SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following is a discussion of our financial condition, results of operations, liquidity and capital resources. This discussion should be read in conjunction with our audited financial statements and the notes thereto included elsewhere in this Form 10-Q and with our annual report for the year ended December 31, 2011.

Some of the statements under "Description of Business," "Risk Factors," "Management's Discussion and Analysis or Plan of Operation," and elsewhere in this Report and in the Company's periodic filings with the Securities and Exchange Commission constitute forward-looking statements. These statements involve known and unknown risks, significant uncertainties and other factors what may cause actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward- looking statements. Such factors include, among other things, those listed under "Risk Factors" and elsewhere in this Report.

In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "intends," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of such terms or other comparable terminology.

The forward-looking statements herein are based on current expectations that involve a number of risks and uncertainties. Such forward-looking statements are based on assumptions that the Company will obtain or have access to adequate financing for each successive phase of its growth, that there will be no material adverse competitive or technological change in condition of the Company's business, that the Company's President and other significant employees will remain employed as such by the Company, and that there will be no material adverse change in the Company's operations, business or governmental regulation affecting the Company. The foregoing assumptions are based on judgments with respect to, among other things, further economic, competitive and market conditions, and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the Company's control.

Although management believes that the expectations reflected in the forward-looking statements are reasonable, management cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither management nor any other persons assumes responsibility for the accuracy and completeness of such statements.

GENERAL

Yasheng Group ("The Company") is a California corporation with primary operations in China. The Company designs, develops, manufactures and markets high-quality farming and sideline products including livestock and poultry. It also designs, develops and markets new technologies related to agriculture and genetic biology.

RESULTS OF OPERATIONS

(unaudited)

                                           Three Months Ended                Three Months Ended
                                              June 30, 2012                     June 30, 2011
                                        Dollars                           Dollars
                                        (000's)         % of Sales        (000's)         % of Sales
Net Sales                             $    188,380              100 %   $    180,385              100 %
Costs of Goods Sold                        166,574             88.4 %        160,475               89 %
Gross profit                                21,806             11.6 %         19,910               11 %
Sales and marketing expenses                   346              0.2 %            326             0.18 %
General and administrative expenses            785              0.4 %            747             0.41 %
Interest expense                               388              0.2 %            630             0.35 %
Other income                                   579              0.3 %            624             0.35 %
Net income                            $     20,866             11.1 %   $     18,830            10.44 %

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

The functional currency for the Company is the RMB which is translated into US Dollars for financial reporting purposes. The average exchange rates for the periods presented were 6.3088 RMB to 1 USD for the 6 months ended June 30, 2012 and 6.5157 RMB to 1 USD for the 6 months ended June 30, 2011.

Net Sales. Sales are generated primarily from our farming operations and related side line products in China. Net sales for the 6 months ended June 30, 2012 increased by $16.8 million, or 4.5% to $393 million as compared to $375 million for the 6 months ended June 30, 2011. The overall increase in net sales was primarily a result of the rising prices of agricultural products attributable to increasing demand in China. We also benefited from our expanded marketing network which covers more provinces, with more distributors and direct clients.

Factors of increased sales this Spring:

1) Global food prices are rising again, pushed higher by costlier oil, strong demand from Asia and bad weather in parts of Europe, South America and the United States, the World Bank said Record high prices for staple foods last year were one of the main factors that contributed to the Arab Spring uprisings in the Middle East and North Africa, as well as bread riots in other parts of the world.

2) The worst drought in the US in 25 years has wrought havoc on the country's most important crops, putting the global economy at risk of its third food inflation shock in five years.

3) International food production under expectations and hype of funds, Food production prices on the global market were impacted by extreme weather, as the drought of 2012 spread throughout the world including 100 countries, Europe. China and the United States, with prices rising internationally. Geographically, Yasheng is located in the mountain areas of Gansu, Zhangye, Jiuquan and other regions, with large areas of drip irrigation equipment and systems which rely on snowfall water from the Qilian Mountains, making the sub-areas of agricultural land unaffected by the drought, while the autumn harvest of grain, fruits, vegetable, etc. sales price increased.

4) Depreciation of the dollar. Food, oil and other raw materials in the international market are priced in U.S. dollars. The average exchange rates for the periods presented were 6.3088 RMB to 1 USD for the 6 months ended June 30, 2012 and 6.5157 RMB to 1 USD for the 6 months ended June 30, 2011.

Cost of Goods Sold. Our cost of goods sold consists of the direct production costs such as raw materials, direct labor, overhead and miscellaneous other supplies. Costs were in line with sales due to continued heightened focus on cost control exercised throughout production, the increase in cost is mainly due to the growth in the net sales.

Gross Profit and Gross Margin. Our gross profit for the 6 months ended June 30, 2012 increased by $2.85 million or 6.9% to $44.19 million from $41.34 million for the 6 months ended June 30, 2011. The improved margin was primarily a result of the growth in the net sales.

Sales and Marketing Expenses. Our sales and marketing expenses for the 6 months ended June 30, 2012 increased by $34,086 or 5% to $714,147 as compared to $680,061 in the 6 months ended June 30, 2011.

General and Administrative Expenses. Our general and administrative expenses for the 6 months ended June 30, 2012 increased by $76,000 or 4.6% to $1.72 million from $1.64 million for the 6 months ended June 30, 2011.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

Interest Expenses and Other Income. Our interest expense for the 6 months ended June 30, 2012 decreased by $226,356 or 17.8% to $1.04 million as compared to $1.27 million in the prior 6 months ended June 30, 2011. Our other income for the 6 months ended June 30, 2012 decreased by $36,114 or 4.1% to $838,918 as compared to $875,032 in the prior 6 months ended June 30, 2011.

Liquidity and Capital Resources

As of June 30, 2012, we had cash and cash equivalents of $10.86 million and
working capital of $200 million. This compared to cash and cash equivalents of
$10.38 million and working capital of $132 million as of June 30, 2011. The
following table provides information about our net cash flows for the operating
results presented in this report (amounts in thousands of USD).

                                                             Six Months Ended
                                                                 June 30th
                                                          2012               2011
Net cash provided by operating activities                21,012,900         42,679,829
Net cash used in investing activities                   -12,446,892        -36,819,912
Net cash used in financing activities                    -8,275,404         -7,767,832
Effect of foreign currency translation on cash and
cash equivalents                                           -140,714          2,178,860
Cash and cash equivalents at beginning of the
period                                                   10,714,391         10,116,750
Cash and cash equivalents at end of period               10,864,281         10,387,695

Net cash provided by operating activities was $21 million for the 6 months ended June 30, 2012 as compared to $42 million for the six months ended June 30, 2011. Net cash used in investing activities was $12 million for the 6 months ended June 30, 2012 as compared to $36 million for the 6 months ended June 30, 2011. Net cash used in financing activities was $8 million for the 6 months ended June 30, 2012 compared with $7.77 million for the 6 months ended June 30, 2011.

We believe our cash on hand and cash flows from operations will meet our expected capital expenditures and working capital needs for the next 12 months. In addition, we may, in the future, require additional cash resources due to changed business conditions, implementation of our strategy to expand our production capacity or other investments or acquisitions we may decide to pursue. If our own financial resources are insufficient to satisfy our capital requirements, we may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity securities could result in dilution to our stockholders. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure by us to raise additional funds on terms favorable to us, or at all, could limit our ability to expand our business operations and could harm our overall business prospects.

Off-Balance Sheet Arrangements

As of June 30, 2012 and for the three months then ended, we were not party to transactions, obligations or relationships that could be considered off-balance sheet arrangements and we do not have off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.

Segments

See Notes to financial statements for details on the segments.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - continued

Critical Accounting Policies and Estimates

Our significant accounting policies are summarized in Note 1 to the Consolidated Financial Statements. The additional discussion below addresses our more significant judgments.

Impairment of long-lived assets. Long-lived assets, except goodwill and indefinite-lived intangible assets, are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future net cash flows estimated by our management to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by sale are recorded as held for sale at the lower of carrying value or estimated net realizable value.

All land in the PRC is owned by the PRC government. The government in the PRC, according to the relevant PRC law, may sell the right to use the land for a specific period of time. Thus, all of our land purchases in the PRC are considered to be leasehold land and are stated at cost less accumulated amortization and any recognized impairment loss.

Property, plant and equipment, net. Property, plant and equipment are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred. The principal estimated useful lives generally are: buildings - 20 years; leasehold improvement - 10 years; machinery - 10 years; furniture, fixtures and office equipment - 5 years; motor vehicle - 5 years. During the idle period of the plant, depreciation is treated as current-period charges, which is charged directly to general and administrative expense.

New Accounting Standards

See Note 1 to the Consolidated Financial Statements for information regarding other new accounting standards that could affect us.