**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**




**WASHINGTON,
      D.C. 20549**




**FORM
      20-F**




**(Mark
      One)**




o
            
            **REGISTRATION
                STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
                ACT OF 1934**




**OR**




þ
            
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




For
      the
      fiscal year ended **December 31,
      2005**




**OR**




o
            
            **TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**




**OR**




o
            
            **SHELL
                COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE
                ACT OF 1934**




Date
      of
      event requiring this shell company report........................




**For
      the transition period** from
      ___________ to ___________.




Commission
      file number: 000-51576




Origin
      Agritech Limited




(Exact
      name of Registrant as specified in its charter)




**Not
      Applicable**


(Translation
      of Registrant’s name into English)




**British
      Virgin Islands**


(Jurisdiction
      of incorporation or organization)








**No.
      21 Sheng Ming Yuan Road, Chanping District, Beijing 102206,
      China**


(Address
      of principal executive offices)





Securities
      registered or to be registered pursuant to Section 12(b) of the
      Act.




Title
                of each class
            
            Name
                of each exchange on which registered**None**
            
            **None**




Securities
      registered or to be registered pursuant to Section 12(g) of the
      Act.




**Ordinary
      Shares**




**_______________________________________________________**


(Title
      of
      Class)




Securities
      for which there is a reporting obligation pursuant to Section 15(d) of the
      Act.


**None**




Indicate
      the number of outstanding shares of each of the issuer’s classes of capital or
      common stock as of the close of the period covered by the annual report:
      18,203,193 ordinary shares.




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


oYes
              þNo




If
      this
      report is an annual or transaction report, indicate by check mark if the
      registrant is not required to file reports pursuant to Section 13 or 15(d)
      of
      the Securities Exchange Act of 1934.




oYes
              þNo




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days.


þYes
              oNo




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.


Largeaccelerated filero
              Accelerated
                  filerþ
              Non-accelerated
                  filero




If
      this
      is an annual report, indicate by check mark whether the registrant is a shell
      company (as defined in Rule 12b-2 of the Exchange Act).


oYes
              þNo




Indicate
      by check mark which financial statement item the registrant has elected to
      follow:


oItem 17
              þItem 18











2




**ORIGIN
      AGRITECH LIMITED**




**TABLE
      OF CONTENTS**




**INTRODUCTION**PART
                IItem
                1.
            Identity
                of Directors, Senior Management and AdvisersItem
                2.
            Offer
                Statistics and Expected TimetableItem
                3.
            Key
                InformationItem
                4.
            Information
                on the CompanyItem
                5.
            Operating
                and Financial Review and ProspectsItem
                6.
            Directors,
                Senior Management and EmployeesItem
                7.
            Major
                Shareholders and Related Party TransactionsItem
                8.
            Financial
                InformationItem
                9.
            The
                Offer and ListingItem
                10.
            Additional
                InformationItem
                11.
            Quantitative
                and Qualitative Disclosures About Market RiskItem
                12.
            Description
                of Securities Other than Equity SecuritiesPART
                IIItem
                13.
            Defaults,
                Dividend Arrearages and DelinquenciesItem
                14.
            Material
                Modifications to the Rights of Security Holders and Use of
                ProceedsItem
                15.
            Controls
                and ProceduresItem
                16A.
            Audit
                Committee Financial ExpertItem
                16B.
            Code
                of EthicsItem
                16C.
            Principal
                Accountant Fees and ServicesItem
                16D.
            Exemption
                from the Listing Standard for Audit CommitteesItem
                16E.
            Purchases
                of Equity Securities by the Issuer and Affiliated
                PurchasersPART
                IIIItem
                17.
            Financial
                StatementsItem
                18.
            Financial
                StatementsItem
                19.
            Exhibits




EX-1.1
                Memorandum
                    and Articles of Association of Origin Agritech Limited re-registered
                    under
                    the new Business Companies Act of the British Virgin Islands
                    as of July
                    10, 2006.
 EX-4.2
                Form
                    of Employee Share Option Agreement of Origin Agritech Limited.
 EX-4.16
                Form
                    Equity Transfer Agreement between Beijing Origin and shareholders
                    of
                    Denong Zhengcheng Seed Co., Ltd. pursuant to which Beijing Origin
                    acquired
                    52.21% equity interest in Denong Zhengcheng Seed Co.,
                    Ltd.
 EX-4.17
                Equity
                    Transfer Agreement between Beijing Origin and Jilin Academy of
                    Agriculture
                    Science dated as of December 6, 2005.
 EX-4.18
                Equity
                    Transfer Agreement between Beijing Origin andChina
                    National Center for Biotechnology Developmentdated as of December 28, 2004.
 EX-4.19
                Capital
                    Contribution Agreement.
 EX-4.20
                New
                    Corn Seed Liyu 35 Joint Development Agreement between Beijing
                    Origin and
                    Shijiazhuang Liyu Technology Development Co., Ltd.
 EX-4.21
                Joint
                    Development Agreement between Beijing Origin and Corn Research
                    Institute
                    of Li County dated January 31,
                    2002.
 EX-4.22
                Joint
                    Development Agreement between Beijing Origin and Corn Research
                    Institute
                    of Li County dated January 9, 2003.
 EX-4.23
                Technology
                    Transfer and Cooperation Agreement Concerning a New Corn Hybrid
                    Yuyu
                    20.
 EX-4.24
                Renminbi
                    Capital Loan Contract.
 EX-4.25
                Mortgage
                    Contract.
   3
  EX-4.26
                Form
                    of Hybrid Corn Seed Sales Contract.
 EX-8.1
                List
                    of subsidiaries.
 EX-12.1
                CEO
                    CERTIFICATION
 EX-12.2
                CFO
                    CERTIFICATION
 EX-13.1
                CEO
                    CERTIFICATION PURSUANT TO SECTION
                    906
 EX-13.2
                CFO
                    CERTIFICATION PURSUANT TO SECTION
                    906
 
 4


**INTRODUCTION**




Except
      where the context otherwise requires and for purposes of this annual report
      only:




·
            
            “we,”
                “us,” “our company,” “our” the “Company” and Origin refer to Origin
                Agritech Limited and, in the context of describing our operations,
                also
                include our PRC operating companies:Beijing
                Origin Seed Limited, Changchun Origin Seed Technology Development
                Limited,
                Henan Origin Cotton Technology Development Limited and Beijing Origin
                State Harvest Biotechnology Limited;·
            
            “shares”
                and “ordinary shares” refer to our ordinary shares, “preferred shares”
                refers to our preferred shares;·
            
            “China”
                or “PRC” refers to the People’s Republic of China, excluding Taiwan, Hong
                Kong and Macau;·
            
            “Hong
                Kong” refers to the Hong Kong Special Administrative Region of the
                People’s Republic of China; and·
            
            all
                references to “Renminbi,” “RMB” or “yuan” are to the legal currency of
                China, all references to “U.S. dollars,” “dollars,” “$” or “US$” are to
                the legal currency of the United States. Any discrepancies in any
                table
                between totals and sums of the amounts listed are due to
                rounding.





**FORWARD-LOOKING
      INFORMATION**




This
      annual report on Form 20-F contains forward-looking statements that are based
      on
      our current expectations, assumptions, estimates and projections about us and
      our industry. All statements other than statements of historical fact in this
      annual report are forward-looking statements. These forward-looking statements
      can be identified by words or phrases such as “may,” “will,” “expect,”
“anticipate,” “estimate,” “plan,” “believe,” “is /are likely to” or other
      similar expressions. The forward-looking statements included in this annual
      report relate to, among others:




·
            our
                goals and strategies, including how we effect our goals and
                strategies;




·
            our
                expectations for our future business development, business prospects,
                results of operations and financial
                condition;




·
            expected
                changes in our margins and certain costs or
                expenditures;




·
            our
                future pricing strategies or
                policies;




·
            our
                plans to expand our business operations and product
                offerings;




·
            expected
                changes in the respective shares of our revenues from particular
                sources;




·
            competition
                in the crop seed industry in China;




·
            the
                future development of the crop seed industry in
                China;




·
            our
                plans for staffing, research and development and regional
                focus;




·
            PRC
                governmental policies relating to the crop seed industry;
                and




·
            other
                “forward-looking” information.




We
      believe it is important to communicate our expectations to our stockholders.
      However, there may be events in the future that we are not able to predict
      accurately or over which we have no control. The risk factors and cautionary
      language discussed in this annual report provide examples of risks,
      uncertainties and events that may cause actual results to differ materially
      from
      the expectations in these forward-looking statements, including among other
      things:




5




·
            changing
                interpretations of generally accepted accounting
                principles;




·
            outcomes
                of government reviews, inquiries, investigations and related
                litigation;




·
            continued
                compliance with government
                regulations;




·
            legislation
                or regulatory environments, requirements or changes adversely affecting
                the businesses in which we and our PRC operating companies are
                engaged;




·
            fluctuations
                in customer demand;




·
            management
                of rapid growth;




·
            intensity
                of competition from other providers of crop
                seeds;




·
            timing
                of approval and market acceptance of new
                products;




·
            general
                economic conditions; and




·
            geopolitical
                events and regulatory changes.




These
      forward-looking statements involve various risks, assumptions and uncertainties.
      Although we believe that our expectations expressed in these forward-looking
      statements are reasonable, we cannot assure you that our expectations will
      turn
      out to be correct. Our actual results could be materially different from and
      worse than our expectations. Important risks and factors that could cause our
      actual results to be materially different from our expectations are generally
      set forth in Item 3.D of this annual report, “Key information — Risk
      Factors” and elsewhere in this annual report.




This
      annual report also contains information relating to the crop seed market. This
      market data includes projections that are based on a number of assumptions.
      The
      crop seed market may not grow at the rates we project, or at all. The failure
      of
      this market to grow at the projected rates may have a material adverse effect
      on
      our business and the market price of our shares. In addition, the relatively
      new
      and rapidly changing nature of the genetically modified crop seed industry
      subjects any projections or estimates relating to the growth prospects or future
      condition of our markets to significant uncertainties. Furthermore, if any
      one
      or more of the assumptions underlying the market data turns out to be incorrect,
      actual results may differ from the projections based on these assumptions.




The
      forward-looking statements made in this annual report relate only to events
      or
      information as of the date on which the statements are made in this annual
      report. You should not place undue reliance on these forward-looking statements,
      and you should read these statements in conjunction with the risk factors
      disclosed in Item 3.D of this annual report.




All
      forward-looking statements included herein attributable to us or other parties
      or any person acting on our behalf are expressly qualified in their entirety
      by
      the cautionary statements contained or referred to in this section. Except
      to
      the extent required by applicable laws and regulations, we undertake no
      obligations to update these forward-looking statements to reflect events or
      circumstances after the date of this annual report or to reflect the occurrence
      of unanticipated events.




**PART
      I**




**ITEM
      1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**




Not
      Applicable.




**ITEM
      2. OFFER STATISTICS AND EXPECTED TIMETABLE**




Not
      Applicable.




6




**ITEM
      3. KEY INFORMATION**




**A.** **Selected
      financial data** **.**




The
      following selected consolidated financial information has been derived from
      our
      consolidated financial statements. You should read the following information
      in
      conjunction with those statements and Item 5, “Operating and Financial
      Review and Prospects.” The
      summary consolidated statements of operations and comprehensive income data
      of
      the Company for the years ended December 31, 2003, 2004 and 2005 and the
      summary consolidated balance sheet data of the Company as of December 31, 2004
      and 2005 set forth below are derived from, and are qualified in their entirety
      by reference to, the audited consolidated financial statements of the Company,
      including the notes thereto, which are included in this annual report. The
      summary statement of operations data for the years ended December 31, 2001
      and 2002, and the summary balance sheet data as of December 31, 2001, 2002
      and 2003 set forth below are derived from audited consolidated financial
      statements of the Company not included herein.




Our
      consolidated financial statements are prepared and presented in accordance
      with
      accounting principles generally accepted in the United States, or U.S.
      GAAP.


**For
                  the year ended December 31,**2001
              
              2002
              
              2003
              
              2004
              
              2005(in
                  thousand, except share data)
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              US$(1)**Consolidated
                  statement of operations and comprehensive income
                  (loss) data:**Net
                  revenues
              
              
              75,056
              
              
              98,717
              
              
              191,645
              
              
              301,520
              
              
              207,291
              
              
              25,687Cost
                  of revenues
              
              
              (50,341
              )
              
              (46,006
              )
              
              (118,977
              )
              
              (178,313
              )
              
              (129,162
              )
              
              (16,005
              )Gross
                  (loss) profit
              
              
              24,715
              
              
              52,711
              
              
              72,668
              
              
              123,207
              
              
              78,129
              
              
              9,682Selling
                  and marketing
              
              
              (8,900
              )
              
              (6,480
              )
              
              (13,310
              )
              
              (20,390
              )
              
              (27,037
              )
              
              (3,350
              )General
                  and administrative
              
              
              (8,742
              )
              
              (9,642
              )
              
              (18,948
              )
              
              (24,149
              )
              
              (28,983
              )
              
              (3,591
              )Research
                  and development
              
              
              (2,497
              )
              
              (5,372
              )
              
              (5,288
              )
              
              (6,774
              )
              
              (6,977
              )
              
              (865
              )Total
                  operating expenses
              
              
              (20,139
              )
              
              (21,494
              )
              
              (37,546
              )
              
              (51,313
              )
              
              (62,997
              )
              
              (7,806
              )other
                  operating income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,309
              
              
              286Income
                  (loss) from operations
              
              
              4,576
              
              
              31,217
              
              
              35,122
              
              
              71,894
              
              
              17,441
              
              
              2,162Interest
                  income
              
              
              134
              
              
              440
              
              
              845
              
              
              371
              
              
              886
              
              
              110Interest
                  expenses
              
              
              (172
              )
              
              (417
              )
              
              (483
              )
              
              (831
              )
              
              (1,829
              )
              
              (227
              )Other
                  income (expense)
              
              
              6,584
              
              
              (606
              )
              
              1,137
              
              
              149
              
              
              300
              
              
              37Equity
                  in earnings of associated company
              
              
              -
              
              
              -
              
              
              -
              
              
              1,925
              
              
              879
              
              
              109Income
                  (loss) before income taxes
              
              
              11,122
              
              
              30,634
              
              
              36,621
              
              
              73,508
              
              
              17,677
              
              
              2,191Income
                  tax
              
              
              (3,232
              )
              
              (1,498
              )
              
              (7,808
              )
              
              (7,698
              )
              
              (1,405
              )
              
              (174
              )Income
                  (loss) before minority interests
              
              
              7,890
              
              
              29,136
              
              
              28,813
              
              
              65,810
              
              
              16,272
              
              
              2,017Minority
                  interests
              
              
              225
              
              
              (2,575
              )
              
              138
              
              
              (351
              )
              
              137
              
              
              17Net
                  income (loss)
              
              
              8,115
              
              
              26,561
              
              
              28,951
              
              
              65,459
              
              
              16,409
              
              
              2,034Dividends
                  on preference shares
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Income
                  (loss) attributable to ordinary shareholders
              
              
              8,115
              
              
              26,561
              
              
              28,951
              
              
              65,459
              
              
              16,409
              
              
              2,034Net
                  income per share:Basic
              
              
              -
              
              
              -
              
              
              2.90
              
              
              6.55
              
              
              1.52
              
              
              0.19Diluted
              
              
              -
              
              
              -
              
              
              2.90
              
              
              6.55
              
              
              1.46
              
              
              0.18Shares
                  used in computation:Basic
              
              
              -
              
              
              -
              
              
              10,000,000
              
              
              10,000,000
              
              
              10,786,719
              
              
              10,786,719Diluted
              
              
              -
              
              
              -
              
              
              10,000,000
              
              
              10,000,000
              
              
              11,220,157
              
              
              11,220,157







7


**For
                  the year ended December 31,**2001
              
              2002
              
              2003
              
              2004
              
              2005(in
                thousand)
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              US$**Consolidated
                  balance sheet data:**Cash
                  and cash equivalents
              
              
              37,308
              
              
              78,698
              
              
              49,221
              
              
              68,848
              
              
              237,828
              
              
              29,471Current
                  working capital(2)
              
              
              5,333
              
              
              12,782
              
              
              10,186
              
              
              51,897
              
              
              149,610
              
              
              18,538Total
                  assets
              
              
              97,434
              
              
              257,388
              
              
              307,257
              
              
              416,384
              
              
              798,769
              
              
              98,981Deferred
                  revenue
              
              
              4,784
              
              
              74,764
              
              
              65,296
              
              
              37,921
              
              
              181,583
              
              
              22,501Total
                  current liabilities
              
              
              77,212
              
              
              205,158
              
              
              227,768
              
              
              273,002
              
              
              499,616
              
              
              61,911Total
                  liabilities
              
              
              77,212
              
              
              208,031
              
              
              230,640
              
              
              275,874
              
              
              504,368
              
              
              62,500Minority
                  interests
              
              
              510
              
              
              3,271
              
              
              3,184
              
              
              3,534
              
              
              3,234
              
              
              401Total
                  shareholders’ equity
              
              
              19,712
              
              
              46,086
              
              
              73,433
              
              
              136,976
              
              
              291,167
              
              
              36,080




(1)
            
            Translations
                of RMB amounts into U.S. dollars were made at a rate of RMB8.0702
                to
                US$1.00, the noon buying rate in New York City for cable transfers
                as
                certified for customs purposes by the Federal Reserve Bank of New
                York on
                December 30, 2005.(2)
            
            Current
                working capital is the difference between total current assets and
                total
                current liabilities.




**Exchange
      Rate Information**




We
      have
      published our financial statements in U.S. dollars. Our business is primarily
      conducted in China and revenues are denominated in Renminbi. Periodic reports
      will be made to shareholders and will be expressed in U.S. dollars using the
      then-current exchange rates. The conversion of Renminbi into U.S. dollars in
      this annual report is based on the noon buying rate in The City of New York
      for
      cable transfers of Renminbi as certified for customs purposes by the Federal
      Reserve Bank of New York. Unless otherwise noted, for years ended December
      31,
      2003, 2004 and 2005, all translations from Renminbi to U.S. dollars in this
      annual report were made at RMB8.2769, RMB8.2765 and RMB8.0702 per $1.00,
      respectively, which were the prevailing year end rates for those three years.
      The prevailing rate on June 30, 2006 was $1.00 to RMB7.9943. We make no
      representation that any Renminbi or U.S. dollar amounts could have been, or
      could be, converted into U.S. dollars or Renminbi, as the case may be, at any
      particular rate, the rates stated below, or at all. The PRC government imposes
      controls over its foreign currency reserves in part through direct regulation
      of
      the conversion of Renminbi into foreign exchange and through restrictions on
      foreign trade.




8




The
      People’s Bank of China sets and publishes daily a base exchange rate. Until July
      21, 2005, the People’s Bank of China set this rate with reference primarily to
      the supply and demand of Renminbi against the U.S. dollar in the market during
      the prior day. Beginning on July 21, 2005, the People’s Bank of China has set
      this rate with reference primarily to the supply and demand of Renminbi against
      a basket of currencies in the market during the prior day. The People’s Bank of
      China also takes into account other factors such as the general conditions
      existing in the international foreign exchange markets. Although governmental
      policies were introduced in the PRC in 1996 to reduce restrictions on the
      convertibility of Renminbi into foreign currency for current account items,
      conversion of Renminbi into foreign exchange for capital items, such as foreign
      direct investment, loans or security, requires the approval of the State
      Administration for Foreign Exchange and other relevant authorities.




The
      following table sets forth various information concerning exchange rates between
      the Renminbi and the U.S. dollar for the periods indicated. These rates are
      provided solely for your convenience and are not necessarily the exchange rates
      that we used in this annual report or will use in the preparation of our
      periodic reports or any other information to be provided to you. The source
      of
      these rates is the Federal Reserve Bank of New York.




**Average(1)**
            
            **High**
            
            **Low**
            
            **Period-end***(RMB
                per .$1.00)***2001**
            
            
            8.2770
            
            
            8.2786
            
            
            8.2676
            
            
            8.2766**2002**
            
            
            8.2770
            
            
            8.2800
            
            
            8.2669
            
            
            8.2800**2003**
            
            
            8.2770
            
            
            8.2800
            
            
            8.2772
            
            
            8.2769**2004**
            
            
            8.2770
            
            
            8.2773
            
            
            8.2765
            
            
            8.2765**2005**
            
            
            8.1826
            
            
            8.2765
            
            
            8.0702
            
            
            8.0702**2006****January**
            
            
            8.0654
            
            
            8.0702
            
            
            8.0596
            
            
            8.0608**February**
            
            
            8.0512
            
            
            8.0616
            
            
            8.0415
            
            
            8.0415**March**
            
            
            8.0350
            
            
            8.0505
            
            
            8.0167
            
            
            8.0167**April**
            
            
            8.0143
            
            
            8.0248
            
            
            8.0040
            
            
            8.0165**May**
            
            
            8.0131
            
            
            8.0300
            
            
            8.0005
            
            
            8.0215**June**
            
            
            8.0042
            
            
            8.0225
            
            
            7.9943
            
            
            7.9943







(1)
            
            Annual
                averages are calculated from month-end rates. Monthly averages are
                calculated using the average of the daily rates during the relevant
                period.




**B.** **Capitalization
      and indebtedness.**




Not
      Applicable.




**C.** **Reasons
      for the offer and use of proceeds.**




Not
      Applicable.




**D.** **Risk
      factors.**




**Risks
      relating to our business**




9




***If
      we do not manage our growth successfully, our growth and chances for continued
      profitability may slow or stop.***




We
      have
      expanded our operations rapidly during the last several years, and we plan
      to
      continue to expand with new seed products and distribution outlets. This
      expansion has created significant demands on our administrative, operational
      and
      financial personnel and other resources, particularly our need for working
      capital. Additional expansion in existing or new markets and new lines of
      business could strain these resources and increase our need for capital, which
      may result in cash flow shortages. Our personnel, systems, procedures, controls
      and existing space may not be adequate to support further expansion.





***We
      have a short operating history and are subject to the risks of any new
      enterprise, any one of which could limit growth and product and market
      development.***





Our
      short
      operating history makes it difficult to predict how our businesses will develop.
      Accordingly, we face all of the risks and uncertainties encountered by
      early-stage companies, such as:




·  uncertain
      growth in the market for, and uncertain market acceptance of, our products
      and
      services;




·  the
      evolving nature of the crop seed business in the PRC, where significant
      consolidation is likely to occur, leading to the formation of companies better
      able to compete with us than is currently the case; and




·  the
      risks
      of competition, technological change or evolving customer preferences could
      harm
      sales of our products or services.





If
      we are
      not able to meet the challenges of building our businesses and managing our
      growth, the likely result will be slowed growth, lower margins, additional
      operational costs and lower income.





***The
      profitability of our businesses will decrease if we do not continue to find
      and
      market products considered valuable by Chinese farmers.***




The
      profitability of our seed business depends on recurring and sustained reorders.
      Reorder rates are inherently uncertain due to several factors, many of which
      are
      outside our control. These include changing customer preferences, competitive
      price pressures, failure to develop acceptable new products, development of
      higher quality products by competitors and general economic
      conditions.




***We
      are currently dependent on licensed seed products for the majority of our
      revenues, and if we lose the right to produce and sell licensed seeds, we will
      lose substantial revenues and suffer substantial losses.***





The
      revenue related to licensed hybrid seeds for, 2003, 2004 and 2005 was
      $23,155,319, $35,933,245, $24,314,206 respectively. Licensed hybrid seeds
      accounted for 100% of the total seed revenue in 2003, 98.97% of the total seed
      revenue in 2004, and 93.97% of the total seed revenue in 2005. There were no
      revenues related to internally developed proprietary hybrid seeds in 2002 and
      2003. The amount of revenue related to internally developed proprietary hybrid
      seeds in 2004 was $375,929, which accounted for 1.03% of the total 2004 seed
      revenue, while the amount of revenue related to proprietary hybrid seeds in
      2005
      was $1,558,883, which accounted for 6.03% of the total 2005 seed revenue. We
      sell a majority of seeds developed and produced under our license agreements
      with the Corn Research Institute Li County, Hebei Province (now Shijiazhuang
      Liyu Technology Development Co., Ltd.) and the Henan Agricultural University,
      representing respectively 48.19% and 35.3% of sales in 2003, 58.64% and 13.2%
      of
      sales in 2004, and 49.79% and 16.42% of sales in 2005. If we are not able to
      develop and produce the licensed seed products or if the current license
      agreements are terminated, we will suffer a substantial loss of revenue and
      will
      suffer substantial business losses. Our financial condition and results of
      operations may be materially and adversely affected.





***We
      or our licensors may be subject to intellectual property infringement claims,
      which may force us to incur substantial legal expenses and, if determined
      adversely against us or our licensors, may materially disrupt our
      business.***




We
      cannot
      be certain that our licensed or self-developed proprietary seed products do
      not
      or will not infringe upon intellectual property rights held by third parties.
      We
      or any of our licensors may become subject to legal proceedings and claims
      from
      time to time relating to the intellectual property of others. If we or our
      licensors are found to have violated the intellectual property rights of others,
      we may be required to pay damages and be enjoined from using such intellectual
      property, and we may incur new or additional licensing fees if we wish to
      continue using the infringing products, or be forced to develop or license
      alternatives. In addition, we may incur substantial expenses in defending
      against these third party infringement claims, regardless of their merit.




10




***Due
      to our size and short operating history, we substantially depend on a few key
      personnel who, if not retained, could cause declines in productivity and
      profitability and loss of strategic guidance, all of which would diminish the
      prospects of the company and value to investors.***





Due
      to
      our size and short operating history, our success depends to a large extent
      upon
      the continued service of a few executive officers and key employees, including:




·  Dr.
      Gengchen Han;




·  Yasheng
      Yang; and




·  Liang
      Yuan.





The
      loss
      of the services of one or more of these key employees could have an adverse
      effect on us and our PRC Operating Companies, as each of these individuals
      played and continues to play a significant role in developing and executing
      our
      overall business plan and maintaining customer relationships and proprietary
      technology systems. While none of these key personnel is irreplaceable, the
      loss
      of the services of any of these individuals would be disruptive to our business.
      We believe that our overall future success depends in large part upon our
      ability to attract and retain highly skilled managerial and marketing personnel.
      There can be no assurance that we will be successful in attracting and retaining
      such personnel on terms acceptable to them. Inadequate personnel will limit
      our
      growth, and will be seen as a detriment to our prospects, leading potentially
      to
      a loss in value for investors.





***If
      we do not comply with applicable government regulations, we may be prohibited
      from continuing some or all of our operations, resulting in a reduction of
      growth and ultimately market share due to loss of competitive position.***





Our
      revenue depends on receiving approval from the PRC government to market new
      seed
      hybrids that we are developing and will develop. In addition, there may be
      circumstances under which the approvals granted are subject to change without
      substantial advance notice, and it is possible that we could fail to obtain
      the
      approvals that we require to expand our business as we intend to do. The failure
      to obtain or to maintain such approvals would limit the number and quality
      of
      products that we would be able to offer. This reduction in product offerings
      would cause a reduction in the growth previously experienced and over time
      would
      result in loss of market share from the competitive pressures of seeds developed
      by others that would likely be better than our products.





***Our
      single business line of crop seed development and production does not permit
      us
      to spread our business risks among different business segments, such that a
      disruption in our seed production or the industry would hurt the company more
      immediately and directly.***





We
      operate mainly in the crop seed business. Without business line diversity,
      we
      will not be able to spread the risk of our operations. Therefore, our business
      opportunities, revenues and income could be more immediately and directly
      affected by disruptions from such things as drought and disease or widespread
      problems affecting the industry, such as the absence of farmer credit and
      payment disruptions and customer rejection of modified crop seeds. If there
      is a
      disruption as described above, our revenues and income will be reduced, and
      our
      business operations may have to be scaled back.





***Natural
      disasters could damage seed production, in which event we will suffer a loss
      of
      production and will suffer consequential losses of revenues, market disruption
      and reputation, and there is no agriculture insurance in the PRC to cover loss
      of seed crops.***





We
      produce our seeds using a network of approximately 10,000 farmers, which plant
      the crops and harvest the seeds for use as crop seeds for the next growing
      season. As a result, the source of supply for our seeds is subject to all of
      the
      risks associated with any agricultural enterprise, including widespread drought,
      pestilence or other natural disasters. While the use of such a large number
      of
      farmers provides some protection against a widespread failure of any particular
      crop, the majority of seed production farmers are located in just two provinces,
      making them subject to risks that are somewhat local in nature. We have
      attempted to manage this risk by obligating ourselves to pay the farmers who
      produce our seeds only for the quantity of seeds that they produce, thus
      limiting our expenses somewhat. We have also set up a storage system since
      2003
      attempting to manage this risk. However, in the event of a widespread failure
      of
      the seed crop, we would likely sustain substantial operating losses, due to
      both
      the fact that a significant portion of our expenses are fixed overhead and
      that
      the loss of a large portion of a seed crop would limit our revenues
      significantly. Although insurance to protect against such a risk is available
      in
      many jurisdictions, such insurance is not available in the PRC.





11




***We
      rely on our network of approximately 10,000 farmers for production of our seeds,
      and although our relationship with those farmers has been stable in the past,
      there are no assurances that those relationships will remain stable in the
      future, the result of which could limit the amount of seed products available
      to
      us for sale to customers and customer loyalty.***





We
      believe we maintain a favorable relationship with the farmers in our seed
      production network by paying them a higher price for their crop seeds than
      they
      would receive by producing other crops for sale in the market. In addition,
      the
      large number of farmers on which we rely to produce crop seeds means that no
      one
      or even several of them can, acting independently, adversely and materially
      affect our business. However, events such as a shift in pricing caused by an
      increase in the value of food crops other than seed crops, increase in land
      prices or competition could disrupt the chain of supply. Any of these
      disruptions could limit the supply of seeds that we obtain, adversely affecting
      supply and thereby lowering revenues from the lack of product to sell. Such
      disruption could also damage distributor relationships and farmer loyalty to
      the
      brand if we cannot supply the quantity of seed expected from them.





***The
      corn seed prices and sales volumes may decrease in any given year with a
      corresponding reduction in sales, margins and
      profitability.***





During
      most of our brief existence, the corn seed market has been stable in the PRC,
      but in the past it was marked by periods of instability. In the future there
      may
      be periods of instability during which commodity prices and sales volume might
      fluctuate greatly. Commodities can be affected by general economic conditions,
      weather, disease and aspects of demand such as financing, competition and trade
      restrictions. Although we have followed a branded product strategy to
      differentiate our products from those of other crop seed producers, the crop
      seed market continues to behave as a commodity market. As a result, the price
      that we are able to demand for our seeds is somewhat dependent on the size
      of
      the supply of our seeds and the seeds of other producers. Therefore, the
      potential exists for fluctuation in supply, and consequently in price, in our
      own markets, even in the absence of significant external events that might
      cause
      volatility. As a result, the level of revenues that we receive in any given
      year
      is subject to change. Because decisions are made regarding the level of
      production prior to the time that the volume of orders and the market price
      for
      those orders is known, it is possible that we will have too much or not enough
      product available, each with the attendant impact on revenues, margins and
      profitability.





***Our
      revenues depend on the ability of a large number of small farmers buying seed
      for cash because financing for purchases of this size and type is not available;
      therefore, if a substantial number of our customers become unable to pay for
      seed, our sales, revenues and profitability will
      decline.***





We
      have a
      large and diversified customer base, with no single customer representing more
      than 1% of our revenues. The large customer base provides some protection
      against the loss of revenues due to the inability of a significant number of
      our
      customers paying for seed that has been previously ordered. However, the
      unavailability of credit for farmers in the PRC reduces the ability of those
      farmers to withstand the effects of difficult economic times. The lack of credit
      could prevent them from fulfilling their purchasing commitments with the result
      that our revenues and profitability would be reduced.





***Competition,
      both domestic and foreign, may slow or reverse our recent rapid growth, which
      could result in a decrease in margins and cause an operating
      loss.***





Competition
      may develop from consolidation within the Chinese seed industry and
      privatization of seed producers that are extensions of the county governments.
      A
      number of companies are developing using more efficient business models.
      Competition may develop from foreign seed producers who have high-quality
      products. As competition develops, we will expect our recent rapid growth to
      slow and will probably experience a reduction in margins. As marketing expenses
      increase, we may experience operating losses.




12





***Technological
      change in creating seed hybrids could adversely affect our business, causing
      a
      loss in business opportunities, market share and
      revenues.***





We
      currently rely upon traditional methods of creating crop seed hybrids to develop
      new products. While these methods are highly effective, there has been an
      increase in the development of genetically modified agricultural products to
      increase the quality and quantity of crop yields. This new genetic technology
      is
      controversial, and it has not been widely accepted in many regions of the world,
      including the PRC. However, as the ability to use genetic modification to
      produce seeds that are superior to or less costly than those that we produce
      by
      traditional methods increases, the threat of competition from this source
      becomes more realistic. A number of factors that are difficult to predict,
      such
      as a shift among farmer and consumer attitudes making these kinds of products
      more or less acceptable, affect the extent to which this potential threat could
      affect our business prospects.





We
      are
      taking steps to respond to the competition risk presented by genetically
      modified agricultural products. We have commenced our own research and
      development efforts for genetically modified seeds, and we have entered into
      an
      agreement with a research institution in the PRC working on genetic
      modifications that give us the right to market the seeds they develop. However,
      there can be no assurance that these efforts will be successful in producing
      improved seed varieties that are able to compete with those produced by other
      genetically-modified seed producers.





***If
      we do not comply with PRC regulations, we may not be able to operate our
      business or we may be fined, causing an adverse effect on our business,
      operations and revenues.***





The
      PRC
      has many regulations relating to the seed business, including obtaining and
      maintaining operating licenses. Seed products also must be licensed and undergo
      a stringent review process before they may be sold in the PRC. Although we
      currently have all the necessary licenses, and we believe we are in compliance
      with applicable laws and regulations for our business, if we are not in
      compliance then we may be fined or lose the ability to sell a particular seed
      or
      operate our business altogether. If the fines are substantial or the ability
      to
      sell or operate is withdrawn, this will result in additional costs or the loss
      of revenues and perhaps our ability to continue as a business.





***We
      may become a passive foreign investment company, or PFIC, which could result
      in
      adverse U.S. tax consequences to U.S. investors.***  ***To
      be confirmed***





Depending
      upon the value of our shares and the nature of our assets and income over time,
      we could be classified as a passive foreign investment company, or PFIC, by
      the
      United States Internal Revenue Service, or IRS, for U.S. federal income tax
      purposes. If we are classified as a “PFIC” in any taxable year in which you hold
      our shares and you are a U.S. investor, you would generally be taxed at higher
      ordinary income, rather than lower capital gain rates, if you dispose of shares
      at a gain in a later year, even if we are not a PFIC in that year. In addition,
      a portion of the tax imposed on your gain would be increased by an interest
      charge. Moreover, if we were classified as a PFIC in any taxable year, you
      would
      not be able to benefit from any preferential tax rate with respect to any
      dividend distribution that you may receive from us in that year or in the
      following year. Finally, you would also be subject to special U.S. tax reporting
      requirements.





We
      believe that we were not a PFIC for the taxable year 2005. However, there can
      be
      no assurance that we will not be a PFIC for the taxable year 2006 and/or later
      taxable years, as PFIC status is re-tested each year and depends on the facts
      in
      such year. For example, we would be a PFIC for the taxable year 2006 if the
      sum
      of our average market capitalization, which is our share price multiplied by
      the
      total amount of our outstanding shares, and our liabilities over that taxable
      year is not more than twice the value of our cash, cash equivalents, and other
      assets that are readily converted into cash. We could also be a PFIC for any
      taxable year if the gross income that we and our subsidiaries earn from
      investing cash exceeds the immediate capital needs of our active business is
      substantial in comparison with the gross income from our business operations.





While
      we
      will continue to examine our results under the PFIC tests, we cannot assure
      you
      that we will not be a PFIC for any future taxable year. For more information
      on
      the U.S. tax consequences to you that would result from our classification
      as a
      PFIC please see Item 10E, “Additional Information—Taxation — United
      States federal income taxation — U.S. Holders — Passive Foreign Investment
      Company.”




13





***Any
      diversion of management’s attention to matters related to acquisitions or any
      delays or difficulties encountered in connection with integrating acquired
      operations may have an adverse effect on our business, results of operations,
      and/or financial condition.***





We
      have
      recently completed several acquisitions involving seed companies. These
      transactions are designed to contribute to our long-term growth. We must fit
      such acquisitions into our growth strategies to generate sufficient value to
      justify their cost. Acquisitions also present other challenges, including
      geographical coordination, personnel integration and retention of key management
      personnel, systems integration and the reconciliation of corporate cultures.
      Those operations could divert management’s attention from our business or cause
      a temporary interruption of or loss of momentum in our business and the loss
      of
      key personnel from the acquired companies.




***Our
      business benefits from certain PRC government incentives. Expiration of, or
      changes to, these incentives could have a material adverse effect on our
      operating results.***





The
      PRC
      government has provided various incentives to high-technology companies in
      order
      to encourage development of the high-technology industry. Such incentives
      include reduced tax rates and other measures. For example, Henan Origin is
      currently entitled to a preferential tax rate of 15% as a high technology
      company. Origin Biotechnology is also entitled to a preferential tax rate of
      15%
      as a high technology company, and was exempted from income tax in 2005. As
      these
      tax benefits expire, the effective tax rate will increase, which could have
      a
      material adverse effect on our financial condition and results of operations.
      In
      addition, repeal of privileges granted by the Chinese government to the seed
      industry, such as subsidies, could adversely affect our earnings as
      well.




***Efforts
      to protect our intellectual property rights and to defend against claims against
      us can increase our costs and will not always succeed; any failures could
      adversely affect sales and profitability or restrict our ability to do business.***




Intellectual
      property rights are crucial to our business. We endeavor to obtain and protect
      our intellectual property rights where our products are produced. However,
      we
      may be unable to obtain protection for our intellectual property. Even if
      protection is obtained, competitors, growers, or others in the chain of commerce
      may raise legal challenges to our rights or illegally infringe on our rights,
      including through means that may be difficult to prevent or detect. In addition,
      because of the rapid pace of technological change, and the confidentiality
      of
      patent applications in some jurisdictions, competitors may be issued patents
      from applications that were unknown to us prior to issuance. These patents
      could
      reduce the value of our commercial or pipeline products or, to the extent they
      cover key technologies on which we have unknowingly relied, require that we
      seek
      to obtain licenses or cease using the technology, no matter how valuable to
      our
      business. We cannot assure you we would be able to obtain such a license on
      acceptable terms. The extent to which we succeed or fail in our efforts to
      protect our intellectual property will affect our costs, sales and other results
      of operations.




***Our
      ability to estimate growers’ future needs, and match our production and the
      level of product at our distributors to those needs, has a significant effect
      on
      our sales.***




Growers’
      decisions are affected by market, economic and weather conditions that are
      not
      known in advance. Failure to provide distributors with enough inventory of
      our
      products will reduce our current sales. However, high product inventory levels
      at our distributors may reduce sales in future periods, as those distributor
      inventories are worked down. In addition, inadequate distributor liquidity
      could
      affect distributors’ ability to pay for our products and, therefore, affect our
      sales or our ability to collect on our receivables.




***Deficient
      railway transportation capacity in the Northwestern China may result in the
      increase of our transportation related costs and thus adversely affect our
      business.***





Our
      major
      production base is located at Linze County, Gansu Province, China. Seeds
      produced there are transported throughout China each year by means of railway,
      which is currently the most cost efficient way. With economic development and
      frequent flow of material, the North-West railway is obviously deficient in
      term
      of its transportation capability. As our volume of freight increases year by
      year, the seeds may have to be transported by other vehicles if the railway
      cannot guarantee the increasingly larger volume of freight. The production
      costs
      thus will grow accordingly with the increase of transportation costs, which
      will
      adversely affect our business.




14





***There
      are difficulties in managing the storage system, which may result in damage
      of
      seeds in storage and operating losses.***





There
      is
      a high risk for seed storage, due to difficulty in management of moisture,
      temperature, humidity of storage condition, any failure of which may result
      in
      damage of seeds in store and operating losses.





***Seasonal
      Sales changes of our main products result in cyclical changes of cash flow
      and
      operating activities, which may cause difficulties in our capital chain and
      have
      a material and adverse effect on our business operations.***





The
      sales
      season of our main products lasts from September to June of the following year,
      and we essentially basically do not have any sales revenue from July to August,
      which results in cyclical changes of our cash flow and operating activities.
      From July to August in each year, our cash flow will be very limited, so that
      any failure in utilizing capital during this period may cause difficulties
      in
      our capital chain, and therefore may have a material and adverse effect on
      our
      business operations.





***If
      we fail to maintain an effective system of internal controls, we may be unable
      to accurately report our financial results or prevent fraud or restatement
      of
      previously reported financial results, and investor confidence and the market
      price of our shares may be adversely impacted.***





We
      will
      become subject to Section 404 of the Sarbanes-Oxley Act of 2002 in the fiscal
      year ending December 31, 2006, which requires us set out a management report
      containing an assessment on our internal controls over financial reporting
      in
      our annual report. It also requires an independent registered public accounting
      firm attest to and report on management's assessment of the effectiveness of
      our
      internal controls over financial reporting. If we cannot implement the
      requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner
      or with adequate compliance, our independent auditors may not be able to provide
      a written attestation as to the effectiveness of our internal controls over
      financial reporting and we may be subject to sanctions or investigation by
      regulatory authorities, such as the Securities and Exchange Commission. It
      could
      also result in the loss of investor confidence in us, in particular the
      reliability of financial statements, which in turn could harm the our business
      and negatively affect the market price of our shares. Furthermore, we may be
      required to incur significant costs for compliance with Section 404, and thereby
      increase our costs relative to our revenues and decreasing our operating
      margins.





***We
      have limited business insurance coverage in China.***




The
      insurance industry in China is still at an early stage of development. In
      particular, PRC insurance companies do not offer extensive business insurance
      products. As a result, we do not have any business liability or disruption
      insurance coverage for our operations in China. Any business disruption,
      litigation or natural disaster might result in our incurring substantial costs
      and the diversion of resources.





**Risks
      relating to organization of our business and our structure**





***Three
      of the PRC Operating Companies will be controlled subsidiaries through stock
      consignment agreements rather than by direct ownership of shares, the terms
      of
      which may have to be enforced, which would require us to incur extra costs,
      create uncertainty as to ownership of the operating businesses involved and
      the
      possible loss of rights.***





Under
      PRC
      law, foreign entities are not currently permitted to own more than 49% of a
      seed
      production company. In order to address those restrictions, We, a non-Chinese
      entity that cannot directly own the shares of three of the PRC Operating
      Companies, will instead hold the right to control such shares in all respects,
      including voting, dividends, nomination of directors, and corporate management,
      through stock consignment agreements executed by the owners of the stock of
      these companies. When the shares can be transferred, they will be transferred
      to
      us for no additional consideration.





There
      is
      the risk, however, that a consigning stockholder will not fulfill its
      obligations under the stock consignment agreement. In that event, we may need
      to
      resort to PRC courts to have our rights under the agreements enforced. Such
      enforcement will cause us to incur legal expenses. In addition, while a case
      is
      pending there will be uncertainty regarding our rights as to the PRC Operating
      Companies involved. In addition, a PRC court may decide not to enforce the
      agreements in part or at all. To the extent these agreements are neither
      observed nor enforced as intended, the PRC Operating Companies will not be
      controlled by us as intended, which will affect our value and restrict our
      ability to obtain the income and other rights of ownership associated with
      the
      consigned stock. It may also prevent the consolidation of our financial
      statements with the PRC Operating Companies, which would reduce the reported
      earnings of the consolidated companies. The uncertainty of ownership may also
      affect the market value of the company.




15




***Whether
      or not a consignment agreement is terminated depends on the consensus of our
      board and the consignees, the result of which termination would be a possible
      loss of some rights or assets held by us without receiving fair value in
      return.***





The
      consignment agreements relating to our control of the stock of three of our
      PRC
      Operating Companies (not including Origin Biotechnology) may be terminated
      after
      three years upon mutual agreement between us and the consignees. Three of the
      consignees, Messrs. Han, Yang and Yuan, also serve as our officers and/or
      directors. These three persons own, in the aggregate, 8,619,350 shares of our
      common stock, or about 37% of our issued and outstanding common stock. Holding
      such amount of stock will allow them to control or greatly influence the
      selection of directors and matters submitted to a vote of our stockholders.
      One
      of the things they could vote to do is terminate the consignment agreements.





There
      are
      corporate protections in place to protect our interests, such as an independent
      board of directors, an audit committee of independent directors that must
      approve insider transactions, a code of ethics requiring fair dealing with
      the
      Company, and the British Virgin Islands statutory provision that a disposition
      of more than 50% of the assets of a company must be approved by a majority
      of
      the stockholders. Moreover, if consigned stock is transferred to us as provided
      in the agreements when the restrictions under PRC law are lifted, that stock
      will thereafter not be subject to the consignment agreements, and the
      termination of the consignment agreements would then have no effect as to
      ownership of that stock. There are also legal protections for minority
      stockholders under PRC law. However, if the consignment agreements should be
      terminated, then we would lose our rights with respect to the consigned stock
      and profits of the issuing corporation. Such a loss would impair the value
      of
      the corporation and would reduce our ability to generate revenue.





***The
      technical services agreements between Beijing Origin State Harvest Biotechnology
      Limited and the other three Operating Companies may be subject to scrutiny
      by
      the PRC tax authorities for transfer pricing
      adjustments.***





We
      also
      could face material and adverse tax consequences if the PRC tax authorities
      determine that our technical service agreements between Beijing Origin State
      Harvest Biotechnology Limited, or Origin Biotechnology, and the other three
      Operating Companies were not entered into based on arm’s length negotiations. If
      the PRC tax authorities determine that these agreements were not entered into
      on
      an arm’s length basis, they may adjust our income and expenses for PRC tax
      purposes in the form of a transfer pricing adjustment. A transfer pricing
      adjustment could result in a reduction, for PRC tax purposes, or deductions
      recorded by the three PRC Operating Companies, which could adversely affect
      us
      by:





·
            increasing
                the three PRC Operating Companies’ tax liability without reducing Origin
                Biotechnology’s tax liability, which could further result in late payment
                fees and other penalties to our PRC operating companies for under-paid
                taxes; or





·
            limiting
                Origin Biotechnology’s ability to maintain preferential tax treatments and
                government financial incentives, which, if the transfer pricing adjustment
                is significant, could result in Origin Biotechnology failing to qualify
                for those preferential tax treatments and government financial
                incentives.





As
      a result, any transfer pricing adjustment could have a material and adverse
      impact upon our financial condition.





***There
      are government regulations that limit or prohibit foreign investment in the
      PRC,
      which may restrict our growth.***





Although
      there is a general restriction on foreign investment in the seed industry in
      the
      PRC, our corporate structure enables us to receive foreign investment, those
      restrictions notwithstanding. Our continued ability to receive foreign
      investment may be important to our ability to continue to expand our business
      rapidly and to manage that expansion effectively. There is no way to be certain
      that a change in the regulations allowing us to receive foreign investment
      will
      not occur, which could disrupt our plan to expand our business.




16





**Risks
      relating to the PRC**





***Adverse
      changes in political and economic policies of the PRC, including its policy
      of
      reforming its economic system, could have a material adverse effect on the
      growth of private businesses in the PRC such as ours.***





Since
      the
      late 1970’s, the PRC has been reforming its economic system and changing from a
      planned economy based on governmental dictates and priorities to one that uses
      market forces to influence deployment of economic resources, labor and capital
      and to determine business endeavors. It is impossible to predict whether or
      not
      the government will continue to encourage economic liberalization and further
      release its control over the economy and encourage private enterprise. We also
      cannot predict the timing or extent of future economic reforms that may be
      proposed. Any reimposition of planned economy regulation or similar kinds of
      restrictions could reduce the freedom of private businesses to operate in a
      profitable manner, restrict inflows of capital or stifle investor willingness
      to
      participate in the PRC economy. To the extent we need additional capital, any
      restrictions on foreign ownership, foreign investment and repatriation of
      profits will hamper our ability to find capital outside of the PRC.





***The
      economy of China has been experiencing unprecedented growth, leading to some
      inflation. If the government tries to control inflation by traditional means
      of
      monetary policy or returns to planned economic techniques, our business will
      suffer a reduction in sales growth and expansion
      opportunities.***





The
      rapid
      growth of the PRC economy has historically resulted in high levels of inflation.
      If the government tries to control inflation, it may have an adverse effect
      on
      the business climate and growth of private enterprise in the PRC. An economic
      slow down could have an adverse effect on our sales and may increase costs.
      If
      inflation is allowed to proceed unchecked, our costs would likely increase,
      and
      there can be no assurance that we would be able to increase our prices to an
      extent that would offset the increase in our expenses.





***A
      return to profit repatriation controls may limit our ability to pay dividends,
      expand business and reduce the attractiveness of investing in PRC business
      opportunities.***





PRC
      law
      allows enterprises owned by foreign investors to remit their profits, dividends
      and bonuses earned in the PRC to other countries, and the remittance does not
      require prior approval by the State Administration of Foreign Exchange, or
      SAFE.
      SAFE regulations require extensive documentation and reporting, some of which
      is
      burdensome and slows payments. If there is a return to payment restrictions
      and
      reporting, the ability of a PRC company to attract investors will be reduced.
      Also, current investors may not be able to obtain the benefits of the profits
      of
      the business generated in the PRC for other reasons. Relevant PRC laws and
      regulations permit payment of dividends only from retained earnings, if any,
      determined in accordance with PRC accounting standards and regulations. It
      is
      possible that the PRC tax authorities may require changes in determining income
      of the company that would limit its ability to pay dividends and make other
      distributions. PRC law requires companies to set aside a portion of net income
      to fund certain reserves, which amounts are not distributable as dividends.
      These rules and possible changes could restrict our PRC Operating Companies
      from
      repatriating funds to State Harvest and ultimately to us and our stockholders
      as
      dividends.


***Any
        fluctuations in exchange rates could result in foreign currency exchange
        losses.***
 
 Because
        our earnings and cash from operations are denominated in Renminbi, fluctuations
        in exchange rates between U.S. dollars and Renminbi will affect our balance
        sheet and earnings per share in U.S. dollars. In addition, appreciation or
        depreciation in the value of the Renminbi relative to the U.S. dollar would
        affect our financial results reported in U.S. dollar terms without giving
        effect
        to any underlying change in our business or results of operations. The People’s
        Bank of China sets and publishes daily a base exchange rate. Until July 21,
        2005, the People’s Bank of China set this rate with reference primarily to the
        supply and demand of Renminbi against the U.S. dollar in the market during
        the
        prior day; beginning on July 21, 2005, the People’s Bank of China has set this
        rate with reference primarily to the supply and demand of Renminbi against
        a
        basket of currencies in the market during the prior day, and the People’s Bank
        of China also takes into account other factors such as the general conditions
        existing in the international foreign exchange markets. The PRC government
        may
        further adjust the exchange rate between the Renminbi and the U.S. dollar
        and
        other foreign currencies, and may further amend its policy of using a fixed-rate
        regime to govern foreign currency transactions, although the PRC government
        has
        not committed itself to take any such action currently. Fluctuations in the
        exchange rate will also affect the relative value of any dividend we issue
        which
        will be exchanged into U.S. dollars, the value of any U.S. dollar denominated
        investments we make in the future and any earnings on such
        investments.


17




***Restrictions
      on currency exchange may limit our ability to receive and use our revenues
      effectively.***





Substantially
      all our revenues and expenses are denominated in Renminbi. We may need to
      convert a portion of our revenues into other currencies to meet our foreign
      currency obligations, including, among others, payment of dividends declared,
      if
      any, in respect of our ordinary shares. Under China’s existing foreign exchange
      regulations, our PRC subsidiary is able to pay dividends in foreign currencies,
      without prior approval from the State Administration of Foreign Exchange, or
      SAFE, by complying with certain procedural requirements. However, we cannot
      assure you that the PRC government will not take measures in the future to
      restrict access to foreign currencies for current account transactions.





Foreign
      exchange transactions under the capital account continue to be subject to
      significant foreign exchange controls and require the approval of PRC
      governmental authorities, including the SAFE. If our PRC Operating Companies
      borrow foreign currency loans from us or other foreign lenders, these loans
      must
      be registered with the SAFE, and if we finance our PRC subsidiary by means
      of
      additional capital contributions, these capital contributions must be approved
      by certain government authorities including the Ministry of Commerce or its
      local counterparts. These limitations could affect the ability of our PRC
      subsidiary to obtain foreign exchange through debt or equity financing.





***Recent
      PRC regulations relating to offshore investment activities by PRC residents
      may
      increase the administrative burden we face and create regulatory uncertainties
      that could restrict our overseas and cross border investment activity, and
      a
      failure by our shareholders who are PRC residents to make any required
      applications and filings pursuant to such regulations may prevent us from being
      able to distribute profits and could expose us and our PRC resident shareholders
      to liability under PRC law.***





SAFE
      recently promulgated regulations that require registration with local SAFE
      offices in connection with direct or indirect offshore investment by PRC
      residents, including PRC individual residents and PRC corporate entities. These
      regulations apply to our shareholders who are PRC residents and also apply
      to
      our prior and future offshore acquisitions. In particular, the SAFE regulations
      require PRC Residents to file with competent SAFE offices information about
      offshore companies in which they have directly or indirectly invested and to
      make follow-up filings in connection with certain material transactions
      involving such offshore companies, such as increases or decreases in investment
      amount, transfers or exchanges of shares, mergers or divisions, long-term equity
      or debt investments, or external guarantees, or other material events that
      do
      not involve return investment.





The
      SAFE
      regulations retroactively require registration by March 31, 2006 of direct
      or indirect investments previously made by PRC residents in offshore companies.
      If a PRC resident with a direct or indirect stake in an offshore parent company
      fails to make the required SAFE registration, the PRC subsidiaries of such
      offshore parent company may be prohibited from making distributions of profit
      to
      the offshore parent and from paying the offshore parent proceeds from any
      reduction in capital, share transfer or liquidation in respect of the PRC
      subsidiaries. Further, failure to comply with various SAFE registration
      requirements described above could result in liability under PRC law for foreign
      exchange evasion.





Our
      major
      shareholders who are PRC residents, or whose shares are beneficially owned
      by
      PRC residents, have completed foreign exchange registration with the local
      foreign exchange bureau according to these SAFE regulations. As a result of
      the
      newness of the regulations and uncertainty concerning the reconciliation of
      the
      new regulations with other approval requirements, it remains unclear how the
      regulations, and any future legislation concerning offshore or cross-border
      transactions, will be interpreted, amended and implemented by the relevant
      government authorities. We are committed to complying and to ensuring that
      our
      shareholders who are subject to the regulations comply with the relevant rules.
      However, we cannot assure you that all of our shareholders who are PRC residents
      will comply with our request to make or obtain any applicable registrations
      or
      approvals required by the regulations or other related legislation. The failure
      or inability of our PRC resident shareholders to receive any required approvals
      or make any required registrations may subject us to fines and legal sanctions,
      restrict our overseas or cross border investment activities, limit our PRC
      subsidiary to make distributions or pay dividends or affect our ownership
      structure, as a result of which our business operations and our ability to
      distribute dividend to you could be materially and adversely affected.




18




***If
      certain exemptions within the PRC regarding withholding taxes are removed,
      we
      may be required to deduct Chinese corporate withholding taxes from any dividends
      that are paid to us by the PRC Operating Companies which will reduce the return
      on investment.***





Under
      current PRC tax laws, regulations and rulings, companies are exempt from
      withholding taxes with respect to dividends paid to stockholders of PRC
      companies outside the PRC. If the foregoing exemption is eliminated, we may
      be
      required to withhold such taxes, which will reduce our revenues as a parent
      company and the amount of retained earnings that may be distributed to our
      stockholders.





***The
      PRC legal system has inherent uncertainties that could limit the legal
      protections available to you.***





Nearly
      all of our assets and all of our operations are in the PRC. The PRC legal system
      is based on written statutes. Prior court decisions may be cited for reference
      but are not binding on subsequent cases and have limited precedential value.
      Since 1979, the PRC legislative bodies have promulgated laws and regulations
      dealing with such economic matters as foreign investment, corporate organization
      and governance, commerce, taxation and trade. However, because these laws and
      regulations are relatively new, and because of the limited volume of published
      decisions and their non-binding nature, the interpretation and enforcement
      of
      these laws and regulations involve uncertainties. The laws in the PRC differ
      from the laws in the United States and may afford less protection to our
      stockholders.





***You
      may experience difficulties in effecting service of legal process, enforcing
      foreign judgments or bringing original actions in the PRC based on United States
      judgments against us, our subsidiaries, our officers and directors and experts
      named in the annual report.***





We
      are
      incorporated in the British Virgin Islands and our PRC Operating Companies
      are
      formed under PRC law. Substantially all of our assets are located in the PRC.
      In
      addition, most of our directors and executive officers reside within the PRC,
      and substantially all of the assets of these persons are located within the
      PRC.
      It may not be possible to effect service of process within the United States
      or
      elsewhere outside the PRC upon our directors, or executive officers and experts
      named in the annual report, including effecting service of process with respect
      to matters arising under United States federal securities laws or applicable
      state securities laws. The PRC does not have treaties providing for the
      reciprocal recognition and enforcement of judgments of courts with the United
      States and many other countries. As a result, recognition and enforcement in
      the
      PRC of judgments of a court in the United States and many other jurisdictions
      in
      relation to any matter, including securities laws, may be difficult or
      impossible. Furthermore, an original action may be brought in the PRC against
      our assets and our subsidiaries, our directors and executive officers and
      experts named in the annual report only if the actions are not required to
      be
      arbitrated by PRC law and only if the facts alleged in the complaint give rise
      to a cause of action under PRC law. In connection with any such original action,
      a PRC court may award civil liability, including monetary damages.





***The
      recurrence of SARS in China, the potential outbreak of avian flue in China,
      or
      similar adverse public health developments, and concerns over the spread of
      these diseases in China and elsewhere may materially and adversely affect our
      business and operating results.***





From
      December 2002 to June 2003, China and certain other countries experienced an
      outbreak of a new and highly contagious form of atypical pneumonia now known
      as
      severe acute respiratory syndrome, or SARS. On July 5, 2003, the World Health
      Organization declared that the SARS outbreak had been contained. Since September
      2003, however, a number of isolated new cases of SARS have been reported, most
      recently in central China in April 2004. During May and June of 2003, many
      businesses in China were closed by the PRC government to prevent transmission
      of
      SARS. Recently, concerns have been raised with respect to the spread of avian
      flu in various regions in China. Any recurrence of the SARS outbreak, outbreak
      of avian flu, or the development of a similar health hazard in China, may
      adversely affect our business and operating results. For instance, a recurrence
      of SARS, outbreak of avian flu or any other epidemic may lead to health or
      other
      government regulations requiring temporary closure of our business, or the
      businesses of our suppliers or customers, which will severely disrupt our
      business operations and have a material adverse effect on our financial
      condition and results of operations.


19





**Risks
      relating to our shares**





***There
      will be a substantial number of shares of common stock available for sale in
      the
      future which may increase volumes of common stock available and lead to a
      decline in the market price of the common stock.***





The
      initial purchase price for the acquisition of State Harvest and its subsidiaries
      included 10,000,000 shares of common stock. These shares were not registered,
      and a substantial portion of them are held by insiders; therefore they are
      restricted. Commencing on November 8, 2006, one year after the consummation
      of
      the acquisition, these shares will become eligible for resale in the public
      market under SEC Rule 144 with limitations, and after two years some of these
      shares may become eligible for resale in the public market under SEC Rule
      144(k). As a result, the number of shares available for sale will likely
      increase over time, which tends to reduce the market price of a stock.





***If
      certain financial or financing objectives are achieved, the former State Harvest
      stockholders will be entitled to receive additional shares of our stock as
      contingent consideration for the acquisition of their stock, which would result
      in dilution and might have an adverse effect on the market price of our common
      stock.***





Under
      the
      stock purchase agreement among Chardan, State Harvest and all the shareholders
      of the State Harvest, the former State Harvest stockholders are entitled to
      receive additional common stock if certain financial performance or financing
      targets are achieved. There is no obligation to register the stock after
      issuance. However, after being held for the appropriate periods, the common
      stock will be eligible for resale under Rule 144. If the additional stock is
      earned, it will significantly increase the number of shares of common stock
      outstanding. The issuance of this additional stock will have a dilutive effect
      on the stock already outstanding and may cause a reduction in the trading price
      of our common stock in the public market.





***Voting
      control by executive officers, directors and other of our affiliates may limit
      investors’ ability to influence the outcome of director elections and other
      matters requiring stockholder approval.***





Three
      of
      our executive officers and directors, Messrs. Han, Yang and Yuan own about
      37%
      of our issued and outstanding ordinary shares. These three major shareholders
      may maintain significant control over the outcome of some corporate transactions
      or other matters submitted to our shareholders for approval, including the
      election of directors and the approval of other business transactions. This
      concentration of ownership could have the effect of delaying or preventing
      a
      change in our control or discouraging a potential acquirer from attempting
      to
      obtain control of us, which in turn could have a material adverse effect on
      the
      market price of our common stock or prevent stockholders from realizing a
      premium over the market price for their shares of our common stock. In addition,
      if our major shareholders chose to dispose of a material portion of our ordinary
      shares they hold, the prevailing market price of our securities may
      decline.





***Certain
      provisions in our organizational documents may discourage our acquisition by
      a
      third party, which could limit your opportunity to sell your shares at a
      premium***





Our
      memorandum and articles of association include provisions that could limit
      the
      ability of others to acquire control of us. Under those provisions, the board
      of
      directors has the power to issue preferred shares with such rights attaching
      to
      them as they decide and that this power could be used in a manner that would
      delay, defer of prevent a change of control of the Company. These provisions
      could have the effect of depriving you of an opportunity to sell your shares
      at
      a premium over prevailing market prices by discouraging third parties from
      seeking to acquire control of us in a tender offer or similar
      transactions.





***As
      a result of the merger of Chardan with and into Origin, a British Virgin Islands
      company, and the issuance of shares in the acquisition of State Harvest, we
      qualify as a foreign private issuer and as a result are subject to reduced
      requirements with respect to the reporting of financial statements and other
      material events to our stockholders and the SEC.***





As
      a
      foreign private issuer, we are obligated to file an annual report with audited
      financial statements and 6-K reports at such times as we release information
      to
      the public either voluntarily or pursuant to the laws of the British Virgin
      Islands or the PRC. Therefore, the regularity of financial and other information
      will be less than would be applicable to a domestic United States registered
      company under the rules and regulations of the SEC. Investors may not receive
      information on a timely basis, therefore increasing their risk of
      investment.




20




**ITEM
      4. INFORMATION ON THE COMPANY**




**A.** **History
      and development of the company.**




Origin
      Agritech Limited, or Origin, was first incorporated as a company under the
      International Business Companies Act, 1984 (as amended) of the British Virgin
      Islands on February 10, 2005. In
      view
      of the passing into law of the BVI, Business Companies Act, 2004 (“BCA”), which
      will soon replace the International Business Companies Act, the
      Company  was
      re-registered on 10 July 2006 under the BCA.




Chardan
      China Acquisition Corp., or Chardan, the predecessor of Origin, was a blank
      check company organized as a corporation under the laws of the State of Delaware
      on December 5, 2003. Chardan was formed for the purpose of effecting a business
      combination with companies having operations based in China and significant
      growth potential. Initially, Chardan’s efforts were limited to organizational
      activities, completion of its initial public offering and the evaluation of
      possible business combinations opportunities. On March 22, 2004, Chardan
      successfully consummated an initial public offering of its equity securities
      from which it derived net proceeds of approximately $21,216,000. Chardan’s
      common stock, warrants to purchase common stock and units (each unit consisting
      of one share of common stock and two warrants to purchase common stock) were
      quoted on the Over-the-Counter Bulletin Board under the symbols CAQC for the
      common stock, CAQCW for the warrants and CAQCU for the units. Other than its
      initial public offering and the pursuit of business combination opportunities,
      Chardan was not engaged in any other business until December 2004.




On
      December 20, 2004, Chardan entered into a stock purchase agreement, or the
      Stock
      Purchase Agreement, with State Harvest Holdings Limited, or State Harvest,
      a
      company incorporated in the British Virgin Islands and all the stockholders
      of
      State Harvest. State Harvest was organized on October 6, 2004. On February
      10,
      2005, Chardan formed a wholly-owned subsidiary under the laws of the British
      Virgin Islands, under the name “Origin Agritech Limited” to effect a stock
      acquisition of State Harvest. Pursuant to the terms and conditions of the Stock
      Purchase Agreement, Chardan merged into Origin for the purpose of
      redomestication out of the United States, and immediately thereafter, Origin
      acquired all of the issued and outstanding stock of State Harvest, which
      acquisition included four controlled affiliated operating corporations, namely,
      Beijing Origin Seed Limited, or Beijing Origin, Changchun Origin Seed Technology
      Development Limited, or Changchun Origin, Henan Origin Cotton Technology
      Development Limited, or Henan Origin, and Beijing Origin State Harvest
      Biotechnology Limited, or Origin Biotechnology. All the four controlled
      operating corporations are organized under the laws of the PRC (these four
      companies are collectively referred to as the “PRC Operating Companies”).




On
      December 5, 2005, Origin sent out redemption notices to all of the holders
      of
      its issued and its outstanding callable common stock purchase warrants. The
      warrants were originally issued by Chardan in March 2004. As a result of the
      merger of Chardan into Origin, the warrants were exercisable into ordinary
      shares of Origin. The warrants were exercised for ordinary shares of Origin
      at
      $5.00 per warrant. Approximately 8,041,000 of the 8,050,000 warrants that were
      then issued and outstanding were exercised at a price of $5.00 per warrant
      through the redemption date of January 9, 2006. Holders of the few remaining
      warrants that were not exercised were paid $.01 per warrant and the warrants
      were extinguished. The gross proceeds received from this redemption were
      approximately $40 million, of which $15 million was used to satisfy the
      outstanding obligations of Origin to the shareholders of State Harvest under
      the
      Stock Purchase Agreement, and remainder is used as working capital and for
      other
      corporate purposes, including future acquisitions. After the redemption of
      the
      warrants, Origin has approximately 23,472,410 common shares issued and
      outstanding.





As
      part of our efforts to expand our operations, we have made the following
      acquisitions:




In
      September 2004, the Company purchased a 30% equity interest in Shijiazhuang
      Liyu
      Technology Development Co., Ltd. from Yang Yasheng, one of the major
      shareholders of the Company, for RMB30,000. Shijiazhuang Liyu Technology
      Development Co., Ltd. is mainly engaged in research and development of new
      varieties corn seeds.




On
      August
      4, 2005, Beijing Origin acquired a 7% interest in Biocentury Transgene
      (China) Co., Ltd., or Shenzhen Biocentury, a high-tech precursor in
      China's transgenic plant industry for $0.69 million. Together with the 8%
      interest Beijing Origin acquired in Shenzhen Biocentury in 2004, Beijing Origin
      holds 15% of Shenzhen Biocentury.




21




On
      December 6, 2005, Beijing Origin entered into a share transfer agreement with
      the Jilin Academy of Agricultural Sciences. Pursuant to the share transfer
      agreement, the Jilin Academy of Agricultural Sciences, or JAAS, will transfer
      23% of equity interest in Jilin Jinong Hi-tech Limited, or Jinong, to Beijing
      Origin for RMB 21,879,900. Jinong is presently the commercial subsidiary of
      JAAS
      and focuses on the production and marketing of corn, rice and soybean seeds,
      as
      well as fertilizers and pesticides. Jinong is known for its large portfolio
      of
      proprietary rice and corn hybrids, having submitted 69 accepted proprietary
      rights applications to the Chinese central government and having 48 already
      approved. In addition, Jinong has an estimated 30% of the corn seed market
      in
      Jilin Province. Currently, this share transfer transaction is proceeding
      pursuant to procedures for the transfer of State-owned assets at Changchun
      Equity Exchange. We cannot guarantee that this transaction will be consummated
      in our favor or at all.




On
      January 16, 2006, Beijing Origin entered into agreements with certain
      shareholders of Denong Zhengcheng Seed Company, or Denong, to acquire 52.21%
      of
      equity interest in Denong for approximately $5 million. Denong is a developer,
      producer and marketer of hybrid rice, cotton and rape seed, principally in
      the
      southwest region of China.




On
      January 24, 2006, Beijing Origin and Jilin Jinong Hi-tech Limited, or Jinong,
      jointly established Jilin Changrong High-tech Seed Limited, or Jilin Changrong,
      with Beijing Origin owning 33.5% of Jilin Changrong. Jilin Changrong engages
      in
      the research, development, production, sale and distribution of hybrid corm
      rice
      in the northeast region China.




Our
      principal executive offices are located at No. 21 Sheng Ming Yuan Road,
      Changping District, Beijing 102206, China, and our telephone number is (86-10)
      5890-7588.




Our
      principal capital expenditures for 2003, 2004 and 2005 consisted primarily
      of
      depreciation expenses of fixed assets, and costs and expenses relating to
      construction of manufacturing facilities that is currently in
      process ****** for
      a
      total of approximately $3.98 million, $3.29 million and $7.77 million,
      respectively.




We
      spent
      approximately $0.79 million, from January 1, 2006 to May 31, 2006,
      principally on constructing manufacturing facilities.




**B.** **Business
      overview.**




***Overview***




We
      are
      one of the leading seed companies in China, specializing in the research,
      development, production, sale and distribution of hybrid crop seeds in China,
      currently including corn seeds, cotton seeds, and rice seeds. We conduct our
      business operations mainly through our PRC Operating Companies. Beijing Origin
      was our first PRC Operating Company. It was formed in Beijing in 1997, and
      began
      operations in 1998. Beijing Origin’s initial operations consisted of licensing
      existing proprietary hybrid corn seeds for development and production and
      commercial distribution of its first hybrid corn seed, YuYu 22.




We
      began
      to develop our own proprietary hybrid seed varieties in 1998. To date, we have
      five internally developed seed products that have been approved by the Ministry
      of Agriculture and that are in commercial production and distribution. Today,
      we
      develop, produce and sell both internally developed and licensed crop seeds
      in
      China, but we also continue to rely on licensed seeds from others. The majority
      of our revenues are from licensed seeds.




Our
      sales
      are concentrated mostly in the central, northwest, northeast and northern
      regions of China. We sell seed products mostly between September and June of
      the
      following year because the months of June through September of each calendar
      year are growing seasons in China. Our initial focus was on hybrid corn seed
      production and sales. In 2001, we expanded our business activities to include
      the production and sale of hybrid cotton seeds. We further expanded into the
      production and sale of rice seeds in 2004. Over the past three years, the
      numbers of varieties of our corn, cotton and rice seed products we have sold,
      licensed and internally developed were as follows:




22




**Varieties
      of Seed Products:**




**Year**
            
            **Varieties
                of Seed Products**Corn
            
            Cotton
            
            Rice2003
            
            17
            
            3
            
            02004
            
            19
            
            4
            
            12005
            
            29
            
            8
            
            2




***Commercial
      Product Development*** **





We
      believes that we maintain a strict seed quality control system. We were the
      first Chinese seed company to gain ISO9001-2000 certification. This
      certification is important in China because it assures that a certain quality
      standard is present. Also, ISO certification means that a system for monitoring
      customer satisfaction is in place.





To
      maintain our position as a quality producer, we budgets approximately 5% our
      its
      gross revenues based on each prior year’s results on research and development.
      Because of the increase in our gross revenues, the actual amount spent in any
      year has generally been around 3% of gross revenues in that year. We spent
      RMB5,287,964 (US$638,913), RMB6,773,621 (US$818,416) and RMB6,977,000
      (US$865,000) in each of the years ended December 31, 2003, 2004, and 2005,
      respectively.





We
      have
      established our own stable of seed production bases in Gansu, Inner Mongolia,
      Yunnan and Beijing by providing seed-producing farmers with technical training
      and field quality control practices. We believe that we have significant
      processing capability and use advanced equipment for efficiency and maintaining
      a high quality of hybrid seeds. By employing these practices, we believe that
      we
      have achieved a product quality on par with that of our foreign counterparts
      that is consistently well received by our customers.





We
      have
      relationships with several academic research institutions in China, including
      the Chinese Academy of Science, China Agricultural Academy of Science, Beijing
      Agricultural Academy of Science, Henan Agricultural University, Liaoning
      Agricultural Academy, Yunnan Agricultural Academy, Guizhou Agricultural Academy
      of Science and Jilin Agricultural Academy of Science. We have cooperated with
      these institutions through contractual research, partnering relationships and
      by
      joint-licensing various varieties of their hybrid seeds. Beijing Origin is
      2.04%
      owned by Henan Agriculture University.





These
      relationships were important to us in our early stages to help us get started
      in
      the crop seed business, as they made available to us already developed and
      approved seeds that we could then put into production and distribution. As
      we
      have developed our internal capabilities to perform research and develop hybrid
      and genetically modified seeds, the importance of these relationships has
      diminished significantly, but they remain helpful to our continuing efforts
      to
      expand our product offerings and market share.





The
      development of the science of genetics has permitted the creation of new species
      of corn, rice and cotton, rather than just new varieties. Genetically modified,
      or GM, corn, soybean and cotton have been widely used in the United States
      and
      many other countries to guard against insect damage and to increase yields.
      The
      future potential for GM corn and rice in China exists. Since receiving Chinese
      government approval, genetically modified cotton to guard against borer damage
      is now widely planted. Because the Chinese market has widely accepted GM cotton
      and the Ministry of Agriculture is beginning to promote GM rice seed as well,
      we
      believe that GM products will eventually be fully promoted and accepted in
      the
      Chinese market. In response to these developments, we initiated our own biotech
      program in 2000 to ensure that our technology will be ready when the market
      is
      ready.





Once
      approval for distribution of a new seed is obtained, the producer must turn
      to
      commercial development of the seed variety. We do this by distributing the
      seed
      to our network of more than 10,000 farmers, each of whom plants the hybrid
      to
      produce seeds for commercial distribution the following season. This network
      of
      local farmers who produce our seeds is an important element of our strategy
      to
      produce an increasing number of products with consistent quality.


23





***National
      Marketing and Distribution*** **





We
      have
      our own sales organization consisting of 137 persons that oversee all aspects
      of
      the distribution and retail sale network and promote the company sales to the
      expanding distribution chain.





We
      have
      established a nationwide distribution network with over 2,400 first-level
      distributors and over 50,000 second-level distributors and some retailers.
      The
      distributors in turn sell to the retailers and retailers sell to the farmers.
      This distribution network covers almost all the provinces of the PRC, excluding
      only Qinghai and Tibet.





The
      terms
      of our distributor agreements provide for territorial exclusivity on a
      designated product, usually on a county-wide basis. To enforce exclusivity
      and
      monitor product locations, we assign a code to each distributor and mark all
      packaging sent to the distributor with this code. Vigilant monitoring of
      territory integrity and enforcement of contractual penalties, which may include
      termination of distribution rights, provides stability and profitability within
      the distribution network, ensuring quality services and product availability.
      We
      believe that we enjoy a very positive reputation for our implementation and
      enforcement of this exclusive distribution system. Distributors buy our seeds
      at
      a wholesale price established by us and are required to make full payment prior
      to delivery. Distributors that place orders and make deposits on an order in
      the
      period August - October for sales to be made the following year are generally
      offered a discount. At the end of the annual sales season, we set a final sales
      price that often is below the suggested retail price. Normally, we will defer
      recognition of revenue from deposits until products have been delivered; the
      price is fixed or determinable; and collectibility is reasonably assured and
      the
      right of return has expired. The specific term of a distributor agreement varies
      depending on negotiations and the nature of the distributor and its prospective
      territory. There usually is an initial payment for the distribution right which
      is applied in whole or in part to future orders, depending upon compliance
      with
      the terms of the agreement. The agreement also delineates pricing adherence
      requirements and permissible discounting sales, territory, ordering and supply
      obligations, returns, market support and other regular business terms and
      dispute resolution provisions. No one distributor accounts for more than 1%
      of
      our sales.





On
      an
      annual basis, our sales team assists distributors in writing monthly sales
      plans. These sales plans are then submitted to us via facsimile 30 days prior
      to
      the required seed delivery dates. Every year during the harvest season, we
      organize corn production demonstrations in cooperation with local villages
      and
      seed distributors, to which are invited farmers and others in the seed
      distribution chain. At these demonstrations, our teams show their hybrid corn,
      explain planting techniques, discuss industry best practices and disseminate
      promotional materials. These marketing and production demonstrations help create
      new demand, not only in each village where demonstrations are held, but also
      in
      nearby villages, for both the current season and for succeeding
      years.





Our
      technical service department has a 24-hour toll-free number available for
      farmers and distributors, through which they can obtain solutions to specific
      technical problems and issues of seed piracy. If on-site help is required,
      a
      technical assistant will arrive on location within 48 hours of a call. We also
      enlist the help of our distributors to provide help and advice to farmers.
      We
      believe that our focus on customer service and technical support have helped
      it
      to build brand identity and loyalty, contributing to our total sales growth
      over
      the last several years.





Using
      local TV and radio broadcasts, we promote our brand to over 70% of our
      geographic market, reaching over fourteen million individual farmer households.
      Additionally, we publish a seasonal newspaper, “Origin News,” with a
      distribution to about twenty million farmers in which it addresses technical
      issues, shares success stories and further promotes the Origin brand. Origin
      maintains a database of over 1,000,000 farmers to track buying habits and
      contact information.





Product
      and technical service brochures are provided throughout the distribution network
      and have proved to be a valuable tool in promoting the sale of the corn seed
      product and the recognition of the Origin brand. Our slogan, “When buying seed,
      quality is paramount -- trust Origin,” appears on all promotional material,
      helping to build the brand in all the local markets.




***Intellectual
      Property*** *:*





We
      currently have two patents and eleven trademarks, including two trademarks
      registered in 2005. The following table lists the two patents. The trademarks
      include names and artwork and are used in connection with our seed products
      and
      packaging. In addition, we have applied for one additional trademark, and the
      applications has been accepted and is now being reviewed by the Trademark Office
      of China’s State Administration for Industry and Commerce.


24




Table
      of
      Patents:




Patent
            
            Name
                of Patent
            
            Patent
                Number
            
            Proprietor
                of PatentDesign
              Patent
            
            Packing
              bag
            
            ZL
                993
              14865.4
            
            Beijing
              OriginInvention
              Patent
            
            A
                method of
              producing
              hybrid
              corn
                seed
            
            ZL
              021465
              10.X
            
            Beijing
              Origin
                *
              Henan
              Agriculture
              University*




*
            Henan
                Agriculture University and Beijing Origin share this patent relating
                to a
                proprietary method of producing hybrid corn seed. Both parties may
                use the
                method to produce seed and are not required to pay any sum to the
                other.
                Neither party has the right to allow a third party to use the patent.
                Those provisions are embodied in the patent and not in a separate
                agreement.





In
      2004,
      we delivered two new proprietary seed products, and in 2005 we delivered another
      three new proprietary seed products. With our research, breeding system and
      management, we expect to have approximately 49 new proprietary products in
      the
      government testing and approval cycle in 2006.





The
      following table lists our self-developed proprietary seed products which have
      been approved by the Ministry of Agriculture:





Name
                of Variety
            
            Name
                of Seed Product
            
            Name
                of Proprietor
            
            Date
                of ApprovalAoYu
                3202
            
            Corn
            
            Beijing
                Origin
            
            June,
                2005AoYu
                3007
            
            Corn
            
            Beijing
                Origin
            
            April,
                2005AoYu
                3111
            
            Corn
            
            Beijing
                Origin
            
            April,
                2005AoYu
                3102
            
            Corn
            
            Beijing
                Origin
            
            September,
                2004AoYu
                3101
            
            Corn
            
            Beijing
                Origin
            
            March,
                2004





In
      addition to the development of our own proprietary seeds, we have licenses
      to
      distribute seeds developed by independent research and development institutions
      which have no commercialization ability or distribution channels of their own.
      Currently, we have licenses to distribute twenty-three varieties of corn, three
      varieties of cotton seed and two variety of rice. Under a typical license
      agreement, one of the PRC Operating Companies will obtain the license in respect
      of a designated product for exclusive production and marketing within China.
      The
      license fees vary in their method of determination, but generally they are
      a
      percentage of revenues from the sale of the variety or a flat fee arrangement.
      No agreement either in the past or currently results in a payment in excess
      of
      1% of our revenues. Beijing Origin has these types of agreements with Hubei
      Province Shiyan Agricultural Sciences Institute, China Academy of Sciences
      Microbiology Institute, Shijiazhuang Liyu Technology Development CO., Ltd.
      in
      Hebei Province, Henan Puyang Agricultural Academy, Tieling Agricultural Academy,
      Lining Benxi Agricultural Academy, Sichuang Agricultural Academy, Corn Research
      Institution of Beijing Agricultural Forestry Academy, Huafeng Seed Limited,
      Liaocheng Huafeng Corn Breeding Research Institution, Food Corn Research
      Institution of Yunnan Agricultural Academy, and Henan Agriculture University.
      Except for the agreement with Hubei Province Shiyan Agricultural Sciences
      Institute, which has a term expiring on January 10, 2008, these agreements
      generally have no fixed term or termination date. The agreements may be
      terminated for breaches by either party. We may terminate the agreements at
      any
      time, in effect, by not producing seeds thereunder, without penalty.





We
      have
      joint development agreements with the Shijiazhuang
      Liyu Technology Development CO., Ltd. ,
      Hebei
      Province, or the Institute, under which we and the Institute are to develop
      several varieties of corn seed. Under these agreements, we have developed and
      produced six varieties of corn seed, which together have represented a
      substantial amount of sales in each of 2003, 2004 and 2005 as
      follows:


25




Varieties
                of Corn Seed
            
            Percentage
                of
              2003
                Sales
            
            Percentage
                of
              2004
                Sales
            
            Percentage
                of
              2005
                SalesLinAo1
            
            
            49.00
            %
            
            50.50
            %
            
            21
            %AoYu
                17
            
            
            1.14
            %
            
            7.44
            %
            
            2.95
            %Liyu
                16
            
            
            0.00
            %
            
            0.11
            %
            
            26.01
            %AoYu
                19
            
            
            0.09
            %
            
            0.57
            %
            
            0
            %Liyu
                26
            
            
            0.00
            %
            
            0.02
            %
            
            0
            %Liyu35
            
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %**Total**
            
            
            50.23
            %
            
            58.64
            %
            
            49.96
            %





We
      have
      exclusive rights to producing and marketing of the seeds developed under the
      agreements until the agreements are terminated, and the Institute has agreed
      that it will not develop any derivative hybrids from these seeds. Moreover,
      the
      Institute will pay the government fees to protect our exclusive rights. We
      must
      promote the seeds licensed under the agreements and are obligated to pay RMB0.4
      for each kilogram of seed we produce as a license fee, which has generally
      amounted to less than 4.01% of our cost of goods sold. The agreement has no
      termination date, hence it continues until the parties jointly agree to
      terminate or the breach of the agreement by one party or the other.





Only
      one
      corn seed product, YuYu 22, is licensed to us on a non-exclusive basis. The
      YuYu
      22 variety is licensed from Henan Agriculture University for an indefinite
      term.
      The university has granted Beijing Origin the right to produce, distribute
      and
      propagate the variety. The university also will provide technical materials
      and
      instructions, supervise seed quality and evaluate growing areas. It will also
      pursue the PRC New Plant Variety Notification for YuYu 22. Beijing Origin pays
      a
      technology license fee of RMB20 for each mu (unit of area equivalent to .164
      of
      an acre) of seed production area per year which has been less than 1% our cost
      of goods sold. Beijing Origin is responsible for all the propagation costs,
      maintaining quality standards, and safeguarding the variety reputation and
      rights of the university. The YuYu22 seed product represented approximately
      37%,
      13%, and 16.42% of our sales in each of the fiscal years 2003, 2004 and 2005,
      respectively. There is no fixed term or termination date for this agreement.





Except
      as
      discussed immediately above, no other seed products represented more than 10%
      of
      our sales in the past three years. In addition, except as disclosed above,
      no
      one entity is responsible for a seed product or group of seed products that
      represents more than 1% of our revenues.





As
      we
      develop and receive approval for our own seeds, the number of seeds with respect
      to which we obtain licenses from others will gradually decline. We do not
      believe that we are dependent on any single licensed seed product. The revenue
      related to licensed hybrid seeds for 2003, 2004 and 2005 was $23,155,319,
      $35,933,245, $24,314,206 respectively. Licensed hybrid seeds accounted for
      100%
      of the total seed revenue in 2003, 98.97% of the total seed revenue in 2004,
      and
      93.97% of the total seed revenue in 2005. There were no revenues related to
      proprietary hybrid seeds in 2002 and 2003. The amount of revenue related to
      proprietary hybrid seeds in 2004 was $375,929, which accounted for 1.03% of
      the
      total 2004 seed revenue, while the amount of revenue related to proprietary
      hybrid seeds in 2005 was $1,558,883, which accounted for 6.03% of the total
      2005
      seed revenue. We are currently dependent on licensed seeds for revenues, which
      presents the risk that if we should not have access to the license arrangements,
      our revenues would be decrease substantially, and we may incur
      losses.





***The
      Chinese Crop Seed Market***





The
      Chinese agricultural sector is primarily made up of small, family-oriented
      farms. Increasingly, corn is becoming an important crop in China because it
      has
      a number of uses, including as livestock feed and a source of fuel in the form
      of ethanol. In addition, rice is an important human food crop and cotton is
      an
      important industrial crop.





The
      Chinese agricultural seed industry is fragmented, with the corn seed market
      being served by approximately 5,000 small, local seed suppliers. Most of these
      seed companies were established in the 1960s and 1970s by local county
      governments to address Chinese central government agricultural initiatives.
      They
      were designed at the time to provide service and support to local farmers.
      These
      local seed providers usually sell varieties of agricultural seed that have
      been
      grown in their respective locales for years.


26





Improved
      seed products have been generally available in China through large multinational
      suppliers, the largest being Pioneer Hi-Bred International, Inc., or Pioneer,
      Monsanto Company, or Monsanto, and Sygenta AG, or Sygenta, each of which
      established operations in China more than a decade ago. These multinational
      companies, however, have not yet penetrated the Chinese market to any
      appreciable extent. For more discussions about competition, please see
“Competition” of this Item 4.B below.





Origin
      was founded with a business strategy that would meet what it believes to be
      the
      needs of the small Chinese farmers. That business strategy consisted of the
      following elements:





(i)
            Relying
                on proprietary seed products, initially licensed and increasingly
                internally developed, to deliver superior value to
                customers;





(ii)
            Devising
                a process for obtaining regulatory approvals for new crop seeds (a
                Chinese
                legal requirement) that has proven efficient and
                effective;





(iii)
            Establishing
                a broad network of farmers in several regions to participate in the
                seed
                development process and to produce crop seeds for commercial distribution
                once approval is received;





(iv)
            Creating
                an effective distribution system using a relatively small network
                of
                primary distributors, only one in each county with exclusive territories,
                with which it can deal directly and efficiently which, in turn, develop
                their own secondary distribution network to reach out directly to
                the
                family farmers. This distribution network is not only a means for
                securing
                and fulfilling orders, but it acts as a conduit for our marketing
                and
                technical support activities.





(v)
            Relying
                on a number of marketing activities to retain existing customers
                and
                attract new ones. These marketing activities
                include:





-
            a
                demonstration program that provides technical assistance to customers
                regarding the correct seed choice and proper cultivation
                methods;


-
            television
                advertising and a newsletter published three times per year that
                reaches
                nearly 2 million seed customers and provides them with information
                on the
                benefits of our products and the techniques for maximizing
                yields;


-
            a
                database of over 1 million customers that we use to keep repeat sales
                at a
                high level, an important component of revenue
                growth.





(vi)
            Delivering
                service and technical support to customers throughout the growing
                season
                for its products. Customers can contact us through a dedicated call
                center
                that handles up to1,000 calls per day. Field service representatives
                are
                dispatched within 48 hours of a customer’s request for
                help.





***Competition*** ******





We
      face
      competition at several different levels, ranging from several other private
      Chinese companies, local seed companies that are often extensions of the local
      government, and large multinational hybrid and genetically modified seed
      producers. We believe that we can compete effectively with each of these and
      believe that we can continue to do so into the future. Each of these groups
      of
      competitors is discussed in turn, below.





*Other
      Large Chinese Seed Companies.* We
      believe there are eight seed companies that control about 25% of the corn seed
      market of China. The majority of the largest crop seed companies have been
      in
      existence for considerably longer periods of time than we have. Many of them
      have greater financial resources than we do. Some of these larger entities
      are
      state owned enterprises. We compete within this group on the basis of our
      consistent product quality, brand identity, customer and technical support,
      enforcement of its intellectual property rights and a pipeline of proprietary
      products.





*Local
      Seed Companies.* The
      local
      seed companies in China are the legacy of the centrally planned agricultural
      economy that was predominant in China until recently. Most of these are, or
      were, affiliated with county governments, which played a role in determining
      what crops would be grown and by whom. As was often the case with planned
      economies, these extensions of the bureaucracy had no profit motive, and no
      incentive to improve efficiencies, increase sales or innovate with new products.
      Market expansion was limited by the tight geographic boundaries within which
      they were designed to operate.


27





The
      majority of these local companies lack the scale and the resources to compete
      with us in a number of ways. They lack access to the improved, proprietary
      hybrids that are the core of our business. For the most part they do not have
      effective marketing, advertising, technical support or customer service
      operations. The majority of our recent growth has come from acquiring customers
      from these operations. We believe that the existing trend will continue, and
      that eventually some of these smaller, local distributors can be integrated
      into
      our distribution network.





*Multinational
      Seed Companies.* At
      the
      opposite end of the competitive spectrum from the local seed companies are
      the
      large multinational companies, of which Pioneer , Monsanto
      and Sygenta are just three. These companies present a formidable competitive
      threat from the standpoint of their financial resources and the high quality
      of
      their seed products. However, the unique aspects of the Chinese crop seed
      market, which distinguish it from the market in western countries, have proven
      a
      significant barrier to entry for these very large companies, even though they
      have come to the market through joint ventures formed with existing Chinese
      seed
      companies.





The
      principal difference between the Chinese and Western markets is that in China
      a
      large number of low volume sales are made to local farmers, while in the West,
      relatively few sales of very large volumes make up the majority of product
      sales. As a result, success in China depends on marketing and distributing
      effectively to a very large number of small customers. Relatively few Chinese
      companies have achieved any degree of success in doing so, and the international
      competitors, despite several years of trying, have not succeeded to any
      meaningful degree.





Another
      important factor limiting the competitiveness of these multinationals within
      the
      PRC is their heavy reliance on genetically modified, or GM, seed products.
      Our
      market research indicates that most of the superior products that the
      multinationals have to offer are genetically modified. GM products have not
      yet
      achieved acceptance in China. To date, cotton seed is the only genetically
      modified seed product that has have received approval for sale in China.





We
      rely
      primarily on standard hybridizing techniques to produce our improved seed
      varieties for the Chinese marketplace. However, we recognize that genetically
      modified crop seeds will gain acceptance in China, and for that reason it has
      begun a biotech seed development program that relies on genetic modifications
      to
      improve the quality of seeds and their yields. As a result, we believe we are
      in
      a position to compete in the genetically modified portion of the seed market
      when it becomes meaningful to do so.





Should
      genetically modified seeds begin to gain broader acceptance in the market,
      as
      expected, the large biotech companies would become more serious competitors.
      However, they will also continue to face numerous obstacles in competing with
      us, including the significant lead time associated with obtaining approval
      of a
      new seed (usually at least six years) and the need to establish effective sales,
      marketing and distribution networks to manage the large volume of small
      purchases that is characteristic of the Chinese market.





***Government
      Regulation*** **





We
      operate our business mainly in China under a legal regime that consists of
      the
      State Council, which is the highest authority of the executive branch of the
      PRC
      central government, and several ministries and agencies under its leadership,
      including:




·
            
            the
                Ministry of Agriculture;·
            
            the
                Ministry of Commerce ;·
            
            the
                State Administration of Industry and Commerce;·
            
            the
                State Administration of Foreign Exchange; and·
            
            the
                State Administration of Taxation.




28




The
      following sets forth a summary of significant regulations or requirements that
      affect our business activities in China and our shareholders’ right to receive
      dividends and other distributions from us.




***Seed
      Law and Other Relevant Regulations***




Participation
      in the crop seed business is a highly regulated activity in the PRC. In July
      2000, China enacted its Seed Law, which became effective on December 1, 2000.
      The Seed Law was revised in August, 2004. The Seed Law sets forth provisions
      concerning the development, government approval, production, and distribution
      of
      crop seeds. Various provinces have enacted regulations to implement the Seed
      Law.





Under
      the
      Seed Law, for a company to enter the seed business, it must obtain two licenses.
      One is the production license, which is issued at the provincial level,
      entitling the holder to engage in seed production in that province. The
      production license specifies the types of seeds that may be produced, the
      location of the production of the seeds, and the term of the production license.
      The second is a license to distribute seeds. Generally, a distribution license
      is issued by the government at the county level or above. A seed company must
      obtain a provincial-level license to distribute major crop seeds in that
      province. A national level license is necessary for a seed company to distribute
      seeds nation wide. As described below, among others, the amount of the
      licensee’s registered capital determines if the distribution license is issued
      at the national or local level:




·
            to
                obtain a national distribution license, the licensee must have registered
                capital of at least RMB30 million (approximately
                $3,717,380);




·
            to
                obtain a provincial license to distribute hybrid seeds, the licensee
                must
                have registered capital of not less than RMB5 million (approximately
                $619,563); and




·
            to
                obtain a provincial license to distribute non-hybrid seed varieties,
                the
                licensee must have registered capital of not less than RMB1 million
                (approximately $123,913).




A
      separate license is required to import and export seeds. To obtain this license,
      the applicant must have minimum registered capital of RMB10 million
      (approximately $1,239,127).





We
      have a
      national distribution license, which entitles us to sell approved seeds in
      any
      province in the PRC.





In
      addition to the license(s) needed to engage in the seed production and
      distribution business, each seed must undergo a stringent regulatory review
      before it may be sold in China. A seed production company cannot receive a
      license to engage in seed production, regardless of the level of its registered
      capital, until it has secured rights to an approved seed product.





The
      testing of seeds for approval can be conducted at the provincial level or the
      national level. However, seeds that have been approved at the provincial level
      can only be distributed in the province in which the approval was issued. An
      approval at the national level means the approved seed can be distributed
      nationwide.





The
      procedure for provincial examination and approval requires the applicant to:




·
            Submit
                the application to provincial
                government;




·
            Go
                through two cycles of monitored growth in at least five different
                locations in the province. Seeds submitted for testing are planted
                together with control seeds, which is typically the most popular
                seed with
                farmers in the testing locations. Only seeds that have and increased
                yield
                of 8% or higher versus the control seeds and that rank in the top
                six
                among all seeds then being tested are cleared to proceed to the second
                year of testing, during which the results of the initial test season
                must
                be confirmed;




·
            Go
                through one successful cycle of trial production, also in at least
                five
                different locations. If successful, a provincial examination certificate
                is granted and a public announcement is made.




The
      procedure for national examination and approval requires the applicant
      to:


29




·
            Submit
                the application to the Ministry of
                Agriculture;




·
            Go
                through two cycles of monitored production in at least five different
                locations. Only seeds that have 8% or higher yield compared to control
                seeds and that also rank in the top six among all seeds being tested
                in
                that cycle can proceed to the second year of testing;
                and




·
            Go
                through one successful cycle of trial production in at least five
                different locations.




Seeds
      developed outside of China must also follow the above procedures before they
      can
      be distributed in China.





The
      ability to process an application for approval is an important element of
      success, especially in view of the long timeframe associated with obtaining
      approval after the seed has been developed. Failures and delays in getting
      the
      approvals on a timely basis can seriously disrupt the planning that is critical
      to begin commercial production. A minimum of six years - three to obtain
      approval and three to develop the first crop of seed for commercial distribution
      - is required to bring a seed to market after it has been developed. Because
      of
      its extensive network of seed-producing farmers, we have been able to bring
      a
      new product to market consistently in the minimum time. Other seed companies
      often take an additional season or more to bring an approved product to market.
      This loss of an entire growing season can be a significant
      disadvantage.





***Foreign
      Ownership Restrictions*** ****





Currently,
      China restricts foreign ownership of businesses in the seed industry. Foreign
      ownership of businesses engaged in the development, production, marketing,
      distribution and sale of food crop hybrid seeds is limited to 49% pursuant
      to
      the “Regulation on the Approval and Registration of Foreign Investment
      Enterprises in Agricultural Seed Industry” and “The Foreign Investment
      Industrial Guidance Catalogue” (effective as of January 1, 2005).





***Tax***





PRC
      enterprise income tax is calculated based on taxable income determined under
      PRC
      accounting principles. In accordance with “Income Tax of China for Enterprises
      with Foreign Investment and Foreign Enterprises,” or the Income Tax Law, and the
      related implementing rules, foreign invested enterprises incorporated in the
      PRC
      are generally subject to an enterprise income tax rate of 33.0% (30.0% of state
      income tax plus 3.0% local income tax). PRC domestic companies are governed
      by
      the Enterprise Income Tax Laws of the PRC and are generally subject to an
      enterprise income tax rate of 33.0%.





State
      Harvest is a tax-exempted company incorporated in the British Virgin Islands.
      Our PRC Operating Companies Subsidiaries are incorporated in the PRC and
      governed by the PRC laws.




The
      applicable tax rate of the PRC enterprise income tax to Beijing Origin is 33%
      (30% of state income tax plus 3% local income tax). However, our PRC Operating
      Companies are entitled to a preferential tax rate of 15%.





Pursuant
      to the Provisional Regulation of China on Value Added Tax (“VAT”) and their
      implementing rules, all entities and individuals that are engaged in the sale
      of
      goods, the provision of repairs and replacement services and the importation
      of
      goods in China are generally required to pay VAT at a rate of 17.0% of the
      gross
      sales proceeds received, less any deductible VAT already paid or borne by the
      taxpayer. Pursuant to the Notice of the Ministry of Finance and the State
      Taxation Administration on Exempting the Value Added Tax for Agricultural
      Material, self-produced agricultural products sold by agricultural producers
      shall be exempt from VAT. Pursuant to an approval document received from Beijing
      Haidian District State Tax Bureau, Beijing Origin has been entitled to exemption
      from VAT since August 1, 2001.





***Dividend
      Distribution***





Under
      PRC
      law, foreign-invested enterprises in China may pay dividends only out of their
      accumulated profits, if any, determined in accordance with PRC accounting
      principles. In addition, a foreign-invested enterprise in China are required
      to
      set aside at least 10% of their after-tax profit based on PRC accounting
      standards each year to its general reserves until the accumulative amount of
      such reserves reach 50% of its registered capital. These reserves are not
      distributable as cash dividends. The board of directors of a foreign-invested
      enterprise has the discretion to allocate a portion of its after-tax profits
      to
      staff welfare and bonus funds, and
      expansion (development) fund which
      may not be distributed to equity owners except in the event of
      liquidation.





30




We
      believe that we are currently in compliance with all applicable PRC laws and
      regulations relating to our business.


31




**C.** **Organizational
        structure.**
  Origin
        is
        a holding company with no operations of its own. We conduct our operations
        in
        China primarily through our PRC Operating Companies. The following diagram
        illustrates our organizational structure as of June 30, 2006:
  
  (1)
        We do
        not have any ownership interest in Beijing Origin, Henan Origin or Changchun
        Origin. Through State Harvest, we have entered into a series of stock
        consignment agreements with their respective shareholders. Han Gengchen (our
        CEO
        and Chairman), Yang Yasheng (our director and chief operating officer) and
        Yuan
        Liang (our Vice Chairman) currently own 34.4%, 28.675%, and 25.8% of Beijing
        Origin, respectively.
  ***Stock
        Consignment Agreements*** ****
 
 Under
        Chinese law, foreign ownership of businesses engaged in the development,
        production, marketing, distribution and sale of hybrid food crop seeds is
        limited to 49% pursuant to the “Regulation on the Approval and Registration of
        Foreign Investment Enterprises in Agricultural Seed Industry” and “The Foreign
        Investment Industrial Guidance Catalogue.” State Harvest, as a non-Chinese
        corporation, may not directly own more than 49% of any of the PRC Operating
        Companies. However, Chinese law does not forbid the owner of stock to consign
        rights associated with the stock, as long as the owner does not transfer
        title
        to the stock.
  32
 
 To
        gain
        control over the PRC Operating Companies (other than Origin Biotechnology,
        which
        State Harvest already directly owns entirely), State Harvest entered into
        a
        series of stock consignment agreements with shareholders of those companies.
        These agreements consign to State Harvest all of the rights of ownership
        of the
        shares involved other than legal title, effectively transferring the control
        of
        the shares subject to the agreements to State Harvest. Those rights include
        the
        right to manage in all respects the shares held in title by the stockholders
        that are parties to them, including all stockholder rights to call meetings
        of
        stockholders, to submit stockholder proposals, to elect directors, to vote
        the
        shares on all matters and to exercise all other rights of a stockholder in
        respect of the shares consigned. More specifically, the consignment agreements
        include giving the right to select, replace and increase the number of the
        directors, supervisors and recommend new directors and supervisory personnel
        and
        to exercise management rights, controlling rights and decision-making power
        over
        the shares or the subject company.
 
 Each
        title holder of these shares has agreed not to interfere with State Harvest’s
        exercise of its rights and to cooperate fully and promptly to permit State
        Harvest to exercise its authority over the consigned shares. This includes
        all
        limitations on the ability of the consignee to transfer or dispose of the
        shares
        to someone other than State Harvest, give guarantees using the shares, consign
        the shares to another, alter the ownership proportion in any way, dispose
        of any
        rights in the ownership of the shares, and agree to any debt or restructuring
        of
        the shares. State Harvest has the right to take all action in respect of
        the
        consigned shares to avoid any damage or infringement of its rights, including
        in
        the event of the consigning stockholder’s bankruptcy. State Harvest, under the
        agreements, has virtually all property rights in the consigned shares, including
        the profits, interests, dividends, bonuses and residue assets, except for
        legal
        title. If in the future any stock subject to the consignment agreements can
        be
        legally transferred to State Harvest then, without further action by State
        Harvest, it shall be transferred to State Harvest in whole or in part for
        no
        additional consideration to the consigning stockholder.
  As
        a
        result, if and when the restriction on foreign ownership of food production
        companies to 49% is removed or the percentage is increased, the consigned
        shares
        will then be transferred to State Harvest. If not, the consignment agreements
        continue in full force and govern State Harvest’s rights over the
        shares.
 
 The
        agreements are subject to force majeure limitations. The term of the agreements
        is initially three years, but they are automatically renewed indefinitely
        until
        both State Harvest and the consignor agree to terminate. There is no unilateral
        right of termination except in the event of a breach, in which event the
        non-breaching party may cancel the consignment agreement after notice and
        a
        reasonable cure period has passed and the breach continues. The consigning
        stockholders have warranted their authority to enter into the agreements
        and
        that State Harvest has the exclusive rights to control the shares that are
        subject to the consignment agreements. The agreements are binding on the
        heirs
        of the respective consigning stockholders.
 
 The
        importance of the stock consignment agreements is that State Harvest may
        consolidate the financial reporting of the PRC Operating Companies whose
        shares
        are subject to stock consignment agreements in the manner of wholly and majority
        owned subsidiaries and enjoy the economic benefits of such subsidiaries.
        Each
        stock consignment agreement is subject to enforceability and limitations
        of the
        laws and rules of PRC. State Harvest may not transfer the consignment agreement,
        except as permitted by PRC law, such that the consignee cannot do indirectly
        what the title owner cannot do directly. However, we may transfer our interest
        in State Harvest without limitation. If there is non-performance by the
        stockholder or some or all of an agreement is unenforceable, we and State
        Harvest may lose the benefits of the agreements and suffer severe economic
        loss
        as a result. No assurance can be given that State Harvest will be able to
        enforce its rights vis-à-vis the consigning stockholders in the courts of the
        PRC, and we are not aware of any cases where these types of stock consignment
        agreements have been interpreted by PRC courts.
 
 Notwithstanding
        the foregoing, these agreements are enforceable under current PRC law. However,
        none of these kinds of agreements have yet been subject to judicial review
        or
        interpretation. The consignment agreements provide that if there is any
        interpretation of the terms by a PRC court, the agreements should be construed
        in such a way as to give State Harvest as much of the full and actual ownership
        and full beneficial rights and benefits of the consigned stock as is possible,
        so as to approximate full ownership under all applicable law.
  33
 
 In
        the
        event that the consignment agreement is not enforced or is terminated because
        of
        a breach by State Harvest that is not cured, the right to the stock would
        be
        lost and the economic rights would be terminated. However, such a termination
        would not terminate the agreement to transfer technology to Origin
        Biotechnology, so notwithstanding the termination of a consignment agreement,
        State Harvest would continue to own the technology and intellectual property
        through Origin Biotechnology, its wholly owned subsidiary. Also, the termination
        of one stockholder’s consignment agreement does not cause the termination of any
        of the other consignment agreements, so it would only result in a reduction
        in
        consigned shares under State Harvest’s control.
 
 The
        following is a table of the parties to the consignment agreements:
 
 PRC
                  Operating Company
              
              Consigning
                  Owner
              
              %
                  of SharesConsignedBeijing
                  Origin
              
              
              Han
                  Gengchen
              
              
              34.4
              %Yang
                  Yasheng
              
              
              28.675
              %Yuan
                  Liang
              
              
              25.8
              %Zhao
                  Yuping
              
              
              3.995
              %Zhang
                  Weidong
              
              
              3.13
              %Chen
                  Weicheng
              
              
              1.96
              %97.96
              %Changchun
                  Origin
              
              
              Beijing
                  Origin
              
              
              99.0
              %Han
                  Gengchen
              
              
              1.0
              %100.0
              %Henan
                  Origin
              
              
              Beijing
                  Origin
              
              
              90.0
              %Zhang
                  Yingli
              
              
              4.08
              %Yang
                  Yasheng
              
              
              3.88
              %97.96
              %
 
 ***Technical
        Service Agreements***
  All
        of
        the intellectual property rights of Beijing Origin, Changchun Origin and
        Henan
        Origin have been transferred to Origin Biotechnology pursuant to technical
        service agreements dated December 25, 2004. The purpose of this was to permit
        the better management and licensing of the intellectual property that the
        three
        assignors have developed. Under the technical agreements, Origin Biotechnology
        will provide technical research and production and distribution services
        for the
        seeds produced by the group. These services include support in the research
        and
        development of agricultural seeds, analysis of breeding technologies,
        environment and feasibility suggestions, technical tutorials and breeding
        field
        supervision, market analysis and seed promotion, insect prevention and technical
        education to distributors and farmers. The initial term is for three years,
        but
        the agreements are automatically renewed unless both parties agree to a
        termination. The fees payable under the agreements are variable, depending
        on
        differing formulae for different categories of seeds. Generally, the fees
        will
        be as follows: RMB1.20 per kilogram of corn sold by the party receiving the
        technical services; RMB6 per kilogram of rice sold by the party receiving
        the
        technical service and RMB12 per kilogram of cotton sold by the party receiving
        the technical services. The fees are to be confirmed and paid at the end
        of each
        growing season.
  **D.** **Property,
        plant and equipment.**
  Our
        principal executive offices are located in the Changping District in Beijing
        where we own approximately 10,320 square meters of office, and the right
        to use
        approximately 19,250 square meters of land. The land use right currently
        secures
        an
        extendadableloan
        of
        RMB17 million from the China Construction Bank Beijing Shangdi Branch to
        Beijing
        Origin. We also own or lease manufacturing facilities, laboratories, seed
        production and other agricultural facilities, office space, warehouses, research
        stations and breeding centers in Gansu, Henan, Liaoning, Jilin, Hebei, Yunnan,
        Jiangsu, Shan’xi and Sichuan provinces, and in Daxing of Beijing. These
        facilities include approximately 220,000 square meters of land and approximately
        30,000 square meters of office. The leased facilities are rented at regular
        commercial rates, and management believes other facilities are available
        at
        competitive rates should it be required to change locations or add facilities.
  34
  We
        are in
        the process of constructing additional new facilities in Shenyang, Liaoning
        Province, including approximately 7,700 square meters of new office and
        approximately 19,999.98 square meters of seed processing plant. These facilities
        are scheduled to be completed by October 2006.
 
 We
        believe that our existing facilities, together with our facilities under
        construction, are adequate to conduct our current and foreseeable future
        business operations.
  **ITEM
        5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS**
  *The
        following discussion of our financial condition and results of operations
        is
        based upon and should be read in conjunction with our consolidated financial
        statements and their related notes included in this annual report on Form
        20-F.
        This report contains forward-looking statements within the meaning of
        Section 27A of the Securities Act of 1933 and Section 21E of the
        Securities Exchange Act of 1934, including, without limitation, statements
        regarding our expectations, beliefs, intentions or future strategies that
        are
        signified by the words “expect”, “anticipate”, “intend”, “believe”, or similar
        language. All forward-looking statements included in this annual report are
        based on information available to us on the date hereof, and we assume no
        obligation to update any such forward — looking statements. Actual results could
        differ materially from those projected in the forward — looking statements. In
        evaluating our business, you should carefully consider the information provided
        under the caption “Risk Factors” in this annual report on Form 20-F. We caution
        you that our businesses and financial performance are subject to substantial
        risks and uncertainties.*
  **A.** **Operating
        Results**
  **Overview**
  We
        specialize in the research, development, production, sale and distribution
        of
        hybrid crop seeds, currently including corn seeds, cotton seeds, and rice
        seeds.
        We conduct our business operations mainly through our PRC Operating Companies
        in
        China. We develop, produce and supply both internally developed and licensed
        crop seeds to the Chinese agricultural market. Our initial focus was on hybrid
        corn seed production and sales. In 2001, we expanded our business activities
        to
        include the production and sale of hybrid cotton seeds. We further expanded
        into
        rice seeds in 2004. We have established our own stable of seed production
        bases
        in China. We provide seed producing farmers technical training and teach
        them
        field quality control practices. In addition to distributing and supplying
        seeds
        that are licensed from other parties, we also develop and supply internally
        developed seed products. We believe that genetically modified products will
        eventually be promoted and accepted in the Chinese market. In 2000, we initiated
        our own biotechnology research program that applies genetic modifications
        to
        improve the quality of seeds and their yields. We have a sales and marketing
        team of 137 employees. Our nationwide distribution network covers most parts
        of
        China, and consists of over 2,400 first-level distributors and over 50,000
        second-level distributors and retailers. Our distributors sell our products
        to
        retailers who in turn sell to farmers, who are end-users of our products.
  We
        recognize revenue after our products have been delivered to our distributors,
        when there is no right of return of our delivered products for refund or
        credit,
        and the sales price is determined and fixed. We deliver our products and
        receive
        payments on a relatively predictable schedule. First, we request and generally
        receive a cash deposit for our products, followed by a full pre-payment of
        the
        expected sales price. Then, we deliver products to our customers and receive
        confirmation of delivery. Finally, we set the final sales price of our delivered
        products to a customer based on the total volume of sales to that customer.
        This
        final price includes any end of the season discount we offer to our customers.
        As a result of our discount policy, we cannot set the final sales price of
        our
        products to a customer until the entire selling season has ended for that
        customer. Selling seasons vary among customers from region to region and
        from
        year to year, and generally start in September and end in June of the following
        year.
  Due
        to
        the revenue recognition policies required by accounting rules, we do not
        count
        our cash receipts from a customer as revenue until the discount for such
        customer is fixed and determinable, even though we have received full
        pre-payment of the expected sales price from each customer and in most cases
        are
        entitled to retain a substantial portion of that payment. Instead, before
        delivery of our products we book our cash receipts as advances from customers.
        After delivery, we take into account the maximum amount of discount that
        a
        customer will receive, and estimate the minimum amount of our cash receipts
        that
        will be counted as revenue once the final sales price is fixed and determined
        and book that amount as deferred revenues. The recognition of deferred revenue
        as revenue takes place at the end of the selling reasons for our customers,
        when
        there is no right of return of our delivered products for refund or credit
        and
        the sales price of our products is fixed and determined. If final discounts
        offered to our customers are less than expected, then the amount added to
        revenue will actually be higher than the amount of our deferred revenue.
  35
  Our
        fiscal year before July 2006 ended on December 31, and our selling seasons
        typically begin in September and end in June of the following year. Due to
        the
        way we recognize revenue, our reported revenues for any given fiscal year
        typically reflect sales generated from January to June of that fiscal year
        and
        sales generated from September to December of the prior year. Our deferred
        revenues for any given fiscal year typically reflect products delivered between
        September and December of that year.
  In
        2004,
        we confirmed final sales prices for a portion of our product deliveries between
        September and December of that year to customers principally located in the
        southwestern region of China, and realized that portion of the sales as revenue
        in 2004. As a result, our revenues for 2005 decreased approximately 31.25%
        to
        RMB207.29 million ($25.69 million) from RMB301.52 million ($36.43 million)
        in
        2004, and our net income for 2005 decreased approximately 74.93% to RMB16.41
        million ($2.03 million) from RMB65.46 million ($7.91 million) in 2004. At
        the
        same time, our deferred revenues for 2005 increased 378.85% to RMB181.58
        million
        ($22.50 million) from RMB37.92 million ($4.58 million) in 2004.
  The
        volume of our crop seeds delivered between July and December increased to
        20.24
        million kilograms in 2005 from 14.14 million kilograms for the same period
        in
        2004, representing an increase of 43.14%. Our significant growth in product
        delivery during the second half of 2005 was attributable to a number of factors,
        including our substantial expansion in operations in the cities of Kunming,
        Xi’an and Xuzhou, as well as the introduction of our new hybrid corn seed
        product, Li Yu 16, in 2005.
  On
        June
        30, 2006, we changed our fiscal year-end from December 31 to June 30 starting
        from the fiscal year for 2006.
  **Key
        factors affecting our growth, operating results and financial
        condition**
  We
        expect
        our future growth, operating results and financial condition to be driven
        and
        affected by a number of factors and trends including:
  ·
            Our
                ability to manage the growth and expansion of the company, including
                our
                ability to attract and retain high quality professionals to help
                manage
                our growth. If we do not manage our growth effectively, our growth
                may
                slow and we may not be able to maintain
                profitability;  ·
            Potential
                fluctuation in the demand for and supply of crop seeds in China;  ·
            Our
                ability to continue to license or acquire crop seeds from third party
                developers and our ability to develop proprietary crop seeds;  ·
            Future
                consolidations in the crop seed industry in China may give rise to
                new or
                strengthened competitors;  ·
            The
                possibility that the crop seed industry in China may favor genetically
                modified seeds over hybrid seeds;  ·
            The
                possibility of major natural disasters in China, which may have materially
                adverse impact on our business and results of operation, as there
                is
                currently no agriculture insurance available in China against natural
                disasters;  ·
            Chinese
                government’s continuing support for the growth and development of the
                agriculture sector;  ·
            Our
                benefits from certain government incentives including tax incentive
                and
                expiration of, or changes to, these incentives could have a material
                adverse effect on our operating results; and  36
  ·
            Our
                ability to correctly estimate growers’ future needs, and match our product
                varieties and production levels to meet those needs.  **Revenues**
  We
        derive
        revenues primarily from the sale of various crop seeds, including corn seeds,
        cotton seeds and rice seeds in China. The sale of corn seeds accounted for
        approximately 97.90% and 94.61% of our revenues in 2004 and 2005, respectively;
        the sale of cotton seeds accounted for 1.61% and 4.06% of our revenues in
        2004
        and 2005, respectively; and the sale of rice seeds accounted for 0.48% and
        1.33%
        of our revenues in 2004 and 2005, respectively. The most significant factor
        that
        affects our sale of crop seeds in China is the demand for and supply of crop
        seeds in China’s agriculture market. As a result, the price we are able to
        demand for our seeds is mainly dependent on the aggregate supply of crop
        seeds
        in relation with crop seed demand in any growing season. Any potential
        fluctuation in the demand and supply of seeds in China may cause significant
        volatility in the pricing of crop seeds in China and, in consequence, in
        our
        operating results and financial condition. In addition, because decisions
        relating to our production volume are made before we know the volume of seed
        orders and the market price for such orders, we face the risk of either
        over-supplying the market or under-supplying the market, which could materially
        and adversely affect our revenues, profitability and operating results.
  **Deferred
        revenue**
  Because
        of the discount policy we offer to our customers, we sometimes carry a sizeable
        deferred revenue on our balance sheet. This deferred revenue r eflects
        the value of our crop seeds delivered after evidence of a sales arrangement
        is
        confirmed, delivery to the customer is made and full pre-payment from the
        customer is received, but before the final sales price is fixed and determined. This
        aspect of our revenue recognition policy does not have a significant effect
        when
        deferred revenues in the periods being compared remain roughly the same
        proportion to overall sales. However, when the proportion of our sales
        classified as deferred revenue varies significantly from year to year, as
        sometimes occurs, our revenues and earnings as reported in our financial
        statements may give an inaccurate indication of our financial performance,
        tending to understate revenues in years where the deferred revenue component
        is
        high and overstating revenues in the subsequent year. This potential for
        distortion in results from calendar year to calendar year is one of the
        principal reasons that we have chosen to change to a June 30 fiscal year.
        We
        believe this change will alleviate the potential for distortion on a fiscal
        year
        basis. However, the results being reported in this Form 20-F are calendar
        year
        results, and a large increase in deferred revenue for the year 2005 as compared
        to 2004 coincided with a decrease in revenues in 2005 when compared with
        2004,
        even though our business expanded in 2005 in terms of volume of products
        delivered. Since a substantial portion of our deferred revenue will typically
        be
        recorded as revenue in the subsequent period, we believe deferred revenue
        is an
        important measure of our sales generated in the current reporting period.
  For
        the
        year ended December 31, 2005, we had a deferred revenue of RMB181.58 million
        ($22.50 million) compared with RMB37.92 million ($4.58 million) in 2004.
        This
        increase of 378.85% reflects
        what we believe to be significant product delivery growth during the second
        half
        of 2005 when compared with the same period in 2004, even though our reported revenues
        in 2005 decreased 31.25% to RMB207.29 million (US$25.68 million) in 2005
        from
        RMB301.52 million (US$36.43 million) in 2004.
  The
        volume of our crop seeds delivered between July and December increased to
        20.24
        million kilograms in 2005 from 14.14 million kilograms for the period in 2004,
        representing an increase of 43.14%.
  37
  **Cost
        of revenues**
  Our
        cost
        of revenues consisted of expenses directly related to our crop seeds sales.
        Our
        cost of revenues primarily consists of the purchase prices for seeds,
        depreciation and amortization, shipping and handling cost, salary and
        compensation, supplies and rent.
  *Purchase
        price for seeds* .
        The
        purchase price for seeds consists of the price we pay to farmers for the
        seeds
        we ask them to grow for us. The purchase price for seeds is the largest
        component of our cost of revenues and is likely to be our most variable element
        of our cost of revenues. Our purchase price for seeds is expected to increase
        (1) as our business continues to grow and if we enter into additional seed
        purchase arrangements with farmers, and (2) due to seed price increases we
        may
        experience in the future.
  *Depreciation
        and amortization* .
        Depreciation consists of depreciation of property, plant and equipment.
        Amortization consists of amortization of our seed license fees.
  *Shipping
        and handling* .
        Shipping and handling costs include costs associated with product delivery
        and
        handling.
  *Salary
        and compensation* .
        Salary
        and compensation expenses include wages, bonuses and other benefits, including
        welfare benefits. Salary and compensation included in our cost of revenues
        relate to our production personnel. We expect that our salary and compensation
        expenses will increase in the future in
        conjunction with our intended growth .
  *Supplies* .
        Supplies consist of supplies and packing cost for producing seeds.
  **Operating
        expenses**
  Our
        operating expenses consist of general and administrative expenses, research
        and
        development expenses, selling and marketing expenses and stock-based
        compensation expenses. Our operating expenses have increased as a percentage
        of
        revenues for 2005 primarily due to the distortions caused by our revenue
        recognition policies, which resulted
        in a significant portion of sales receipts from our product deliveries in
        2005
        being deferred into 2006. The increase in our operating expenses as a percentage
        of revenues is also attributable to the expansion
        of our business and the increase in the cost of professional services and
        other
        related costs associated with our being publicly listed in the U.S.
  We
        expect
        our operating expenses will continue to increase for the foreseeable future,
        but
        the rate of such increase will depend primarily on our business needs, including
        efforts we may undertake to expand our business. We expect our operating
        expenses as a percentage of revenues will decrease in 2006 because we have
        changed our fiscal year-end from December 31 to June 30 and expect to be
        able to
        recognize most of our deferred revenues in 2005 as revenues in 2006.
  *General
        and administrative expenses* .
        General
        and administrative expenses primarily consist of salary and compensation
        for our
        general management, finance and administrative personnel, rent, professional
        expenses and other expenses, including travel and other general business
        expenses, office supplies and general office furniture and equipment. We
        expect
        our general and administrative expenses to increase in 2006 and for the
        foreseeable future as we adopt SFAS 123(R) to recognize all share-based payments
        to employees including grants of employee stock options in our income statement
        based on the grant-date fair values commencing January 1, 2006. Among some
        of the general administrative expenses we expect to incur are expenses incurred
        in connection with our compliance with the Sarbanes-Oxley Act of 2002.
  *Research
        and development expenses* .
        Our
        research and development expenses primarily consist of salary and compensation
        expenses of personnel engaged in the research and development of our proprietary
        crop seeds, rent and depreciation of plant and equipment attributable to
        our
        research and development efforts. We expect that our product development
        expenditures will remain relatively stable for at least the next twelve months,
        which we believe will be sufficient to meet our expected research and
        development needs during that period.
  38
  *Selling
        and marketing expenses* .
        Our
        selling and marketing expenses primarily consist of salary and compensation
        for
        our sales and marketing personnel, transportation expenses and related marketing
        expenses. Growth in our selling and marketing expenses will depend on our
        market
        expansion. We expect to continue to increase our sales and marketing efforts
        in
        the foreseeable future, including our plan to hire additional sales and
        marketing personnel to focus on our new product promotion and market expansion.
  *Stock-based
        compensation expenses* .
        In
        December 2004, the Financial Accounting Standards Board (“FASB” or the
“Board”) issued Statement of Accounting Standards (“SFAS”) No.123(R),
“Share-Based Payment”. SFAS No. 123(R) is a revision of SFAS No. 123,
        and supersedes Accounting Principal Board Opinion No. 25 (“APB 25”). Among
        other items, SFAS 123(R) eliminates the use of APB 25 and the intrinsic value
        method of accounting, and requires companies to recognize in the financial
        statements the cost of employee services received in exchange for awards
        of
        equity instruments, including stock option grants, based on the grant date
        fair
        value of those awards on the grant date. We adopted SFAS No. 123(R)
        effective for the year ended December 31, 2005. We expect that the adoption
        of
        SFAS 123(R) will result in additional amortization of stock--based compensation
        expense and an increase in our operating expenses for 2006.
  **Stock
        option plan and option agreements**
  Our
        stock
        option is granted under the Chardan China Acquisition Corp. 2005 Performance
        Equity Plan, which became the Origin Agritech Limited 2005 Performance Equity
        Plan (the “Plan”) by operation of law under the terms of our merger with Chardan
        China Acquisition Corp. We adopted the Plan in November 2005, under which
        we
        could issue share options with the right to purchase up to 1,500,000 ordinary
        shares to our directors, officers, employees, individual consultants and
        advisors. We granted options under the Plan with the right to purchase a
        total
        of 974,000 ordinary shares in 2005. We may in the future grant options to
        purchase up to an additional 526,000 ordinary shares under the Plan.
 
 All
        of
        the options we granted in November 2005 have an exercise price of $8.75 per
        share and are exercisable for a term of 3-5 years starting from November
        8,
        2005. All of the options granted under the Plan to our directors and managers
        have a vesting period of three to five years. As of June 30, 2006, we had
        no
        options that were vested or immediately exercisable for ordinary shares.
        We
        recorded a total stock-based compensation expense of RMB774,000 ($96,000)
        for
        the year ended December 31, 2005.
  **Critical
        Accounting Policies**
  The
        discussion and analysis of our financial condition and results of operations
        is
        based upon our consolidated financial statements, which have been prepared
        in
        accordance with generally accepted accounting principles in the United States,
        or U.S. GAAP. The preparation of those financial statements requires us to
        make
        estimates and judgments that affect the reported amount of assets and
        liabilities, revenues and expenses and related disclosure of contingent assets
        and liabilities at the date of our financial statements. Actual results may
        differ from these estimates under different assumptions or
        conditions.
  Critical
        accounting policies are those that reflect significant judgments or
        uncertainties, and potentially result in materially different results under
        different assumptions and conditions. We have described below what we believe
        are our most critical accounting policies that involve a high degree of judgment
        and the methods of their application. For a description of all of the company’s
        significant accounting policies, see Note 2 to Origin’s consolidated financial
        statements.
  *Revenue
        recognition.*
  We
        derive
        revenue primarily from the sale of various crop seeds, including corn seeds,
        cotton seeds and rice seeds in China. We recognize revenue when pervasive
        evidence of a sales arrangement exists, products are delivered, the price
        is
        fixed and determinable, collectibility is reasonably assured, and the right
        of
        return has expired. Accordingly, we defer revenue recognition until all sale
        return privileges lapse, which generally occurs within 15 days of delivery,
        and
        until the selling price has been finalized by our management and confirmation
        has been issued to the customer, which generally occurs at the end of our
        selling season. Because of the discount policy we offer to our customers,
        we
        sometimes carry a sizeable deferred revenue that r eflects
        the value of our crop seeds delivered after evidence of a sales arrangement
        is
        confirmed, delivery to the customer is made and pre-payments from the customer
        is received, but before the final sales price is fixed and determined at
        the end
        of the selling season. This
        aspect of our revenue recognition policy does not have a significant effect
        when
        deferred revenues in the periods being compared remain roughly the same
        proportion to overall sales. However, when the proportion of our sales
        classified as deferred revenue varies significantly from year to year, as
        sometimes occurs, our revenues and earnings as reported in our financial
        statements may give an inaccurate indication of our financial performance,
        tending to understate revenues in years where the deferred revenue component
        is
        high and overstating revenues in the subsequent year. This potential for
        distortion in results from calendar year to calendar year is one of the
        principal reasons that we have chosen to change to a June 30 fiscal year.
  39
  *Impairment
        of long-lived assets.*
  We
        review
        our long-lived assets for impairment whenever events or changes in circumstances
        indicate that the carrying amount of an asset may no longer be recoverable.
        When
        these events occur, we measure impairment by comparing the carrying value
        of the
        long-lived assets to the estimated undiscounted future cash flows expected
        to
        result from the use of the asset and eventual disposition. If the sum of
        the
        expected future cash flows (undiscounted and without interest charges) is
        less
        than the carrying amount of the asset, an impairment loss, equal to the excess
        of the carrying amount over the fair market value of the asset is
        recognized.
  *Income
        taxes.*
  We
        record
        a valuation allowance to reduce our deferred tax assets to the amount that
        we
        believe is more likely than not to be realized. In the event we were to
        determine that we would be able to realize our deferred tax assets in the
        future
        in excess of their recorded amount, an adjustment to our deferred tax assets
        would increase income in the period such determination was made. Likewise,
        should we determine that we would not be able to realize all or part of our
        net
        deferred tax assets in the future, an adjustment to our deferred tax assets
        would be charged to income in the period such determination was made.
  *Stock-based
        compensation.*
  In
        preparing the consolidated financial statements for 2005, we adopted SFAS
        No. 123 (revised 2004), or SFAS No. 123(R), issued by the FASB in
        December 2004, to recognize all share-based payments to employees,
        including grants of employee stock options, in our income statement based
        on the
        grant-date fair values. Pro forma disclosure will no longer be permitted.
        As a
        result, if we grant stock options in the future, our reported earnings would
        be
        adversely affected.
  *Acquired
        intangible assets, net*
  Acquired
        intangible assets consist primarily of purchased technology rights and are
        stated at cost less accumulated amortization. Amortization is calculated
        on a
        straight-line basis over the estimated useful lives of these assets of 5
        to 10
        years and records in cost of revenues.
  *Government
        subsidies*
  We
        receive government subsidies in the form of funds for research and development
        activities. These research and development subsidies reduce the costs of
        our
        research and development activities. We also receive subsidies in the form
        of
        land use subsidies. Land use subsidies are recorded against the costs of
        land
        use rights. These are recognized when received because there are no continuing
        obligations for their retention once received.
  40
  **Results
        of Operations**
  The
        following table sets forth certain information relating to our results of
        operations, and our consolidated statements of operations as a percentage
        of
        revenues, for the periods indicated:
  **For
                  the year ended December 31,**2001
              
              2002
              
              2003
              
              2004
              
              2005in
                  thousand RMB
              
              as
                  % of net revenue
              
              RMB
              
              as
                  % of net revenue
              
              in
                  thousand RMB
              
              as
                  % of net revenue
              
              in
                  thousand RMB
              
              as
                  % of net revenue
              
              in
                  thousand RMB
              
              as
                  % of net revenue**Consolidated
                  statement of operations and comprehensive income
                  (loss) data:**Revenues
              
              
              75,056
              
              
              100.00
              
              
              98,717
              
              
              100.00
              
              
              191,645
              
              
              100.00
              
              
              301,520
              
              
              100.00
              
              
              207,291
              
              
              100.00Cost
                  of revenues
              
              
              (50,341
              )
              
              (67.07
              )
              
              (46,006
              )
              
              (46.60
              )
              
              (118,977
              )
              
              (62.08
              )
              
              (178,313
              )
              
              (59.14
              )
              
              (129,162
              )
              
              (62.31
              )Gross
                  (loss) profit
              
              
              24,715
              
              
              32.93
              
              
              52,711
              
              
              53.40
              
              
              72,669
              
              
              37.92
              
              
              123,207
              
              
              40.86
              
              
              78,129
              
              
              37.69Selling
                  and marketing
              
              
              (8,900
              )
              
              (11.86
              )
              
              (6,480
              )
              
              (6.56
              )
              
              (13,310
              )
              
              (6.95
              )
              
              (20,390
              )
              
              (6.76
              )
              
              (27,037
              )
              
              (13.04
              )General
                  and administrative
              
              
              (8,742
              )
              
              (11.65
              )
              
              (9,642
              )
              
              (9.77
              )
              
              (18,948
              )
              
              (9.89
              )
              
              (24,149
              )
              
              (8.01
              )
              
              (28,983
              )
              
              (13.98
              )Research
                  and development
              
              
              (2,497
              )
              
              (3.33
              )
              
              (5,372
              )
              
              (5.44
              )
              
              (5,288
              )
              
              (2.76
              )
              
              (6,774
              )
              
              (2.25
              )
              
              (6,977
              )
              
              (3.37
              )Total
                  operating expenses
              
              
              (20,139
              )
              
              (26.83
              )
              
              (21,494
              )
              
              (21.77
              )
              
              (37,546
              )
              
              (19.59
              )
              
              (51,313
              )
              
              (17.02
              )
              
              (62,997
              )
              
              (30.39
              )other
                  operating income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,309
              
              
              1.11Income
                  (loss) from operations
              
              
              4,576
              
              
              6.10
              
              
              31,217
              
              
              31.62
              
              
              35,122
              
              
              18.33
              
              
              71,894
              
              
              23.84
              
              
              17,441
              
              
              8.41Interest
                  income
              
              
              134
              
              
              0.18
              
              
              440
              
              
              0.45
              
              
              845
              
              
              0.44
              
              
              371
              
              
              0.12
              
              
              886
              
              
              0.43Interest
                  expenses
              
              
              (172
              )
              
              (0.23
              )
              
              (417
              )
              
              (0.42
              )
              
              (483
              )
              
              (0.25
              )
              
              (831
              )
              
              (0.28
              )
              
              (1,829
              )
              
              (0.88
              )Other
                  income (expense)
              
              
              6,584
              
              
              8.77
              
              
              (606
              )
              
              (0.61
              )
              
              1,137
              
              
              0.59
              
              
              149
              
              
              0.05
              
              
              300
              
              
              0.14Equity
                  in earnings of associated company
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              1,925
              
              
              0.64
              
              
              879
              
              
              0.42Income
                  (loss) before income taxes
              
              
              11,122
              
              
              14.82
              
              
              30,634
              
              
              31.03
              
              
              36,621
              
              
              19.11
              
              
              73,508
              
              
              24.38
              
              
              17,677
              
              
              8.53Income
                  tax
              
              
              (3,232
              )
              
              (4.31
              )
              
              (1,498
              )
              
              (1.52
              )
              
              (7,808
              )
              
              (4.07
              )
              
              (7,698
              )
              
              (2.55
              )
              
              (1,405
              )
              
              (0.68
              )Income
                  (loss) before minority interests
              
              
              7,890
              
              
              10.51
              
              
              29,136
              
              
              29.51
              
              
              28,813
              
              
              15.03
              
              
              65,810
              
              
              21.83
              
              
              16,272
              
              
              7.85Minority
                  interests
              
              
              225
              
              
              0.30
              
              
              (2,575
              )
              
              (2.61
              )
              
              138
              
              
              0.07
              
              
              (351
              )
              
              (0.12
              )
              
              137
              
              
              0.07Net
                  income (loss)
              
              
              8,115
              
              
              10.81
              
              
              26,561
              
              
              26.91
              
              
              28,951
              
              
              15.11
              
              
              65,459
              
              
              21.71
              
              
              16,409
              
              
              7.92
  41
  **Year
        Ended December 31,** **2005 Compared to** **Year
        Ended December 31,** **2004**
  ***Revenues***
  Our
        revenues for 2005 decreased approximately 31.25% to RMB207.29 million (US$25.69
        million) from RMB301.52 million ($36.43 million) in 2004. This
        decrease does not reflect a decrease in our business during 2005, which actually
        expanded based on volume of products delivered. For example, the
        volume of our crop seeds delivered between July and December increased to
        20.24
        million kilograms in 2005 from 14.14 million kilograms for the same period
        in
        2004, representing an increase of 43.14%.
  As
        noted
        under the discussions of Overview and Critical Accounting Policies above,
        revenue is recognized only after a sale is made and the
        price
        is fixed and determinable, which usually occurs at the end of a selling season.
        Until that occurs, the revenue associated with those sales is carried as
        deferred revenue. Our fiscal year before June 2006 ended on December 31,
        and our
        selling seasons typically begin in September and end in June of the following
        year. Due to the way we recognize revenue, our reported revenues for any
        given
        fiscal year typically reflect sales generated from January to June of that
        fiscal year and sales generated from September to December of the prior year.
        Our deferred revenues for any given fiscal year typically reflect products
        delivered between September and December of that year.
  In
        2004,
        we confirmed final sales prices for a portion of our product deliveries between
        September and December of that year to customers principally located in the
        southwestern region of China, and realized that portion of the sales as revenue
        in 2004. As a result, our revenues for 2005 decreased approximately 31.25%
        to
        RMB207.29 million ($25.68 million) from RMB301.52 million ($36.43 million)
        in
        2004, while our deferred revenues for 2005 increased 378.85% to RMB181.58
        million ($22.50 million) from RMB37.92 million ($4.58 million) in
        2004.
  In
        2005,
        approximately 94.61% of our revenues were derived from sales of our corn
        hybrid
        seeds. Approximately 4.06% of our revenues were derived from sales of cotton
        seeds and 1.33% of revenues came from sales of rice seed. We anticipate that
        cotton seed and rice seed will represent an increasing share of our revenues
        in
        future periods.
  ***Cost
        of revenues***
  The
        cost
        of revenues decreased by 27.56% to RMB129.16 million (US$16.00 million) in
        2005
        from RMB178.31 million (US$ 21.54 million) in 2004. This decrease was generally
        in line with a similar decrease in our revenues due to the effects of an
        increase in deferred revenue. This decrease also reflects an increase in
        our
        purchase price for seeds.
  ***Gross
        profit***
  As
        a
        result of the foregoing, our
        gross
        profit for 2005 decreased approximately 36.59% to RMB78.13 million ($9.68
        million) from RMB123.21 million ($14.89 million) in 2004.
  ***Gross
        margin***
  As
        a
        percentage of total revenues, our gross margin was 37.69% in the year ended
        December 31, 2005, as compared with 40.86% in the year ended December 31,
        2004.
        The decrease in gross margins was primarily due to an increase in purchase
        price
        for seeds in 2005.
  ***Operating
        expenses*** ****
  Operating
        expenses increased by 22.78% to RMB63.00 million (US$7.81 million) in 2005
        from
        RMB51.31 million (US$6.20 million) in 2004. The increase was due to a
        substantial increase in selling and marketing expenses and, to a lesser extent,
        due to an increase in general and administrative expenses.
  42
  *Selling
        and marketing*
  Selling
        and marketing expenses increased by 32.60% to RMB27.04 million (US$3.35 million)
        in 2005 from RMB 20.39 million (US$2.46 million) in 2004. The increase in
        selling and marketing expenses was largely attributable to our build-up of
        sales
        and marketing capabilities in the cities of Kunming, Xi’an and Xuzhou in 2005,
        and the increase in our advertising expenditures and costs and expenses
        associated with other promotional activities.
  *General
        and administrative*
  Our
        general and administrative expenses increased slightly to RMB28.98 million
        (US$3.59 million) in 2005 from RMB24.15 million (US$2.92 million) in 2004.
        This
        increase was primarily due to stock-based compensation expenses, merger related
        consulting fees, and auditing expenses that we incurred in 2005.
  *Research
        and development*
  Our
        research and development expense in 2005 was RMB6.98 million (US$0.87 million),
        and it remained relatively flat compared with our research and development
        expense of RMB6.77 million (US$0.82 million) in 2004.
  ***Income
        from operations***
  As
        a
        result of the foregoing, we had income from operations in 2005 of RMB17.44
        million (US$2.16 million), compared with income from operations of **** RMB71.89
        million **(** US$8.69
        million) in 2004. Our income from operations decreased 75.74% from 2004 to
        2005
        primarily due to the large deferred revenue we recorded in 2004, a
        substantial portion of which was recorded as revenue in 2005.
  ***Interest
        expense***
  Interest
        expense increased by 120.05% to RMB1.83million (US$ 0.23million) in 2005
        from
        RMB0.83 million (US$0.1 million) in 2004. The increase in interest expense
        was
        primarily attributable to the amount of loans outstanding, which increased
        from
        RMB41million (US$4.95 million) in 2004 to RMB63 million (US$7.81 million)
        in
        2005.
  ***Equity
        in earnings of associated company*** ******
  Equity
        in
        earnings of associated company decreased 54.33% to RMB0.88 million (US$0.11
        million) from RMB1.92 million (US$0.23 million) in 2004, due to a decease
        in net
        income of Shijiazhuang Li Yu Technology Development Co., Ltd., in which hold
        30%
        equity interest.
  ***Other
        income***
  Other
        income increased by 101.18% to RMB0.30 million (US$ 0.04 million) in 2005
        from
        RMB0.15 million (US$0.02 million) in 2004, primarily as a result of government
        subsidies and compensation paid in connection with a successful commercial
        litigation.
  ***Income
        taxes***
  Income
        taxes decreased 81.75% to RMB1.41million (US$0.17 million) in 2005 from RMB7.7
        million (US$0.93 million) in 2004, primarily due to a decrease in taxable
        income.
  ***Net
        income***
  As
        a
        resulting of the foregoing, our net income decreased by 74.93% to RMB16.41
        million (US$2.03million) in 2005, compared with RMB65.46 million (US$7.91
        million) in 2004. This decrease in net income was primarily attributable
        to our
        revenue recognition policy, which resulted in an increase in deferred revenue
        for the 2005 fiscal year.
  43
  **Year
        Ended December 31, 2004 Compared to Year Ended December 31,
        2003.**
  ***Revenues***
  Total
        revenues increased by 57.33% from 2003 to 2004, to RMB301.52 million (US$36.43
        million) in 2004, as compared to RMB191.65 million (US$23.16 million) in
        2003.
        This increase was due to an increase in the quantity of corn seed sold together
        with a higher selling price. The expansion of sales in the southwest and
        northeast regions of China caused a substantial increase in sales quantity.
        The
        volume of corn seed was increased by 12.15 million kilograms, which grew
        from
        26.3 million kilograms in 2003 to 38.45 million kilograms in 2004. In addition,
        the expansion in net revenue was due to the change in product sales mix.
        In
        2003, the corn seed product brand YuYu 22 was the principal product followed
        by
        Linao No. 1. However, its unit selling price was relatively lower than the
        other
        corn seeds sold by us. In 2004, the corn seed product brand, Linao No. 1,
        had a
        relatively higher unit selling price brand and was the most popular product
        sold
        while YuYu 22 represented 13% of sales. In addition, there were 140,000
        kilograms in rice seed sales valued at (RMB2.22 million (US$0.27 million),
        resulting from our developing, planting, and selling rice seeds beginning
        in
        2004.
  ***Cost
        of revenues***
  The
        cost
        of seeds sold increased by 49.86% to RMB178.31 million (US$ 21.54 million)
        in
        2004 from RMB118.98 million (US$14.38 million) in 2003. This increase was
        primarily the result of the increase in the quantity of corn seed sold.
        Nevertheless, the increase in cost of sales is less than the increase in
        net
        revenue. This was mainly caused by the increase in selling price which
        outweighed the increase in cost of sales. In 2004, cost of corn seeds sold
        was
        RMB173.79million (US$20.99 million). The average cost of corn seed sold per
        unit
        increased by 1.5% in 2004 compared to 2003, of which in 2004, an increase
        in
        technology usage fees and the shipping costs were the key causes. On the
        other
        hand, there were savings in other material costs such as seed coatings. The
        technology usage fees, paid based on quantity sold were RMB13.39 million
        (US$1.62 million) and, RMB6.52 million (US$0.79 million) in 2004 and in 2003
        respectively. The increase of technology usage fee is more than the increase
        of
        cost of sales, which is mainly due to the amount sold of product YuYu 22,
        which had a lower charge for technology usage fee, and the decrease in sales
        quantity from 48.42% in 2003 to 18.7% in 2004. Shipping and handling costs
        increased by 70.32% to RMB8.09 million in 2004 from RMB4.75 million in 2003
        because of the increase in sales together with the increase in gas prices
        and
        strict limits on loads per trucks.
  ***Gross
        margin***
  As
        a
        percentage of total net revenues, overall gross margin was 40.86% in the
        year
        ended December 31, 2004, as compared with 37.92% in the year ended December
        31,
        2003. This increase in gross margins was primarily the result of change in
        product sales mix, an increase in the selling price and effective cost controls.
  ***Operating
        expenses***
  Operating
        expenses increased to RMB51.31 million (US$6.20 million) in 2004 from RMB37.55
        million (US$4.54 million) in 2003. The increase was due to substantial increases
        in selling and marketing expenses and general and administrative expenses
        and,
        to a lesser extent, an increase in research and development
        expenses.
  *Selling
        and marketing*
  Selling
        and marketing expenses increased by 53.19% to RMB20.39 million (US$2.46 million)
        in 2004 from RMB 13.31 million (US$1.61 million) in 2003. Of the RMB20.39
        million (US$2.46 million) in 2004, approximately RMB3.15 million (US$0.38
        million) was used for advertising, RMB3.06 (US$0.37 million) million was
        used
        for materials to educate our customers about the basics of planting our seed
        products, RMB9.17 million (US$1.11 million) was spent for transportation
        and
        traveling, RMB3.44 million (US$0.42 million) for salary and benefits, and
        RMB1.42 million (US$0.17 million) on telecommunication. The increase in selling
        and marketing expenses was primarily due to an increase in advertising of
        RMB1.35 million (US$0.16 million); an increase in materials to educate our
        customers of RMB1.85 million (US$0.22 million); an increase in transportation
        and traveling expenses of RMB3.04 million (US$0.37 million); an increase
        in
        salary and benefits expenses of RMB0.79 million (US$0.09 million), related
        to
        increased sales; setting up three new marketing departments in Changchun,
        Baoding and Shenyang; and the increase in incentive bonuses for its marketing
        staff.
  44
  *General
        and administrative*
  General
        and administrative expenses increased by 27.44% to RMB24.15 million (US$2.92
        million) in 2004 from RMB18.95 million (US$2.29 million) in 2003 primarily
        due
        to the increase in general personnel expenses of RMB3.67 million (US$0.44
        million), increase in expenses associated with running motor vehicles and
        traveling expenses of RMB0.56 million (US$0.07 million) and an increase in
        general office supplies of RMB0.42 million (US$0.05million). All these were
        associated with the increase in the scale of our operation.
  *Research
        and development*
  Research
        and development expense increased by 27.98% to RMB6.77 million (US$0.82 million)
        in 2004 from RMB5.29 million (US$0.64 million) in 2003. The increase was
        due
        primarily to the hiring of additional staff used in developing our own breeding
        program and the set up of two research stations in Chengdu and
        Changchun.
  ***Income
        from operations***
  Income
        from operations increased by 104.69%, from RMB71.89 million (US$8.69 million)
        in
        2004 to RMB35.12 million (US$4.24 million) in 2003. This increase in income
        from
        operations was primarily attributable to the large growth in overall revenues
        and the level of the costs for sales we maintained.
  ***Interest
        expense***
  Interest
        expense increased by 72.91% to RMB0.83 million (US$0.1 million) in 2004 from
        RMB0.48 million (US$0.06 million) in 2003. The increase in interest expense
        was
        primarily attributable to the amount of loans outstanding which increased
        from
        RMB35million (US$4.23 million) in 2003 to RMB41 million (US$4.95 million)
        in
        2004, and the average interest rate increased from 5.04% to 5.33%.
  ***Equity
        in earnings of associated company***
  Equity
        in
        earnings of associated companies increased to RMB1.92 million (US$0.23 million)
        in 2004 from zero in 2003 due to the acquisition of 30% interest in Shijiazhuang
        Li Yu Technology Development Co., Ltd.
  ***Other
        income***
  Other
        income decreased by 86.84% to RMB0.15 million (US$0.02 million) in 2004 from
        RMB1.14 million (US$0.14 million) in 2003 as reduction in subsidy from
        government.
  ***Income
        taxes***
  Income
        taxes decreased 1.79% to RMB7.67 million (US$0.93 million) in 2004 from RMB7.81
        million (US$0.94 million) in 2003. Though Origin recorded a substantial increase
        in income before taxation, there was still a decrease in taxation due to
        the
        shifting of operations to our PRC subsidiary and branch which were either
        exempted or enjoyed the tax cut from the enterprise income tax in
        2004.
  ***Net
        income***
  Net
        income increased 126.11% to RMB65.46 million (US$7.91 million) in 2004, compared
        to approximately RMB28.95 million (US$3.50 million) in 2003. This significant
        increase in profits was primarily the result of an increase in sales, both
        in
        terms of volume and average selling price per kilogram of seed, with a lower
        growth rate in the associated costs to produce the income as compared with
        fiscal year 2003.
  **B.** **Liquidity
        and Capital Resources** ****
  As
        of
        December 31, 2005, we had approximately RMB237.83 million (US$29.47
        million) in cash and cash equivalents. Our cash and cash equivalents primarily
        consisted of cash on hand and liquid investments with original maturities
        of
        three months or less that are deposited with banks and other financial
        institutions. We generally deposit our excess cash in interest bearing bank
        accounts.
  45
  We financed
        our operations through cash generated from operating activities and short
        term
        borrowings. We
        had a
        total short-term borrowings of RMB63.00 million (US$7.81 million) and a total
        long-term borrowings of RMB1.88 million (US$233,000). A portion of our
        short-term borrowings (RMB43.00 million) is secured by our land use
        rights in the Zhongguancun Life Science Park. Our long-term borrowings consisted
        of a third-party loan of RMB1.88 million (US$233,000) which is due in 2010
        and
        2015 by two equal installments and bears an interest of 2.4% per annum.
  The
        following table shows our cash flows with respect to operating activities,
        investing activities and financing activities in 2003, 2004 and 2005:
  **Year
                  ended December 31,**2001
              
              2002
              
              2003
              
              2004
              
              2005(in
                  thousand)
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              US$Net
                  cash (used in) provided by operating activities
              
              
              32,943
              
              
              55,976
              
              
              (14,961
              )
              
              42,745
              
              
              24,387
              
              
              3,020Net
                  cash used in investing activities
              
              
              (5,671
              )
              
              (24,586
              )
              
              (32,962
              )
              
              (27,201
              )
              
              (62,722
              )
              
              (7,772
              )Net
                  cash used in financing activities
              
              
              5,000
              
              
              10,000
              
              
              18,446
              
              
              4,083
              
              
              207,706
              
              
              25,740Net
                  increase(decrease) in cash and cash equivalents
              
              
              32,272
              
              
              41,390
              
              
              (29,477
              )
              
              19,627
              
              
              169,371
              
              
              20,988Cash
                  and cash equivalents, beginning of year
              
              
              5,036
              
              
              37,308
              
              
              78,698
              
              
              49,221
              
              
              68,848
              
              
              8,531Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (391
              )
              
              (48
              )Cash
                  and cash equivalents, end of year
              
              
              37,308
              
              
              78,698
              
              
              49,221
              
              
              68,848
              
              
              237,828
              
              
              29,471
  Net
        cash
        provided by operating activities was RMB24.39 million (US$3.02 million) in
        2005 compared to RMB42.75 million (US$5.17 million) in 2004. This decrease
        was
        primarily due to a decrease in net income of RMB16.41 million (US$2.03 million),
        an increase of our inventory of RMB121.56 million (US$15.06 million), a decrease
        in due to growers of RMB17.16 million (US$2.13 million), and offset by an
        increase in deferred revenues of RMB143.66 million (US$17.8 million). Net
        cash
        provided by operating activities increased RMB24.39 million (US$3.02 million)
        to
        net cash of RMB42.74 million (US$5.16 million) in 2004, compared to net cash
        used in operating activities of RMB14.96 million (US$1.81 million) in 2003.
        This
        increase was primarily attributable to an increase in net income of RMB65.46
        million (US$7.91 million), a decrease of account receivable of RMB5.32 million
        (US$0.64 million) and an increase in due to growers of RMB47.95 million
        (US$5.79million), as we grew our business in 2004.
  Net
        cash
        used in investment activities was RMB62.72 million (US$7.77 million) in 2005,
        of
        which RMB43.20 million (US$5.35 million) was used in the construction of
        our new
        headquarter offices in Beijing and for completion of the manufacturing plant
        in
        Linze, RMB5.70 million (US$0.71 million) was used to purchase land use rights,
        RMB2.92 million (US$0.36 million) was used to purchase intangible assets,
        and
        RMB5.68 million (US$0.70 million) was used to acquire an additional 7% interest
        of Biocentury Transgene (China) Co., Ltd. Net cash used in investment activities
        was RMB27.2 million (US$3.29 million) in 2004, of which RMB15.47 million
        (US$1.87 million) was used to start the construction of our headquarter offices
        and in the purchase of fixed assets, and RMB8.32 million (US$1.0 million)
        was
        used to complete our purchase of 8% of Biocentury Transgene (China) Co.,
        Ltd.
  46


Net
      cash
      provided by financing activities was RMB207.71 million (US$25.74 million) in
      2005, which reflects our short-term borrowings of RMB63.00
      million (US$7.81 million) and includes net proceeds from our reverse merger
      of
      RMB159.83 million (US$19.81).




To
      date,
      we have funded our operations through cash flow derived from operations and
      short-term borrowings. Due to the cyclical nature of the cash flow inherent
      in
      our business, with the majority of cash flow from operations received during
      the
      second half of the calendar year, we use bridge loan financings and bank credit
      facilities to cover operating expenses during low-revenue portions of the year.




The
      nature of our business involves cycles in expenses and revenues that are not
      always in phase. Most often in the third calendar quarter of each year, we
      may
      face costs that are in excess of its cash flow sources during that period.
      Whether that occurs, and to what extent it occurs, depends on the amount of
      deposits received from customers compared with the advanced payments made by
      us
      to our seed producing farmers and the final payment for seed procurement. The
      exact timing of these payments is determined by the Chinese lunar calendar,
      which varies from one calendar year to the next. As a result, in some years
      our
      working capital needs are greater than in others. This aspect of the business
      is
      the reason we have customarily relied upon short term bridge loans to cover
      our
      expenses pending receipt of cash payment from farmers at the time of seed
      purchases. We, on a consolidated basis, have had access to sufficient financing
      in the past to manage these cash flow cycles. As discussed above, we have
      consistently repaid our short-term borrowings at or before maturity.




On
      July
      1, 2006, we identified the existence of potential contingent tax liabilities
      arising from our reverse merger in November 2004. We determined that these
      contingent tax liabilities were more likely than remote. As of December 31,
      2005, we estimate such contingent tax liabilities to be in the range of RMB39.06
      million (US$4.84 million) to RMB64.22 million (US$7.96 million). Consequently,
      RMB39.06 million (US$4.84 million) was included in income tax payable on our
      balance sheet and was charged to equity because such liabilities were part
      of
      the recapitalization in connection with our reverse merger. We do not expect
      to
      incur tax liabilities at the higher end of the range, based on information
      currently available.




We
      believe that our cash and cash equivalents balance, together with our access
      to
      financing sources, will continue to be sufficient to meet the working capital
      needs associated with our current operations on an ongoing basis, as well as
      the
      RMB39.06 million (US$4.84 million) contingent tax liability described above,
      although that cannot be assured. It is also possible that our cash flow
      requirements can increase as a result of a number of factors, including
      unfavorable timing of cash flow events, the decision to increase investment
      in
      marketing and development activities or the use of cash for the acquisition
      of
      one or more of its competitors to accelerate our rate of growth.




Relevant
      PRC laws and regulations permit payments of dividends by our PRC Operating
      Companies only out of their retained earnings, if any, as determined in
      accordance with PRC accounting standards and regulations. In addition, the
      statutory general reserve fund, which requires that annual appropriations of
      10%-15% of net after-tax income be set aside prior to payment of any dividends.
      As a result of these and other restrictions under PRC laws and regulations,
      our
      PRC Operating Companies are restricted in their ability to transfer a portion
      of
      their net assets to us either in the form of dividends, loans or advances.




Even
      though we currently do not require any such dividends, loans or advances from
      our PRC Operating Companies, we may in the future require additional cash
      resources from our PRC Operating Companies due to changes in business
      conditions, to fund future acquisitions or developments, or merely to declare
      and pay dividends or distributions to our shareholders, although we currently
      have no intention to do so.




47




**C.** **Research
      and Development, Patents and Licenses, etc.**




We
      focus
      our research and development efforts on agro-biotechnology, crop breeding and
      the development of new crop seeds. In November, 2001, we established a new
      seed
      research and development center in Tongzhou, Beijing, engaging in research
      and
      development of crop commercial breeding. In September, 2005, we established
      the
“Origin Life Science Research Center” in Zhong Guan Cun, Beijing, the principal
      activities of which include crop gene engineering, molecular
      marker-assisted breeding, and molecular identification.




We
      have
      established technological cooperative relationships with three universities
      and
      sixteen research institutes in China, including Beijing University, China
      Agricultural University, and Chinese Academy of Sciences. We employ 47 full
      time
      research personnel.




Our
      research and development expenditures were $0.64 million, $0.82 million and
      $0.87 million in 2003, 2004 and 2005, respectively.




**D.** **Trend
      Information** **.**




Other
      than as disclosed elsewhere in this annual report, we are not aware of any
      trends, uncertainties, demands, commitments or events for the period from
      January 1, 2003 to December 31, 2005 that are reasonably likely to
      have a material effect on our net revenues, income, profitability, liquidity
      or
      capital resources, or that caused the disclosed financial information to be
      not
      necessarily indicative of future operating results or financial
      conditions.




**E.** **Off-balance
      Sheet Arrangements** **.**




We
      do not
      have any outstanding derivative financial instruments, off-balance sheet
      guarantees, interest rate swap transactions or foreign currency forward
      contracts. We do not engage in trading activities involving non-exchange traded
      contracts.




**F.** **Tabular
      Disclosure of Contractual Obligations** ****




We
      have
      various contractual obligations that will affect our liquidity. The following
      table sets forth our contractual obligations as of December 31,
      2005:




Payments
                  due by periodWithinTotal
              2006
              2007
              2008
              2009
              2010
              ThereafterRMB
              RMB
              RMB
              RMB
              RMB
              RMB
              RMBOperating
                  Lease Obligations
              13,301,711
              1,698,408
              1,259,650
              694,742
              537,498
              504,546
              8,606,867Capital
                  Commitments (1)
              3,990,790
              3,990,790Short-Term
                  Debt Obligations (2)
              63,000,000
              63,000,000Long-Term
                  Debt Obligations (3)
              1,880,000
              
              
              940,000
              940,000Total
              82,172,501
              68,689,198
              1,259,650
              694,742
              537,498
              1,444,546
              9,546,867
 
 (1)
              Includes
                  capital commitment to plant, building construction and equipment
                  purchase.
 (2)
              Represents
                  a short term loan from China Construction Bank Shangdi
                  Branch.
 (3)
              Represents
                  a third party’s loan repayable in 2008 and 2009 by two equal installments
                  and bear interest 2.4% per annum. The borrowings are not secured.
 
 O n
        July 1,
        2006, we identified the existence of potential contingent tax liabilities
        arising from our reverse merger in November 2005. We determined that these
        contingent tax liabilities were more likely than remote. As of December 31,
        2005, we estimate such contingent tax liabilities to be in the range of RMB39.06
        million (US$4.84 million) to RMB64.22 million (US$7.96 million). Consequently,
        RMB39.06 million (US$4.84 million) was included in income tax payable on
        our
        balance sheet and was charged to equity because such liabilities were part
        of
        the recapitalization in connection with our reverse merger. We do not expect
        to
        incur tax liabilities at the higher end of the range, based on information
        currently available.
 
 On
        December 6, 2005, Beijing Origin entered into a share transfer agreement
        with
        the Jilin Academy of Agricultural Sciences. Pursuant to the share transfer
        agreement, the Jilin Academy of Agricultural Sciences, or JAAS, will transfer
        23% of equity interest in Jilin Jinong Hi-tech Limited, or Jinong, to Beijing
        Origin for RMB 21,879,900. Jinong is presently the commercial subsidiary
        of JAAS
        and focuses on the production and marketing of corn, rice and soybean seeds,
        as
        well as fertilizers and pesticides. Jinong is known for its large portfolio
        of
        proprietary rice and corn hybrids, having submitted 69 accepted proprietary
        rights applications to the Chinese central government and having 48 already
        approved. In addition, Jinong has an estimated 30% of the corn seed market
        in
        Jilin Province. Currently, this share transfer transaction is proceeding
        pursuant to procedures for the transfer of State-owned assets at Changchun
        Equity Exchange. We cannot guarantee that this transaction will be consummated
        in our favor or at all.
 
 On
        December 30, 2000, Lin
        Ze
        Xian Origin Seed Technology Development Co., Ltd., or Lin Ze Origin, entered
        into a guarantee agreement with Agriculture Bank of China Lin Ze Branch to
        guarantee a loan extended by Agriculture Bank of China Lin Ze Branch to Lin
        Ze
        Xian Seed Company. Lin Ze Origin subsequently merged into Beijing Origin,
        which
        assumed rights and obligations of Lin Ze Origin by operation of law under
        the
        guarantee agreement. Upon Lin Ze Xian Seed Company’s announcement of bankruptcy,
        we were required to repay the outstanding loan. On December 28, 2001, the
        Company was ordered by the Lin Ze Xian People’s Court to pay approximately
        RMB2,872,000 to Agricultural Bank of China Lin Ze Branch in fulfillment of
        the
        guarantee obligation. The civil judgment of the Zhangyi Intermediate People’s
        Court suspended this decision pending final outcome of Lin Ze Xian Seed
        Company’s bankruptcy hearings.




48
 
  **ITEM
          6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES**
  **A.
          Directors and senior management.**




The
      following table sets forth certain information regarding our directors and
      executive officers as of June 30, 2006.


Name
                  
                  Age
                  
                  PositionGengchen
                      Han
                  
                  51
                  
                  Chairman
                      of the Board and Chief Executive OfficerYasheng
                      Yang
                  
                  43
                  
                  Director
                      and President, Treasurer and Chief Operating OfficerLiang
                      Yuan
                  
                  49
                  
                  Director
                      and Executive Vice ChairmanBailiang
                      Zhang
                  
                  65
                  
                  DirectorDafang
                      Huang
                  
                  64
                  
                  DirectorKerry
                      S. Propper
                  
                  31
                  
                  DirectorSteven
                      Urbach
                  
                  30
                  
                  Independent
                      DirectorMichael
                      W. Trimble*****
                  
                  49
                  
                  Independent
                      DirectorRemo
                      Richli
                  
                  43
                  
                  Independent
                      DirectorYouqiang
                      Wang
                  
                  43
                  
                  Chief
                      Financial Officer







* Michael
      W. Trimble was appointed as a member of the Board of Directors and member of
      the
      Audit Committee and Nomination Committee, effective May 12, 2006, to replace
      Mr.
      Michael D. Chermak, who resigned from his position as a director of Origin
      and
      member of the Audit Committee and Nomination Committee effective May 12, 2006.




*Gengchen
      Han* is the
      Chairman and Chief Executive Officer of Origin and the chief executive officer
      of each of our PRC Operating Companies and Origin. Mr. Han is also the Executive
      Chairman of Beijing Origin and its affiliated companies, a position that he
      has
      held since founding the business in 1997. Dr. Han has more than 20 years of
      experience in research and development of hybrid seed products, particularly
      corn seed. From 1982 until 1984, Dr Han was a lecturer at the Henan Agriculture
      University. From 1984 to 1987, Dr. Han studied at Iowa State University and
      received his PhD degree in Plant Breeding and Cytogenics. From 1989 until 1990
      he was with the International Maize and Wheat Improvement Center, or CIMMYT,
      in
      Mexico. He worked Pioneer Hi-bred International from 1990 to 1996; his positions
      there included Regional Technical Coordinator for Asia/Pacific and Regional
      Supervisor for China Business.





*Yasheng
      Yang* is a
      director and the president, treasurer and chief operating officer of Origin
      and
      is an executive officer of each of the our PRC Operating Companies and Origin.
      He has been the President and Chief Operating Officer of Beijing Origin in
      its
      affiliated companies since 1998, principally responsible for advertising and
      marketing. Prior to joining Beijing Origin, from 1995 to 1997, he worked in
      the
      Fujian government as an officer, where he specialized in technology, medical
      and
      educational areas.





*Liang
      Yuan* is a
      director and the executive vice chairman of Origin. He is also an executive
      officer of our PRC Operating Companies. Mr. Yuan has been the vice chairman
      of
      Beijing Origin and its affiliated companies since 1997, principally responsible
      for infrastructure and public relations. Prior to joining Beijing Origin, Mr.
      Yuan was at the Fujian Economic Research Institute from 1985 to 1997, where
      he
      was in charge of the research and development of the regional economy in Fujian
      province.





*Bailiang
      Zhang* is a
      director of Origin. Mr. Zhang served a president of Henan Agriculture University
      from 1994 to 2003, and occupied other positions in the University since 1985.
      As
      a result of his work in the field of agriculture, he has received numerous
      honors, including acting as a representative to the National People’s Congress,
      and the 51 Labor Medal, one of the highest awards given to Chinese citizens
      in
      recognition of significant contributions to the welfare of the country.





*Dafang
      Huang* is a
      director of Origin. Mr. Huang has been the director and CAAS Professor of the
      Biotechnology Research Institute located in Beijing, PRC since 1995. From 1993
      to 1995, Mr. Huang was the Deputy Director and CAAS Professor of the Institute
      of Plant Protection. From 1986 to 1988 and in 1992, Mr. Huang was a visiting
      scientist at Cornell University and the Boyce Thompson Institute. From 1960
      to
      1965, Mr. Huang was working at the Beijing Agriculture University in the
      Department of Plant Pathology.





*Kerry
      S. Propper* is a
      director of Origin. He was a founder and has been the executive vice president
      and a director of Chardan since its inception in December 2003. Mr. Propper
      is
      the chief executive officer and a director of each of Chardan North China
      Acquisition Corp. II and Chardan South China Acquisition Corp. III, blank check
      companies organized to locate and consummate business combinations in the PRC.
      Mr. Propper is also a principal and CEO of Chardan Capital Markets, LLC, a
      broker dealer, which he founded with Steven Urbach in February 2003. Mr. Propper
      has been the owner and chief executive officer of The Gramercy Group LLC, a
      New
      York based broker/dealer, since July 2003. From February 1999 to March 2003
      Mr.
      Propper was a founder, owner and managing director of Windsor Capital Advisors,
      LLC, an investment advisory and investment banking firm located in New York.
      Mr.
      Propper also founded The Private Capital Group LLC, a small private investment
      firm specializing in loans and convertible preferred debt and equity offerings
      for small public companies, in May 2000 and was affiliated with it until
      December 2003. From July 1997 until February 1999, Mr. Proper served as a senior
      trader of Aegis Capital Corp, a broker dealer and member firm of the NASD.
      Mr.
      Propper is also currently serving as a board member of Source Atlantic, Inc.,
      a
      Boston based health care technology company.




49




*Steven
      Urbach* is a
      director of Origin. He is currently a principal in and President and Chief
      Financial Officer of Chardan Capital Markets, LLC, which he founded with Kerry
      S. Propper in February 2003. From February 1999 to February 2003, Mr. Urbach
      was
      a Senior Trader at Windsor Capital Advisors, LLC, a firm specializing in making
      markets in Nasdaq securities. From September 1997 until February 2000, Mr.
      Urbach worked at Chase Manhattan Bank as an analyst and portfolio manager.





*Michael
      W. Trimble* is a
      director of Origin. Dr. Trimble is
      the
      founder of Trimble Genetics International LLC. (“Trimble Genetics”) and has been
      the President of Trimble Genetics since 2001. Trimble Genetics is a plant
      genetics research company. Dr. Trimble is a leader in plant genetics research
      with over twenty-six years of experience in crop breeding and the agricultural
      seed industry. Dr.
      Trimble is an inventor of patents that have contributed to over $500 million
      in
      revenue. He also serves as a director for the African Agricultural Technology
      Foundation in Nairobi, Kenya. Dr. Trimble graduated with a Ph.D. degree from
      the
      University of Minnesota, and also completed graduate programs at Purdue
      University and Iowa State University.





*Remo
      Richli* is
      a
      director of Origin. He is an Associate Partner of Bridgelink AG, an
      international Mergers and Acquisitions firm headquartered in Switzerland. His
      activities include the acquisition and divestiture of companies as well as
      raising funds, including private equity deals. Prior to this he worked in the
      US
      as a financial expert at RP Associates in San Diego, a venture capital firm
      focusing on corporate finance and financial structures. During his time with
      RP
      Associates, Mr. Richli served also as Chief Financial Officer of one of its
      portfolio companies. From 1993 to 1999, Mr. Richli owned a consulting firm
      engaged in corporate finance consultancy for mid-sized companies and acted
      as
      the Chief Executive Officer of client companies on a consulting basis. From
      1991
      to 1993, Remo Richli was a director at the Department of Finance in Switzerland.
      Mr. Richli is also a director of Diguang International Development Co. Limited.
      He studied in Switzerland and in the US and holds several degrees in Business
      and Economics.





*Youqiang
      Wang* is the
      Chief Financial Officer of Origin. He joined Origin in 2005. Prior to joining
      Origin, Mr. Wang has more than 16 years of experience both in China and the
      US
      including CITIC, Mitsubishi subsidiary in northern California and Sinotech
      Investment Management. Mr. Wang graduated from University of Illinois at
      Urbana-Champaign and Peking University.





**B.
      Compensation.**




In
      2005,
      the aggregate cash compensation paid to our directors and executive officers
      as
      a group was RMB 1,326,231(US$164,324). In addition, options to acquire an
      aggregate of 330,000 ordinary shares were granted to our directors and executive
      officers in 2005.




***2005
      Performance Equity Plan***





Chardan
      adopted its 2005 Performance Equity Plan on October 28, 2005. After the closing
      of the merger of Chardan with and into Origin, the 2005 Performance Equity
      Plan
      became that of Origin by operation of law under the terms of the merger.





On
      November 8, 2005, our stock option committee decided that options would be
      granted under a standard form of option agreement pursuant to the 2005
      Performance Equity Plan to our certain employees. The table set forth below
      summarizes our outstanding options as of June 30, 2006.




50


**Name**
              
              **Ordinary
                  Shares Underlying Outstanding Option**
              
              **Exercise
                  Price**
              
              **Grant
                  Date**
              
              **Expiration
                  Date**Gengcheng
                  Han
              
              
              75,000
              
              $
              8.75/Share
              
              
              November
                  8, 2005
              
              
              November
                  8, 2010Liang
                  Yuan
              
              
              30,000
              
              $
              8.75/Share
              
              
              November
                  8, 2005
              
              
              November
                  8, 2010Yasheng
                  Yang
              
              
              60,000
              
              $
              8.75/Share
              
              
              November
                  8, 2005
              
              
              November
                  8, 2010Steven
                  Urbach
              
              
              15,000
              
              $
              8.75/Share
              
              
              November
                  8, 2005
              
              
              November
                  8, 2010Kerry
                  Propper
              
              
              20,000
              
              $
              8.75/Share
              
              
              November
                  8, 2005
              
              
              November
                  8, 2010Remo
                  Richli
              
              
              25,000
              
              $
              8.75/Share
              
              
              November
                  8, 2005
              
              
              November
                  8, 2010Michael
                  Chermak
              
              
              15,000
              
              $
              8.75/Share
              
              
              November
                  8, 2005
              
              
              November
                  8, 2010Bailiang
                  Zhang
              
              
              15,000
              
              $
              8.75/Share
              
              
              November
                  8, 2005
              
              
              November
                  8, 2010Dafang
                  Huang
              
              
              15,000
              
              $
              8.75/Share
              
              
              November
                  8, 2005
              
              
              November
                  8, 2010




**C.
      Board Practices.**




***Terms
      of directors and executive officers***





Our
      directors are not subject to a term of office and hold office until the next
      annual meeting of members or until such director’s earlier resignation, removal
      from office, death or incapacity. Any vacancy on the board of directors
      resulting from death, resignation, removal or other cause and any newly created
      directorship resulting from any increase in the authorized number of directors
      between meetings of members may be filled either by the affirmative vote of
      a
      majority of all the directors then in office (even if less than a quorum) or
      by
      a resolution of members.





Our
      officers are appointed by the board of directors. The officers shall hold office
      until their successors are duly elected and qualified, but any officer elected
      or appointed by the directors may be removed at any time, with or without cause,
      by resolution of directors. Any vacancy occurring in any office may be filled
      by
      resolution of directors.





***Employment
      Agreements***





Each
      of
      Dr. Gengchen Han and Messrs. Liang Yuan and Yasheng Yang have entered into
      employment agreements with State Harvest. Dr. Han is employed as the chairman
      and chief executive officer, Mr. Yuan as the executive vice chairman and Mr.
      Yang as the president and chief operating officer. The agreements have a term
      of
      three years commencing as of January 1, 2005, and provide for an annual salary
      of $250,000 and a discretionary cash bonus based on growth in the combined
      company’s per-share value, achievement of growth and business targets,
      satisfaction of company capital requirements and other criteria. The executives
      are entitled to insurance benefits, five weeks’ vacation, a car and
      reimbursement of business expenses and, if necessary, relocation expenses.
      The
      agreements are terminable by State Harvest for death, disability and cause.
      The
      executive may terminate for good reason, which includes State Harvest’s breach,
      the executive’s loss of his seat on the board of directors, and change of
      control. In the event of termination for good reason or without cause, the
      executive will receive compensation and benefits under his or her employment
      agreement through the earlier of two years from the date of termination or
      through the term of the agreement. The agreements contain provisions for the
      protection of confidential information and a three-year-after employment
      non-competition period within China. In the purchase agreement, there is an
      additional non-competition agreement applicable to these persons for the greater
      of five years after consummation or two years after employment that includes
      Hong Kong and Taiwan, in addition to China.




***Board
      committees*** ****




Our
      board
      of directors has established an audit committee, a stock option committee and
      a
      nominations committee.




*Audit
      Committee*




The
      members of our audit committee are Remo Richli (chairman), Steven Urbach and
      Michael W. Trimble. Our board of directors has determined that all of our audit
      committee members are independent directors within the meaning of Nasdaq
      Marketplace Rule 4200(a)(15) and meet the criteria for independence set forth
      in
      Rule 10A-3(b)(1) of the Securities and Exchange Act of 1934.





51




The
      board
      of directors has determined that Messrs. Richli, Urbach and Trimble each has
      an
      understanding of generally accepted accounting principles and financial
      statements, the ability to assess the general application of such principles
      in
      connection with our financial statements, including estimates, accruals and
      reserves, experience in analyzing or evaluating financial statements of similar
      breadth and complexity as our financial statements, an understanding of internal
      controls and procedures for financial reporting and an understanding of audit
      committee functions.





The
      board
      of directors believes that Mr. Remo Richli qualifies as an “audit committee
      financial expert” within the meaning of all applicable rules. The board of
      directors believes that Mr. Richli has financial expertise from his degrees
      in
      business, his activities as a chief executive officer and chief financial
      officer of various companies, and his consulting activities in the areas of
      accounting, corporate finance, capital formation and corporate financial
      analysis.





We
      adopted an audit committee charter under which the committee is responsible
      for
      reviewing the scope, planning and staffing of the audit and preparation of
      the
      financial statements. This includes consultation with management, the auditors
      and other consultants and professionals involved in the preparation of the
      financial statements and reports. The committee is responsible for performing
      oversight of the our relationship with our independent auditor. The committee
      also has a general compliance oversight role in assuring that our directors,
      officers and management comply with our code of ethics, review and approval
      of
      related party transactions, dealing with complaints regarding accounting,
      internal controls and auditing matters, and compliance with accounting and
      legal
      requirements applicable to us.





Pursuant
      to the terms of its charter, the audit committee’s responsibilities include,
      among other things:


●
              annually
                  reviewing and reassessing the adequacy of the committee’s formal
                  charter;
 ●
              reviewing
                  our annual audited financial statements with our management and
                  our
                  independent auditors and the adequacy of our internal accounting
                  controls;
 ●
              reviewing
                  analyses prepared by management and independent auditors concerning
                  significant financial reporting issues and judgments made in connection
                  with the preparation of our financial
                  statements;
 ●
              the
                  engagement of the independent
                  auditor;
 ●
              reviewing
                  the independence of the independent
                  auditors;
 ●
              reviewing
                  our auditing and accounting principles and practices with the independent
                  auditors and reviewing major changes to our auditing and accounting
                  principles and practices as suggested by the independent auditor
                  or our
                  management;
 ●
              the
                  appointment of the independent
                  auditor;
 ●
              approving
                  professional services provided by the independent auditors, including
                  the
                  range of audit and non-audit fees;
                  and
 ●
              reviewing
                  all related party transactions on an ongoing basis for potential
                  conflicts
                  of interest.




The
      audit
      committee will pre-approve the services to be provided by our independent
      auditors going forward. The audit committee also will also review and recommend
      to the board of directors whether or not to approve transactions between us
      and
      any officer or director that occurs outside the ordinary course of
      business.




*Stock
      Option Committee*





We
      established a stock option committee with Steven Urbach and Remo Richli as
      its
      members. The purpose of the stock option committee is to administer our stock
      option plans, including authority to make and modify awards under such plans.
      Initially, our only plan is the 2005 Performance Equity Plan, as assumed by
      Origin in the merger with Chardan.





*Nominating
      Committee*





Our
      nominating committee consists of Steven Urbach, Remo Richli and Michael W.
      Trimble. The nominating committee is responsible for overseeing the selection
      of
      persons to be nominated to serve on our board of directors. The nominating
      committee will identify, evaluate and recommend candidates to become members
      of
      the Board of Directors with the goal of creating a balance of knowledge and
      experience.




52




The
      committee will consider suggestions from individual stockholders, based upon
      its
      assessment of certain criteria, including the proposed person’s merits. The
      suggested nominee must provide a statement of consent to being considered for
      nomination.




**D.** **Employees** **.**




We
      had
      375, 423 and 511 employees as of December 31, 2003, 2004 and 2005,
      respectively. We plan to hire additional employees as we expand. Substantially
      all of our employees are located in China. The following table sets forth the
      number of our employees categorized by our areas of operations and as a
      percentage of our workforce as of December 31, 2005:


Areas
                  of Operations
              
              
              Number
                  of Employees
              
              
              Percentage
                  of TotalResearch
                  and Development
              
              
              47
              
              
              9.2
              %Sales
                  and Marketing
              
              
              137
              
              
              26.8
              %Production
              
              
              151
              
              
              29.5
              %Quality
                  Control
              
              
              34
              
              
              6.7
              %Others
              
              
              142
              
              
              27.8
              %Total
              
              
              511
              
              
              100
              %





From
      time
      to time, we also employ part-time employees, independent contractors to support
      our research and development and producing activities, and other temporary
      employees. During 2005, we had an aggregate of 31 temporary
      employees.





We
      offer
      our employees additional annual merit-based bonuses based on the overall
      performance of our company, his or her department and the individual. We are
      required by applicable PRC regulations to contribute amounts equal to 28%,
      12%,
      16%, 2%, 0.8% and 0.8%, of our employees’ aggregate salary to a pension
      contribution plan, a medical insurance plan, a housing fund, an unemployment
      insurance plan, a personal injury insurance plan and a maternity insurance
      plan,
      respectively, for our employees.





Our
      employees are not covered by any collective bargaining agreement. We believe
      that we have a good relationship with our employees.




**E.** **Share
      ownership.**




The
      following table sets forth information with respect to the beneficial ownership
      of our ordinary shares as of May 31, 2006, by:





·
            each
                of our directors and executive officers who beneficially own our
                ordinary
                shares; and





·
            each
                person known to us to own beneficially more than 5.0% of our ordinary
                shares.




53




**Shares
                Beneficially Owned (*****)****Number**
            
            **Percentage
                of Total****Directors
                and Executive Officers:**Gengchen
                Han
              *Chairman
                of the Board and Chief Executive*
              *Officer*(1)
                (2)
            
            
            3,336,400
            
            
            14.2
            %Yasheng
                Yang
              *President,
                Treasurer and Chief Operating*
              *Officer
                and Director*(1)
                (3)
            
            
            1,946,550
            
            
            8.3
            %Liang
                Yuan
              *Executive
                Vice Chairman and Director*(1)
                (4)
            
            
            3,336,400
            
            
            14.2
            %Kerry
                S. Propper
              *Director*(5)
            
            
            324,292
            
            
            1.83
            %Steven
                Urbach
              *Director*(5)
            
            
            94,917
            
            
            0.4
            %Michael
                W. Trimble
            
            
            9,532
            
            
            0.04
            %**Principal
                Shareholders:**Jeff
                Feinberg
            
            
            1,804,619
            
            
            7.69
            %








*
      Beneficial ownership and percentage is determined in accordance with Rule 13d-3
      under the Securities Exchange Act of 1934, as amended.





(1)
            Unless
                otherwise indicated, the business address of each of the individuals
                is
                c/o 21 Shengmingyuan Road, Changping District, Beijing PRC
                102206.





(2)
            The
                shares reported in the above table are held by Dr. Han through a
                personal
                holding company, Sinodream Limited, a company formed under the laws
                of the
                British Virgin Islands of which he is the sole officer and director.
                Therefore, Dr. Han will have voting and dispositive authority over
                all the
                shares.





(3)
            The
                shares reported in the above table are held by Mr. Yang through a
                personal
                holding company, Leekdon Limited, a company formed under the laws
                of the
                British Virgin Islands of which he is the sole officer and director.
                Therefore, Mr. Yang will have voting and dispositive authority over
                all
                the shares.





(4)
            The
                shares reported in the above table are held by Mr. Yuan through a
                personal
                holding company, Bonasmart Limited, a company formed under the laws
                of the
                British Virgin Islands of which he is the sole officer and director.
                Therefore, Mr. Yuan will have voting and dispositive authority over
                all
                the shares.





(5)
            Unless
                otherwise indicated, the business address of each of the individuals
                is
                c/o 625 Broadway, Suite 1111, San Diego, CA
                92101




None
      of
      the above shareholders have voting rights that differ from the voting rights
      of
      other shareholders. For information regarding stock options granted to them
      and
      other employees, see Item 6.B above.





**ITEM
      7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**




**A.** **Major
      shareholders.**




Please
      refer to Item 6.E “Directors, Senior Management and Employees — Share
      Ownership”




**B.** **Related
      party transactions** **.**




***Stock
      Consignment Agreements***




In
      order
      to comply with PRC regulations, we operate our business in China through our
      PRC
      Operating companies. We have entered into stock consignment agreements with
      our
      PRC Operating Companies other than Origin Biotechnology. The following is a
      summary of the material provisions of these agreements.




The
      Stock
      Consignment Agreements give State Harvest control over the shares of the three
      PRC Operating Companies. The agreements give State Harvest the right to manage
      in all respects the shares held in title by the stockholders, including all
      stockholder rights to call meetings of stockholders, to submit stockholder
      proposals, to elect directors, to vote the shares on all matters and to exercise
      all other rights of a stockholder in respect of the consigned shares. More
      specifically, the Consignment Agreements give State Harvest the right to select,
      replace and increase the number of the directors, supervisors and recommend
      new
      director and supervisor persons, and to exercise management rights, controlling
      rights and decision-making power over the shares of the PRC Operating Companies.
      The stockholders agreed not to interfere with State Harvest’s exercise of its
      rights and to cooperate fully and promptly to permit State Harvest to exercise
      its authority over the consigned shares. This includes all limitations on the
      ability of each consignee to transfer or dispose of the shares other than to
      State Harvest, give guarantees using the shares, consign the shares to another,
      alter their ownership proportions in any way, dispose of any rights in the
      ownership of the shares, agree to any debt, waive rights or restructure the
      shares. State Harvest has the right to take all action in respect of the
      consigned shares to avoid any damage or infringement of its rights, including
      in
      the event of the consigning stockholder’s bankruptcy. State Harvest, under the
      Consignment Agreements, has all rights in the consigned shares, including rights
      to profits, interest, dividends, bonuses and residual assets. If in the future
      any stock subject to the Consignment Agreements can be legally transferred
      to
      State Harvest, then without further action or payment by State Harvest, it
      shall
      be transferred to State Harvest in whole or in part for no additional
      consideration to the consigning stockholder. The term of each Consignment
      Agreement is initially three years, but is automatically renewed indefinitely
      until both consigners and the consignee agree to terminate. For more information
      about the Stock Consignment Agreements, See Item 8.01 “Other Events” of our Form
      8-K (file no. 000-51576) filed with the Securities and Exchange Commission
      on
      August 8, 2005.




54




***Techn*** ***ical
      Service Agreements***





As
      part
      of the reorganization of our PRC Operating Companies, all of the intellectual
      property rights of Beijing Origin, Changchun Origin and Henan Origin are being
      transferred to Origin Biotechnology pursuant to technology service agreements
      dated December 25, 2004. The purpose of this was to permit the better management
      and licensing of the intellectual property that the three assignors have
      developed. Under the technology agreements, Origin Biotechnology will provide
      technical research and production and distribution services for the seeds
      produced by the group. These services will include support in the research
      and
      development of agricultural seeds, analysis of breeding technologies,
      environment and feasibility suggestions, technical tutorials and breeding field
      supervision, market analysis and seed promotion, insect prevention and technical
      education to distributors and farmers. The initial term is for three years,
      but
      the agreements are automatically renewed unless both parties agree to a
      termination. The fees payable under the agreements are variable, depending
      on
      differing formulae for different categories of seeds. Generally, the fees will
      be as follows: 1.20 Yuan RMB per kilogram of corn sold by the party receiving
      the technical services; 6 Yuan RMB per kilogram of rice sold by the party
      receiving the technical service and 12 Yuan RMB per kilogram of cotton sold
      by
      the party receiving the technical services. The fees are to be confirmed and
      paid at the end of each growing season.




***Corn
      Originator Agreement***





Beijing
      Origin entered into this agreement with Trimble Genetics International LLC,
      a
      corporation incorporated in Iowa of the United States (“Trimble Genetics”) on
      July 17, 2002. Trimble
      Genetics is a plant genetics research company. Michael
      W. Trimble, a director of Origin, is the
      founder of Trimble Genetics (“Trimble Genetics”) and currently owns 100% of its
      equity interest. Mr. Trimble has been the President of Trimble Genetics since
      2001. Under this agreement, Beijing Origin appoints Trimble Genetics as its
      agent to test, promote, license and collect research fees on hybrids involving
      inbred lines of corn developed by Beijing Origin. Trimble Genetics retains
      fifty
      percent of such research fees and pays the remaining fifty percent to Beijing
      Origin. This agreement is immaterial in amount or significance. Up to the date
      of this annual report, we have not made and payment or incurred any payment
      liability to Trimble
      Genetics under this agreement.





***Corn
      Inbred License Agreement***





Beijing
      Origin entered into this agreement with Trimble Genetics on August 26, 2002.
      Under this agreement Trimble Genetics grants a non-exclusive license to Beijing
      Origin to use, maintain or increase certain corn inbred lines (“Inbreds”);
      Beijing Origin may, subject to express prior written approval of Trimble
      Genetics, allow any person or entity to use, maintain or increase the Inbreds.
      Beijing Origin agrees to pay Trimble Genetics annual research fees on or before
      August 31. Research fees payable under this agreement for each Inbred is based
      on a percentage of the full retail price. This agreement is immaterial
      in amount or significance.  Up
      to the
      date of this annual report, we have not made any payment or incurred any payment
      liability to Trimble
      Genetics under this agreement .
      Beijing
      Origin and Trimble Genetics approved an addendum on February 24, 2003 in
      connection with the provision of Sweet Corn Inbreds and Hybrids by Trimble
      Genetics to Beijing Origin for production and marketing in China.




55




***Corn
      Inbred and Hybrid Transfer and Use Agreement***





Beijing
      Origin, or its predecessor, entered into this agreement with Trimble Genetics
      on
      September 6, 2002. Under this agreement, Trimble Genetics provides corn inbreds
      and hybrids to Beijing Origin for experimental testing purposes. The agreement
      applies to all corn inbreds and hybrids transferred from Trimble Genetics to
      Beijing Origin previously, currently or in the future. If a hybrid from the
      testing proves to be marketable, the parties will negotiate a license agreement.
      If for any reason, it is not possible to conclude a license agreement, Beijing
      Origin agrees to return all remnant inbred seed and to destroy any inbreds
      or
      hybrids that may have originated from the material provided by Trimble Genetics.
      This agreement is immaterial
      in amount or significance.  Up
      to the
      date of this annual report, we have not made any payment or incurred any payment
      liability to Trimble
      Genetics under this agreement .





***New
      Corn Seed Liyu 35 Joint Development Agreement***





Beijing
      Origin entered into three such agreements with Shijiazhuang Liyu Technology
      Development Co., Ltd. on March 30, 2006 to jointly a new hybrid cord seed,
      Liyu
      35. The proprietary right to the seed developed under this agreement belongs
      to
      Shijiazhuang Liyu Technology Development Co., Ltd, but Beijing Origin has
      exclusive production and marketing of this variety of seed. The agreement has
      no
      fixed term or termination date, but the agreement automatically terminates
      if
      the seeds produced by Beijing Origin are less than 3 million kilograms for
      three
      consecutive years, subject to limited exceptions. The fees payable by Beijing
      Origin represent a percentage of revenues from the sale of the varieties and
      plus a flat fee.





***Joint
      Development Agreements***





Beijing
      Origin, or its predecessor, has entered into three such agreements with Corn
      Research Institute of Li County in Hebei Province, China, to develop new hybrid
      corn seeds. Corn Research Institute of Li County was incorporated as
      Shijiazhuang Liyu Technology Development Co., Ltd. on May 2004, of which 30%
      equity interest was owned by Yang Yasheng, a major shareholder and director
      of
      Origin. Yang Yasheng transferred his 30% interest to Beijing Origin on September
      2004. On March 11, 2004, Corn Research Institute of Li County, Shijiazhuang
      Liyu
      Technology Development Co., Ltd. and Beijing Origin entered into an agreement
      pursuant to which all the rights and obligations of Corn Research Institute
      of
      Li County under the three joint development agreements are assumed by
      Shijiazhuang Liyu Technology Development Co., Ltd, after the dissolution of
      Corn
      Research Institute of Li County. In accordance with these joint development
      agreements, the parties agree to jointly develop six varieties of new corn
      hybrid seeds, Liyu 26, Liyu 16, Liyu 6, Liyu 15, Li 168, and Li 9918. The
      proprietary right to the varieties of seeds developed under these agreements
      belongs to Corn Research Institute of Li County, now Shijiazhuang Liyu
      Technology Development Co., Ltd, but Beijing Origin has exclusive right to
      production and marketing of these seeds. The fees payable by Beijing Origin
      represent a percentage of revenues from the sale of the varieties, and plus
      a
      flat fee with respect to Liyu 26 and Liyu 16. The agreements have no fixed
      term
      or termination date. The agreements may be terminated for breaches by either
      party. We may terminate the agreements at any time, in effect, by not producing
      seeds without penalty. The amount of fees paid to Shijiazhuang Liyu Technology
      Development Co., Ltd. under these agreements was $0.67 million, $1.08 million,
      and $1.49 million in 2003, 2004, and 2005, respectively.





***Technology
      Transfer Agreement***





Beijing
      Origin, or its predecessor, entered into this agreement with Henan Agriculture
      University in 1998. Henan Agriculture University currently owns 2.04% equity
      interest in Beijing Origin. Under this agreement, the proprietary right to
      the
      new variety of seed, Yuyu 22, belongs to Henan Agriculture University. Beijing
      Origin has the right to propagate, produce and sell the new corn variety. The
      fee payable under this agreement is RMB20 per mu (until of area equivalent
      to
      0.164 of an acre) of seed production area per year. There is no fixed term
      or
      termination date of this agreement.





***Technology
      Transfer and Cooperation Agreement Concerning a New Corn Hybrid Yuyu 20***





Henan
      Origin entered into this agreement with Henan Agriculture University on August
      16, 1999. Under this agreement, the proprietary intellectual property right
      to a
      new variety of seed, Yuyu 20, belongs to Henan Agriculture University. Henan
      Origin has the exclusive right to produce and distribute the seeds. Henan
      Agriculture agrees not to provide the third party any technology related to
      the
      seed. Fees payable to Henan Agriculture University by Henan Origin is determined
      based on the area of land where Yuyu 20 is planted.


56




***Cash
      Advances and Loans to Directors and Officers***





As
      of
      December 31, 2005, a total of RMB163,000 cash advances and loans were due to
      us
      from three of our directors. The following table sets forth details of such
      cash
      advances and loans.


Name
              
              Relationship
              
              Travel
                  Cash Advances
                (RMB)
              
              Loans
                  (RMB)
              
              Amount
                  due as of December 31, 2005 (RMB)Han
                  Gengchen
              
              
              (1
              )
              
              10,000
              
              
              29,000
              
              
              39,000Yuan
                  Liang
              
              
              (1
              )
              
              
              
              
              22,000
              
              
              22,000Yang
                  Yasheng
              
              
              (1
              )
              
              77,000
              
              
              25,000
              
              
              102,000Total
              
              
              
              
              
              87,000
              
              
              76,000
              
              
              163,000








(1)
            Director
                of Origin.





As
      of
      July 14, 2006, the entire amount of cash advances and loans described above
      have
      all been paid off by the directors.





***Consulting
      Services by Chardan Capital LLC***





Chardan
      Capital LLC, an affiliate of Dr. Richard Propper (father of Kerry S. Propper),
      provided a variety of ongoing services to Origin in 2005 at a cost to Origin
      of
      $30,000 per month. Such services were provided on a non-exclusive basis and
      included advice and help in meeting US public reporting requirements and
      accounting standards, Sarbanes-Oxley compliance, corporate structuring and
      development, stockholder relations, corporate finance and operational
      capitalization and such other similar services as suggested and agreed to by
      Chardan Capital, LLC. There was no written agreement governing the services.








***Voting
      Agreement***





In
      November 2005, Origin entered into a voting agreement with Dr. Han Gengchen
      and
      Messrs. Yang Yasheng and Yuan Liang (the “Stockholders”). Pursuant to this
      voting agreement, the Stockholders agree to vote in favor of the following
      items:





(A)
      The
      election to Origin’s board of directors of the following two (2) individuals:
      (i) Kerry Propper; and (ii) one (1) nominee designated by Kerry Propper;
      and





(B)
      In
      the event that any of the persons nominated pursuant to the above Section (A)
      is
      unable or unwilling to serve as a director, the election of such successor
      nominee as is designated by the parties entitled to designate such nominee
      pursuant to the above Section (A).





This
      voting agreement will remain in effect until the third anniversary of the
      acquisition of State Harvest by Origin on November 8, 2005, and then terminate
      automatically from and after such date.




**C.** **Interests
      of experts and counsel.**




Not
      applicable.




**ITEM
      8. FINANCIAL INFORMATION**




**A.** **Consolidated
      statements and other financial information.**




We
      have
      appended consolidated financial statements filed as part of this annual report.
      See Item 18 “Financial Statements.”





57




***Legal
      Proceedings*** ****




On
      December 30, 2000, Lin
      Ze
      Xian Origin Seed Technology Development Co., Ltd., or Lin Ze Origin, entered
      into a guarantee agreement with Agriculture Bank of China Lin Ze Branch to
      guarantee a loan extended by Agriculture Bank of China Lin Ze Branch to Lin
      Ze
      Xian Seed Company. Lin Ze Origin subsequently merged into Beijing Origin, which
      assumed rights and obligations of Lin Ze Origin by operation of law under the
      guarantee agreement. Upon Lin Ze Xian Seed Company’s announcement of bankruptcy,
      we were required to repay the outstanding loan. On December 28, 2001, the
      Company was ordered by the Lin Ze Xian People’s Court to pay approximately
      RMB2,872,000 to Agricultural Bank of China Lin Ze Branch in fulfillment of
      the
      guarantee obligation. The civil judgment of the Zhangyi Intermediate People’s
      Court suspended this decision pending final outcome of Lin Ze Xian Seed
      Company’s bankruptcy hearings.





Except
      as
      disclosed above, we are currently not a party to any material legal or
      administrative proceedings, and we are not aware of threatened material legal
      or
      administrative proceedings against us. We may from time to time become a party
      to various legal or administrative proceedings arising in the ordinary course
      of
      our business.




***Dividend
      Policy***




We
      have
      never declared or paid any dividends, nor do we have any present plan to pay
      any
      cash dividends on our ordinary shares in the foreseeable future. We currently
      intend to retain most, if not all, of our available funds and any future
      earnings to operate and expand our business.





Our
      board
      of directors may by resolution authorize payment of dividends if the directors
      are satisfied, on reasonable grounds, Origin will, immediately after the
      distribution of dividends, satisfy the solvency test as stipulated in Section
      56
      of the BVI Business Companies Act. Even if our board of directors decides to
      pay
      dividends, the form, frequency and amount will depend upon our future operations
      and earnings, capital requirements and surplus, general financial condition,
      contractual restrictions and other factors that the board of directors may
      deem
      relevant.




**B.** **Significant
      changes.**




We
      have
      not experienced any significant changes since the date of our audited
      consolidated financial statements included in this annual
      report.




**ITEM
      9. THE OFFER AND LISTING**




**A.** **Offering
      and listing details.**




The
      common stock, warrants and units of Chardan, our predecessor, were quoted on
      the
      Over the Counter Bulletin Board (“OTCBB”) under the symbols of CAQC,CAQCW and
      CAQCU, respectively. Chardan’s Units commenced public trading on March 22,2004,
      and its common stock and warrants commenced public trading on March 29, 2004.
      On
      November 8, 2005, Chardan merged with and into Origin for the purpose of
      redomestication out of the United States. On November 8, 2005, Origin’s ordinary
      shares were approved to be listed on the then Nasdaq National Market, now the
      Nasdaq Global Market, under the symbol of SEED. Through January 9, 2006,
      approximately 8,041,000 of the 8,050,000 warrants that were then issued and
      outstanding were exercised at a price of $5.00 per warrant. Holders of the
      few
      remaining warrants that were not exercised were paid $.01 per warrant and the
      warrants were extinguished.





The
      following table provides the high and low trading prices for Origin’s common
      stock, and historical prices for the common stock, warrants and units of Chardan
      for the periods indicated below.




58




**The
                OTCBB Price per Common Stock**
            
            **The
                OTCBB Price per Warrant**
            
            **The
                OTCBB Price per Unit**
            
            **The
                Nasdaq Global Market Price per Share****High**
            
            **Low**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low**
            
            **High**
            
            **Low***Annual
                Market Prices**Year
                2004 (from March 22, 2004)*
            
            
            6.65
            
            
            4.65
            
            
            1.90
            
            
            0.61
            
            
            6.95
            
            
            5.70
            
            
            N/A
            
            
            N/A*Year
                2005 (until November 8, 2005)*
            
            
            10.38
            
            
            6.20
            
            
            5.06
            
            
            1.60
            
            
            20.20
            
            
            9.30
            
            
            N/A
            
            
            N/A*Year
                2005 (from November 8, 2005)*
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            13.80
            
            
            8.45*Quarterly
                Market Prices**First
                Quarter 2004*
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            6.25
            
            
            5.99
            
            
            N/A
            
            
            N/A*Second
                Quarter 2004*
            
            
            5.00
            
            
            4.65
            
            
            1.05
            
            
            0.64
            
            
            6.95
            
            
            6.03
            
            
            N/A
            
            
            N/A*Third
                Quarter 2004*
            
            
            4.94
            
            
            4.75
            
            
            0.85
            
            
            0.61
            
            
            6.80
            
            
            5.70
            
            
            N/A
            
            
            N/A*Fourth
                Quarter 2004*
            
            
            6.65
            
            
            4.85
            
            
            2.03
            
            
            0.62
            
            
            10.60
            
            
            6.00
            
            
            N/A
            
            
            N/A*First
                Quarter 2005*
            
            
            8.20
            
            
            6.10
            
            
            3.21
            
            
            1.60
            
            
            14.35
            
            
            9.30
            
            
            N/A
            
            
            N/A*Second
                Quarter 2005*
            
            
            9.10
            
            
            7.30
            
            
            3.35
            
            
            2.00
            
            
            15.50
            
            
            12.25
            
            
            N/A
            
            
            N/A*Third
                Quarter 2005*
            
            
            9.74
            
            
            7.85
            
            
            8.60
            
            
            3.75
            
            
            30.00
            
            
            14.86
            
            
            N/A
            
            
            N/A*Fourth
                Quarter 2005*
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            13.80
            
            
            8.45*First
                Quarter 2006*
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            17.56
            
            
            14.74*Second
                Quarter 2006*
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            17.49
            
            
            12.27*Monthly
                Market Prices*January
                2006
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            17.70
            
            
            11.48February
                2006
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            18.35
            
            
            15.35March
                2006
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            17.50
            
            
            14.94April
                2006
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            17.74
            
            
            16.10May
                2006
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            17.36
            
            
            13.16June
                2006
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            15.00
            
            
            12.18




**B.** **Plan
      of distribution.**




Not
      applicable




**C.** **Markets.**




See
      Item
      9.A above.





**D.** **Selling
      shareholders.**




Not
      applicable




**E.** **Dilution.**




Not
      applicable




**F.** **Expenses
      of the issue.**




Not
      applicable




**ITEM
      10. ADDITIONAL INFORMATION**




**A.** **Share
      capital.**




Not
      applicable.




**B.** **Memorandum
      and articles of association.**




Our
      board
      of directors adopted certain amendments to the memorandum and articles of
      association on June 26, 2006. Origin was incorporated in the British Virgin
      Islands on February 10, 2005 under the International Business Companies Act.
      In
      view of the passing into law of the BVI Business Companies Act, or the BCA,
      and
      the automatic re-registration of all International Business Companies under
      this
      Act with effect from January 1, 2007, we have made certain changes to the
      Memorandum and Articles of Association in compliance with the BCA. The directors
      of the board of Origin, at a meeting of the board of directors held in Beijing
      on June 25-26, duly considered the Amended and Restated Memorandum and
      Association and Articles of Association, or the M&A, and determined that it
      is in the our interests and the best interests of our shareholders that the
      Amended and Restated M&A be adopted as our new Memorandum of Association and
      Articles of Association, in substitution for and to the exclusion of the
      existing Memorandum of Association and Articles of Association. Our board of
      directors has determined that it would be in our best interests to re-register
      as a company governed by the BCA. In addition to the above changes, we have
      made
      certain other changes, including changes related to corporate governance. Among
      others, we have added provisions regarding the audit committee of the board
      of
      directors. Our board of directors has determined that these amendments to the
      Memorandum of Association and Articles of Association of the company do not
      materially vary rights of our shareholders.




59




The
      following is a summary description of certain provisions of our new Memorandum
      and Articles of Association:





***Charter***





Our
      charter documents consist of our Memorandum of Association and our Articles
      of
      Association. The Memorandum of Association loosely resembles the Articles of
      Incorporation of a United States corporation, and the Articles of Association
      loosely resembles the bylaws of a United States corporation. This description
      and summary does not purport to be complete and does not address all differences
      between United States and British
      Virgin Islands corporate laws. Copies of our new Memorandum and Articles of
      Association have been filed as exhibits to this report. Readers are urged to
      review the exhibits in their entirety for a complete understanding of the
      provisions of our charter documents.





***Corporate
      Powers***





Origin
      was first incorporated as a company under the International Business Companies
      Act, 1984 (as amended) on February 10, 2005 and was re-registered on July 10,
      2006 under the BVI, Business Companies Act, 2004. Clause 7
      of the Amended and Restated M&A states that the Company can carry out any
      object not prohibited by theBVI
      BusinessCompaniesAct2004or
      as the
      same may be revised from time to time, or any other law of theBritish
      VirginIslands.





***Directors***





For
      so
      long as our shares are listed or quoted on Nasdaq, we are required to conduct
      a
      review of all material related party transactions on an ongoing basis (which
      includes transactions in which a director may be interested). We have an audit
      committee which undertakes the review and approval of potential conflicts of
      interest situations.





The
      directors may fix their compensation for services rendered to us.





By
      a
      resolution of directors, the directors may exercise all our powers to borrow
      money, mortgage our property, issue debentures, and issue stock or other
      securities for any debt, liability or obligation given by us.





A
      director may resign or retire from our board at any time. The director must
      give
      written notice of his resignation to us. Directors hold office until the next
      annual meeting of members. We currently do not have a staggered election of
      directors.





The
      shareholding qualification for directors may be fixed and varied by a resolution
      of members and unless it is fixed no shareholding qualification is required.
      A
      director must be an individual.





***Rights
      of Shares***




We
      are
      authorized to issue ordinary shares and preferred shares. The ordinary shares
      have one vote each, are subject to purchase or acquisition by us for fair value
      and have the same rights with regard to dividends and distributions upon our
      liquidation. The directors are authorized to issue one or more classes and
      series of preferred shares and to fix the rights and preferences attached to
      each class of preferred shares. If at any time the shares are divided into
      different classes, the rights attached to any class may only be varied with
      the
      consent in writing of or by a resolution passed at a meeting by the holders
      of
      not less than 50 percent of the issued shares in that class.




60





***Meetings***





An
      annual
      meeting of members must be held each year at such date and time as may be
      determined by the directors, but no later than one year after the end of our
      fiscal year pursuant to relevant Nasdaq rules. Special meetings of members
      may
      be called by the directors pursuant to a resolution of directors to that effect
      or upon the written request of members holding more than 50 percent of the
      votes
      of our outstanding voting shares.  No
      less
      than seven days notice of meetings is required to be given to members.





A
      meeting
      of members may be called on short notice if members holding not less than 90
      percent of the total number of shares entitled to vote on all matters to be
      considered at the meeting, or 90 percent of the votes of each class or series
      of
      shares where members are entitled to vote thereon as a class or series together
      with not less than a 90 percent majority of the remaining votes, have agreed
      to
      short notice of the meeting, or if all members holding shares entitled to vote
      on all or any matters to be considered at the meeting have waived notice of
      the
      meeting and for this purpose presence at the meeting shall be deemed to
      constitute waiver.





The
      inadvertent failure of the directors to give notice of a meeting to a member,
      or
      the fact that a member has not received notice, does not invalidate the
      meeting.





A
      member
      may be represented at a meeting of members by a proxy who may speak and vote
      on
      behalf of the member. A written instrument giving the proxy such authority
      must
      be produced at the place appointed for the meeting before the time for holding
      the meeting.





A
      meeting
      of members is duly constituted if; at the commencement of the meeting, there
      are
      present in person or by proxy not less than 50 percent of the votes of the
      shares or class or series of shares entitled to vote on resolutions of members
      to be considered at the meeting.





***Limitations
      on Ownership of Securities***





There
      are
      no limitations on the right of non residents or foreign persons to own our
      securities imposed by British Virgin Islands law or by our Amended and Restated
      M&A.





***Change
      in Control of Company***





There
      are
      no provisions in our Amended
      and Restated M&A that
      would operate only to delay, defer or prevent a change of control of our
      company. However, the board of directors has the power to issue preferred shares
      with such rights attaching to them as they decide and that this power could
      be
      used in a manner that would delay, defer of prevent a change of control of
      our
      company.





***Ownership
      Threshold***





There
      are
      no provisions governing the ownership threshold above which shareholder
      ownership must be disclosed.





***Changes
      in Capital***





Subject
      to the provisions of the BVI Business Companies Act, 2004, we may, by a
      resolution of directors or members, amend our Amended
      and Restated M&A to
      increase or decrease the number of shares authorized to be issued. There is
      no
      definition of capital in the BVI Business Companies Act, 2004. The directors
      of
      a company may, by resolution, authorise a distribution (including a capital
      distribution) by their company at a time, of an amount, and to any members
      they
      think fit if they are satisfied, on reasonable grounds, that the company will,
      immediately after the distribution, satisfy the solvency test. The solvency
      test
      is satisfied if the value of the company’s assets exceeds its liabilities, and
      the company is able to pay its debts as they fall due.





**C.** **Material
      contracts.**




We
      have
      not entered into any material contracts other than in the ordinary course of
      business and other than those described in Item 4, “Information on the Company”
and in Item 7, “Major Shareholders and Related Party Transactions” or elsewhere
      in this annual report on Form 20-F.




61




**D.** **Exchange
      controls.** **




***British
      Virgin Islands***





There
      are
      no material exchange controls restrictions on payment of dividends, interest
      or
      other payments to the holders of our ordinary or preferred shares or on the
      conduct of its operations in the BVI, where we were incorporated. There are
      no
      material BVI laws which impose any material exchange controls on us or that
      affect the payment of dividends, interest or other payments to nonresident
      holders of its ordinary or preferred shares. BVI law and our Amended
      and Restated M&A impose
      no material limitations on the right of non-residents or foreign owners to
      hold
      or vote our ordinary or preferred shares.





***China***





China’s
      government imposes control over the convertibility of RMB into foreign
      currencies. Under the current unified floating exchange rate system, the China
      Foreign Exchange Transaction Center, authorized by the People’s Bank of China
      publishes a daily exchange rate for RMB, or the PBOC Exchange Rate, based on
      the
      weighted average of quotations from all the market makers in the inter-bank
      foreign exchange market before open quotation. Financial institutions authorized
      to deal in foreign currency may enter into foreign exchange transactions at
      exchange rates within an authorized range above or below the PBOC Exchange
      Rate
      according to market conditions.





Pursuant
      to the Foreign Exchange Control Regulations issued by the State Council on
      January 29, 1996 and effective as of April 1, 1996 (and amended on January
      14, 1997) and the Administration of Settlement, Sale and Payment of Foreign
      Exchange Regulations which came into effect on July 1, 1996 regarding foreign
      exchange control, or the Regulations, conversion of Renminbi into foreign
      exchange by foreign investment enterprises for current account items, including
      the distribution of dividends and profits to foreign investors of joint
      ventures, is permissible upon the proper production of qualified commercial
      vouchers or legal documents as required by the Regulations. Foreign investment
      enterprises are permitted to remit foreign exchange from their foreign exchange
      bank account in China upon the proper production of, inter alia, the board
      resolutions declaring the distribution of the dividend and payment of profits.
      Conversion of RMB into foreign currencies and remittance of foreign currencies
      for capital account items, including direct investment, loans, security
      investment, is still subject to the approval of the State Administration of
      Foreign Exchange or any authorized local branches, or SAFE or the Branches,
      in
      each such transaction. On January 14, 1997, the State Council amended the
      Foreign Exchange Control Regulations and added, among other things, an important
      provision, as Article 5 provides that the State shall not impose restrictions
      on
      recurring international payments and transfers under current accounts.




Under
      the
      Regulations, foreign investment enterprises are required to open and maintain
      separate foreign exchange accounts for capital account items (but not for other
      items). In addition, foreign investment enterprises may only buy, sell and/or
      remit foreign currencies at those banks authorized to conduct foreign exchange
      business upon the production of valid commercial documents and, in the case
      of
      capital account item transactions, document approval from SAFE or the Branches.




Currently,
      foreign investment enterprises are required to apply to SAFE for “foreign
      exchange registration certificates for foreign investment enterprises.” With
      such foreign exchange registration certificates (which are granted to foreign
      investment enterprises upon fulfilling specified conditions and which are
      subject to review and renewal by SAFE or its Branches on an annual basis) or
      with the foreign exchange sales notices from SAFE (which are obtained on a
      transaction-by-transaction basis), foreign-invested enterprises may open foreign
      exchange bank accounts (the advance examination and approval for the opening
      of
      foreign exchange current accounts has been cancelled according to the Notice
      of
      SAFE on Adjusting Policies Concerning the Administration of Foreign Exchange
      Current Accounts, which came into effect on May 1, 2006) and enter into foreign
      exchange transactions at banks authorized to conduct foreign exchange business
      to obtain foreign exchange for their needs.




**E.** **Taxation.**




*The
      following is a general summary of certain material British Virgin Islands
      and*  *U.S.
      federal income tax considerations. The discussion is not intended to
      be,*  *nor
      should it be construed as, legal or tax advice to any
      particular*  *prospective
      shareholder. The discussion is based on laws and relevant*  *interpretations
      thereof in effect as of the date hereof, all of which are*  *subject
      to change or different interpretations, possibly with
      retroactive*  *effect.*




62


*The
        discussion does not address United States state or local tax
        laws,*  *or
        tax laws of jurisdictions other than the British Virgin Islands and the
        United*  *States.*




***British
      Virgin Islands Taxation***




The
      British Virgin Islands, or BVI, does not impose a withholding tax on dividends
      paid by us to holders of our ordinary or preferred shares. Nor does the BVI
      levy
      any capital gains or income taxes on us.





Further,
      a holder of our ordinary or preferred shares who is not a resident of the BVI
      is
      exempt from the BVI income tax on dividends paid with respect to the ordinary
      or
      preferred shares. Holders of ordinary or preferred shares are not subject to
      the
      BVI income tax on gains realized on the sale or disposition of the ordinary
      or
      preferred shares.





Our
      ordinary and preferred shares are not subject to transfer taxes, stamp duties
      or
      similar charges in the BVI. However, as a business company, we are required
      to
      pay the BVI government an annual license fee based on the number of shares
      we
      are authorized to issue.





There
      is
      no income tax treaty or convention currently in effect between the United States
      and the BVI.





**United
      States federal income taxation**




This
      discussion describes the material U.S. federal income tax consequences of the
      purchase, ownership and disposition of our ordinary shares. This discussion
      does
      not address any aspect of U.S. federal gift or estate tax, or the state, local
      or foreign tax consequences of an investment in our ordinary shares. This
      discussion applies to you only if you hold and beneficially own our ordinary
      shares as capital assets for tax purposes. This discussion does not apply to
      you
      if you are a member of a class of holders subject to special rules, such as:




·
            
            dealers
                in securities or currencies;·
            
            traders
                in securities that elect to use a mark-to-market method of accounting
                for
                securities holdings;·
            
            banks
                or other financial institutions;·
            
            insurance
                companies;·
            
            tax-exempt
                organizations;·
            
            partnerships
                and other entities treated as partnerships for U.S. federal income
                tax
                purposes or persons holding ordinary shares through any such
                entities;·
            
            persons
                that hold ordinary shares as part of a hedge, straddle, constructive
                sale,
                conversion transaction or other integrated investment;·
            
            U.S.
                Holders (as defined below) whose functional currency for tax purposes
                is
                not the U.S. dollar;·
            
            persons
                liable for alternative minimum tax; or·
            
            persons
                who actually or constructively own 10% or more of the total combined
                voting power of all classes of our shares (including ordinary shares)
                entitled to vote.




This
      discussion is based on the U.S. Internal Revenue Code of 1986, as amended,
      which
      we refer to in this discussion as the Code, its legislative history, existing
      and proposed regulations promulgated thereunder, published rulings and court
      decisions, all as currently in effect. These laws are subject to change,
      possibly on a retroactive basis. In addition, this discussion relies on our
      assumptions regarding the value of our shares and the nature of our business
      over time. Finally, this discussion is based in part upon the representations
      of
      the depositary and the assumption that each obligation in the deposit agreement
      and any related agreement will be performed in accordance with its terms.




63




You
      should consult your own tax advisor concerning the particular U.S. federal
      income tax consequences to you of the purchase, ownership and disposition of
      our
      ordinary shares, as well as the consequences to you arising under the laws
      of
      any other taxing jurisdiction.




For
      purposes of the U.S. federal income tax discussion below, you are a “U.S.
      Holder” if you beneficially own ordinary shares and are:




·
            
            a
                citizen or resident of the United States for U.S. federal income
                tax
                purposes;·
            
            a
                corporation, or other entity taxable as a corporation, that was created
                or
                organized in or under the laws of the United States or any political
                subdivision thereof;·
            
            an
                estate the income of which is subject to U.S. federal income tax
                regardless of its source; or·
            
            a
                trust if (a) a court within the United States is able to exercise
                primary supervision over its administration and one or more U.S.
                persons
                have the authority to control all substantial decisions of the trust,
                or
                (b) the trust has a valid election in effect to be treated as a U.S.
                person.




If
      you
      are not a U.S. person, please refer to the discussion below under “Non-U.S.
      Holders.”




For
      U.S.
      federal income tax purposes, income earned through a foreign or domestic
      partnership or other flow-through entity is attributed to its owners.
      Accordingly, if a partnership or other flow-through entity holds ordinary
      shares, the tax treatment of the holder will generally depend on the status
      of
      the partner or other owner and the activities of the partnership or other
      flow-through entity.




***U.S.
      Holders***




*Dividends
      on ordinary shares*




We
      do not
      anticipate paying dividends on our ordinary shares or indirectly on our ordinary
      shares, in the foreseeable future. See “Dividend policy.”




Subject
      to the “Passive Foreign Investment Company” discussion below, if we do make
      distributions and you are a U.S. Holder, the gross amount of any distributions
      you receive on your ordinary shares will generally be treated as dividend income
      if the distributions are made from our current or accumulated earnings and
      profits, calculated according to U.S. federal income tax principles. Dividends
      will generally be subject to U.S. federal income tax as ordinary income on
      the
      day you actually or constructively receive such income. However, if you are
      an
      individual and have held your ordinary shares for a sufficient period of time,
      dividend distributions on our ordinary shares will generally constitute
      qualified dividend income taxed at a preferential rate (generally 15% for
      dividend distributions before January 1, 2011) as long as our ordinary shares
      continue to be readily tradable on the Nasdaq Global Market and certain other
      conditions apply. You should consult your own tax adviser as to the rate of
      tax
      that will apply to you with respect to dividend distributions, if any, you
      receive from us.




We
      do not
      intend to calculate our earnings and profits according to U.S. tax accounting
      principles. Accordingly, distributions on our ordinary shares, if any, will
      generally be taxed to you as dividend distributions for U.S. tax purposes.
      Even
      if you are a corporation, you will not be entitled to claim a dividends-received
      deduction with respect to distributions you receive from us. Dividends generally
      will constitute foreign source passive income for U.S. foreign tax credit
      limitation purposes.




*Sales
      and other dispositions of ordinary shares*




Subject
      to the “Passive Foreign Investment Company” discussion below, when you sell or
      otherwise dispose of ordinary shares, you will generally recognize capital
      gain
      or loss in an amount equal to the difference between the amount realized on
      the
      sale or other disposition and your adjusted tax basis in the ordinary shares,
      both as determined in U.S. dollars. Your adjusted tax basis will generally
      equal
      the amount you paid for the ordinary shares. Any gain or loss you recognize
      will
      be long-term capital gain or loss if your holding period in our ordinary shares
      is more than one year at the time of disposition. If you are an individual,
      any
      such long-term capital gain will be taxed at preferential rates. Your ability
      to
      deduct capital losses will be subject to various limitations.




64




*Passive
      Foreign Investment Company*




If
      we
      were a Passive Foreign Investment Company, or PFIC, in any taxable year in
      which
      you hold our ordinary shares, as a U.S. Holder, you would generally be subject
      to adverse U.S. tax consequences, in the form of increased tax liabilities
      and
      special U.S. tax reporting requirements.




We
      will
      be classified as a PFIC in any taxable year if either: (1) the average
      percentage value of our gross assets during the taxable year that produce
      passive income or are held for the production of passive income is at least
      50%
      of the value of our total gross assets or (2) 75% or more of our gross income
      for the taxable year is passive income (such as certain dividends, interest
      or
      royalties). For purposes of the first test: (1) any cash, cash equivalents,
      and
      cash invested in short-term, interest bearing, debt instruments, or bank
      deposits that is readily convertible into cash, will generally count as
      producing passive income or held for the production of passive income and (2)
      the average value of our gross assets is calculated based on our market
      capitalization.




We
      believe that we were not a PFIC for the taxable year 2005. However, there can
      be
      no assurance that we will not be a PFIC for the taxable year 2006 and/or later
      taxable years, as PFIC status is re-tested each year and depends on the facts
      in
      such year. For example, we would be a PFIC for the taxable year 2005 if the
      sum
      of our average market capitalization, which is our share price multiplied by
      the
      total amount of our outstanding shares, and our liabilities over that taxable
      year was not more than twice the value of our cash, cash equivalents, and other
      assets that are readily converted into cash. We could also be a PFIC for any
      taxable year if the gross income that we and our subsidiaries earn from
      investing the portion of the cash that exceeds the immediate capital needs
      of
      our active business is substantial in comparison with the gross income from
      our
      business operations.




If
      we
      were a PFIC, you would generally be subject to additional taxes and interest
      charges on certain “excess” distributions we make and on any gain realized on
      the disposition or deemed disposition of your ordinary shares, regardless of
      whether we continue to be a PFIC in the year in which you receive an “excess”
distribution or dispose of or are deemed to dispose of your ordinary shares.
      Distributions in respect of your ordinary shares during a taxable year would
      generally constitute “excess” distributions if, in the aggregate, they exceed
      125% of the average amount of distributions in respect of your ordinary shares
      over the three preceding taxable years or, if shorter, the portion of your
      holding period before such taxable year.




To
      compute the tax on “excess” distributions or any gain, (1) the “excess”
distribution or the gain would be allocated ratably to each day in your holding
      period, (2) the amount allocated to the current year and any tax year before
      we
      became a PFIC would be taxed as ordinary income in the current year, (3) the
      amount allocated to other taxable years would be taxable at the highest
      applicable marginal rate in effect for that year, and (4) an interest charge
      at
      the rate for underpayment of taxes for any period described under (3) above
      would be imposed with respect to any portion of the “excess” distribution or
      gain that is allocated to such period. In addition, if we were a PFIC, no
      distribution that you receive from us would qualify for taxation at the
      preferential rate discussed in the “Dividends on ordinary shares” section above.




If
      we
      were a PFIC in any year, and if you are a U.S. Holder, you would be required
      to
      make an annual return on IRS Form 8621 regarding your ordinary shares. However,
      we do not intend to generate, or share with you, information that you might
      need
      to properly complete IRS Form 8621. You should consult with your own tax adviser
      regarding reporting requirements with regard to your ordinary shares.




If
      we
      were a PFIC in any year, you would generally be able to avoid the “excess”
distribution rules described above by making a timely so-called “mark-to-market”
election with respect to your ordinary shares provided our ordinary shares
      are
“marketable.” Our ordinary shares will be “marketable” as long as they remain
      regularly traded on Nasdaq Global Market. If you made this election in a timely
      fashion, you would generally recognize as ordinary income or ordinary loss
      the
      difference between the fair market value of your ordinary shares on the first
      day of any taxable year and their value on the last day of that taxable year.
      Any ordinary income resulting from this election would generally be taxed at
      ordinary income rates and would not be eligible for the reduced rate of tax
      applicable to qualified dividend income. Any ordinary losses would be limited
      to
      the extent of the net amount of previously included income as a result of the
      mark-to-market election, if any. Your basis in the ordinary shares would be
      adjusted to reflect any such income or loss. You should consult with your own
      tax adviser regarding potential advantages and disadvantages to you of making
      a
“mark-to-market” election with respect to your ordinary shares. Separately, if
      we were a PFIC in any year, you would be able to avoid the “excess” distribution
      rules by making a timely election to treat us as a so-called “Qualified Electing
      Fund”, or QEF. You would then generally be required to include in gross income
      for any taxable year (1) as ordinary income, your pro rata share of our
      ordinary earnings for the taxable year, and (2) as long-term capital gain,
      your pro rata share of our net capital gain for the taxable year. However,
      we do
      not intend to provide you with the information you would need to make or
      maintain a QEF election and you will, therefore, not be able to make or maintain
      such an election with respect to your ordinary shares.




65




***Non-U.S.
      Holders***




If
      you
      beneficially own ordinary shares and are not a U.S. Holder for U.S. federal
      income tax purposes, or a Non-U.S. Holder, you generally will not be subject
      to
      U.S. federal income tax or withholding on dividends received from us with
      respect to ordinary shares unless that income is considered effectively
      connected with your conduct of a U.S. trade or business and, if an applicable
      income tax treaty so requires as a condition for you to be subject to U.S.
      federal income tax with respect to income from your ordinary shares, such
      dividends are attributable to a permanent establishment that you maintain in
      the
      United States. You generally will not be subject to U.S. federal income tax,
      including withholding tax, on any gain realized upon the sale or exchange of
      ordinary shares, unless:




·
            
            that
              gain is effectively connected with the conduct of a U.S. trade or business
              and, if an applicable income tax treaty so requires as a condition
              for you
              to be subject to U.S. federal income tax with respect to income from
              your
              ordinary shares, such gain is attributable to a permanent establishment
              that you maintain in the United States; or·
            
            you
                are a nonresident alien individual and are present in the United
                States
                for at least 183 days in the taxable year of the sale or other disposition
                and either (1) your gain is attributable to an office or other fixed
                place of business that you maintain in the United States or (2) you
                have a
                tax home in the United States.




If
      you
      are engaged in a U.S. trade or business, unless an applicable tax treaty
      provides otherwise, the income from your ordinary shares, including dividends
      and the gain from the disposition of ordinary shares, that is effectively
      connected with the conduct of that trade or business will generally be subject
      to the rules applicable to U.S. Holders discussed above. In addition, if you
      are
      a corporation, you may be subject to an additional branch profits tax at a
      rate
      of 30% or any lower rate under an applicable tax treaty.




***U.S.
      information reporting and backup withholding rules***




In
      general, dividend payments with respect to the ordinary shares and the proceeds
      received on the sale or other disposition of those ordinary shares may be
      subject to information reporting to the IRS and to backup withholding (currently
      imposed at a rate of 28%). Backup withholding will not apply, however, if you
      (1) are a corporation or come within certain other exempt categories and, when
      required, can demonstrate that fact or (2) provide a taxpayer identification
      number, certify as to no loss of exemption from backup withholding and otherwise
      comply with the applicable backup withholding rules. To establish your status
      as
      an exempt person, you will generally be required to provide certification on
      IRS
      Form W-9, W-8BEN or W-8ECI, as applicable. Any amounts withheld from payments
      to
      you under the backup withholding rules will be allowed as a refund or a credit
      against your U.S. federal income tax liability, provide that you furnish the
      required information to the IRS.




HOLDERS
      OF OUR ORDINARY SHARES SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING
      THE
      APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS
      AS WELL AS ANY TAX CONSEQUENCES RESULTING FROM PURCHASING, HOLDING OR DISPOSING
      OF THE ORDINARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF THE TAX LAWS
      OF ANY STATE, LOCAL OR FOREIGN JURISDICTION AND INCLUDING ESTATE, GIFT, AND
      INHERITANCE LAWS.




**F.** **Dividends
      and paying agents.**




Not
      applicable.




**G.** **Statement
      by experts.**




Not
      applicable.




66


**H.** **Documents
        on display.**


We
      have
      filed this Annual Report on Form 20-F with the Securities and Exchange
      Commission under the Securities Exchange Act of 1934, as amended. Statements
      made in this Annual Report as to the contents of any document referred to are
      not necessarily complete. With respect to each such document filed as an exhibit
      to this Annual Report, reference is made to the exhibit for a more complete
      description of the matter involved, and each such statement shall be deemed
      qualified in its entirety by such reference.




We
      are
      subject to the informational requirements of the Exchange Act and file reports
      and other information with the Securities and Exchange Commission. Reports
      and
      other information which the Company filed with the Securities and Exchange
      Commission, including this Annual Report on Form 20-F, may be inspected and
      copied at the public reference room of the Securities and Exchange Commission
      at
      450 Fifth Street N.W. Washington D.C. 20549.




You
      can
      also obtain copies of this Annual Report on Form 20-F by mail from the Public
      Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
      N.W., Washington D.C. 20549, at prescribed rates. Additionally, copies of this
      material may be obtained from the Securities and Exchange Commission’s Internet
      site at http://www.sec.gov. The Commission’s telephone number is
      1-800-SEC-0330.




**I.** **Subsidiaries
      information.**




Not
      Applicable.




**ITEM
      11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**




**Interest
      rate risk**




Our
      exposure to market rate risk for changes in interest rates relates primarily
      to
      the interest income generated by excess cash invested in short term money market
      accounts and certificates of deposit. We have not used derivative financial
      instruments in our investment portfolio. Interest earning instruments carry
      a
      degree of interest rate risk. We have not been exposed nor do we anticipate
      being exposed to material risks due to changes in interest rates. However,
      our
      future interest income may fall short of expectations due to changes in interest
      rates.




**Foreign
      currency risk**




Substantially
      all our revenues and expenses are denominated in Renminbi and a substantial
      portion of our cash is kept in Renminbi, but a portion of our cash is also
      kept
      in U.S. dollars. Although we believe that, in general, our exposure to foreign
      exchange risks should be limited, the value of our shares will be affected
      by
      the foreign exchange rate between U.S. dollars and Renminbi. For example, to
      the
      extent that we need to convert U.S. dollars into Renminbi for our operational
      needs and the Renminbi appreciates against the U.S. dollar at that time, our
      financial position and the price of our shares may be adversely affected.
      Conversely, if we decide to convert our Renminbi into U.S. dollars for the
      purpose of declaring dividends on our shares or otherwise and the U.S. dollar
      appreciates against the Renminbi, the U.S. dollar equivalent of our earnings
      in
      China would be reduced.




We
      have
      recorded nil foreign exchange gains/loss in net income in year 2005, due to
      the
      recent revaluation of the Renminbi against the U.S. dollar by the PRC
      government. The PRC government may further readjust the current rate at which
      Renminbi-U.S. dollar exchanges are fixed, as well as re-evaluate its decades-old
      policy of using a fixed-rate regime to govern foreign currency transactions,
      although the PRC government has not committed itself to take any such action
      currently. Since we have not engaged in any hedging activities, we may
      experience economic loss as a result of any foreign currency exchange rate
      fluctuations.




***Inflation*** **





In
      recent
      years, China has not experienced significant inflation, and thus inflation
      has
      not had a significant effect on our business during the past three years.
      According to the China Statistical Bureau, China’s overall national inflation
      rate, as represented by the general consumer price index, was approximately
      1.2%, 3.9% and 1.8%, in 2003, 2004 and 2005 respectively. Sustained or increased
      inflation in China may have an adverse impact on China’s economy, which could
      affect demand for our products or services or increase our cost of services
      or
      operating expenses. As we have not previously operated during a period of
      significant inflation, we cannot predict with confidence the effect that such
      inflation may have on our business. ****





67




**ITEM
      12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES**




Not
      Applicable.




**PART
      II**




**ITEM
      13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES**




Not
      Applicable.




**ITEM
      14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS**




The
      rights of securities holders have not been materially changed.




On
      December 5, 2005, Origin sent out redemption notices to all of the holders
      of
      its issued and its outstanding callable common stock purchase warrants. The
      warrants were originally issued by Chardan in March 2004. As a result of the
      merger of Chardan into Origin, the warrants were exercisable into common shares
      of Origin. Origin had the right to call these warrants when the common shares
      had traded at greater than $8.50 for at least 20 of 30 trading days prior to
      the
      notice of redemption being sent to warrant holders. The warrants were exercised
      for common shares of Origin at $5.00 per warrant. Approximately 8,041,000 of
      the
      8,050,000 warrants that were then issued and outstanding were exercised at
      a
      price of $5.00 per warrant through January 9, 2006. Holders of the few remaining
      warrants that were not exercised were paid $0.01 per warrant and the warrants
      were extinguished. The gross proceeds received from this redemption were
      approximately $40 million, of which $15 million was used to satisfy the
      outstanding obligations of Origin to the initial shareholders of State Harvest
      under the Stock Purchase Agreement among State Harvest, Chardan and other
      parties, and the remainder has been used as working capital and other corporate
      purposes, including acquisitions.




**ITEM
      15. CONTROLS AND PROCEDURES**




Our
      management has evaluated the effectiveness of our disclosure controls and
      procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
      the Securities Exchange Act of 1934, as amended, or Exchange Act, as of the
      end
      of the fiscal year covered by this report. Based on such evaluation, our chief
      executive officer and chief financial officer have concluded that, as of the
      end
      of the fiscal year covered by this report, our disclosure controls and
      procedures were effective in recording, processing, summarizing and reporting,
      on a timely basis, information required to be disclosed by us in the reports
      that we file or submit under the Exchange Act.




There
      have not been any change in our internal control over financial reporting (as
      such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
      Act) during the fiscal year covered by this report that have materially
      affected, or are reasonably likely to materially affect, our internal control
      over financial reporting.




**ITEM
      16A.****AUDIT
      COMMITTEE FINANCIAL EXPERT.**





The
      board
      of directors believes that Mr. Remo Richli, a member of our audit committee,
      meets the criteria for an “audit committee financial expert” as established by
      the U.S. Securities and Exchange Commission.




Mr. Remo
      Richli will not be deemed an “expert” for any purpose, including, without
      limitation, for purposes of Section 11 of the U.S. Securities Act of 1933,
      as
      amended, as a result of being designated or identified as an audit committee
      financial expert. The designation or identification of Mr. Remo Richli as
      an audit committee financial expert does not impose on him any duties,
      obligations or liability that are greater than the duties, obligations and
      liability imposed on him as a member of the audit committee and board of
      directors in the absence of such designation or identification. The designation
      or identification of Mr. Remo Richli as an audit committee financial expert
      does not affect the duties, obligations or liability of any other member of
      the
      audit committee or board of directors.




68





**ITEM
      16B.**  **CODE
      OF ETHICS.**





Our
      board
      of directors has adopted a code of ethics that applies to Origin’s directors,
      officers and employees and to those of its subsidiaries. A copy of the form
      of
      Origin’s code of ethics was filed as Annex G to our registration statement on
      Form S-4 filed with the Securities and Exchange Commission on May 26, 2005
      and
      with effect as of September 27, 2005.





**ITEM
      16C.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.**




**(a)       
      Audit Fees.**





The
      aggregate fees billed for 2002, 2003 and 2004 for professional services rendered
      by Deloitte
      Touche Tohmatsu CPA Ltd .
      for the
      audit of the annual financial statements of State Harvest Holdings Limited
      were
      $0.3 million. The aggregate fees billed for 2005 for professional services
      rendered by Deloitte
      Touche Tohmatsu CPA Ltd .
      for the
      audit of the annual financial statements of Origin Agritech Limited were $0.5
      million.





**(b)      
      Audit — Related Fees**





No
      fees
      were billed in each of the last two fiscal years for assurance and related
      services by our principal accountant that are reasonably related to the
      performance of the audit or review of our financial statements and are not
      reported under paragraph (a) of this Item 16C for 2004 and 2005.





**(c)       
      Tax Fees**





We
      did
      not enter into any engagement in 2004 or 2005 for professional services rendered
      by our principal accountant for tax compliance, tax advice or tax
      planning.





**(d)      
      All Other Fees**





No
      fees
      were billed in each of the last two fiscal years for products and services
      provided by our principal accountant, other than the services reported in
      paragraphs (a) through (b) of this Item 16C for 2004 and
      2005.





**(e)**  **Audit
      Committee Pre-Approval Policies and Procedures.**





The
      Audit
      Committee is to pre-approve all auditing services and permitted non-audit
      services to be performed for us by our independent auditor, including the fees
      and terms thereof (subject to the de minimums exceptions for non-audit services
      described in Section 10A(i)(l)(B) of the Exchange Act which are approved by
      the
      Audit Committee prior to the completion of the audit).





**(f).** Not
      applicable.





**ITEM
      16D.**  **EXEMPTIONS
      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.**





We
      have
      not been granted an exemption from the applicable listing standards for the
      audit committee of our board of directors.





**ITEM
      16E.**  **PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
      PURCHASERS.**





None.





**PART
      III**




**ITEM
      17. FINANCIAL STATEMENTS**




We
      have
      elected to provide financial statements pursuant to Item 18.




**ITEM
      18. FINANCIAL STATEMENTS**




69




The
      consolidated financial statements for the Company and its subsidiaries are
      included at the end of this annual report.




**ITEM
      19. EXHIBITS**




**Index
      to Exhibits**




**Exhibit****Number**
            
            **Description**1.1
            
            
            Memorandum
                and Articles of Association of Origin Agritech Limited re-registered
                under
                the new Business Companies Act of the British Virgin Islands as of
                July
                10, 2006.2.1
            
            
            Specimen
                Common Stock Certificate (Incorporated by reference to Exhibit 4.2
                to our
                Registration Statement S-4/A (file no. 333-124709) filed with the
                Securities and Exchange Commission on August 22, 2005).4.1
            
            
            2005
                Performance Equity Plan (Incorporated by reference to Annex D of
                the proxy
                statement/prospectus included in our Registration Statement S-4/A
                (file
                no. 333-124709) filed with the Securities and Exchange Commission
                on
                September 27, 2005).4.2
            
            
            Form
                of Employee Share Option Agreement of Origin Agritech Limited.4.3
            
            
            Technical
                Service Agreement between Origin Biotechnology and Beijing Origin
                (Incorporated by reference to Exhibit 10.14 to our Registration Statement
                S-4/A (file no. 333-124709) filed with the Securities and Exchange
                Commission on August 22, 2005).4.4
            
            
            Technical
                Service Agreement between Origin Biotechnology and Henan Origin
                (Incorporated by reference to Exhibit 10.15 to our Registration Statement
                S-4/A (file no. 333-124709) filed with the Securities and Exchange
                Commission on August 22, 2005).4.5
            
            
            Technical
                Service Agreement between Origin Biotechnology and Changchun Origin
                (Incorporated by reference to Exhibit 10.16 to our Registration Statement
                S-4/A (file no. 333-124709) filed with the Securities and Exchange
                Commission on August 22, 2005).4.6
            
            
            Form
                of Stock Consignment Agreement (Incorporated by reference to Exhibit
                10.17
                to our Registration Statement S-4/A (file no. 333-124709) filed with
                the
                Securities and Exchange Commission on August 22, 2005).4.7
            
            
            Employment
                Agreement between State Harvest and Dr. Han Gengchen (Incorporated
                by
                reference to Exhibit 10.20 to our Registration Statement S-4/A (file
                no.
                333-124709) filed with the Securities and Exchange Commission on
                July 7,
                2005).4.8
            
            
            Employment
                Agreement between State Harvest and Mr. Yang Yasheng (Incorporated
                by
                reference to Exhibit 10.21 to our Registration Statement S-4/A (file
                no.
                333-124709) filed with the Securities and Exchange Commission on
                July 7,
                2005).4.9
            
            
            Employment
                Agreement between State Harvest and Mr. Yuan Liang (Incorporated
                by
                reference to Exhibit 10.22 to our Registration Statement S-4/A (file
                no.
                333-124709) filed with the Securities and Exchange Commission on
                July 7,
                2005).4.10
            
            
            Form
                of Voting Agreement among Origin and Dr. Han and Messrs. Yang and
                Yuan
                (Incorporated by reference to Exhibit 10.24 to our Registration Statement
                S-4/A (file no. 333-124709) filed with the Securities and Exchange
                Commission on July 7, 2005).4.11
            
            
            Form
                Corn Seed Production Booking Contract(Incorporated
                by reference to Exhibit 10.26 to our Registration Statement S-4/A
                (file
                no. 333-124709) filed with the Securities and Exchange Commission
                on
                August 22, 2005).




70




4.12
            
            
            Technology
                Transfer Agreement between Henan Agriculture University and Beijing
                Origin
                (YuYu22)(Incorporated by reference to Exhibit 10.27 to our Registration Statement
                S-4/A (file no. 333-124709) filed with the Securities and Exchange
                Commission on August 22, 2005).4.13
            
            
            Joint
                Development agreement with Corn Research Institute of Li County
                (1stAgreement)(Incorporated by reference to Exhibit 10.28 to our Registration Statement
                S-4/A (file no. 333-124709) filed with the Securities and Exchange
                Commission on August 22, 2005).4.14
            
            
            Joint
                Development Agreement with Corn Research Institute of Li County
                (2ndAgreement)(Incorporated
                by reference to Exhibit 10.29 to our Registration Statement S-4/A
                (file
                no. 333-124709) filed with the Securities and Exchange Commission
                on
                September 16, 2005).4.15
            
            
            Joint
                Development Agreement with Hubei Province Shiyan Agricultural Sciences
                Institute (EYu10)(Incorporated by reference to Exhibit 10.30 to our Registration Statement
                S-4/A (file no. 333-124709) filed with the Securities and Exchange
                Commission on September 16, 2005).4.16
            
            
            Form
                Equity Transfer Agreement between Beijing Origin and shareholders
                of
                Denong Zhengcheng Seed Co., Ltd. pursuant to which Beijing Origin
                acquired
                52.21% equity interest in Denong Zhengcheng Seed Co., Ltd.4.17
            
            
            Equity
                Transfer Agreement between Beijing Origin and Jilin Academy of Agriculture
                Science dated as of December 6, 2005.4.18
            
            
            Equity
                Transfer Agreement between Beijing Origin andChina
                National Center for Biotechnology Developmentdated as of December 28, 2004.4.19
            
            
            Capital
                Contribution Agreement.4.20
            
            
            New
                Corn Seed Liyu 35 Joint Development Agreement between Beijing Origin
                and
                Shijiazhuang Liyu Technology Development Co., Ltd.4.21
            
            
            Joint
                Development Agreement between Beijing Origin and Corn Research Institute
                of Li County dated January 31, 2002.4.22
            
            
            Joint
                Development Agreement between Beijing Origin and Corn Research Institute
                of Li County dated January 9, 2003.4.23
            
            
            Technology
                Transfer and Cooperation Agreement Concerning a New Corn Hybrid Yuyu
                20.4.24
            
            
            Renminbi
                Capital Loan Contract4.25
            
            
            Mortgage
                Contract4.26
            
            
            Form
                of Hybrid Corn Seed Sales Contract8.1
            
            
            List
                of subsidiaries.12.1
            
            
            CEO
                Certification Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)) (17
                CFR 240.13a-14(a)) or Rule 15d-1(a) (17 CFR
                240.15d-14(a))12.2
            
            
            CFO
                Certification Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)) or
                Rule 15d-1(a) (17 CFR 240.15d-14(a))13.1
            
            
            CEO
                Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
                200213.2
            
            
            CFO
                Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002





71




**SIGNATURE**




The
      registrant hereby certifies that it meets all of the requirements for filing
      on
      Form 20-F and that it has duly caused and authorized the undersigned to sign
      this annual report on its behalf.




Date:
              July 14,
              2006
            
            ORIGIN
              AGRITECH
              LIMITED/s/ Han
              GengchenName:
                Han
                GengchenTitle:
                Chief
                Executive Officer






72




ORIGIN
      AGRITECH LIMITED




Report
      of
      Independent Registered Public Accounting


Firm
      and
      Consolidated Financial Statements


For
      the
      years ended December 31, 2003, 2004 and 2005










**ORIGIN
      AGRITECH LIMITED**





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**





CONTENTS
            
            PAGEREPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            
            F-1CONSOLIDATED
                BALANCE SHEETS AS OF DECEMBER 31, 2004 AND 2005
            
            F-2CONSOLIDATED
                STATEMENTS OF OPERATIONS FOR THEYEARS
                ENDED DECEMBER 31, 2003, 2004 AND 2005
            
            F-3CONSOLIDATED
                STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOMEFOR
                THEYEARS
                ENDED DECEMBER 31, 2003, 2004 AND 2005
            
            F-4CONSOLIDATED
                STATEMENTS OF CASH FLOWSFOR
                THEYEARS
                ENDED DECEMBER 31, 2003, 2004 AND 2005
            
            F-5NOTES
                TO THE CONSOLIDATED FINANCIAL STATEMENTS
            
            F-7










**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





TO
      THE
      BOARD OF DIRECTORS AND SHAREHOLDERS OF


ORIGIN
      AGRITECH LIMITED





We
      have
      audited the accompanying consolidated balance sheets of Origin Agritech Limited
      and its subsidiaries and variable interest entities (the "Company") as of
      December 31, 2004 and 2005 and the related consolidated statements of
      operations, shareholders' equity and comprehensive income, and cash flows for
      each of the three years ended December 31, 2005, all expressed in Renminbi.
      These 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 audits.





We
      conducted our audits 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 audits include 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 audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, such consolidated financial statements present fairly, in all material
      respects, the financial position of the Company as of December 31, 2004 and
      2005
      and the results of its operations and its cash flows for each of the three
      years
      ended December 31, 2005 in conformity with accounting principles generally
      accepted in the United States of America.





Our
      audits also comprehended the translation of Renminbi amounts into United States
      dollar amounts and, in our opinion, such translation has been made in conformity
      with the basis stated in Note 2. Such United States dollar amounts are presented
      solely for the convenience of the readers.








/s/
      Deloitte Touche Tohmatsu CPA Ltd.


Beijing,
      China


July
      14 ,
      2006




F-1


**CONSOLIDATED
      BALANCE SHEETS**


**(In
      thousands, except share data)**





As
                of December 31,2004
            
            2005
            
            2005RMB
            
            RMB
            
            US$AssetsCurrent
                assets:Cash
                and cash equivalents
            
            
            68,848
            
            
            237,828
            
            
            29,471Due
                from related parties
            
            
            785
            
            
            3,373
            
            
            418Advances
                to suppliers
            
            
            1,644
            
            
            38,626
            
            
            4,786Inventories
            
            
            235,821
            
            
            355,699
            
            
            44,077Income
                tax recoverable
            
            
            7,532
            
            
            3,366
            
            
            417Prepaid
                expenses and other current assets
            
            
            10,269
            
            
            10,334
            
            
            1,280Total
                current assets
            
            
            324,899
            
            
            649,226
            
            
            80,449Land
                use rights, net
            
            
            11,302
            
            
            16,616
            
            
            2,059Plant
                and equipment, net
            
            
            66,002
            
            
            104,987
            
            
            13,010Long-term
                investments
            
            
            10,275
            
            
            16,830
            
            
            2,086Acquired
                intangible assets, net
            
            
            2,872
            
            
            4,778
            
            
            592Deferred
                income tax assets
            
            
            419
            
            
            327
            
            
            41Other
                assets
            
            
            615
            
            
            6,005
            
            
            744Total
                assets
            
            
            416,384
            
            
            798,769
            
            
            98,981Liabilities,
                minority interests and shareholders' equityCurrent
                liabilities:Short-term
                borrowings
            
            
            41,000
            
            
            63,000
            
            
            7,807Accounts
                payable
            
            
            22,742
            
            
            28,823
            
            
            3,572Due
                to growers
            
            
            83,357
            
            
            66,195
            
            
            8,203Due
                to related parties
            
            
            1,413
            
            
            1,938
            
            
            240Advances
                from customers
            
            
            78,683
            
            
            102,743
            
            
            12,731Deferred
                revenues
            
            
            37,921
            
            
            181,583
            
            
            22,501Income
                tax payable
            
            
            1,152
            
            
            39,251
            
            
            4,864Other
                payables and accrued expenses
            
            
            6,734
            
            
            16,083
            
            
            1,993Total
                current liabilities
            
            
            273,002
            
            
            499,616
            
            
            61,911Long-term
                borrowings
            
            
            -
            
            
            1,880
            
            
            233Other
                long-term liability
            
            
            2,872
            
            
            2,872
            
            
            356Total
                liabilities
            
            
            275,874
            
            
            504,368
            
            
            62,500Minority
                interests
            
            
            3,534
            
            
            3,234
            
            
            401Commitments
                and contingencies (Note 20)Shareholders'
                equity:Preferred
                stock (no par value, 1,000,000 shares authorized; none
                issued)Common
                stock (US$1 par value; 10,000 shares authorized, issued and outstanding
                in
                2004; no par value; 60,000,000 shares authorized, 18,203,193 shares
                issued
                and outstanding in 2005)
            
            
            83
            
            
            -
            
            
            -Additional
                paid-in capital
            
            
            100,000
            
            
            246,093
            
            
            30,494Retained
                earnings
            
            
            36,893
            
            
            45,465
            
            
            5,634Accumulated
                other comprehensive loss
            
            
            -
            
            
            (391
            )
            
            (48
            )Total
                shareholders' equity
            
            
            136,976
            
            
            291,167
            
            
            36,080Total
                liabilities, minority interests and shareholders' equity
            
            
            416,384
            
            
            798,769
            
            
            98,981





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


F-2


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(In
      thousands, except share data)**


Year
                  ended December 31,2003
              
              2004
              
              2005
              
              2005RMB
              
              RMB
              
              RMB
              
              US$Revenues
              
              
              191,645
              
              
              301,520
              
              
              207,291
              
              
              25,687Cost
                  of revenues
              
              
              (118,977
              )
              
              (178,313
              )
              
              (129,162
              )
              
              (16,005
              )Gross
                  profit
              
              
              72,668
              
              
              123,207
              
              
              78,129
              
              
              9,682Operating
                  expenses:Selling
                  and marketing
              
              
              (13,310
              )
              
              (20,390
              )
              
              (27,037
              )
              
              (3,350
              )General
                  and administrative
              
              
              (18,948
              )
              
              (24,149
              )
              
              (28,983
              )
              
              (3,591
              )Research
                  and development
              
              
              (5,288
              )
              
              (6,774
              )
              
              (6,977
              )
              
              (865
              )Total
                  operating expenses
              
              
              (37,546
              )
              
              (51,313
              )
              
              (62,997
              )
              
              (7,806
              )Other
                  operating income
              
              
              -
              
              
              -
              
              
              2,309
              
              
              286Income
                  from operations
              
              
              35,122
              
              
              71,894
              
              
              17,441
              
              
              2,162Interest
                  expense
              
              
              (483
              )
              
              (831
              )
              
              (1,829
              )
              
              (227
              )Equity
                  in earnings of associated company
              
              
              -
              
              
              1,925
              
              
              879
              
              
              109Interest
                  income
              
              
              845
              
              
              371
              
              
              886
              
              
              110Other
                  income
              
              
              1,137
              
              
              149
              
              
              300
              
              
              37Income
                  before income taxes and minority interests
              
              
              36,621
              
              
              73,508
              
              
              17,677
              
              
              2,191Income
                  tax expense:Current
              
              
              (8,377
              )
              
              (5,975
              )
              
              (1,313
              )
              
              (163
              )Deferred
              
              
              569
              
              
              (1,723
              )
              
              (92
              )
              
              (11
              )Income
                  tax expense
              
              
              (7,808
              )
              
              (7,698
              )
              
              (1,405
              )
              
              (174
              )Income
                  before minority interests
              
              
              28,813
              
              
              65,810
              
              
              16,272
              
              
              2,017Minority
                  interests
              
              
              138
              
              
              (351
              )
              
              137
              
              
              17Net
                  income
              
              
              28,951
              
              
              65,459
              
              
              16,409
              
              
              2,034Net
                  income per share-basic
              
              
              RMB2.90
              
              
              RMB6.55
              
              
              RMB1.52
              
              
              US$0.19Net
                  income per share-diluted
              
              
              RMB2.90
              
              
              RMB6.55
              
              
              RMB1.46
              
              
              US$0.18Shares
                  used in calculating basic net income per share
              
              
              10,000,000
              
              
              10,000,000
              
              
              10,786,719
              
              
              10,786,719Shares
                  used in calculating diluted net income per share
              
              
              10,000,000
              
              
              10,000,000
              
              
              11,220,157
              
              
              11,220,157Cash
                  dividend per share
              
              
              RMB0.16
              
              
              RMB0.20
              
              
              RMB0.73
              
              
              US$0.09





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


F-3


**CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITY**


**AND
      COMPREHENSIVE INCOME**


**(In
      thousands, except share data)**




Common
                  shares
              
              Additional
                paid-in
              
              Retained
                Earnings
                (accumulated
              
              Accumulated
                Other
                Comprehensive
              
              Total
                shareholders'
              
              ComprehensiveShares
              
              Amount
              
              capital
              
              deficit)
              
              loss
              
              equity
              
              incomeRMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMBBalance
                  as of January 1, 2003
              
              
              -
              
              
              -
              
              
              3,672
              
              
              42,415
              
              
              -
              
              
              46,087
              
              
              -Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              28,951
              
              
              -
              
              
              28,951
              
              
              28,951Capital
                  restructuring
              
              
              -
              
              
              -
              
              
              96,328
              
              
              (96,328
              )
              
              -
              
              
              -
              
              
              -Cash
                  dividend
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,604
              )
              
              -
              
              
              (1,604
              )
              
              -Balance
                  as of December 31, 2003
              
              
              -
              
              
              -
              
              
              100,000
              
              
              (26,566
              )
              
              -
              
              
              73,434
              
              
              28,951Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              65,459
              
              
              -
              
              
              65,459
              
              
              65,459Capital
                  contribution
              
              
              10,000
              
              
              83
              
              
              -
              
              
              -
              
              
              -
              
              
              83
              
              
              -Cash
                  dividend
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,000
              )
              
              -
              
              
              (2,000
              )
              
              -Balance
                  as of December 31, 2004
              
              
              10,000
              
              
              83
              
              
              100,000
              
              
              36,893
              
              
              -
              
              
              136,976
              
              
              65,459Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              16,409
              
              
              -
              
              
              16,409
              
              
              16,409Recapitalization
                  in connection with the Share Exchange Transaction (Note 1)
              
              
              15,090,000
              
              
              (83
              )
              
              113,324
              
              
              -
              
              
              -
              
              
              113,241
              
              
              -Issuance
                  of common shares upon exercise of Warrants (Note 18)
              
              
              2,793,868
              
              
              -
              
              
              112,872
              
              
              -
              
              
              -
              
              
              112,872
              
              
              -Issuance
                  of common shares upon conversion of Unit Purchase Options (Note
                  18)
              
              
              309,325
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Share-based
                  compensation expense
              
              
              -
              
              
              -
              
              
              774
              
              
              -
              
              
              -
              
              
              774
              
              
              -Cumulative
                  translation adjustment
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (391
              )
              
              (391
              )
              
              (391
              )Deemed
                  distribution (Note 1)
              
              
              -
              
              
              -
              
              
              (80,877
              )
              
              -
              
              
              -
              
              
              (80,877
              )
              
              -Cash
                  dividend
              
              
              -
              
              
              -
              
              
              -
              
              
              (7,837
              )
              
              -
              
              
              (7,837
              )
              
              -Balance
                  as of December 31, 2005
              
              
              18,203,193
              
              
              -
              
              
              246,093
              
              
              45,465
              
              
              (391
              )
              
              291,167
              
              
              16,018In
                  US$
              
              
              
              
              
              -
              
              
              30,494
              
              
              5,634
              
              
              (48
              )
              
              36,080
              
              
              1,985




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


F-4




**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(In
      thousands)**





Year
                ended December 31,2003
            
            2004
            
            2005
            
            2005RMB
            
            RMB
            
            RMB
            
            US$Operating
                activities:Net
                income
            
            
            28,951
            
            
            65,459
            
            
            16,409
            
            
            2,034Adjustments
                to reconcile net income to netcash
                (used in) provided by operating activities:Depreciation
                and amortization
            
            
            3,261
            
            
            5,225
            
            
            6,754
            
            
            837Loss
                (gain) on disposal of plant and equipment
            
            
            473
            
            
            76
            
            
            (26
            )
            
            (3
            )Bad
                debt provision
            
            
            (51
            )
            
            -
            
            
            125
            
            
            15Inventory
                write down
            
            
            -
            
            
            -
            
            
            1,685
            
            
            209Interest
                capitalized in plant and equipment
            
            
            -
            
            
            -
            
            
            (1,207
            )
            
            (150
            )Minority
                interests
            
            
            (138
            )
            
            351
            
            
            (137
            )
            
            (17
            )Share-based
                compensation expense
            
            
            -
            
            
            -
            
            
            774
            
            
            96Equity
                in earnings of associated company
            
            
            -
            
            
            (1,925
            )
            
            (879
            )
            
            (109
            )Changes
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            5,325
            
            
            -
            
            
            -
            
            
            -Due
                from related parties
            
            
            (100
            )
            
            (264
            )
            
            (2,588
            )
            
            (321
            )Advances
                to suppliers
            
            
            (5,560
            )
            
            5,727
            
            
            (36,982
            )
            
            (4,583
            )Inventories
            
            
            (55,984
            )
            
            (64,933
            )
            
            (121,563
            )
            
            (15,063
            )Income
                tax recoverable
            
            
            8,346
            
            
            (6,081
            )
            
            4,166
            
            
            516Prepaid
                expenses and other current assets
            
            
            (1,466
            )
            
            (1,765
            )
            
            (4,734
            )
            
            (587
            )Deferred
                income tax assets
            
            
            (569
            )
            
            1,723
            
            
            92
            
            
            11Other
                assets
            
            
            (60
            )
            
            (82
            )
            
            (70
            )
            
            (9
            )Accounts
                payable
            
            
            2,405
            
            
            8,267
            
            
            6,081
            
            
            754Due
                to growers
            
            
            (7,141
            )
            
            47,946
            
            
            (17,162
            )
            
            (2,127
            )Due
                to related parties
            
            
            -
            
            
            1,413
            
            
            (1,497
            )
            
            (186
            )Advances
                from customers
            
            
            16,134
            
            
            5,264
            
            
            24,060
            
            
            2,981Deferred
                revenues
            
            
            (9,468
            )
            
            (27,375
            )
            
            143,662
            
            
            17,802Income
                tax payable
            
            
            -
            
            
            1,152
            
            
            (960
            )
            
            (119
            )Other
                payables and accrued expenses
            
            
            681
            
            
            2,567
            
            
            8,384
            
            
            1,039Net
                cash (used in) provided by operating activities
            
            
            (14,961
            )
            
            42,745
            
            
            24,387
            
            
            3,020Investing
                activities:Purchase
                of plant and equipment
            
            
            (26,996
            )
            
            (15,470
            )
            
            (43,198
            )
            
            (5,353
            )Proceeds
                on disposal of plant and equipment
            
            
            -
            
            
            255
            
            
            94
            
            
            12Purchase
                of land use rights
            
            
            (5,957
            )
            
            (536
            )
            
            (5,701
            )
            
            (706
            )Acquisition
                of cost method investment
            
            
            -
            
            
            (8,320
            )
            
            (5,676
            )
            
            (703
            )Acquisition
                of equity method investment
            
            
            -
            
            
            (30
            )
            
            -
            
            
            -Deposit
                for purchase of a subsidiary
            
            
            -
            
            
            -
            
            
            (2,000
            )
            
            (248
            )Deposits
                for purchase of acquired technology
            
            
            -
            
            
            -
            
            
            (1,995
            )
            
            (248
            )Deposits
                for purchase of plant and equipment
            
            
            -
            
            
            -
            
            
            (1,325
            )
            
            (164
            )Purchase
                of intangible assets
            
            
            (9
            )
            
            (3,100
            )
            
            (2,921
            )
            
            (362
            )Net
                cash used in investing activities
            
            
            (32,962
            )
            
            (27,201
            )
            
            (62,722
            )
            
            (7,772
            )Financing
                activities:Proceeds
                from short-term borrowings
            
            
            35,000
            
            
            41,000
            
            
            77,000
            
            
            9,542Repayment
                of short-term borrowings
            
            
            (15,000
            )
            
            (35,000
            )
            
            (55,000
            )
            
            (6,815
            )Proceeds
                from long-term borrowings
            
            
            -
            
            
            -
            
            
            1,880
            
            
            233Net
                cash inflow from the Share ExchangeTransaction,
                net of transaction costs (Note 1)
            
            
            -
            
            
            -
            
            
            159,831
            
            
            19,806Cash
                dividend
            
            
            (1,604
            )
            
            (2,000
            )
            
            (7,837
            )
            
            (971
            )Dividend
                paid to minority owners
            
            
            -
            
            
            -
            
            
            (163
            )
            
            (20
            )Deemed
                distribution (Note 1)
            
            
            -
            
            
            -
            
            
            (80,877
            )
            
            (10,022
            )Issuance
                of share capital
            
            
            -
            
            
            83
            
            
            -
            
            
            -Contribution
                from minority owners
            
            
            50
            
            
            -
            
            
            -
            
            
            -Advance
                from a shareholder
            
            
            -
            
            
            -
            
            
            8,276
            
            
            1,026Repayment
                to a shareholder
            
            
            -
            
            
            -
            
            
            (8,276
            )
            
            (1,026
            )Exercise
                of warrants
            
            
            -
            
            
            -
            
            
            112,872
            
            
            13,987Net
                cash provided by financing activities
            
            
            18,446
            
            
            4,083
            
            
            207,706
            
            
            25,740




F-5


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS - continued**


**(In
      thousands)**





Year
                ended December 31,2003
            
            2004
            
            2005
            
            2005RMB
            
            RMB
            
            RMB
            
            US$Net
                (decrease) increase in cash and cash equivalents
            
            
            (29,477
            )
            
            19,627
            
            
            169,371
            
            
            20,988Cash
                and cash equivalents, beginning of year
            
            
            78,698
            
            
            49,221
            
            
            68,848
            
            
            8,531Effect
                of exchange rate changes on cash andcash
                equivalents
            
            
            -
            
            
            -
            
            
            (391
            )
            
            (48
            )Cash
                and cash equivalents, end of year
            
            
            49,221
            
            
            68,848
            
            
            237,828
            
            
            29,471Supplemental
                disclosure of cash flow information:Income
                taxes paid
            
            
            2,355
            
            
            10,905
            
            
            4,700
            
            
            582Interest
                paid
            
            
            483
            
            
            831
            
            
            3,036
            
            
            376




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




F-6


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise stated)**




**1.** **ORGANIZATION
      AND PRINCIPAL ACTIVITIES**





Origin
      Agritech Limited ("Agritech"), incorporated under the laws of the British Virgin
      Islands, and its subsidiaries and variable interest entities (together, the
      "Company") are engaged in hybrid crop seed development, production and
      distribution.





As
      of
      December 31, 2005, details of Origin Agritech Limited's subsidiaries and
      variable interest entities are as follows:





Date
                of
            
            Place
                ofincorporation
            
            incorporation
            
            Percentage
            
            PrincipalName
            
            or
                establishment
            
            or
                establishment
            
            of
                ownership
            
            activitySubsidiary:State
                Harvest Holdings Limited
            
            October
                6, 2004
            
            British
                Virgin Islands
            
            100%
            
            Investment
                holding("State
                Harvest")Beijing
                Origin State Harvest
            
            December
                1, 2004
            
            People's
                Republic of China
            
            100%
            
            Hybrid
                seedBiotechnology
                Limited
            
            
            
            ("PRC")
            
            
            
            technology
                developmentVariable
                interest entity:Beijing
                Origin Seed Limited (Note)
            
            December
                26, 1997
            
            PRC
            
            -
            
            Hybrid
                crop seeddevelopment,
                productionand
                distributionSubsidiaries
                held by Beijing OriginSeed
                Limited:He
                Nan Origin Cotton Technology
            
            March
                2, 2001
            
            PRC
            
            90%
            
            Hybrid
                crop seedDevelopment
                Limited (Note)
            
            
            
            
            
            
            
            development,
                productionand
                distributionChang
                Chun Origin Seed Technology
            
            April
                29, 2003
            
            PRC
            
            99%
            
            Hybrid
                crop seedDevelopment
                Limited (Note)
            
            
            
            
            
            
            
            development,
                productionand
                distribution





Note:  Beijing
      Origin Seed Limited and its subsidiaries are collectively referred to as
      "Beijing Origin".





***The
      Share Exchange Transaction***





On
      December 20, 2004, Chardan China Acquisition Corp. ("Chardan") entered into
      a
      Stock Purchase Agreement with State Harvest, and all the stockholders of State
      Harvest for Chardan's acquisition of State Harvest. For the acquisition, Chardan
      formed its wholly-owned subsidiary, Agritech. On November 8, 2005, the closing
      date of the acquisition (the "Closing Date" ), Chardan merged with and into
      Agritech for the purpose of redomestication out of the United States. The
      redomestication merger was achieved by a one-for-one exchange of all the
      outstanding common stock of Chardan for common stock of Agritech and the
      assumption of all the rights and obligations of Chardan by Agritech, including
      assumption of the outstanding warrants of Chardan. Immediately after the
      redomestication merger, Agritech acquired all the common stock of State Harvest
      by the issuance of shares and payments of cash consideration to the then
      shareholders of State Harvest ("State Harvest Shareholders") or their designee,
      making it a wholly owned subsidiary (the "Share Exchange Transaction"). State
      Harvest Shareholders and their designee were paid an aggregate of US$10,000
      in
      cash, using the funds held in the trust account of Chardan, and were issued
      an
      aggregate of 10,000,000 shares of Agritech common stock for all the outstanding
      common stock of State Harvest. The Share Exchange Transaction was accounted
      for
      as a reverse acquisition in which State Harvest was deemed to be the accounting
      acquirer and Agritech the legal acquirer. The payments of the cash consideration
      are accounted for as a deemed distribution.




F-7


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise stated)**




**1.**  **ORGANIZATION
      AND PRINCIPAL ACTIVITIES - continued**





***The
      Share Exchange Transaction*** -
      continued





Of
      the
      cash portion of the purchase price, US$250 has been held back for one year
      by
      Agritech to secure certain indemnification obligations of State Harvest
      Shareholders and their designee. Other than the issuance of the above-mentioned
      10,000,000 shares, Agritech has issued 200,000 shares to a financial advisor
      in
      connection with the Share Exchange Transaction.





As
      a
      result of the Share Exchange Transaction the historical consolidated financial
      statements of the Company for the periods prior to the Closing Date are those
      of
      State Harvest and its majority owned subsidiaries and its variable interest
      entity, Beijing Origin and all references to the consolidated financial
      statements of the Company apply to the historical consolidated financial
      statements of State Harvest, its majority owned subsidiary and Beijing Origin
      prior to the Closing Date and the consolidated financial statements of Agritech
      and its majority owned subsidiaries and Beijing Origin subsequent to the Closing
      Date. The Company's equity components are stated in terms of State Harvest
      before the Closing Date, with an adjustment to reflect the effects of the
      reverse acquisition on the equity components at the Closing Date.





As
      Chardan was a non-operating public shell company before the Share Exchange
      Transaction, no goodwill has been recorded in connection with the Share Exchange
      Transaction and the costs incurred in connection with such transaction have
      been
      charged directly to equity as there was sufficient equity to absorb the costs.
      The net book value of acquired assets and liabilities pursuant to the Share
      Exchange Transaction is as follows:




RMBNet
                assets acquired:Cash
            
            
            163,517Other
                current assets
            
            
            6,201Due
                to State Harvest Shareholders and their designee
            
            
            (2,022
            )Other
                payables and accrued expenses
            
            
            (965
            )166,731Less:
                Transaction costs paid in cash
            
            
            (14,431
            )Tax
                effect of the Share Exchange Transaction
            
            
            (39,059
            )113,241




Additional
      purchase price payments will be made to State Harvest Shareholders and their
      designee, up to an aggregate of US$15,000 if either of the following occurs
      during any fiscal year of Agritech after the Closing Date until December 31,
      2008 (or June 30, 2009 if the fiscal year is changed to a July 1-June 30 fiscal
      year) from funds generated in the additional financing or from operational
      earnings as described below:





(1)
            If
                Agritech receives at least US$40,000 in gross proceeds in additional
                financing as a result (i) of the call of the issued and outstanding
                public
                warrants assumed by Agritech at the closing; (ii) Agritech's successful
                completion of a follow-on offering; or (iii) a private investment
                into
                Agritech by a strategic investor ("Financing Adjustment"), then Agritech
                will pay an additional US$15,000 to State Harvest Shareholders and
                their
                designee; or





F-8


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**1.**  **ORGANIZATION
      AND PRINCIPAL ACTIVITIES - continued**





***The
      Share Exchange Transaction*** -
      continued





(2)
            If
                Origin generates net positive cash flow of US$2,000 or more on a
                consolidated basis ("Earnings Adjustment"), then State Harvest
                Shareholders and their designee will be entitled to receive 75% of
                the net
                positive cash flow up to a maximum of US$7,500 per fiscal year and
                US$15,000 in the aggregate.





If
      both
      an Earnings Adjustment and a Financing Adjustment occur, the maximum aggregate
      amount to be paid to State Harvest Shareholders from one or both adjustments
      is
      US$15,000.





As
      further additional purchase price, certain State Harvest Shareholders and their
      designee will be issued an aggregate of 1,500,000 shares of common stock of
      Agritech for any of the next four years if, on a consolidated basis, Agritech
      generates after-tax profits (excluding after-tax operating profits from any
      subsequent acquisitions of securities that have a dilutive effect and before
      the
      expenses of this transaction and director and employee option expense) of at
      least the following amounts:





Year
                ending June 30,
            
            After-tax
                profitUS$2006
            
            
            11,0002007
            
            
            16,0002008
            
            
            21,0002009
            
            
            29,000





As
      of
      December 31, 2005, the Company does not consider the outcome of the above
      contingencies is probable and accordingly, no adjustment for the contingent
      purchase price payments was recorded in the financial statements.





Subsequent
      to December 31, 2005, Agritech receives RMB211,832 (equivalent to approximately
      US$26,249) in gross proceeds as a result of the call of the issued and
      outstanding warrants assumed by Agritech on the Closing Date (Note 18).
      Accordingly, Agritech paid an additional RMB121,050 (equivalent to approximately
      US$15,000) to State Harvest Shareholders and their designee.





***Reorganization
      of State Harvest prior to the Share Exchange
      Transaction***





On
      December 1, 2004, State Harvest established Beijing
      Origin State Harvest Biotechnology Limited ("BioTech"), a wholly foreign owned
      enterprise under the laws of the PRC with an operating period of 20
      years.





PRC
      regulations restrict direct wholly foreign ownership of seed industry in the
      PRC. In order to comply with these regulations while allowing foreign indirect
      participation, State Harvest conducts substantially all of its business through
      its variable interest entity, Beijing Origin.




F-9




**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise stated)**





**1.**
              **ORGANIZATION
                  AND PRINCIPAL ACTIVITIES -
                  continued**





***Reorganization
      of State Harvest prior to the Share Exchange
      Transaction*** -
      continued





Beijing
      Origin entered into Technical Service Agreements with BioTech. Under these
      agreements, BioTech shall provide, with its own technical research resource
      and
      team, technical services for the production and distribution of agricultural
      seeds during the period of the agreements. In return, Beijing Origin is required
      to pay BioTech service fee calculated according to the weight of corn, rice
      and
      cotton seeds sold by the Beijing Origin.





In
      addition, State Harvest has been assigned 97.96% voting rights by the
      shareholders of Beijing Origin through a consignment agreement which includes
      the following terms: (1) The shares of Beijing Origin cannot be transferred
      without the approval of State Harvest; (2) State Harvest has the right to
      appoint all directors and senior management personnel of Beijing Origin and
      (3)
      The shareholder rights including voting rights require the transfer of the
      shares of Beijing Origin to State Harvest or any party designated by State
      Harvest within three years upon the removal of the PRC legal
      restriction.





Through
      the consignment agreements described above, State Harvest is deemed the sole
      beneficiary of Beijing Origin resulting in Beijing Origin being deemed a
      subsidiary of State Harvest under the requirements of Financial Interpretation
      46 (Revised)"Consolidation of Variable Interest Entities" issued by the
      Financial Accounting Standards Board ("FASB"). The agreements described above
      provided for effective control of Beijing Origin to be transferred to State
      Harvest at December 25, 2004. Neither State Harvest nor BioTech had any
      operating activity prior to entering into the consignment agreements with
      Beijing Origin. In substance, State Harvest has substantially all the same
      shareholders of Beijing Origin. This transaction has been accounted for on
      a
      basis similar to a reorganization between entities under common control.
      Accordingly, State Harvest's consolidated financial statements are prepared
      by
      including the consolidated financial statements of Beijing Origin through
      December 24, 2004, and subsequently the Company's consolidated financial
      statements include the financial statements of State Harvest, its majority
      owned
      subsidiary and Beijing Origin through the date of the Share Exchange
      Transaction.





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**





Basis
      of presentation





The
      consolidated financial statements of the Company are prepared in accordance
      with
      accounting principles generally accepted in the United States of America ("US
      GAAP").





Basis
      of consolidation





Following
      the Share Exchange Transaction, the consolidated financial statements include
      the financial statements of Agritech, its majority owned subsidiaries and
      Beijing Origin. Prior to the Share Exchange Transaction, the consolidated
      financial statements include State Harvest, its majority owned subsidiary and
      Beijing Origin. All significant inter-company transactions and balances are
      eliminated upon consolidation.


F-10


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES -
                continued**





Basis
      of consolidation -
      continued





Investments
      in operating companies in which the Company has the ability to exercise
      significant influence, which is normally indicated by a 20% to 50% interest,
      are
      accounted for under the equity method. The Company's share of these companies'
      earnings or losses are included in the consolidated statement of operations
      as
      equity in earnings of associated company.





Convenience
      translation into United States dollars





The
      consolidated financial statements are presented in Renminbi. The translation
      of
      Renminbi amounts into United States dollar amounts has been made for the
      convenience of the reader and has been made at the exchange rate quoted by
      the
      People's Bank of China on December 31, 2005 of RMB8.07 to US$1.00. Such
      translation amounts should not be construed as representations that the Renminbi
      amounts could be readily converted into United States dollar amounts at that
      rate or any other rate.





Use
      of
      estimates





The
      preparation of the consolidated financial statements in conformity with US
      GAAP
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosure of contingent assets and
      liabilities at the date of the consolidated financial statements and the
      reported amounts of revenues and expenses during the reporting period. Estimates
      are adjusted to reflect actual experience when necessary. Significant accounting
      estimates reflected in the Company's consolidated financial statements include
      revenue recognition, inventory valuation, useful lives of plant and equipment
      and acquired intangible assets, and the valuation allowance for deferred income
      tax assets. Actual results could differ from those estimates.





Cash
      and cash equivalents





Cash
      and
      cash equivalents consist of cash on hand and highly liquid investments which
      are
      unrestricted as to withdrawal or use, and which have maturities of three months
      or less when purchased.





Concentrations
      of credit risk





Financial
      instruments that subject the Company to concentrations of credit risk consist
      primarily of cash and cash equivalents. The Company maintains its cash and
      cash
      equivalents with high-quality institutions. Deposits held with banks may exceed
      the amount of insurance provided on such deposits. Generally these deposits
      may
      be redeemed upon demand and therefore bear minimal risk.


F-11


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES -
                continued**





Inventories





Inventories
      are stated at the lower of cost or market value. Actual cost is used to value
      raw materials and supplies. Finished goods and work in process are valued at
      weighted-average actual cost. Weighted-average actual cost includes packaging
      costs and manufacturing overhead costs.





Land
      use rights, net





Land
      use
      rights are recorded at cost less accumulated amortization. Amortization is
      provided over the term of the land use right agreements on a straight-line
      basis
      for the beneficial period.





Plant
      and equipment, net





Plant
      and
      equipment are recorded at cost less accumulated depreciation and amortization.
      Depreciation and amortization are calculated on a straight-line basis over
      the
      following estimated useful lives:


Plant
                    and building
                
                20-40
                    yearsMachinery
                    and equipment
                
                10-15
                    yearsFurniture
                    and office equipment
                
                5
                    yearsMotor
                    vehicles
                
                5
                    yearsLeasehold
                    improvements
                
                Shorter
                    of the useful lives or the lease
                    term





The
      Company constructs certain of its facilities. In addition to costs under
      construction contracts, external costs directly related to the construction
      of
      such facilities, including duty and tariff, and equipment installation and
      shipping costs, are capitalized. Depreciation is recorded at the time assets
      are
      placed in service.





Acquired
      intangible assets, net





Acquired
      intangible assets consist primarily of purchased technology rights and are
      stated at cost less accumulated amortization. Amortization is calculated on
      a
      straight-line basis over the estimated useful lives of these assets of an
      average of 5 years and recorded in cost of revenues.





Impairment
      of long-lived assets





The
      Company reviews its long-lived assets for impairment whenever events or changes
      in circumstances indicate that the carrying amount of an asset may no longer
      be
      recoverable. When these events occur, the Company measures impairment by
      comparing the carrying value of the long-lived assets to the estimated
      undiscounted future cash flows expected to result from the use of the asset
      and
      eventual disposition. If the sum of the expected future cash flows (undiscounted
      and without interest charges) is less than the carrying amount of the asset,
      an
      impairment loss, equal to the excess of the carrying amount over the fair market
      value of the asset, is recognized.


F-12


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES -
                continued**





Due
      to
      growers





The
      Company purchases seeds from the growers throughout the operating cycle. The
      majority of the seeds is purchased from the growers from the end of November
      through the following February.





Advances
      from customers





Due
      to
      the high demand for the Company's products, the Company requires all customers
      to pay cash in full prior to delivery of the seeds. Advances from customers
      represent cash received from customers in advance of fulfilling a customer's
      purchase order. Revenues related to such transactions are recognized when the
      seeds are delivered and all other revenue recognition criteria are
      met.





Revenue
      recognition





The
      Company derives its revenue primarily from the sale of various branded
      conventional seeds and branded seeds with biotechnology traits.





Revenue
      is recognized when pervasive evidence of an arrangement exists, products have
      been delivered, the price is fixed or determinable, collectibility is reasonably
      assured and the right of return has expired. The Company generally determines
      the selling price after the goods are delivered to the customers. Accordingly,
      the Company defers revenue until the selling price has been finalized with
      the
      customers.





The
      estimated amounts of revenues billed in excess of revenues recognized are
      recorded as deferred revenues.





Government
      subsidies





The
      Company receives government subsidies in the form of funds for research and
      development activities and subsidies which reduce the cost of land use
      rights.





(a)
            The
                Company received RMB1,137, RMB71 and RMB859, to fund research and
                development activities for the years ended December 31, 2003, 2004
                and
                2005, respectively. Such amounts are recorded as a reduction of research
                and development expenses for the respective
                years.





(b)
            The
                Company received a government incentive of RMB5,005 and RMB3,720
                for the
                years ended December 31, 2003 and 2004, respectively, in the form
                of a
                reduction in the cost of land use
                rights.





(c)
            The
                Company received a government subsidy of RMB1,543 for year ended
                December
                31, 2005, in the form of a reduction in the cost of plant and
                equipment.





(d)
            The
                Company received a government incentive of RMB300 for year ended
                December
                31, 2005 for the achievement of obtaining a listing status in the
                overseas
                stock market. Such amounts are recorded as other
                income.


F-13


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES -
                continued**





Research
      and development costs





Research
      and development costs relating to the development of new products and processes,
      including significant improvements and refinements to existing products, are
      expensed as incurred.





Advertising
      costs





Advertising
      costs are expensed as incurred. Advertising expenses were RMB1,806, RMB3,154
      and
      RMB4,288, for the years ended December 31, 2003, 2004 and 2005, respectively,
      and included as part of selling and marketing expenses.





Foreign
      currency translation





The
      functional currency of the Company excluding Agritech and State Harvest is
      Renminbi. Monetary assets and liabilities denominated in currencies other than
      Renminbi are translated into Renminbi at the rates of exchange ruling at the
      balance sheet date. Transactions in currencies other than Renminbi are converted
      into Renminbi at the applicable rates of exchange prevailing the transactions
      occurred. Transaction gains and losses are recognized in the consolidated
      statements of operations.





The
      functional currency of Agritech and State Harvest are maintained in United
      State
      dollars. Assets and liabilities are translated at the exchange rates at the
      balance sheet date, equity accounts are translated at historical exchange rates
      and revenues, expenses, gains and losses are translated using the average rate
      for the period. Translation adjustments are reported as cumulative translation
      adjustments and are shown as a separate component of other comprehensive loss
      in
      the consolidated statements of shareholders' equity and comprehensive income.
      The Company has chosen Renminbi as its reporting currency





Income
      taxes





Deferred
      income taxes are recognized for the future tax consequences of temporary
      differences between the tax bases of assets and liabilities and their reported
      amounts in the consolidated financial statements, net operating loss carry
      forwards and credits. Deferred tax assets are reduced by a valuation allowance
      when, in the opinion of management, it is more likely than not that some portion
      or all of the deferred tax assets will not be realized. Current income taxes
      are
      provided for in accordance with the laws of the relevant taxing
      authorities.





Comprehensive
      income





Comprehensive
      income is defined to include all changes in equity except those resulting from
      investments by owners and distributions to owners. Comprehensive income for
      the
      years presented has been disclosed within the consolidated statements of
      shareholders' equity and comprehensive income.


F-14


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES -
                continued**





Fair
      value of financial instruments





The
      carrying amounts of financial instruments, consisting primarily of cash and
      cash
      equivalents and short-term borrowings, approximate their fair values due to
      the
      short-term maturity of these instruments.





Shipping
      and handling costs





The
      Company includes shipping and handling costs as either cost of goods sold or
      selling and administrative expenses depending on the nature of the expenses.
      Shipping and handling costs which relate to transportation of products to
      customers' locations is charged to selling and marketing expenses and shipping
      and handling which relate to the transportation of corn seed to factories from
      suppliers and from one factory to another is charged to cost of goods sold.
      The
      shipping and handling costs included as part of cost of revenues in the
      consolidated statements of operations for the years ended 2003, 2004 and 2005
      were RMB4,753, RMB8,089 and RMB9,853, respectively. The shipping and handling
      costs included as part of selling and marketing expenses in the statements
      of
      operations for the years ended 2003, 2004 and 2005 were RMB3,981, RMB6,322
      and
      RMB5,870, respectively.





Income
      per share





Basic
      income per share is computed by dividing net income by the weighted average
      number of ordinary shares outstanding during the year. Diluted income per
      ordinary share reflects the potential dilution that could occur if securities
      or
      other contracts to issue ordinary shares were exercised or converted into
      ordinary shares.





Share-based
      compensation





The
      Company has adopted Statement of Financial Accounting Standard ("SFAS") No.
      123
      (revised 2004) ("SFAS No. 123(R)"), ''Share-based Payment'', which requires
      that
      share-based payment transactions with employees, such as share options, be
      measured based on the grant-date fair value of the equity instrument issued
      and
      recognized as compensation expense over the requisite service period, with
      a
      corresponding addition to equity. Under this method, compensation cost related
      to employee share options or similar equity instruments is measured at the
      grant
      date based on the fair value of the award and is recognized over the period
      during which an employee is required to provide service in exchange for the
      award, which generally is the vesting period.





Recently
      issued accounting standards





In
      December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets-An
      Amendment of APB Opinion No. 29". SFAS 153 eliminates the exception from fair
      value measurement for nonmonetary exchanges of similar productive assets in
      paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
      Transactions", and replaces it with an exception for exchanges that do not
      have
      commercial substance. The adoption of SFAS 153 in January 2006 did not have
      a
      significant impact on the Company's financial statements.


F-15


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES -
                continued**





Recently
      issued accounting standards -
      continued





In
      May
      2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections,
      a
      replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154
      provides guidance on the accounting for and reporting of accounting changes
      and
      error corrections. It establishes retrospective application, or the latest
      practicable date, as the required method for reporting a change in accounting
      principle and the reporting of the correction of an error. SFAS No. 154 is
      effective for accounting changes and corrections of errors made in fiscal years
      beginning after December 15, 2005. The adoption of SFAS No. 154 will not have
      a
      significant impact on the Company's results of operations and financial
      condition.





In
      February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
      Financial Instruments-an amendment of FASB Statements No. 133 and 140." SFAS
      No.
      155 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging
      Activities", to permit fair value remeasurement for any hybrid financial
      instrument with an embedded derivative that otherwise would require bifurcation,
      provided that the whole instrument is accounted for on a fair value basis.
      SFAS
      No. 155 amends SFAS No. 140, "Accounting for the Impairment or Disposal of
      Long-Lived Assets", to allow a qualifying special-purpose entity (SPE) to hold
      a
      derivative financial instrument that pertains to a beneficial interest other
      than another derivative financial instrument. SFAS No. 155 applies to all
      financial instruments acquired or issued after the beginning of an entity's
      first fiscal year that begins after September 15, 2006, with earlier application
      allowed. The Company does not expect the adoption of SFAS No. 155 to have a
      material impact on its consolidated results of operations and financial
      condition.





**3.**
            **RELATED
                PARTY BALANCES AND
                TRANSACTIONS**





(1)
            Amounts
                due from related parties as of December 31, 2004 and 2005 are as
                follows:





Name
                of related party
            
            Relationship
            
            As
                of December 31,2004
            
            2005RMB
            
            RMBHang
                Geng Chen
            
            
            (i
            )
            
            29
            
            
            39Yuan
                Liang
            
            
            (i
            )
            
            22
            
            
            22Yang
                Ya Sheng
            
            
            (i
            )
            
            324
            
            
            102Other
                State Harvest Shareholders
            
            
            (ii
            )
            
            208
            
            
            37Shijiazhuang
                  Li Yu TechnologyDevelopment
                  Co., Ltd.
            
            
            (iii
            )
            
            -
            
            
            3,173He
                Nan Agriculture University
            
            
            (iv
            )
            
            202
            
            
            -785
            
            
            3,373






F-16


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**3.**
            **RELATED
                PARTY BALANCES AND TRANSACTIONS -
                continued**





(2)
            Amounts
                due to related parties as of December 31, 2004 and 2005 are as
                follows:





Name
                of related party
            
            Relationship
            
            As
                of December 31,2004
            
            2005RMB
            
            RMBShijiazhuang
                Li Yu Technology Development Co., Ltd.
            
            
            (iii
            )
            
            1,413
            
            
            -Company
                controlled by Han Geng Chen
            
            
            
            
            
            -
            
            
            673Company
                controlled by Yuan Liang
            
            
            
            
            
            -
            
            
            673Company
                controlled by Yang Ya Sheng
            
            
            
            
            
            -
            
            
            393Other
                State Harvest Shareholders
            
            
            (ii
            )
            
            -
            
            
            178Zhang
                Bai Liang
            
            
            (v
            )
            
            -
            
            
            211,413
            
            
            1,938




(3)
            Transactions
                with related parties for the years ended December 31, 2003, 2004
                and 2005
                are follows:





(a)
            Technology
                usage fee





Name
                of related party
            
            Relationship
            
            Year
                ended December 31,2003
            
            2004
            
            2005RMB
            
            RMB
            
            RMBShijiazhuang
                Li Yu Technology Development Co., Ltd.
            
            
            (iii
            )
            
            4,496
            
            
            8,243
            
            
            4,958He
                Nan Agriculture University
            
            
            (iv
            )
            
            -
            
            
            1,104
            
            
            3024,496
            
            
            9,347
            
            
            5,260




The
      above
      amounts relate to technology usage fees paid to certain related party research
      centers for the exclusive right to use certain seed
      technologies.


F-17


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise stated)**





**3.**
            **RELATED
                PARTY BALANCES AND TRANSACTIONS -
                continued**





(3)
            Transactions
                with related parties for the years ended December 31, 2003, 2004
                and 2005
                are follows: - continued





(b)
            Consulting
                service fee





Name
                of related party
            
            Relationship
            
            Year
                ended December 31,2003
            
            2004
            
            2005RMB
            
            RMB
            
            RMBChardan
                Capital LLC.
            
            
            (vi
            )
            
            -
            
            
            -
            
            
            242




The
      above
      amount relates to certain financial and management advisory
      services.





(c)
            In
                September 2004, the Company purchased a 30% equity interest in
                Shijiazhuang Li Yu Technology Development Co., Ltd. ("Li Yu") from
                Yang Ya
                Sheng, one of the Company's principal shareholders, for
                RMB30.





(d)
            In
                May 2005, a principal shareholder of the Company provided RMB8,276
                for
                capital injection to BioTech, which had been fully repaid as of December
                31, 2005.





Relationship
      between the Company and related parties is as follows:





(i)
            Being
                the principal shareholders and directors of the
                Company.





(ii)
            Being
                State Harvest Shareholders, other than Han Geng Chen, Yuan Liang
                and Yang
                Ya Sheng.





(iii)
            Li
                Yu was previously owned by one of the Company's principal shareholders,
                Yang Ya Sheng, and from September 2004 onwards, it became the Company's
                equity method investment.





(iv)
            Being
                a shareholder of Beijing Origin.





(v)
            Being
                a director of the Company.





(vi)
            Being
                an affiliate of a former member of management of the
                Company.


F-18


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise stated)**





**4.**
            **ADVANCES
                TO SUPPLIERS**





Advances
      to suppliers consist of the following:





As
                of December 31,2004
            
            2005RMB
            
            RMBPurchase
                of raw materials
            
            
            604
            
            
            37,160Prepayments
                for advertisement
            
            
            172
            
            
            1,320Others
            
            
            868
            
            
            1461,644
            
            
            38,626





On
      November 21, 2005, the Company entered into a purchase contract for rice seeds
      with Denong Zhengcheng Seed Limited Co. ("Denong"), a company subsequently
      acquired by the Company in January 2006 (see Note 11). Denong is principally
      engaged in production and sales of licensed and non-licensed seed products
      and
      self-developed seed products including hybrid rice, rape and cotton seeds to
      local farmers through its distributors. The Company paid RMB33,000 as a
      prepayment for the purchase of rice seeds for resale which was included in
      purchase of raw materials as of December 31, 2005.





**5.**
            **INVENTORIES**





Inventories
      consist of the following:





As
                of December 31,2004
            
            2005RMB
            
            RMBWork
                in progress and supplies
            
            
            131,457
            
            
            199,756Finished
                goods
            
            
            104,364
            
            
            155,943235,821
            
            
            355,699





As
      of
      December 31, 2004 and 2005, goods delivered to the customers, recorded in
      finished goods, are RMB20,802 and RMB119,384, respectively. As the Company
      defers revenue until the selling price has been finalized with the customers,
      the goods delivered to the customers will be relieved from inventories and
      recorded in cost of revenues when the related revenue is recognized.


F-19




**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**6.**
            **PREPAID
                EXPENSES AND OTHER CURRENT
                ASSETS**





Prepaid
      expenses and other current assets consist of the following:




As
                of December 31,2004
            
            2005RMB
            
            RMBAdvances
                for employee traveling
            
            
            3,109
            
            
            4,964Deposit
                for technology usage fee
            
            
            1,000
            
            
            3,801Professional
                fees for the Share Exchange Transaction
            
            
            4,544
            
            
            -Other
                prepaid expenses
            
            
            1,616
            
            
            1,56910,269
            
            
            10,334





**7.**
            **LAND
                USE****RIGHTS,
                NET**





Land
      use
      rights, net consist of the following:




As
                of December 31,2004
            
            2005RMB
            
            RMBLand
                use rights
            
            
            11,787
            
            
            17,488Less:
                accumulated amortization
            
            
            485
            
            
            872Land
                use rights, net
            
            
            11,302
            
            
            16,616





**8.**
            **PLANT
                AND EQUIPMENT, NET**





Plant
      and
      equipment, net consist of the following:


As
                of December 31,2004
            
            2005RMB
            
            RMBPlant
                and building
            
            
            30,814
            
            
            76,558Machinery
                and equipment
            
            
            19,226
            
            
            21,411Furniture
                and office equipment
            
            
            5,550
            
            
            7,844Motor
                vehicles
            
            
            8,923
            
            
            11,371Leasehold
                improvements
            
            
            128
            
            
            55Total
            
            
            64,641
            
            
            117,239Less:
                accumulated depreciation and amortization
            
            
            10,761
            
            
            16,098Construction
                in progress
            
            
            12,122
            
            
            3,846Plant
                and equipment, net
            
            
            66,002
            
            
            104,987





Construction
      in progress relates to the production facilities under construction by the
      Company.


F-20


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**9.**
            **LONG-TERM****INVESTMENTS**





Long-term
      investments consist of the following:




As
                of December 31,2004
            
            2005RMB
            
            RMBEquity
                method investment
            
            
            1,955
            
            
            2,834Cost
                method investment
            
            
            8,320
            
            
            13,996Total
            
            
            10,275
            
            
            16,830





Equity
      method investment





In
      2004,
      the Company purchased a 30% equity interest in Li Yu from one of its principal
      shareholders, Yang Ya Sheng, for RMB30. The Company accounts for its ownership
      in Li Yu under the equity method accounting.





As
      of
      December 31, 2004 and 2005, the Company recorded its pro-rata share of earnings
      in Li Yu of RMB1,925 and RMB879 respectively.





Cost
      method investment





In
      2004,
      the Company acquired an 8% interest in Biocentury Transgene
      (China) Co., Ltd. ("Shengzhen Biocentury") for a cash consideration of
      RMB8,320. The Company and Shengzhen Biocentury completed this transaction on
      October 8, 2004 upon obtaining the necessary government approvals. In 2005,
      the
      Company acquired an additional 7% interest in Shengzhen Biocentury for a cash
      consideration of RMB5,676. On August 4, 2005, the Company obtained necessary
      government approval and completed the acquisition. The Company accounts for
      its
      ownership in Shengzhen Biocentury at cost.





**10.**
            **ACQUIRED
                INTANGIBLE ASSETS, NET**





Acquired
      intangible assets consist of the following:


As
                of December 31,2004
            
            2005RMB
            
            RMBTechnology
                transfer and usage agreements
            
            
            4,091
            
            
            7,012Others
            
            
            9
            
            
            94,100
            
            
            7,021Accumulated
                amortization
            
            
            1,228
            
            
            2,243Acquired
                intangible assets, net
            
            
            2,872
            
            
            4,778




F-21


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise stated)**




**10.**
            **ACQUIRED
                INTANGIBLE ASSETS, NET -
                continued**





Amortization
      expense for the years ended December 31, 2003, 2004 and 2005 were RMB206, RMB465
      and RMB1,015, respectively.





Amortization
      expense on these intangible assets for each of the next five years is as
      follows:





RMBYear
                ending December 31,2006
            
            
            1,2732007
            
            
            1,2602008
            
            
            1,2602009
            
            
            9232010
            
            
            62Total
            
            
            4,778





The
      Company enters into technology transfer and usage agreements with strategic
      partners. The Company pays up-front fees for the exclusive rights to certain
      seed technologies. Amounts are then amortized over an average usage period
      of 5
      years into cost of revenues.





**11.**
            **OTHER
                ASSETS**





Other
      assets consist of the following:





As
                of December 31,2004
            
            2005RMB
            
            RMBPrepaid
                lease
            
            
            615
            
            
            685Deposit
                for purchase of a subsidiary
            
            
            -
            
            
            2,000Deposits
                for purchase of acquired intangible assets
            
            
            -
            
            
            1,995Deposits
                for purchase of plant and equipment
            
            
            -
            
            
            1,325615
            
            
            6,005




On
      November 18, 2005, the Company paid a deposit of RMB2,000 to certain owners
      of
      Denong for the acquisition of 52% of Denong. On January 16, 2006, the Company
      entered into a series of sale and purchase agreements with certain owners of
      Denong to purchase a 52% equity interest in Denong for an aggregate purchase
      price of RMB41,766. The Company completed this acquisition on January 24, 2006
      upon obtaining the necessary government approvals.





During
      2005, the Company entered into technology transfer agreements with certain
      inventors of new seed products and prepaid deposits of RMB1,995.




F-22


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise stated)**




**11.**
            **OTHER
                ASSETS - continued**





During
      2005, the Company entered into certain agreements to purchase plant and
      equipment and prepaid RMB1,325 as deposits.





**12.**
            **BORROWINGS**





As
                of December 31,2004
            
            2005RMB
            
            RMBShort-term
                borrowings
            
            
            41,000
            
            
            63,000Long-term
                borrowings
            
            
            -
            
            
            1,880




Short-term
      borrowings





As
      of
      December 31, 2005, short-term borrowings were comprised of five new loans of
      RMB21,000, RMB17,000, RMB14,000, RMB6,000 and RMB5,000, repayable on May 30,
      2006, October 13, 2006, January 28, 2006, April 20, 2006 and October 13, 2006,
      respectively, bear interest at 5.58%, 5.58%, 5.22%, 5.22% and 5.58% per annum
      respectively. Short-term borrowings of RMB21,000, RMB17,000 and RMB5,000 were
      guaranteed by an unrelated third party. The unrelated third party guarantee
      was
      secured by the Company's land use rights certification and the Company's
      Zhongguancun Life Science Park Land Development Contract.





As
      of
      December 31, 2004, short-term borrowings were comprised of two loans of
      RMB20,000 and RMB21,000, repayable on April 22, 2005 and May 30, 2005, bore
      interest at 5.31%, 5.31% per annum, and were fully repaid in 2005. Short-term
      loan of RMB20,000, RMB21,000 were guaranteed by an unrelated third party. The
      unrelated third party guarantee was secured by the Company's land use rights
      certification, and the Company's Zhongguancun Life Science Park Land Development
      Contract.





The
      costs
      of obtaining the above third party guarantees were not significant.





Interest
      expense and weighted average interest rate for the years ended December 31,
      2003, 2004 and 2005 were RMB483 and 5.2% and RMB831 and 5.3%, RMB3,036 and
      5.4%,
      respectively.





Long-term
      borrowings





As
      of
      December 31, 2005, long-term borrowings were comprised of a third party's loan
      of RMB1,880 repayable in 2008 and 2009 by two equal installments and bear
      interest at 2.4% per annum. The borrowings are not secured.


F-23


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**13.**
            **OTHER
                PAYABLES AND ACCRUED
                EXPENSES**





Other
      payables and accrued expenses consist of:




As
                of December 31,2004
            
            2005RMB
            
            RMBPayable
                for purchase of plant and equipment
            
            
            382
            
            
            2,043Payable
                for purchase of land use rights
            
            
            620
            
            
            620Professional
                fee payable
            
            
            -
            
            
            4,841Salaries
                payable
            
            
            -
            
            
            411Accrued
                welfare benefits
            
            
            4,023
            
            
            4,084Other
                taxes payable
            
            
            359
            
            
            2,055Others
            
            
            1,350
            
            
            2,0296,734
            
            
            16,083





**14.**
            **OTHER
                LONG-TERM LIABILITY**





In
      December 2000, the Company signed an agreement to be a guarantor on a loan
      given
      to Lin Ze Xian Seed Company by Agriculture Bank of China Lin Ze Branch. Upon
      Linze Xian Seed Company's announcement of bankruptcy, the Company was required
      to repay the outstanding loan. On December 28, 2001 the Company was ordered
      by
      the Linze People's Court to pay RMB2,872 to Agricultural Bank of China Lin
      Ze
      Branch in fulfilment of the guarantee obligation. The civil judgement of the
      Zhangye Intermediate People's Court suspended this decision pending final
      outcome of Lin Ze Seed Company's bankruptcy hearings. In 2002, the final
      judgement was made by the court, and accordingly, the Company recorded a
      provision of RMB2,872.





**15.**
            **SHARE
                OPTION PLAN**





On November
      8, 2005, the Company adopted the 2005 Performance Equity Plan (the "Plan")
      which
      allows the Company to offer a variety of incentive awards to employees. Options
      to purchase 1,500,000 ordinary shares are authorized under the Plan. On the
      same
      day, options to purchase 974,000 ordinary shares were granted under the terms
      of
      the Plan. All such options were priced at US$8.75 per share and expire 5 years
      from the date of grant and vest over a period of 3 to 5 years. No further share
      options has been granted subsequent to November 8, 2005. Options to purchase
      526,000 ordinary shares are available under the Plan as of December 31,
      2005.


F-24




**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**15.**
            **SHARE
                OPTION PLAN****- continued**





A
      summary
      of the share option activity under the Plan is as follows:





Number
              of
                option
            
            Exercise
                priceRMB
            
            US$Options
                outstanding at January 1, 2005
            
            
            -
            
            
            -
            
            
            -Granted
            
            
            974,000
            
            
            70.77
            
            
            8.75Exercised
            
            
            -
            
            
            -
            
            
            -Cancelled
            
            
            -
            
            
            -
            
            
            -Options
                outstanding at December 31, 2005
            
            
            974,000
            
            
            70.77
            
            
            8.75




The
      following table summarizes information with respect to options outstanding
      at
      December 31, 2005:





Options
                outstandingand
                exercisableWeightedaverage
            
            Weighted
                  averageNumber
            
            remaining
              contractual
            
            fair
                  valueas
                of November 8,outstanding
            
            life
            
            2005,
                the grant dateyears
            
            RMB
            
            US$Exercise
                price:RMB70.77
                (US$8.75)
            
            
            974,000
            
            
            4.85
            
            
            21.76
            
            
            2.69




The
      fair
      value of each option granted is estimated on the date of grant using the
      Black-Scholes Option Pricing Model:




Options
                granted (weighted average)Average
                risk-free rate of return
            
            
            4.47
            %Expected
                option life
            
            
            3.5
                yearsVolatility
                rate
            
            
            30.79
            %Dividend
                yield
            
            
            -





The
      Company recorded share-based compensation expense of RMB774 for the year ended
      December 31, 2005. As of December 31, 2005, there was RMB18,268 of total
      unrecognized compensation expense related to non-vested share-based compensation
      arrangement under the Plan. That unrecognized compensation expense is expected
      to be recognized over a weighted-average period of 3.60 years.




F-25


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**16.** **INCOME
      TAXES**





Agritech
      and its subsidiary, State Harvest are incorporated in the British Virgin Islands
      and are not subject to taxation under the British Virgin Islands. State
      Harvest's subsidiary and State Harvest's variable interest entity, Beijing
      Origin Seed Limited and its major owned subsidiaries (together, the "PRC
      entities") were incorporated in the PRC and governed by the PRC
      laws.





The
      applicable tax rate of the PRC Enterprise Income Tax ("EIT") to Beijing Origin
      Seed Limited is 33% (30% of state income tax plus 3% local income tax). However,
      preferential tax treatment of Beijing Origin Seed Limited as "high technology"
      company has been agreed with the relevant tax authorities. Beijing Origin Seed
      Limited is entitled to a preferential tax rate of 15%. Pursuant to the document
      of (1998) Hai Di Shui Suo Zi 3205 and (2001) Hai Di Shui Qi Mian Zi (1306),
      Beijing Origin Seed Limited is entitled to a three-year exemption from income
      taxes commencing in 1998, followed by a 50% reduction in tax rates for the
      succeeding three years. As a result of these preferential tax treatments, the
      reduced tax rates applicable to Beijing Origin Seed Limited for 2003, 2004
      and
      2005 are 7.5%, 15% and 15%, respectively.





According
      to the document Gan Di Shui Suo Jian Mian Zi (2001) No. 107, Zhang Shi Di Shui
      Zheng Jian Mian Zi (2002) No. 2 and (2003) No. 1 of Carry through the Advantage
      Tax Treatment of West Development Strategy, Lin Ze Branch is entitled to a
      preferential tax rate of 15%.





According
      to the document Cheng Guo Shui Shen (2004) 11, Cheng Du Branch of Beijing Origin
      Seed Limited is entitled to a preferential tax rate of 15% as "high technology"
      company, and was exempted from EIT for 2003 and 2004.





According
      to the document Yu Di Shui Suo Jian Mian (2003) No. 75, He Nan Origin Seed
      Cotton Technology Development Co., Ltd. is entitled to a preferential tax rate
      of 15% as "high technology" company.





According
      to the document Chang Guo Shui (Gao Xin) Zi (2004) 001, Chang Chun Origin Seed
      Technology Development Co., Ltd. is entitled to a preferential tax rate of
      15%
      as "high technology" company, and was exempted from EIT for 2004 and
      2005.





According
      to the document Beijing Guo Shui No. 9365987, BioTech is entitled to a
      preferential tax rate of 15% as "high technology" company, and was exempted
      from
      Foreign Enterprise Income Tax for 2005.





Bao
      Ding
      Branch of Beijing Origin Seed Limited was exempted from EIT for 2005 according
      to the document Guo Shui (2005) No. 1239. Shen Yang Branch, He Nan Branch and
      Tie Ling Branch of Beijing Origin Seed Limited are subject to income tax at
      a
      statutory rate of 33%.




F-26


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**16.**
            **INCOME
                TAXES - continued**





The
      provision for income taxes consists of the following:


Year
                  ended December 31,2003
              
              2004
              
              2005RMB
              
              RMB
              
              RMBCurrent
              
              
              8,377
              
              
              5,975
              
              
              1,313Deferred
              
              
              (569
              )
              
              1,723
              
              
              927,808
              
              
              7,698
              
              
              1,405




The
      principal components of the deferred income tax assets are as
      follows:


As
                  of December 31,2004
              
              2005RMB
              
              RMBNoncurrent
                  deferred tax assets:Net
                  operating loss carry forward
              
              
              4,325
              
              
              1,304Others
              
              
              419
              
              
              327Noncurrent
                  deferred income tax assets
              
              
              4,744
              
              
              1,631Valuation
                  allowance
              
              
              (4,325
              )
              
              (1,304
              )Net
                  noncurrent deferred income tax assets
              
              
              419
              
              
              327




The
      Company did not have any significant temporary differences relating to deferred
      tax liabilities as of December 31, 2004 and 2005.





A
      significant portion of the deferred tax assets recognized relates to net
      operating loss and credit carry forwards. The Company operates through the
      PRC
      entities and the valuation allowance is considered on each individual basis.
      Where a valuation allowance was not recorded, the Company believes that there
      was sufficient positive evidence to support its conclusion not to record a
      valuation allowance as it expects to generate sufficient taxable income in
      the
      future.




F-27


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**16.**
            **INCOME
                TAXES - continued**





A
      reconciliation between total income tax expense and the amount computed by
      applying the statutory income tax rate to income before taxes is as
      follows:


Years
                  ended December 31,2003
              
              2004
              
              2005%
              
              %
              
              %Statutory
                  rate
              
              
              33
              
              
              33
              
              
              33Effect
                  of preferential tax treatment
              
              
              (19
              )
              
              (31
              )
              
              (30
              )Effect
                  of different tax jurisdiction
              
              
              -
              
              
              -
              
              
              10Permanent
                  book-tax difference
              
              
              6
              
              
              4
              
              
              6Change
                  in valuation allowance
              
              
              1
              
              
              5
              
              
              (17
              )Under
                  provision in prior year
              
              
              -
              
              
              -
              
              
              6Effective
                  income tax rate
              
              
              21
              
              
              11
              
              
              8





**17.** **INCOME
      PER SHARE**





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


Year
                  ended December 31,2003
              
              2004
              
              2005RMB
              
              RMB
              
              RMBNet
                  income (numerator), basic and diluted
              
              
              28,951
              
              
              65,459
              
              
              16,409Shares
                  (denominator):Weighted
                  average ordinary shares outstanding usedin
                  computing basic income per share
              
              
              10,000,000
              
              
              10,000,000
              
              
              10,786,719Incremental
                  weighted average ordinary sharesfrom
                  assumed exercise of Warrants (Note 18)
              
              
              -
              
              
              -
              
              
              433,438Weighted
                  average ordinary shares outstanding usedin
                  computing diluted income per share
              
              
              10,000,000
              
              
              10,000,000
              
              
              11,220,157Net
                  income per share-basic
              
              
              RMB2.90
              
              
              RMB6.55
              
              
              RMB1.52Net
                  income per share-diluted
              
              
              RMB2.90
              
              
              RMB6.55
              
              
              RMB1.46




For
      the
      years prior to the date of the Share Exchange Transaction, the number of shares
      included in the income per share calculations above has been retroactively
      restated to reflect the number of shares to which State Harvest Shareholders
      and
      their designee are entitled at the date of the Share Exchange
      Transaction.




F-28


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**17.**
            **INCOME
                PER SHARE - continued**





As
      disclosed in Note 1, the Share Exchange Transaction during 2005 provides for
      additional purchase price payments in the form of common stock, the issuance
      of
      which is contingent upon attainment of certain amounts of earnings and such
      contingency has not been met at December 31, 2005. As disclosed in Note 18,
      there are 21,216 Unit Purchase Options outstanding as of December 31, 2005,
      the
      conversion of which into common stock is at the discretion of the Company and
      the holders Unit Purchase Options and is uncertain as of December 31, 2005.
      Accordingly, the above diluted income per share calculations have not included
      these contingently issuable shares and Unit Purchase Options. In addition,
      the
      diluted income per share calculations have not included the outstanding options
      as of December 31, 2005 to purchase 974,000 ordinary shares since the effect
      is
      anti-dilutive.





**18.** **WARRANTS
      AND UNIT PURCHASE OPTIONS**





As
      a part
      of the Share Exchange Transaction, Agritech assumed 4,025,000 shares of common
      stock, 8,050,000 Redeemable Common Stock Purchase Warrants ("Warrants") and
      350,000 Unit Purchase Options ("UPO") issued by Chardan. There was no
      remeasurement required for these assumed Warrants and UPO because such
      assumption is part of the recapitalization in connection with the Share Exchange
      Transaction.





Each
      Warrant will entitle the holder to purchase from Agritech one share of common
      stock at an exercise price of US$5 commencing on the date of the Share Exchange
      Transaction. The Warrants will be redeemable at a price of US$0.01 per Warrant
      upon 30 days' notice after the Warrants become exercisable, only in the event
      that the last sale price of the common stock is at least US$8.50 per share
      for
      any 20 trading days within a 30 trading day period ending on the third day
      prior
      to the date on which notice of redemption is given. 2,793,868 Warrants were
      exercised before December 31, 2005 and were converted into 2,793,868 shares
      of
      common stock.





UPO
      were
      granted and recorded in connection with the initial public offering of Chardan
      in 2004 to the underwriters for nominal consideration. UPO may be exercised
      for
      cash or cashless basis at the holders' option such that the holders may use
      the
      appreciated value of the UPO to exercise the option without the payment of
      cash.
      UPO are convertible into shares and Warrants at the discretion of the Company
      and the UPO holders. 328,784 UPO were converted into 309,325 shares and 7,332
      Warrants before December 31, 2005 without any cash consideration.





As
      of
      December 31, 2005, there were 21,216 UPO and 5,263,464 Warrants
      outstanding.





F-29


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**19.** **EMPLOYEE
      BENEFIT PLANS AND PROFIT APPROPRIATION**





Full
      time
      employees of the PRC entities participate in a government mandated
      multi-employer defined contribution plan pursuant to which certain pension
      benefits, medical care, unemployment insurance, employee housing fund and other
      welfare benefits are provided to employees. Chinese labor regulations require
      the Company to accrue for these benefits based on certain percentages of the
      employees' salaries. The total provisions for such employee benefits were
      RMB858, RMB1,577 and RMB2,605 for the years ended December 31, 2003, 2004 and
      2005, respectively.





Pursuant
      to the laws applicable to the PRC, the PRC entities, other than BioTech, must
      make appropriations from after-tax profit to non-distributable reserves funds
      including: (i) the statutory surplus reserve and; (ii) the statutory public
      welfare fund. Subject to certain cumulative limits, the statutory surplus
      reserve fund requires annual appropriations of 10% and the stutory public
      welfare fund requires annual appropriations of 5% of after-tax profit (as
      determined under accounting principles generally accepted in the PRC ("PRC
      GAAP") at each year-end). The Company's wholly foreign owned subsidiary,
      BioTech, however subject to the law applicable to foreign invested enterprises
      in the PRC, was required annual appropriation of the general reverse fund,
      no
      less than 10% of after-tax profit (as determined under PRC GAAP at each
      year-end). These reserve funds can only be used for specific purposes of
      enterprise expansion and staff welfare and are not distributable as cash
      dividends. Appropriations to these reserves by the PRC entities were RMB7,212,
      RMB9,800 and RMB4,348 for the years ended December 31, 2003, 2004 and 2005,
      respectively.





**20.** **COMMITMENTS
      AND CONTINGENCIES**





(a)
            Capital
                commitments





Capital
      commitments for the purchase of plant and equipment, as of December 31, 2005,
      are as follows:


RMBPlant
                  and building construction
              
              
              3,220Equipment
              
              
              7713,991




(b)
            Operating
                lease





The
      Company leases certain lands used for seed development and office premises
      under
      non-cancellable leases. Rental expenses under operating leases for the years
      ended December 31, 2003, 2004 and 2005 were RMB2,016, RMB2,868 and RMB2,134,
      respectively.




F-30


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**20.**
            **COMMITMENTS****AND CONTINGENCIES -
                continued**





(b)
            Operating
                lease - continued





Future
      minimum lease payments under non-cancelable operating lease agreements were
      as
      follows:


Year
                  ended December 31,
              
              RMB2006
              
              
              1,6982007
              
              
              1,2602008
              
              
              6952009
              
              
              5372010
              
              
              504Thereafter
              
              
              8,60713,301


(c)
              Contingent
                  tax liabilities




On
        December 6, 2005, the Company entered into a transfer agreement with the
        Jilin
        Academy of Agricultural Sciences ("JAAS"). Pursuant to the transfer agreement,
        JAAS will transfer 23% of equity interest in Jilin Jinong Hi-tech Limited
        ("Jinong") to the Company for RMB21,880. Jinong focuses on the production
        and marketing of corn, rice and soybean seeds, as well as fertilizers and
        pesticides. This transaction is proceeding pursuant to procedures for the
        transfer of State-owned assets at Changchun Equity Exchange.




(d)
            Contingent
                tax liabilities





The
      Company assesses the contingent tax liabilities that may arise from the Share
      Exchange Transaction and considers such contingent tax liabilities are more
      likely than remote. As of December 31, 2005, such contingent tax liabilities
      are
      reasonably possible to be in the range of RMB39,059 to RMB64,218. Consequently,
      RMB39,059 was included in the income tax payable in the accompanying
      consolidated balance sheet and was charged to the equity because the assumption
      of such liabilities by the Company is part of the recapitalization in connection
      with the Share Exchange Transaction. The Company does not expect to incur tax
      liabilities at the higher end of the range, based on the information currently
      available.








**21.**
            **SEGMENT
                AND GEOGRAPHIC INFORMATION**





The
      Company is engaged in hybrid crop seed development, production and distribution.
      In accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise
      and Related Information", the Company's chief operating decision maker, the
      Chief Executive Officer, receives and reviews consolidated results of operations
      when making decisions about allocating resources and assessing performance
      of
      the Company. The Company believes it operates in one segment which is hybrid
      crop seed development, production and distribution, and all financial segment
      information required by SFAS No. 131 can be found in the consolidated financial
      statements.





All
      of
      the Company's sales and all of the Company's long-lived assets are located
      in
      the PRC.





The
      Company had no customers which accounted for 10% or more of the Company's
      revenues for any of the years presented in the consolidated financial
      statements.




F-31


**NOTES
      TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued**


**FOR
      EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005**


**(In
      thousands, except share data and unless otherwise
      stated)**





**22.** **SUBSEQUENT
        EVENT**


Save
      as
      disclosed elsewhere in the consolidated financial statements, the following
      event occurred subsequent to December 31, 2005.





On
      January 24, 2006, the Company invested RMB10,050 into Jilin Changrong Hi-tech
      Seed Limited ("Jilin"), a joint venture registered in the PRC. Jilin is engaged
      in the development and sale of hybrid seed. The total registered capital of
      Jilin is RMB30,000 and the investment made by the Company accounted for 33.5%
      of
      the total registered capital of Jilin.





F-32