 2009

Net Sales

Sales of $186,101,173 in the nine months ended September 30, 2010 was an increase of $98,114,381 from $87,986,792 in the same period in 2009, which was an overall increase of 112% in revenue. This increase was driven by higher demand throughout our market area, including an increase in the number of branded stores developed by our distributors, and the growth of several new markets, which resulted in almost all of such growth being due to an increase in the quantity of product sold while our prices remained relatively stable. Additionally, after the acquisition of Hebei customer list, we are selling at a higher price directly to lower level distributors in Hebei, which is Yongye's largest regional market in China.

Gross Profit

Gross profit for the nine months ended September 30, 2010 also increased by 127%, which was an increase from $46,711,982 to $106,005,208, or $59,293,226, over the nine months ended September 30, 2009. Our gross margin for the nine months ended September 30, 2010 increased from 53% to 57%. The increase in gross profit ratio was mainly due to the lower production cost as compared to the purchase of finished goods from Inner Mongolia Yongye, as well as benefits from economies of scale. Moreover, after the acquisition of Hebei customer list, our margin for the sales made in Hebei province increased to 63% from 56%, which also resulted in the increase of gross profit ratio.

22

Cost of Goods Sold

Cost of goods sold for the nine months ended September 30, 2010 was $80,095,965, which is 43% of total revenues. This is an increase of $38,821,155, or 94%, over the corresponding period in 2009. As a percent of revenue, this represented a decrease of 4% when compared with the corresponding period between 2010 and 2009. This decrease was due to the lower production cost as compared to the purchase of finished goods from Inner Mongolia Yongye, as well as benefits from economies of scale. Upon obtaining the fertilizer license on June 1, 2009, we started producing our nutrients ourselves. Moreover, after the acquisition of Hebei customer list, the cost of goods sold as a percentage of revenue in Hebei province decreased to 37% from 44%, which also resulted in the cost of goods sold as a percentage of revenue to decrease.

 Sales by Product Line

The revenue of our plant product increased by 113% and the revenue of our animal product increased by 30% in the nine months ended September 30, 2010 compared to the same period in 2009.

Selling, General and Administrative Expenses

SG&A expenses increased by $30,991,394 to $45,202,898 in the nine months ended September 30, 2010 from $14,211,504 in the same period in 2009, which was a 218% increase. As a percentage of sales for the nine months ended September 30, 2010, SG&A increased by 8% to 24% of net sales as compared to 16% in the nine months ended September 30, 2009. This increase was due primarily to additional costs brought on by increased expenses in the areas of advertising of $17,578,090, as we entered into more geographic markets and conducted several nation-wide joint programs with China Central Television Station (CCTV), various levels of distributor’s training and staff education expenses of $4,746,301, amortization expenses of $1,661,268, transportation fee of $1,204,965 and salary expenses of $1,081,015.

Research and Development

We incurred $4,509,847 of research and development expenses in the nine months ended September 30, 2010 as compared to $1,482,888 in the nine months ended September 30, 2009. While we expanded our geographic coverage to several new provinces in 2010, the R&D expenses consist of expenses related to making investments in future new products and conducting various field tests in the Company’s new sales territories. This increase in expenses is mainly the result of more test field areas for different product to both our plant and animal products in the first three quarters of 2010 compared to the same period in 2009.

Loss/gain on change in fair value of warrants

The warrants issued in April Offering and September Offering are accounted for as derivative liabilities and measured at fair value at each reporting date. The change in fair value during the nine months ended September 30, 2010 resulted in a gain of $157,393. The fluctuation in fair value of the warrants was primarily due to the decrease in our stock price from $8.13 per share at December 31, 2009 to $7.06 at September 30, 2010. The change in fair value of the warrants for the nine months ended September 30, 2009 resulted in a loss of $20,905,136.

Income Tax

The Company did not carry on any business and did not maintain any branch office in the United States during the nine months ended September 30, 2010 and 2009. 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.

Effective from January 1, 2008, the PRC’s statutory income tax rate is 25%. According to an approval from the Inner Mongolia Autonomous Region National Tax Authority issued on December 11, 2009, Yongye Nongfeng, being a foreign investment enterprise located in the Western Region of the PRC, is entitled to a preferential income tax rate of 15% for the year ended December 31, 2009 and year ended December 31, 2010.

The Company’s effective income tax rate was 16.16% and 76.27% for the nine months ended September 30, 2010 and 2009, respectively. The difference between the effective tax rate and statutory tax rate primarily represented the tax effects of certain non-taxable income and non-deductible expenses, including the loss/gain on change in fair value of warrants. For the nine months ended September 30, 2010, the Company’s income tax expense was $9,389,307 as compared to income tax expense of $7,836,270 for the nine months ended September 30, 2009.

23

Net income

Net income increased by $46,268,670, from $2,437,976 to $48,706,646, over the nine months ended September 30, 2010 and 2009, which was 1898% increase. Also, this represented an increase in net profit margin from 3% to 26% in the related period of 2010 and 2009. This increase is primarily due to the fact that the gain from the decrease in the fair value of warrants amounted to $157,393 in the nine months ended September 30, 2010, while in the same period of 2009 there was a loss from the change in fair value of warrants of $20,905,136, as well as the increase in sales for the nine months ended September 30, 2010, as compared with nine months ended September 30, 2009.

Liquidity and Capital Resources

The Company has historically financed its operations and capital expenditures principally through issuance of common shares and bank loans. As is customary in the industry, we provide credit terms to most of our distributors which typically exceed the terms that we receive from our suppliers. Currently, we typically provide 6-month terms to our key provincial level customers and ask for all others to make cash payments upfront or upon delivery. Therefore, the Company’s liquidity needs have generally consisted of working capital necessary to finance receivables and raw material and finished goods inventory. We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated future cash needs for the coming growing season. We may, however, require additional cash resources due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. Therefore, there can be no assurance that such additional investment will be available to us, or if available, that it will be available on terms acceptable to us.

In summary, our cash flows were:

Net cash used in operating activities in the nine months ended September 30, 2010 increased by $2,499,371 to $9,341,126 from $6,841,755 for the period ended September 30, 2009. The change was mainly due to higher demand of working capital to finance receivables and inventories, resulting from the expansion our business.

Net cash used in investing activities increased by $34,286,311, or 1291%, to $36,942,127 in the nine months ended September 30, 2010, compared to $2,655,816 the same period in 2009. The increase was primarily due to the prepayment of $28,866,259 for the acquisition of the right to develop certain lignite coal resources in the Wuchuan area. Total consideration of the development right is approximately $35 million.

Net cash provided by financing activities decreased by $3,279,233, or 38%, to $5,260,922 in the nine months ended September 30, 2010, compared to $8,540,155 the same period in 2009. This was due to the increase in repayment of loans and payables of $3,373,475 during the nine months ended September 30, 2010.

Net current assets at September 30, 2010 increased by $15,953,925 to $123,706,240 from $107,752,315, or 15%, over December 31, 2009.

Summary consolidated balance sheet data:

	Yongye		Yongye
	International, Inc.		International, Inc.
	September 30, 2010		December 31, 2009		Changes in %
Cash and restricted cash	$	25,007,963	$	65,518,181		-62%
Accounts receivable, net of allowance for doubtful accounts		75,643,791		6,161,796		1128%
Inventories		39,932,889		42,033,261		-5%
Property, plant and equipment, net		16,977,565		9,156,915		22%
Total assets		243,345,034		145,805,688		85%
Short-term bank loan		-		2,925,174		-100%
Long-term loans and payables - current portion		462,178		331,693		39%
Income tax payable		7,875,660		4,082,424		93%
Accrued expenses		10,947,119		479,609		2183%
Other payables		5,113,861		553,286		824%
Total current liabilities		27,407,765		12,669,539		116%
Long-term loans and payables		443,808		545,327		-19%
Total equity attributable to Yongye International, Inc.		206,122,940		125,913,424		64%
Total equity		215,493,461		132,590,822		63%

24

Total current liabilities increased by $14,738,226 to $27,407,765 at September 30, 2010 from $12,669,539 at December 31, 2009, which was largely due to an increase in accrued expenses of $10,467,510 and income taxes payable of $3,793,236, primarily due to the significant growth of our business, and increase in our net income before income tax. Moreover, other payables increased by $4,450,575 mainly due to $3 million cash consideration payable for the acquisition of Hebei customer list. We repaid the short-term bank loan during the nine months ended September 30, 2010, which decreased current liabilities by $2,925,174.

Total equity increased by $82,902,639 to $215,493,461 at the end of September 30, 2010, compared to $132,590,822 at December 31, 2009. The increase in our total equity was primarily due to increase in common stock and additional paid in capital of $21,709,546, which was mainly from the 3,600,000 shares issued for acquisition of customer list and warrants exercised during the nine months ended September 30, 2010, collection of subscription receivable of $8,550,000 that was received during the nine months ended September 30, 2010, and increase in retained earnings of $46,195,261 due to the net income attributable to Yongye International, Inc. during the period.

Days sales outstanding is defined as average accounts receivable for the period divided by net sales for the period and decreased by 44 days to 82 days for the three months ended September 30, 2010 from 126 days in the same period ended 2009, as result of increased efforts in cash collection.

Foreign Currency Translation and Transactions

The financial position and results of operations of the Company’s subsidiaries in the PRC are measured using the Renminbi as the functional currency, while the Company’s reporting currency is the US dollar. Assets and liabilities of the subsidiaries are translated at the prevailing exchange rate in effect at each period end. The income statement is translated at the average rate of exchange during the period. Translation adjustments are included in the cumulative translation adjustment account in the consolidated statements of stockholders’ equity and comprehensive income.

Impact of inflation

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

Off-balance sheet arrangements

We do not have any significant off-balance sheet arrangements and accordingly, no such arrangements are likely to have a current or future effect on our financial position, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in reports filed by the Company under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and regulations and that such information is accumulated and communicated to our management, including its Principal Executive Officer and Principal Financial and Accounting Officer, as appropriate, to allow for timely decisions regarding required disclosure. Our Principal Executive Officer and Principal Financial and Accounting Officer evaluated, with the participation of other members of management, the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 15d-15(e)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Principal Executive Officer and Principal Financial and Accounting Officer concluded that the Company’s disclosure controls and procedures were effective.

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Although the management of our Company, including the Principal Executive Officer and the Principal Financial and Accounting Officer, believes that our disclosure controls and internal controls currently provide reasonable assurance that our desired control objectives have been met, management does not expect that our disclosure controls or internal controls will prevent all error 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 controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Controls over Financial Reporting

During the period covered by this quarterly report on Form 10-Q, there was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

26

PART II.

OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors disclosed in our annual report on Form 10-K for the year ended December 31, 2009.

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

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

Not applicable.

ITEM 5. OTHER INFORMATION

On November 15, 2010, we issued a press release regarding our financial results for the three and nine months ended September 30, 2010.  A copy of the press release is furnished as Exhibit 99.1 to this Quarterly Report on Form 10-Q in order to comply with our disclosure obligation pursuant to Item 2.02 of Form 8-K under the Securities Exchange Act of 1934, as amended.

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ITEM 6. EXHIBITS

Exhibit No.	Description
31.1	Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer (Principal Financial and Accounting Officer) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Press Release dated November 15, 2010.

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SIGNATURES

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

	Yongye International, Inc.
	By:	/s/ Zishen Wu
		Name: Zishen Wu
November 15, 2010		Title: Chief Executive Officer and President (Principal Executive Officer)
	By:	/s/ Sam Yu
		Name: Sam Yu
		Title: Chief Financial Officer (Principal Financial and Accounting Officer)

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