Yongye International, Inc. - FORM 10-K/A

Attached files

file	filename
EX-32 - Yongye International, Inc.	v165237_ex32.htm
EX-31.2 - Yongye International, Inc.	v165237_ex31-2.htm
EX-31.1 - Yongye International, Inc.	v165237_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 2)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to __________

COMMISSION FILE NO. 333-143314

YONGYE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

NEVADA	20-8051010
(State or other jurisdiction of incorporation or organization)	(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)

+86 10 8232 8866

(Issuer’s telephone number, including area code)

Securities Registered Pursuant to Section 12(b) of the Act: Common Stock, par value $.001 per share

Securities Registered Pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨ No x

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes ¨ No x

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10K. ¨

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

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer ¨ Smaller Reporting Company x

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

Yes ¨ No x

The aggregate market value of the 20,000,374 voting and non-voting common equity stock held by non-affiliates of the Registrant was approximately $70,001,309 the last business day of the Registrant’s most recently completed second fiscal quarter, based on the last sale price of the registrant’s common stock on the most recent date on which a trade in such stock took place prior thereto.

There were a total of 34,275,134 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding as of November 6, 2009.

DOCUMENTS INCORPORATED BY REFERENCE

None.

EXPLANATORY NOTE

We are filing this Annual Report on Form 10-K/A (the “Amendment”) to amend Part II, Item 8, Financial Statements and Supplementary Data and Item 9A(T), Controls and Procedures, in the original Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”). This Amendment has been filed to correct several presentation errors in our consolidated financial statements and to amend the disclosure under Item 9A(T) regarding an update to management’s conclusions regarding such matters in view of certain restatements to our financial statements.

TABLE OF CONTENTS

PART II

	ITEM 8	Financial Statements and Supplementary Data	1

	ITEM 9A(T)	Controls and Procedures	1

		Index to Consolidated Financial Statements	4

		Consolidated Financial Statements

ITEM 8 Financial Statements and Supplementary Data

Consolidated Financial Statements

The information required by Item 8 appears after the signature page to this report.

Item 9A(T). Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of the annual report on Form 10-K for the year ended December 31, 2008, we carried out a re-evaluation of the effectiveness of our disclosure controls and procedures, which are defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act of 1934 (the “Act”), as amended, as controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on this re-evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of December 31, 2008 because of the material weakness described below under “Management’s Report on Internal Control over Financial Reporting.”

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for our company, as defined in Rules 13(a)-15(f) and 15(d)-15(f) under the Act. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be detected or prevented. In addition, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate due to changes in conditions, or that the quality of compliance with our policies or procedures may deteriorate.

Management has conducted an assessment, including testing of the design and the effectiveness of our internal control over financial reporting as of December 31, 2008. In making its assessment, management used the criteria in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As of December 31, 2008, the following material weaknesses in our internal control over financial reporting have been identified:

The Company did not have appropriate policies and procedures in place to effectively identify and evaluate the embedded derivative instruments in its contracts that contained warrants.

The Company did not have appropriate policies and procedures in place to effectively identify and evaluate the impact of escrow shares on the calculation of earnings per share.

Due to the material weakness described above, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2008.

Management’s Remediation Initiatives

We have planned to make the following necessary changes and improvements to address the material weaknesses in our internal control over financial reporting as described above:

Recruiting accounting resources to fulfill U.S. GAAP reporting requirements;

Revising and updating our accounting policies and procedures including, but not limited to, contract review process;

Reviewing and amending our financial reporting check list to ensure the inclusions of underlying features of embedded derivatives;

Reviewing and amending our financial reporting check list to ensure the inclusions of the underlying variables that affect the calculation of earnings per share including, but not limited to, escrow shares;

Providing training to our finance team and other relevant personnel of the Company in respect of identification of underlying features of embedded derivatives and variables that affect the calculation of earnings per share;

Identifying early on the contracts that contain features of embedded derivatives and variables that affect calculation of earnings per share and bringing such to the attention of internal expertise for further analysis;

Referring to external expertise, i.e., outside firm as accounting advisors, if necessary to ensure proper disclosure and reporting in a timely fashion.

Changes in Internal Controls over Financial Reporting

Except as otherwise discussed herein, there have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Act that occurred during the fourth fiscal quarter that has materially affected, or is reasonably likely to materially, affect, our internal control over financial reporting.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 9, 2009	By:	/s/ Zishen Wu
		Name: Zishen Wu
		Title: Chief Executive Officer

YONGYE INTERNATIONAL, INC.

AND SUBSIDIARIES

CONTENTS

PAGE	F-1	REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS.

PAGE	F-3	CONSOLIDATED BALANCE SHEETS.

PAGE	F-4	CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME.

PAGE	F-5	CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY.

PAGE	F-7	CONSOLIDATED STATEMENTS OF CASH FLOWS.

PAGES	F-8 - F-22	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Yongye Biotechnology International, Inc.

We have audited the accompanying consolidated balance sheet of Yongye Biotechnology International, Inc. and Subsidiaries as of December 31, 2008 and the related consolidated statements of income and comprehensive income, changes in stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Yongye Biotechnology International, Inc. and Subsidiaries as of December 31, 2008 and the results of their operations and their cash flows for the year then ended in conformity with United States generally accepted accounting principles.

MSPC

Certified Public Accountants and Advisors, P.C.

New York, New York

March 19, 2009, except for Note 1(c), as to which the date is October 16, 2009

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors

Yongye Biotechnology Co.

We have audited the accompanying balance sheet of Yongye Biotechnology Co. as of December 31, 2007, and the related statements of operations and comprehensive income, stockholders’ equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Yongye Biotechnology Co. as of December 31, 2007, and the results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

PATRIZIO & ZHAO, LLC

Parsippany, New Jersey

January 25, 2008

F-2

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


	Yongye International, Inc.
	and Subsidiaries
	(f/k/a Yongye
	Biotechnology		The predecessor
	International, Inc.)		Inner Mongolia Yongye
	DECEMBER 31, 2008		DECEMBER 31, 2007
CURRENT ASSETS
Cash and cash equivalents	$	4,477,477	$	376,002
Accounts receivable, net		2,748,042		1,630,609
Inventories		20,708,193		9,851,788
Advance payments		44,051		—
Due from related party		192,741		—
Due from affiliates		—		978,384
Prepaid expenses		189,478		—
Other receivables		680,752		27,038
Total Current Assets		29,040,734		12,863,821
PROPERTY AND EQUIPMENT, NET		5,368,074		2,486,487
INTANGIBLE ASSETS, NET		95,453		3,665,584
LONG-TERM INVESTMENTS		—		4,115,764
TOTAL ASSETS	$	34,504,261	$	23,131,656

CURRENT LIABILITIES
Short-term bank loans	$	—	$	5,484,000
Accounts payable and accrued expenses		630,619		1,271,852
Due to shareholders		—		2,507,371
Taxes payable		366,981		893,892
Advance from customers		1,869,400		—
Other payables		626,911		50,916
Derivative liabilities – fair value of warrants		2,107,931		—
Total Current Liabilities		5,601,842		10,208,031

LONG-TERM LOANS		397,773		12,153

STOCKHOLDERS' EQUITY
Capital stock: par value $.001; 75,000,000 shares authorized; 26,760,258 shares issued and outstanding at December 31, 2008		26,760		—
Capital contribution		—		7,260,000
Additional paid-in capital- Common stock		13,633,604		—
Retained earnings		12,102,882		4,024,111
Statutory reserve		1,207,912		480,629
Accumulated other comprehensive income		329,445		1,146,732
Total Equity of the Company’s Shareholders		27,300,603		12,911,472
Noncontrolling interest		1,204,043		—
Total Equity		28,504,646		12,911,472
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	34,504,261	$	23,131,656

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

F-3

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Yongye International, Inc.
	and Subsidiaries
	(f/k/a Yongye Biotechnology International. Inc.)			The Predecessor Inner Mongolia Yongye
	FOR YEAR ENDED			FOR YEAR ENDED
	DECEMBER 31, 2008			DECEMBER 31, 2007
	(Restated - Note 1(C))
SALES	$	48,092,271		$	13,137,406
COST OF SALES		23,165,684			7,274,710
GROSS PROFIT		24,926,587			5,862,696
SELLING EXPENSES		8,665,755			449,168
GENERAL AND ADMINISTRATIVE EXPENSES		2,573,017			476,828
INCOME FROM OPERATIONS		13,687,815			4,936,700
OTHER INCOME/(EXPENSES)
Interest expenses		(3,135	)		(212,239	)
Other expenses		(526,039	)		(365,907	)
Change in fair value of derivative liabilities		2,118,797			—
TOTAL OTHER INCOME, NET		1,589,623			(578,146	)
INCOME BEFORE PROVISION FOR INCOME TAXES		15,277,438			4,358,554
PROVISION FOR INCOME TAXES		864,292			—
NET INCOME		14,413,146			4,358,554
LESS: NET INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST		1,102,388			—
NET INCOME ATTRIBUTABLE TO YONGYE INTERNATIONAL, INC.		13,310,758			4,358,554
Foreign Currency Translation Adjustment		331,100			723,298
COMPREHENSIVE INCOME	$	14,744,246		$	5,081,852
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTERST		1,104,043			—
COMPREHENSIVE INCOME ATTRIBUTABLE TO YONGYE BIOTECHNOLOGY INTERNATIONAL, INC.		13,640,203			5,081,952
Net income per share:
Basic	$	0.68
Diluted	$	0.56
Weighted average shares used in computation:
Basic		19,599,054
Diluted		20,106,433

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

F-4

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2008

		Shares of Common Stock			Common Stock Amount			Additional Paid-in Capital			Accumulated other Comprehensive Income		Statutory Reserve		Retained Earnings (Deficits)

	Note

Balance at January 1, 2008			4,960,000		$	4,960		$	(6,860	)	$	—	$	—	$	—
McElroy shares cancelled			(2,900,000	)		(2,900	)		2,900			—		—		—
Stock issued for Fullmax merger			11,444,755			11,445			(11,445	)		—		—		36
Stock issued for cash April 17, 2008 (Restated)			6,495,619			6,495			6,763,803			—		—		—
Stock issued for cash September 8, 2008 (Restated)			6,073,006			6,073			4,277,905			—		—		—
Warrants exercise Sep 11, 2008 (Restated)			686,878			687			2,607,301			—		—		—
Net income (Restated)			—			—			—			—		—		13,310,758
Transfer to statutory reserve			—			—			—			—		1,207,912		—
Foreign Currency translation Adjustment			—			—			—			329,445		—		—
Comprehensive income (Restated)
Balance at December 31, 2008 (Restated)			26,760,258		$	26,760		$	13,633,604		$	329,445	$	1,207,912	$	13,310,794

F-5

								Comprehensive Income
	Note		Noncontrolling Interest		Total			Attributable to Yongye International, Inc. Shareholders		Attributable to Noncontrolling Interests		Total

Balance at January 1, 2008				—	$	(1,900	)

McElroy shares cancelled				—		—
Stock issued for Fullmax merger				100,000		100,036
Stock issued for cash April 17, 2008 (Restated)		1		—		6,770,298
Stock issued for cash September 8,2008 (Restated)		1		—		4,283,978
Warrants exercise Sep 11, 2008 (Restated)		1(C)		—		2,607,988
Net income (Restated)		1(C)		1,102,388		14,413,146		$	13,310,758	$	1,102,388		$	14,413,146
Transfer to stautory reserve		—		—		—			—
Foreign Currency translation Adjustment				1,655		331,101			329,445		1,655			331,101
Comprehensive income (Restated)		1(C)				—		$	13,640,203	$	1,104,043		$	14,744,247
Balance at December 31, 2008 (Restated)		1(C)		1,204,043	$	28,504,646

THE PREDECESSOR

INNER MONGOLIA YONGYE, CO.

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2007

	Capital Contribution		Retained Earnings (Deficits)			Statutory Reserve		Accumulated other Comprehensive Income		Total Equity
Balance at December 31, 2006	$	7,260,000	$	101,412		$	44,774	$	423,434	$	7,829,620
Net income		—		4,358,554			—		—		4,358,554
Statutory reserve		—		(435,855	)		435,855		—		—
Other comprehensive income		—		—			—		723,298		723,298
Balance at December 31, 2007	$	7,260,000	$	4,024,111		$	480,629	$	1,146,732	$	12,911,472

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

F-6

YONGYE INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Yongye
	International, Inc.
	And Subsidiaries
	(f/k/a Yongye
	Biotechnology			The Predecessor
	International, Inc.)			Inner Mongolia Yongye
	FOR YEAR ENDED			FOR YEAR ENDED
	DECEMBER 31, 2008			DECEMBER 31, 2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	14,413,146		$	4,358,554
Adjustments to reconcile net income to net cash used in operating activities
Depreciation and amortization		118,104			212,423
Provision for bad debts		305,338			31,907
Change in fair value of derivative liabilities		(2,118,797	)		—
Loss on disposal of fixed assets		—			149,853
Changes in assets and liabilities:
Accounts receivable		(3,053,380	)		(1,124,042	)
Inventories		(20,708,193	)		(7,814,789	)
Advanced payments		(44,051	)		93,091
Due from related party		(192,741	)		—
Due from related affiliates		—			(267,345	)
Prepaid expense		(189,478	)		5,741
Other receivables, net		(680,752	)		66,926
Accounts payable and accrued expenses		630,619			1,068,613
Taxes payable		366,981			835,137
Advance from customers		1,869,400			—
Other payables	616,911			(2,234,407		)

Net Cash Used in Operating Activities		(8,666,893	)		(4,618,338	)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(5,475,572	)		(308,312	)
Additions to intangible assets		—			(909	)
Net Cash Used in Investing Activities		(5,475,572	)		(309,221	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans		397,773			4,345,110
Proceeds from shares issued		19,350,651			—
Proceeds from shareholder loans		—			864,258
Repayment of long-term loans		—			(12,131	)
Payment for stock issuance costs	(1,461,659		)	—
Net Cash Provided by Financing Activities		18,286,765			5,197,237
EFFECT OF FOREIGN CURRENCY TRANSLATION ON CASH		325,041		17,301
NET INCREASE IN CASH AND CASH EQUIVALENTS		4,469,341			286,979
CASH AND CASH EQUIVALENTS - BEGINNING		8,136			89,023
CASH AND CASH EQUIVALENTS - ENDING	$	4,477,477		$	376,002

Supplemental cash flow information:
Cash paid for income taxes		648,331			—
Cash paid for interest expense payment		11,301			212,239

Noncash investing and financing activities:
The minority shareholder of one of our subsidiaries contributed a patent valued at $100,000 to the subsidiary.

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

F-7

YONGYE BIOTECHNOLOGY INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2008

NOTE 1 -ORGANIZATION AND DESCRIPTION OF BUSINESS

A. Organization

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

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

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

In May 2008, upon the agreement among Inner Mongolia Yongye, ASO and Yongye Nongfeng, the ownership of Yongye Nongfeng was revised, pursuant to which Inner Mongolia Yongye and ASO became 0.5% and 99.5% equity interest owner of Yongye Nongfeng, respectively. ASO did not fully inject its share of the capital into Yongye Nongfeng until May 31, 2009. Based upon actual capital injection into Yongye Nongfeng, Inner Mongolia Yongye and ASO were 0.6% and 99.4% owner of Yongye Nongfeng as of December 31, 2008.

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

Yongye Nongfeng and Inner Mongolia Yongye also entered into certain lease-exchange arrangements related to land-use rights, buildings and equipment. (See Note 18).

F-8

B. Shares Issued and Registration Matters

Concurrent with the Share Exchange, we entered into a securities purchase agreement (the “April Purchase Agreement”) with certain investors (the “April Investors”) for the sale in a private placement of an aggregate of 6,495,619 shares of our Common Stock (the “April Investor Shares”), and 1,623,905 warrants to purchase 1,623,905 shares of Common Stock (the “April Warrants”) for aggregate gross proceeds equal to $10,000,651 (the “April Offering”). The warrants issued have a 5 years exercise period with an exercise price of $1.848. There were another 649,562 warrants issued to Roth Capital Partners, LLC (“Roth”) as the “Placement Agent” and these were issued with the same exercise price and term as the April Warrants. Expenses of the April Offering were $1,162,022 allocated as follows: fees for the issuance of stock of $806,159 as a reduction of Additional Paid In Capital on the December 31, 2008 Consolidated Balance Sheet and $355,863 as an expense on the Consolidated Statement of Income and Comprehensive Income for the year ended December 31, 2008.

In connection with the April Offering, we also entered into a registration rights agreement (the “April Registration Rights Agreement”) with the April Investors, in which we agreed to file a registration statement (the “April Registration Statement”) with the Securities and Exchange Commission (the “SEC”) to register for resale the April Investor Shares and the shares underlying the April Warrants, within 45 calendar days of the closing date of the April Offering, and use our best efforts to have the registration statement declared effective within 150 calendar days of the closing date of the April Offering. We filed the April Registration Statement on Form S-1 on May 15, 2008.

In connection with the April Offering, we also entered into an escrow agreement with ROTH Capital Partners, LLC, a representative of the Investors (“Roth”), Tri-State Title & Escrow LLC (the “Escrow Agent”) and Full Alliance International Limited (The “Full Alliance”), one of the Shareholders (the “April Escrow Agreement”), pursuant to which 2,000,000 of the Shares (the “April Escrow Shares”) were delivered to the Escrow Agent. The Escrow Shares are being held as security for the achievement of $10,263,919 after tax net income (“ATNI”) for the year ending December 31, 2008 (the 2008 “Net Income Threshold”). If we achieve the Net Income Threshold, the Escrow Shares will be released back to Full Alliance. If the Net Income Threshold is not achieved, the Escrow Shares will be distributed pro-rata to the April Investors. As of the filing of this Form 10-K, the ATNI threshold has been achieved.

On September 5, 2008, we entered into a securities purchase agreement (the “September Purchase Agreement”), with certain Qualified Institutional Buyers (the “September Investors”), for the sale in a private placement of an aggregate of 6,073,006 shares of our Common Stock (the “September Investor Shares”), and the issuance of 1,518,253 warrants (the “September Warrants”), for aggregate gross proceeds equal to approximately $9,350,000 (the “September Offering”). Expenses of the September Offering were $995,500.

In connection with the September Offering, we also entered into a registration rights agreement (the “ September Registration Rights Agreement”) with the September Investors, in which we agreed to file a registration statement (the “ September Registration Statement”) with the SEC to register for resale the September Investor Shares and the shares underlying the September Warrants, on or prior to 45 calendar days after the closing date of the September Offering, and use our best efforts to have the September Registration Statement declared effective within 150 calendar days of the closing date of the September Offering. We registered the September Investor Shares and the shares underlying the September Warrants in the April Registration Statement by using a “piggy back” registration process. We requested that the SEC accelerate the effectiveness of our S-1 Registration Statement on September 8, 2008 which was declared effective on September 11, 2008.

In connection with the September Offering, we entered into an escrow agreement with Roth, the Escrow Agent and Full Alliance (the “September Escrow Agreement”), pursuant to which 4,000,000 of the Shares issued to Full Alliance in the Share Exchange (the “September Escrow Shares”) were delivered to the Escrow Agent. Of the September Escrow Shares, 2,000,000 shares (the “Make Good Escrow Shares”) are being held as security for the achievement of 2008 and 2009 Make Good ATNI in the following manner. If the Company achieves (i) the 2008 Net Income Threshold, and (ii) fully diluted earnings per share reported in the 2008 Annual Report on Form 10-K filed with the SEC (the “2008 Annual Report”), of no less than $0.42 (the “2008 Guaranteed EPS”), then the provisions described in the following paragraph apply with respect to the achievement of 2009 net income and fully diluted earnings per share targets and the Make Good Escrow Shares will be retained in escrow for the achievement of certain net income and fully diluted earnings per share targets for the year ending December 31, 2009. If the Company does not achieve the Make Good ATNI, the Make Good Shares will be released pro-rata to the September Offering investors.

In the event that (i) the 2009 After Tax Net Income equals or exceeds $12,649,248 and is less than $15,811,560, or (ii) the fully diluted earnings per share reported in the 2009 Annual Report on Form 10-K filed with the SEC (the “2009 Annual Report”), equals or exceeds $0.42 and is less than $0.53, then Make Good Shares equal to the product of (i)(A) $15,811,560 minus the 2009 After Tax Net Income, divided by (B) $15,811,560, and (ii) the Make Good Escrow Shares, shall be transferred to the September Investors on a pro-rata basis, and the remaining Make Good Shares shall be returned to Full Alliance.

The remaining 2,000,000 escrow shares are being held as security for the timely issuance of Yongye Biotechnology’s (the “Predecessor”) fertilizer License into the name of Yongye Nongfeng Biotechnology Co. and completion of the CJV Restructuring as defined below (the “Restructuring Make Good Shares”). This license is issued by the Ministry of Agriculture and gives the owner the right to manufacturer and sell fertilizer products domestically. In the event that (1) the License has not been issued to Yongye Nongfeng Biotechnology by June 30, 2009, or such later date as agreed to by us and the September Investors holding a majority of the September Investor Shares at such time (the “License Grant Date”), or (2) the License has been issued by the License Grant Date, but the CJV Restructuring is not completed by the Restructuring Completion Date, the Restructuring Make Good Shares shall be transferred in accordance with the September Escrow Agreement to the September Investors on a pro-rata basis for no consideration other than their respective investment amounts paid to us at the closing of September Offering. The “Restructuring Completion Date” shall be the date that is 132 calendar days after the License Grant Date. If the License is issued by the License Grant Date and the CJV Restructuring is completed by the Restructuring Completion Date, the Restructuring Make Good Shares shall be returned to Full Alliance.

As part of the above private financing, the Company agreed to begin a restructuring process whereby our Cooperative Joint Venture ("CJV") subsidiary, Yongye Nongfeng Biotechnology Co. ("Yongye Nongfeng"), will acquire all of the land rights, buildings, equipment and permits that currently belong to our Predecessor and manufacturing partner Inner Mongolia Yongye. This will enable Yongye Nongfeng to centralize and manage the Company’s product research and development, manufacturing and distribution and result in a more tightly integrated business model with greater control over our product quality and intellectual property. The full restructuring process should be completed by approximately September 2009. We will begin by purchasing the production equipment used in the existing 2,000 Tonnes Per Annum (TPA) production facility, which was purchased from the Inner Mongolia Yongye pursuant to an Asset Transfer Agreement on October 31, 2008. The total liability incurred for payments to the Predecessor company is limited to $6M and $.95M has been paid to the predecessor company.

F-9

C. Restatement of Financial Statements

Subsequent to the preparation of the Company’s consolidated financial statements as of and for the year ended December 31, 2008, management identified an error in the Company’s basic and diluted net income per share presented in its previously issued consolidated financial statements. The Company has incorrectly accounted for the April Escrow Shares and September Escrow Shares (See Note 12) as contingently issuable shares for purposes of calculating earnings per share and excluded such outstanding shares that were placed in escrow from the calculation of the weighted average number of common shares outstanding. It was determined that since April Escrow Shares and September Escrow Shares are neither contingently cancellable nor contingently returnable to the Company, the shares should have been included in the denominator in computing the Company’s basic and diluted net income per share.

In connection with the April Offering and September Offering in 2008 (see Note12), the Company issued the “April Warrants” and “September Warrants” to certain investors and Roth Capital Partners, LLC (“Roth”). According to the terms of these warrants, the Company could be required to pay cash to the warrant holders under certain events that are not within the control of the Company. Specifically, upon the occurrence of certain “fundamental transactions” as defined, the warrant holders (but not the shareholders of the Company’s common stock) are entitled to receive cash equal to the value of the warrants to be determined based on an option pricing model and certain specified assumptions set forth in the warrant agreement. In accordance with Emerging Issues Task Force Issue (EITF) No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, such potential cash payments that are not within the Company’s control would preclude equity classification and therefore the warrants should have been classified as a liability and adjusted to fair value through earnings at each reporting date starting from the issuance date.

As a result, the amounts of $1,731,567 and $3,150,375 should have been recognized as derivative liabilities with fair value at issuance April 17, 2008 and September 5, 2008, respectively. The decrease in fair value of the warrants of $2,118,797 should have been recorded as a gain to earnings for the year ended December 31, 2008. In addition, since the Roth Warrants issued by the Company in April and September 2008 (see Note 12) also contains the “Fundamental Transactions”, such warrants should have been accounted for as a liability with changes in fair value also reported in earnings. Roth exercised these warrant during the year ended December, 31, 2008 (see Note 12). Accordingly, the increase in fair value of the Roth April and September Warrants from issuance date to the exercise date of should have been recorded as a charge to earnings for the year ended December 31, 2008. These restatement adjustments had no impact on the Company’s previously reported income tax amounts because the profit or loss associated with these warrants for financial reporting purposes, as described herein, are not expected to result in future income tax consequences.

The following table presents the effect of correcting this error on the consolidated financial statements for the year ended December 31, 2008. As the correcting adjustments had no impact on the amounts previously reported for the Company’s operating, investing or financing cash flows, the adjustments to the components of consolidated cash flow statement to reconcile net income to net cash used by operating activities are not presented.

CONSOLIDATED BALANCE SHEET

	December 31, 2008
	As Previously Reported		As Restated

Derivative liabilities		—		2,107,931
Total current liabilities		3,493,911		5,601,842
Additional paid-in capital- Common stock		13,976,900		13,633,604
Additional paid-in capital- Warrants		3,883,432		—
Retained earnings		9,984,085		12,102,882
Total Stockholders' Equity		29,410,189		27,300,603
Total Equity		30,612,577		28,504,646

F-10

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Year ended December 31, 2008
	As Previously			As Restated

Change in fair value of derivative liabilities	$	—			2,118,797
Total other expenses, net		(529,174	)		1,589,623
Income before provisions for income taxes and noncontrolling interest		13,158,641			15,277,438
Net income		12,294,349			14,413,146
Net income attributable to Yongye Biotechnology International, Inc. .		11,191,961			13,310,758
Comprehensive income		11,523,061			14,744,246
Net income per ordinary share-basic	$	0.66		$	0.68
Net income per ordinary share-diluted	$	0.64		$	0.56
Weighted average ordinary shares outstanding		16,937,852			19,599,054
Weighted average ordinary shares outstanding used in computing diluted net		17,546,796			20,106,433

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended December 31, 2008
	As Previously Reported		As Restated

NET INCOME		11,191,961		13,310,758
Change in fair value of derivative liabilities		—		(2,118,797	)

F-11

NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION

The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and include the financial statements of the Company and its majority-owned subsidiaries. All significant intercompany transactions and balances are eliminated on consolidation.

USE OF ESTIMATES

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

CASH AND CASH EQUIVALENTS

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

ACCOUNTS RECEIVABLE AND BAD DEBT RESERVE

The Company performs certain credit evaluation procedures and does not require collateral for financial instruments subject to credit risk. The Company believes that credit risk is limited because the Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts receivable. As a consequence, the Company believes that its accounts receivable credit risk exposure beyond such allowances is limited. Since its inception in April 2008, Yongye Nongfeng adopted the Bad Debt Allowance method of Inner Mongolia Yongye Biotech, which books Bad Debt Allowance according to its credit sale’s aging schedule, a practice based on its prior experience in our industry. Yongye Nongfeng’s customer base is basically the same as Inner Mongolia Yongye Biotech’s. As we grow our own customer base and experience, we may determine to adopt a new Bad Debt Allowance method based on our experience with and the characteristics of that customer base. The Company recognizes an allowance for doubtful accounts to ensure accounts receivable are not overstated due to uncollectability and are maintained for all customers based on a variety of factors, including the length of time the receivables are past due, significant one-time events and historical experience. Based on the age of the receivables, the Company reserves 10% of accounts receivable balances that have been outstanding for more than 6 months but less than one year, 20% of accounts receivable balances that have been outstanding between one year and two years, 50% of receivable balances that have been outstanding between two year and three years, and 100% of receivable balances that have been outstanding for more than three years. An additional reserve for individual accounts is recorded when the Company becomes aware of a customer’s inability to meet its financial obligation, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial position. If circumstances related to customers change, estimates of the recoverability of receivables would be further adjusted . An allowance for doubtful accounts of $305,338 was provided as of December 31, 2008.

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

INVENTORY

Inventory is stated at the lower of weighted average cost, which takes into account historical prices on a continuing basis, or market. Cost is determined by the weighted average method. Provision for diminution in value on inventories is made using specific identification method.

F-12

PROPERTY AND EQUIPMENT

Property and equipment other than leasehold improvements are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are stated at cost and depreciated using the straight-line method over the estimated useful life or lease period, whichever is shorter. Estimated useful lives are as follows:

Estimated Useful Life

Yongye International, Inc.
Buildings and structures	30 years
Office equipment and furniture	5 years
Machinery and equipment	10 years
Vehicles	10 years
Software	10 years
Leasehold improvements	3 years
The Predecessor- Inner Mongolia Yongye
Buildings	50 years
Machinery and equipment	10-20 years
Transportation equipment	10 years

REVENUE RECOGNITION

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

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

ADVERTISING COSTS

Advertising costs are expensed as incurred. Advertising costs for the years ended December 31, 2008 and 2007 were $5,109,502 and $15,800, respectively.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company follows SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Per SFAS 144, the Company is required to periodically evaluate the carrying value of longlived assets and to record an impairment loss when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the asset’s carrying amounts.

In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal. Based on its review, the Company and the Predecessor concluded that as of December 31, 2008 and 2007 there were no significant impairments of their long-lived assets.

INCOME TAXES

Deferred income taxes are computed using the asset and liability method, such that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between financial reporting amounts and the tax basis of existing assets and liabilities based on currently enacted tax laws and tax rates in effect in the People’s Republic of China for the periods in which the differences are expected to reverse. Income tax expense is the tax payable for the period plus the change during the period in deferred income taxes.

A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. No material differences were noted between the book and tax bases of the Company and the Predecessor’s assets and liabilities, respectively, therefore, there are no deferred tax assets or liabilities as of December 31, 2008 and 2007. Yongye Nongfeng is subject to PRC Enterprise Income Tax at a rate of 25% of net income from its foundation on January 4, 2008 to March 31, 2008, and 1.25% of gross revenue since April 1, 2008. Since the Predecessor is located in the economic development area in Inner Mongolia Autonomous Region, the Predecessor is exempt from income tax according to the tax law in China. .

F-13

FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS

The financial position and results of operations of the Company’s Chinese subsidiaries are determined using the local currency (Chinese Yuan) as the functional currency, while the reporting currency is the US dollar. Assets and liabilities of the subsidiaries are translated at the prevailing exchange rate in effect at each period end. Contributed capital accounts are translated using the historical rate of exchange when capital is injected. Income statement accounts are translated at the average rate of exchange during the period. Translation adjustments arising from the use of different exchange rates from period to period are included in the cumulative translation adjustment account in shareholders’ equity. Gains and losses resulting from foreign currency transactions denominated in other than the functional currency are included in operations as incurred. Such gains and losses were immaterial for the years ended December 31, 2008 and 2007.

The PRC government imposes significant exchange restrictions on fund transfers out of the PRC that are not related to business operations. These restrictions have not had a material impact on the Company because it has not engaged in any significant transactions that are subject to the restrictions.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company follows Statement of Financial Accounting Standards ("SFAS") 157, Fair Value Measurements. SFAS 157 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3 - Inputs are unobservable inputs which reflect the reporting entity's own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

The carrying amounts of cash and cash equivalents, term deposits, trade receivables, and accounts payable approximate their fair value due to the short-term nature of these instruments. The Company uses level 2 inputs to value its derivative liablities.

NET INCOME PER SHARE

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

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

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

In February 2007, the FASB issued Statement No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (FAS 159). The statement, which is expected to expand fair value measurement, permits entities to choose to measure many financial instruments and certain others items at fair value. FAS 159 is effective for the Company beginning in the first quarter of 2009. This pronouncement should not have a material impact on the Company’s financial statements.

F-14

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (FAS 161). The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company does not expect the adoption of FAS 161 to have a material impact on its financial statements.

NOTE 3 -ACCOUNTS RECEIVABLE

Net accounts receivable at December 31, 2008 and December 31, 2007 consisted of the following:

	Yongye International, Inc. and Subsidiaries			The Predecessor
	(f/k/a Yongye Biotechnology			Inner Mongolia Yongye
	International, Inc.) DECEMBER 31, 2008			DECEMBER 31, 2007

Account receivable	$	3,053,380		$	1,677,078
Less: allowance for doubtful accounts		(305,338	)		(46,469	)
Total	$	2,748,042		$	1,630,609

	Yongye International, Inc. and Subsidiaries
	(f/k/a Yongye Biotechnology International, Inc.)
	Year ended December 31, 2008
	Balance at beginning of period		Additions		Reversal		Balance at end of period

Allowance for doubtful accounts		—	$	305,338		—	$	305,338

A bad debt provision of $305,338 was provided for the year ended December 31, 2008. No bad debt expense provision was required for the three months ended March 31, 2008.

NOTE 4-INVENTORIES

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

	Yongye		The Predecessor
	International, Inc. and Subsidiaries		Inner Mongolia Yongye
	DECEMBER 31, 2008		DECEMBER 31, 2007
Raw materials	$	—	$	384,361
Packing supplies		—		195,127
Work-in process		—		4,969,350
Finished goods		20,664,930		4,302,950
Consumables		43,263		—
Total	$	20,708,193	$	9,851,788

NOTE 5-DUE FROM AFFILIATES

The balance due from the Predecessor’s affiliated entity, Huimin Biotechnology Co., Ltd., at December 31, 2007 was $978,384. The balance had no stated terms for repayment and was not interest-bearing.

F-15

NOTE 6-PROPERTY AND EQUIPMENT

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

	Yongye Biotechnology		The Predecessor
	International, Inc. and Subsidiaries		Inner Mongolia Yongye
	DECEMBER 31, 2008		DECEMBER 31, 2007

Buildings and structures	$	3,656,992	$	1,560,251
Manufacturing equipment		673,480		788,641
Office equipment and furniture		85,087		33,724
Vehicles		824,013		419,529
Software		17,156		—
Leasehold improvement		218,844		—
Construction-in-process		—		1,797
		5,475,572		2,803,942

Less: Accumulated depreciation		107,498		317,455

Total	$	5,368,074	$	2,486,487

Depreciation expense for the years ended December 31, 2008 and 2007 was $107,498 and $125,931, respectively.

Among the vehicles, 11 cars in the amount of $692,982 were pledged for the long-term banks loans of $438,563 which were received for purchasing those cars (see Note 11).

NOTE 7- INTANGIBLE ASSETS

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

	Yongye Biotechnology
	International, Inc. and Subsidiaries		The Predecessor Inner Mongolia Yongye
	DECEMBER 31, 2008		DECEMBER 31, 2007

Rights to use land	$	—	$	4,028,099
Patent		106,059		—
		106,059		4,028,099
Less: accumulated amortization		10,606		362,515

Total	$	95,453	$	3,665,584

Product patent was acquired by the Company in March 2008 with an estimated useful life of 10 years. It is amortized using the straight-line method over its useful life commencing on April 1, 2008. The predecessor’s rights to use land are also amortized using the straight-line method over its useful life of 50 years. Amortization expense for the years ended December 31, 2008 and 2007 amounted to $10,606 and $86,492, respectively. The estimated aggregate amortization expense for each of the five succeeding fiscal years is $10,606.

NOTE 8 - LONG-TERM INVESTMENTS

Long-term investments of the Predecessor as of December 31, 2007 consist of medicinal plants and trees which the Predecessor purchased in conjunction with the right to use land. These medicinal plants and trees are to be used for human medical treatments and the Predecessor intends to sell them in future years as they mature.

NOTE 9 - SHORT-TERM BANK LOANS

On March 27, 2007, the Predecessor obtained a loan in the amount of $5,484,000 from Inner Mongolia Agriculture Development Bank, of which the principal is to be paid in full by March 26, 2008. The interest is to be calculated using an annual fixed interest rate of 6.39% and paid monthly. The loan is secured by the Predecessor’s property and equipment.

NOTE10 - DUE TO SHAREHOLDERS

As of December 31, 2007, the Predecessor has $2,507,371 in loans from shareholders. These loans are short-term in nature, unsecured and non-interest bearing.

NOTE 11 - LONG-TERM LOANS

From August to December 2008, the Company financed the purchase of 11 cars by with bank loans of $438,563. The Company pledged those 11 cars with an initial value of $692,982 to the loans. The loans all have 3-year terms and are paid in monthly installments. Interest on the loans is range from 5.45% to 14.54% annually. These loans were obtained by individuals who are employees of the Company on behalf of the Company. The Company and the individuals entered into agreements of trust whereby the Company is entitled to the cars and is responsible for payments on the loans. Under the loan agreements, the Company must make specified payments monthly. The aggregate amount of such required payments at December 31, 2008 is as follows:

F-16

2009	$	167,652
2010		167,652
2011		119,758
Total		455,062
Less: Amount representing interest		(57,289	)
Total at present value	$	397,773

The Company's total payments under the agreement were $47,151 which included interest expenses $11,301 during the year ended December 31, 2008. As of December 31, 2007 the Predecessor has $12,153 of long-term, unsecured and non-interest bearing loans from shareholders.

NOTE 12 - CAPITAL STOCK

Capital stock

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

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

Warrants

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

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

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

At December 31, 2008, there are 3,142,158 warrants outstanding with a weighted average exercise price of $1.848. Of this total, 1,623,905 expire in April 2013, 1,518,253 expire in September 2013.

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

As of December 31, 2008 the fair value of all of our outstanding derivative liability warrants were $2,107,931. The change in their fair values during the year ended December 31, 2008 of $2,774,011 in fair value is reported as a non-cash gain in our condensed consolidated statement of income and comprehensive income. The increase in fair value of the Roth April and September Warrants from issuance date to the exercise date of $655,214 has been recorded as a charge to earnings for the year ended December 31, 2008.

The estimated fair values of the Company’s Investor Warrants and Roth Warrants were determined at December 31, 2008 using Binominal Option Pricing Model with Level 2 inputs.

F-17

The following table sets forth, by level within the fair value hierarchy, the Company’s financial liabilities that were accounted for at fair value as of December 31, 2008.

			Fair Value Measurements Using:
	Total		Quoted Prices in Active Markets for Identical Financial Assets and Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
December 31, 2008			Level 1		Level 2		Level 3

Liabilities at fair value:
Derivative liabilities—warrants		2,107,931		—		2,107,931		—

Net Liabilities	$	2,107,931	$	—	$	2,107,931	$	—

The fair values of the warrants granted are as follows:

Fair value of Warrant per share (US$) at:	2008 April Warrants		2008 September Warrants

April 17, 2008		1.07		N/A
September 5, 2008		N/A		2.08
December 31, 2008	$	0.66	$	0.68

The fair values of the warrants as of December 31, 2008 were determined based on the Binominal option pricing model, using the following assumptions:

	April Offering			September Offering

Expected volatility		59.5	%		58.5	%
Expected dividends yield		0	%		0	%
Expected time to maturity	4.30 years			4.69 years
Risk-free interest rate per annum		1.411	%		1.411	%
Fair value of underlying Common Shares (per share)		1.60			1.60
Exercise multiple		2.4			2.4

Escrow shares

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

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

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

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

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

F-18

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

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

NOTE 13 - NONCONTROLLING INTEREST

The Company’s main operating subsidiary, Yongye Nongfeng, is a Cooperative Joint Venture by ASO and the Predecessor, Inner Mongolia Yongye. During the year ended December 31, 2008, the Predecessor invested $100,000 in Yongye Nongfeng by contributing a patent and ASO made 4 cash investments totaling $ 16,778,771.

NOTE 14 - STATUTORY COMMON WELFARE FUND

As stipulated by the PRC, net income after taxation can only be distributed as dividends after appropriation has been made for the following:

(i)	Making up cumulative prior years’ losses, if any;

(ii)	Allocations to the “Statutory surplus reserve” of at least 10% of income after tax, as determined under PRC accounting rules and regulations, until the fund amounts to 50% of the company’s registered capital;

(iii)

Allocation of 5-10% of income after tax, as determined under PRC accounting rules and regulations, to the company’s “Statutory common welfare fund”, which is established for the purpose of providing employee facilities and other collective benefits to the company’s employees. Chinese companies invested by companies registered outside mainland China, including joint ventures, are exempted from contributing to this fund;

(iv)	Allocations to the discretionary surplus reserve, if approved in the shareholders’ annual general meeting.

The predecessor did not provide a reserve for the welfare fund for the year ended December 31, 2007. The Company provided $1,207,912 to the statutory surplus reserve for the year ended December 31, 2008.

NOTE 15 - EMPLOYEE BENEFIT PLANS

The employees of the Company who are domiciled in the PRC receive coverage under a comprehensive benefit plan as required by the local social security governing bureau. The calculation for contribution by eligible employees is based on 20% of the base salary. The contribution paid by the Company on behalf of their employees for this defined benefit plan was $31,053 for the year ended December 31, 2008. The Predecessor was not obliged to pay any contribution for the year ended December 31, 2007.

In addition, the Company is required to contribute a portion of the employees base salary for those employees domiciled in Beijing in the following manner- approximately 10% for medical benefits, 1.5% for unemployment benefits and 1.3% for workers compensation. Contributions for the employees located in Inner Mongolia for these benefits is not required for the year ended December 31, 2008. The PRC government is directly responsible for the payments of the benefits to these employees. The amounts contributed by the Company were $19,651 for the year ended December 31, 2008. The Predecessor was not obliged to pay any contribution for the year ended December 31, 2007.

F-19

NOTE 16 – INCOME TAXES

A reconciliation between taxes computed at the United States statutory rate of 34% and the Company’s and the Predecessor’s effective tax rate is as follows:

	Yongye Biotechnology
	International, Inc. and Subsidiaries			The Predecessor Inner Mongolia Yongye
	DECEMBER 31, 2008			DECEMBER 31, 2007

Income before income taxes	$	15,277,438		$	4,358,554
Income tax on pretax income at statutory rate		5,194,329			1,481,908
Effect of different tax rates of subsidiary operating in other jurisdictions		(4,330,037	)		—
Tax exemption		—			(1,481,908	)
Income tax at effective rate	$	864,292		$	—

NOTE 17 – LEASE COMMITMENTS

The Company has entered into a building lease for our Beijing office. The lease for Beijing office is from January 1, 2008 to December 31, 2010. The lease expense for Beijing office was $227,606 for the year ended December 31, 2008. Future minimum lease payments under non-cancellable operating lease agreements at December 31, 2008 were as follows:

December 31, 2009	$	222,969
December 31, 2010		231,194
Total	$	454,163

NOTE 18 – RELATED PARTY TRANSACTIONS AND BALANCES

As of December 31, 2008, the Predecessor is a 0.6% shareholder of the Company’s main operating subsidiary, Yongye Nongfeng, and is Yongye Nongfeng’s only vendor, providing $43,509,906 (100%) of the Company’s purchased finished goods for the year ended December 31, 2008. According to the contract, the Predecessor sells to Yongye Nongfeng at fixed prices of RMB 350 per case for plant products and RMB 120 per case for animal products.

As of December 31, 2008, due to the Predecessor is $46,739 and represents the payable generated in purchasing inventory from the Predecessor; due from related party is $192,741 and represents the payment the Company made for the Predecessor for its professional fees and research & development fee. The amounts are unsecured and non-interest bearing, and has no defined payment terms.

During the year ended December 31, 2008, the Company borrowed $1,617,293 from Ms. Yin’s (Mr. Wu’s wife) company, Inner Mongolia Chilechuan Culture Development Co., Ltd. The amounts were unsecured and non-interest bearing, and were repaid before December 31, 2008.

Yongye Nongfeng and Inner Mongolia Yongye entered into two lease-exchange arrangements related to the land-use right, buildings and equipment of the 2,000TPA and 8,000TPA facilities. On June 1, 2008, Yongye Nongfeng entered into a land lease agreement to lease 74,153 square meters of land from Inner Mongolia Yongye for a term beginning June 1, 2008 and ending May 31, 2009. On September 28, 2008, Inner Mongolia Yongye entered into a building lease agreement with Yongye Nongfeng to lease a building of 3,967 square meters and the 8,000 TPA production equipment for a term beginning September 28, 2008 and ending September 27, 2009. The estimated value of rentals of land lease and the combination of buildings and equipment were not materially different. Therefore, pursuant to the agreements, both Yongye Nongfeng and the Inner Mongolia Yongye did not charge lease fees to each other. Additionally, the rental income to be received by the Company and the rental expense to be paid are not material to the Company’s 2008 results of operations and therefore have not been included.

F-20

As of December 31, 2007, the Predecessor has borrowed $2,507,371 from stockholders. These loans are short term in nature, unsecured and non-interest bearing. Also, at December 31, 2007 the Predecessor has $12,153 of long-term, unsecured and non-interest bearing loans from shareholders.

NOTE 19-NET INCOME PER SHARE

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

	Yongye Biotechnology
	International, Inc.
	and Subsidiaries
	FOR YEAR ENDED
	DECEMBER 31, 2008
	(Restated – Note 1(C))
Numerator used in basic net income per share:
Net income attributable to Yongye International, Inc.		$	13,310,758
Change in fair value of derivative liabilities			(2,118,797	)
Numerator used in diluted net income per share			11,191,961

Shares (denominator):
Weighted average ordinary shares outstanding			19,599,054
Plus: weighted average incremental shares from assumed exercise of warrants			507,379
Weighted average ordinary shares outstanding used in computing diluted net income per ordinary share			20,106,433
Net income per ordinary share-basic		$	0.68
Net income per ordinary share-diluted		$	0.56

NOTE 20 -CONCENTRATIONS AND CREDIT RISKS

At December 31, 2008 and 2007, the Company and the Predecessor have a credit risk exposure of uninsured cash in banks of approximately $4,477,500 and $376,000, respectively. Neither the Company nor the Predecessor requires collateral or other securities to support financial instruments that are subject to credit risk.

Five major customers accounted for 92% and one major customer accounted for 43% of the Company’s net revenue for the year ended December 31, 2008. Five major customers accounted for 82% and one major customer accounted for 29% of the Predecessor’s net revenue for the year ended December 31, 2007. The Company and the Predecessor’s total sales to five major customers were $44,109,813 and $10,767,153 for the years ended December 31, 2008 and 2007, respectively.

Yongye Biotechnology International, Inc. and Subsidiaries						The Predecessor Inner Mongolia Yongye
YEAR ENDED DECEMBER 31, 2008						YEAR ENDED DECEMBER 31, 2007
Largest Customers	Amount of Sales		% Total Sales			Largest Customers	Amount of Sales		% Total Sales
Hebei	$	20,541,267		43	%	Xinjiang	$	3,853,891		29	%
Xinjiang	$	6,886,624		14	%	Beijing	$	2,980,234		23	%
Gansu	$	6,291,070		13	%	Hebei	$	1,976,680		15	%
Inner Mongolia	$	5,663,011		12	%	Dalian	$	1,216,097		9	%
Shandong	$	4,727,842		10	%	Jiangsu	$	740,251		6	%
Total	$	44,109,813		92	%	Total	$	10,767,153		82	%

F-21

The Predecessor is the Company’s only vender who provided 100% of the Company purchased finished goods for the year ended December 31, 2008 in the amount of $43,509,906. The Predecessor had four major vendors who provided 73% of its raw materials for the year ended December 31, 2007. Total purchases from these vendors were $11,088,687 for the year ended December 31, 2007.

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

NOTE 21 – SUBSEQUENT EVENTS

On October 29, 2008 on behalf of Yongye Nongfeng, Jones Lange LaSalle, an internationally recognized valuation company, completed the valuation of the 2,000TPA equipment owned by the predecessor company, Inner Mongolia Yongye Biotechnology in order to acquire it as required by the September financing. The purchase contract between the two companies allowed for payment 10 days subsequent to the “Completion Date” and the “Completion Date” was specified as two (2) months after the effective date of this Agreement or based upon normal performance of such conditions; the last date for satisfaction of all such conditions shall be the Completion Date. The satisfaction date for this was March 12, 2009 and the payment for the assets was made on that date. As such, on March 12, 2009 RMB 6,439,000 (USD $939,849), which fairly represented the market value of the machinery and equipment, was paid to Inner Mongolia Yongye Biotechnology by Yongye Nongfeng.

F-22

Yongye International, Inc. - FORM 10-K/A - November 9, 2009

Attached files

Yongye International, Inc. Reports