**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**




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




For
      the
      fiscal year ended ___________




**OR**




þ
            
            **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 January
      1, 2006 to September
      30, 2006 .




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**Ordinary
                Shares**
            
            **The
                NASDAQ Stock Market LLC**







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




**None**


(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:
      23,472,910 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  þ No




If
      this
      report is an annual or transition 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.




o Yes  þ No




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.




þ Yes  o No




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




Large accelerated filer o            Accelerated
      filer  þ Non-accelerated
      filer o




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




o Item 17 þ Item 18




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).




o Yes  þ No







**ORIGIN
      AGRITECH LIMITED**




**TABLE
      OF CONTENTS**




**INTRODUCTION**PART
                I
            
            
            
            
            5Item
                1.
            
            Identity
                of Directors, Senior Management and Advisers
            
            
            5Item
                2.
            
            Offer
                Statistics and Expected Timetable
            
            
            6Item
                3.
            
            Key
                Information
            
            
            6Item
                4.
            
            Information
                on the Company
            
            
            21Item
                5.
            
            Operating
                and Financial Review and Prospects
            
            
            33Item
                6.
            
            Directors,
                Senior Management and Employees
            
            
            48Item
                7.
            
            Major
                Shareholders and Related Party Transactions
            
            
            54Item
                8.
            
            Financial
                Information
            
            
            57Item
                9.
            
            The
                Offer and Listing
            
            
            57Item
                10.
            
            Additional
                Information
            
            
            58Item
                11.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            
            64Item
                12.
            
            Description
                of Securities Other than Equity Securities
            
            
            65PART
                II
            
            
            
            
            65Item
                13.
            
            Defaults,
                Dividend Arrearages and Delinquencies
            
            
            65Item
                14.
            
            Material
                Modifications to the Rights of Security Holders and Use of
                Proceeds
            
            
            65Item
                15.
            
            Controls
                and Procedures
            
            
            65Item
                16A.
            
            Audit
                Committee Financial Expert
            
            
            66Item
                16B.
            
            Code
                of Ethics
            
            
            66Item
                16C.
            
            Principal
                Accountant Fees and Services
            
            
            66Item
                16D.
            
            Exemption
                from the Listing Standards for Audit Committees
            
            
            67Item
                16E.
            
            Purchases
                of Equity Securities by the Issuer and Affiliated
                Purchasers
            
            
            67PART
                III
            
            
            
            
            67Item
                17.
            
            Financial
                Statements
            
            
            67Item
                18.
            
            Financial
                Statements
            
            
            67Item
                19.
            
            Exhibits
            
            
            67EX-4.27                             
                CORN HYBRID SEED PRE-ARRANGED PRODUCTION CONTRACTEX-4.28                              SHARE
                TRANSFER AGREEMENTEX-4.29                             
                RENMINBI CAPITAL LOAN CONTRACTEX-4.30                             
                MORTGAGE CONTRACTEX-4.31                             
                LOAN CONTRACT DATED SEPTEMBER 14, 2006EX-4.32                             
                LOAN CONTRACT DATED FEBRUARY 13, 2006EX-4.33                             
                LOAN AGREEMENT DATED JANUARY 19, 2006EX-8.1                               
                UPDATED
                LIST OF SUBSIDIARIESEX-11.1                             
                CODE OF ETHICSEX-11.2                             
                CODE OF CONDUCTEX-12.1                             
                CEO CERTIFICATIONEX-12.2                             
                CFO CERTIFICATIONEX-13.1                              CEO
                CERTIFICATION PURSUANT TO SECTION 906EX-13.2                             
                CFO CERTIFICATION PURSUANT TO SECTION
                906


3


**INTRODUCTION**




Except
      where the context otherwise requires and for purposes of this Transition 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 State Harvest
                Biotechnology Limited,Beijing
                Origin Seed Limited and its three subsidiaries, Changchun Origin
                Seed
                Technology Development Limited, Henan Origin Cotton Technology Development
                Limited and Denong Zhengcheng Seed Company, Ltd.;·
            
            “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
      Transition Report on Form 20-F contains forward-looking statements that are
      based on our current expectations, assumptions, estimates and projections about
      our company and industry. All statements other than statements of historical
      fact in this Transition 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 Transition Report relate to, among others:




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




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




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




·
            our
                future pricing strategies or pricing
                policies;




·
            our
                plans to expand our business level or corporate level operations
                and
                product offerings;




·
            expected
                changes in the respective component shares of our revenues stream
                from our
                business operations or other
                sources;




·
            competition
                in the crop seed industry in China and other international
                markets;




·
            the
                future development of the crop seed industry in China and other
                international markets;




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




·
            PRC
                and other international governmental policies and regulations 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 certain events in the future that we are not able to
      predict with accuracy or over which we have no certain control. The risk factors
      and cautionary language discussed in this Transition 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:




·
              changing
                  interpretations of generally accepted accounting
                  principles;


4




·
            outcomes
                of the PRC and other international government reviews, inquiries,
                investigations and related
                litigation;




·
            continued
                compliance with the PRC and other international government
                regulations;




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




·
            fluctuations
                in the PRC or international customer
                demand;




·
            management
                of rapid growth of our business;




·
            intensity
                of competition from other providers of crop seeds in the PRC or other
                international markets;




·
            timing
                of approval and market acceptance of new
                products;




·
            general
                economic conditions in the PRC and worldwide;
                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 that our expectations will
      materialize. 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 3D of this Transition Report, “Key information — Risk Factors” and
      elsewhere in this Transition Report.




This
      Transition 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 Transition Report relate only to events
      or information as of the date on which the statements are made in this
      Transition Report. Readers should read these statements in conjunction with
      the
      risk factors disclosed in Item 3D of this Transition 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 Transition Report or to reflect the
      occurrence of unanticipated events.




**PART
      I**




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




Not
      Applicable.




5




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




Not
      Applicable.





**ITEM
      3. KEY INFORMATION**




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




The
      following selected consolidated financial information has been derived from
      our
      consolidated financial statements. The following information should be read
      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,
      2004, 2005 and the nine months ended September 30, 2005 (un-audited) and nine
      months ended September 30, 2006 and the summary consolidated balance sheet
      data
      of the Company as of December 31, 2005 and September 30, 2006, as 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 Transition Report. The summary statement
      of
      operations and comprehensive income data for the years ended December 31,
      2002 and 2003, and the summary balance sheet data as of December 31, 2002,
      2003 and 2004 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,
            
            For
                the nine months ended
              September
                30,(in
                thousands, except share data)
            
            2002
            
            2003
            
            2004
            
            2005
            
            2005
            
            2006RMB
            
            RMB
            
            RMB
            
            RMB
            
            RMB
            
            RMB
            
            US$(1)Consolidated
                statement of operations and comprehensive income data:Net
                revenues
            
            
            98,717
            
            
            191,645
            
            
            301,520
            
            
            207,291
            
            
            208,380
            
            
            522,999
            
            
            66,169Cost
                of revenues
            
            
            (46,006
            )
            
            (118,977
            )
            
            (178,313
            )
            
            (129,162
            )
            
            (126,418
            )
            
            (358,804
            )
            
            (45,395
            )Gross profit
            
            
            52,711
            
            
            72,668
            
            
            123,207
            
            
            78,129
            
            
            81,962
            
            
            164,195
            
            
            20,774Selling
                and marketing
            
            
            (6,480
            )
            
            (13,310
            )
            
            (20,390
            )
            
            (27,037
            )
            
            (18,993
            )
            
            (49,651
            )
            
            (6,282
            )General
                and administrative
            
            
            (9,642
            )
            
            (18,948
            )
            
            (24,149
            )
            
            (28,983
            )
            
            (19,712
            )
            
            (45,111
            )
            
            (5,707
            )Research
                and development
            
            
            (5,372
            )
            
            (5,288
            )
            
            (6,774
            )
            
            (6,977
            )
            
            (5,963
            )
            
            (13,144
            )
            
            (1,663
            )Total
                operating expenses
            
            
            (21,494
            )
            
            (37,546
            )
            
            (51,313
            )
            
            (62,997
            )
            
            (44,668
            )
            
            (107,906
            )
            
            (13,652
            )Other
                operating income
            
            
            -
            
            
            -
            
            
            -
            
            
            2,309
            
            
            -
            
            
            -
            
            
            -Income
                from operations
            
            
            31,217
            
            
            35,122
            
            
            71,894
            
            
            17,441
            
            
            37,294
            
            
            56,289
            
            
            7,122Interest
                income
            
            
            440
            
            
            845
            
            
            371
            
            
            886
            
            
            421
            
            
            8,783
            
            
            1,111Interest
                expenses
            
            
            (417
            )
            
            (483
            )
            
            (831
            )
            
            (1,829
            )
            
            (1,443
            )
            
            (5,005
            )
            
            (633
            )Other
                income (expense)
            
            
            (606
            )
            
            1,137
            
            
            149
            
            
            300
            
            
            62
            
            
            2,893
            
            
            366Equity
                in earnings of associated company
            
            
            -
            
            
            -
            
            
            1,925
            
            
            879
            
            
            305
            
            
            12,828
            
            
            1,623Income before
                income taxes
            
            
            30,634
            
            
            36,621
            
            
            73,508
            
            
            17,677
            
            
            36,639
            
            
            75,788
            
            
            9,589Income
                tax
            
            
            (1,498
            )
            
            (7,808
            )
            
            (7,698
            )
            
            (1,405
            )
            
            (1,205
            )
            
            (367
            )
            
            (46
            )Income before
                minority interests
            
            
            29,136
            
            
            28,813
            
            
            65,810
            
            
            16,272
            
            
            35,434
            
            
            75,421
            
            
            9,543Minority
                interests
            
            
            (2,575
            )
            
            138
            
            
            (351
            )
            
            137
            
            
            (510
            )
            
            910
            
            
            115Net
                income
            
            
            26,561
            
            
            28,951
            
            
            65,459
            
            
            16,409
            
            
            34,924
            
            
            76,331
            
            
            9,658-
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Income attributable
                to ordinary shareholders
            
            
            26,561
            
            
            28,951
            
            
            65,459
            
            
            16,409
            
            
            34,924
            
            
            76,331
            
            
            9,658Net
                income per share:Basic
            
            
            -
            
            
            2.90
            
            
            6.55
            
            
            1.52
            
            
            3.49
            
            
            3.25
            
            
            0.41Diluted
            
            
            -
            
            
            2.90
            
            
            6.55
            
            
            1.46
            
            
            3.49
            
            
            3.03
            
            
            0.38Shares
                used in computation:Basic
            
            
            -
            
            
            10,000,000
            
            
            10,000,000
            
            
            10,786,719
            
            
            10,000,000
            
            
            23,472,910
            
            
            23,472,910Diluted
            
            
            -
            
            
            10,000,000
            
            
            10,000,000
            
            
            11,220,157
            
            
            10,000,000
            
            
            25,187,753
            
            
            25,187,753




6




December
                31,
            
            September
                30,(in
                thousands)
            
            2002
            
            2003
            
            2004
            
            2005
            
            2006RMB
            
            RMB
            
            RMB
            
            RMB
            
            RMB
            
            US$Consolidated
                balance sheet data:Cash
                and cash equivalents
            
            
            78,698
            
            
            49,221
            
            
            68,848
            
            
            237,828
            
            
            140,953
            
            
            17,833Current
                working capital(2)
            
            
            12,782
            
            
            10,186
            
            
            51,897
            
            
            149,610
            
            
            208,809
            
            
            26,421Total
                assets
            
            
            257,388
            
            
            307,257
            
            
            416,384
            
            
            798,769
            
            
            984,126
            
            
            124,508Deferred
                revenue
            
            
            74,764
            
            
            65,296
            
            
            37,921
            
            
            181,583
            
            
            24,101
            
            
            3,049Total
                current liabilities
            
            
            205,158
            
            
            227,768
            
            
            273,002
            
            
            499,616
            
            
            509,631
            
            
            64,474Total
                liabilities
            
            
            208,031
            
            
            230,640
            
            
            275,874
            
            
            504,368
            
            
            512,511
            
            
            64,839Minority
                interests
            
            
            3,271
            
            
            3,184
            
            
            3,534
            
            
            3,234
            
            
            13,049
            
            
            1,651Total
                shareholders’ equity
            
            
            46,086
            
            
            73,433
            
            
            136,976
            
            
            291,167
            
            
            458,566
            
            
            58,018





(1)
            
            Translations
                of RMB amounts for nine months ended September 30, 2006 into U.S.
                dollars
                were made at a rate of RMB7.904 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 September 29, 2006.(2)
            
            Current
                working capital is the difference between total current assets and
                total
                current liabilities.




**Exchange
      Rate Information**




The
      conversion of Renminbi into U.S. dollars in this Transition 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, 2004 and 2005 and the nine months
      ended September 30, 2005 and 2006, all translations from Renminbi to U.S.
      dollars in this Transition Report were made at RMB8.2765, RMB 8.0702, RMB 8.092
      and RMB 7.904 per $1.00, respectively, which were the prevailing year or period
      end rates for those two years and two nine month periods. The prevailing rate
      on
      January 31, 2007 was $1.00 to RMB 7.7714. 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.





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 Transition 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**Nine
                months ended Setepmber 30, 2005**
            
            
            8.2297
            
            
            8.2765
            
            
            8.0871
            
            
            8.0920**Nine
                months ended Setepmber 30, 2006**
            
            
            8.0083
            
            
            8.0702
            
            
            7.8965
            
            
            7.9040**2006**
            
            
            7.9605
            
            
            8.0702
            
            
            7.8041
            
            
            7.8350**2006****August**
            
            
            7.9722
            
            
            8.0000
            
            
            7.9615
            
            
            7.9538**September**
            
            
            7.9334
            
            
            7.9545
            
            
            7.9019
            
            
            7.9040**October**
            
            
            7.9018
            
            
            7.9168
            
            
            7.8728
            
            
            7.8785**November**
            
            
            7.8622
            
            
            7.8750
            
            
            7.8303
            
            
            7.8340**December**
            
            
            7.8219
            
            
            7.8350
            
            
            7.8041
            
            
            7.8041**2007****January**
            
            
            7.7876
            
            
            7.8127
            
            
            7.7705
            
            
            7.7714







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


7





**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**




***If
      we do not manage our growth successfully, our growth and chances for sustained
      profitability may be hindered or impeded.***




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





***We
      have a limited 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
      limited 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
      market acceptance for our product extensions and our services;




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




·  changing
      competitive conditions, technological changes or evolving customer preferences
      could harm sales of our products or services.





If
      we are
      not able to meet the challenge 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.


8




***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 the years ended December 31, 2004
      and 2005, and for the nine months ended September 30, 2005 and 2006 was
      $35,933,245, $24,314,206, $24,200,761 and $58,572,673, respectively. Licensed
      hybrid seeds accounted for 98.97% of the total seed revenue for 2004, 93.97%
      of
      the total seed revenue for 2005, and 93.98% and 88.52% of the total seed revenue
      for the nine months ended September 30, 2005 and 2006, respectively. There
      were
      no revenues related to internally developed proprietary hybrid seeds for 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.
      As for the nine months ended September 30, 2005 and 2006, the amount of revenue
      related to proprietary hybrid seeds was $1,550,622 and $7,596,282, which
      accounted for 6.02% and 11.48 % of the total seed revenue in each respective
      period. 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 58.64% and 13.2% of sales for 2004, 49.79%
      and 16.42% of sales for 2005, 49.72% and 16.39% of sales for the nine months
      ended September 30, 2005, and 28.31 % and 5.71 % of the sales for the nine
      months ended September 30, 2006. Our licensed rice seeds represents 5.31 %
      of
      sales in the nine months ended September 30, 2006. 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.





***Due
      to our size and limited 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 limited 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.


9




***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, and thus 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.





***If
      we fail to introduce and commercialize new seed varieties, we will not be able
      to recover research, development and other costs associated with such costs,
      and
      , our future sales will be adversely affected.***





We
      cannot
      guarantee that the performance of our new seed varieties, licensed or
      proprietary, will meet our expectations, or that we will be able to introduce
      and commercialize specific seed varieties. Farmers generally need time to learn
      about new seed varieties. Their traditional planting experience may also make
      it
      difficult for them to adapt to the new varieties. The process for new products
      to gain market recognition and acceptance is long and has some uncertainties.
      If
      we fail to introduce and commercialize a new seed variety, we will not be able
      recover research, development and other costs associated with such new seed
      variety, and our sales will be adversely affected.





***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 loss, and there is no agriculture insurance in the PRC to cover
      the loss of seed crops.***





We
      produce our seeds using a network of approximately 100,000 farmers, who 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, plant diseases and insect pests 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 our seed production
      farmers are located in the three 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.





***We
      may be exposed to product quality claims,*** ***which
      may cause us to incur substantial legal expenses and, if determined adversely
      against us , may cause us to pay significant damage
      awards.***





The
      performance of our seeds depends on climate, geographical areas, cultivation
      method, farmers’ degree of knowledge and other factors in addition to genetic
      traits and the quality of our seeds. Natural disasters may also affect the
      performance of our seeds, particularly when farmers lack timely and effective
      measures in response to those disasters. Furthermore, the cultivability of
      some
      farm land is deteriorating by toxic and hazardous materials due to farmers’
overuse of herbicide. All this results in underproduction. However, farmers
      generally attribute underproduction to seed quality. We may be subject to legal
      proceedings and claims from time to time relating to our seed quality. The
      defense of these proceedings and claims can be both costly and time-consuming
      and may significantly divert efforts and resources of our management personnel.
      An adverse determination in any such proceedings could subject us to significant
      liability and damage our market reputation and prevent us from achieving
      increased sales and market share. Protracted litigation could also result in
      our
      customers or potential customers deferring or limiting their purchase of our
      products.


10





***We
      rely on our network of approximately 100,000 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 threaten customer
      loyalty.***





We
      believe we maintain a favorable relationship with the farmers in our seed
      production network. In addition, the fact that we rely on a large number of
      farmers 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.
      Such disruption could also damage distributor relationships and farmer loyalty
      if we cannot supply the quantity of seed expected by them.





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





During
      most of our limited operating history, the crop 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 amount of revenue 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 to buy 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 a loss of revenues due to the inability of a significant number of
      our
      customers to pay 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 or other market forces within the Chinese seed
      industry and privatization of seed producers that are extensions of county
      governments. As a result of this privatization, a number of companies will
      need
      to develop using more efficient business models in order to survive. As a
      result, margins may be compressed in the short term. Though we continue to
      believe we will grab additional market share as a result of some local
      companies’ lack of ability to efficiently develop, market forces are not
      entirely in the control of us and lower margins may be
      prolonged.


11





***The
      reform and restructuring of local agricultural administrative offices and
      state-owned seed enterprises may adversely affect our future business.***





According
      to a document published by General Office of the State Council of the PRC in
      May, 2006, the agricultural administrative offices of local government shall
      stop
      engaging in seed production and distribution businessby the end of June,
      2007. On the other hand, state-owned seed enterprises shall not co-mingle
      with those administrative offices. The reform and restructuring of
      state-owned seed enterprises will likely lead to reallocation of the seed market
      share, and our competitors may increase their market share by participating
      in
      the restructuring of the state-owned seed companies.





***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
      agreements with the Chinese Academy of Science, the China Agricultural Academy
      of Science and Peking University 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, adversely affecting our business, operations and
      revenues.***





The
      PRC
      has many regulations relating to the seed business, including obtaining and
      maintaining operating licenses. Seed products must be licensed and undergo
      a
      stringent review process before they may be sold in the PRC. We believe we
      currently have all the necessary licenses, and that we are in compliance with
      applicable laws and regulations. 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.***  ******





Depending
      upon the value of our shares and the composition 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 were 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 rates, rather than lower capital gain
      rates, when you dispose of those 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 any later 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 2007 if the
      sum
      of our average market capitalization, which is our share price multiplied by
      the
      total number 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 produce, or are held for the production of, passive income.
      We
      could also be a PFIC for any taxable year if the gross income that we and our
      subsidiaries earn from passive investments is substantial in comparison with
      the
      gross income from our business operations.


12





While
      we
      will continue to examine our PFIC status, 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.”





***Any
      diversion of management 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.





***We
      may have to take actions that are contrary to our business objectives to avoid
      being deemed an investment company under the US Investment Company Act of
      1940*** **.**





We
      are
      engaged in the research, development, production, sale and distribution of
      hybrid crop seeds through our PRC Operating Companies in China, and we do not
      engage in minority investments except on a selective basis as a component of
      our
      strategy to expand our business. Currently, we own substantial minority
      investments in Biocentury Transgene (China) Co., Ltd., Shijiazhuang Liyu
      Technology Co.,Ltd. and Jilin Changrong High-tech Seed Limited. We believe
      we
      are not an investment company within the meaning of Section 3(a)(1)(C) the
      Investment Company Act of 1940 (the “US Investment Company Act”), but as a
      result of these and other investments, we could be deemed an investment company
      within the meaning of Section 3(a)(1)(C). We will monitor our assets on a
      quarterly basis and take all necessary steps in order to ensure that we are
      not
      deemed an investment company within the meaning of Section 3(a)(1)(C) or
      otherwise are required to register as an investment company under the US
      Investment Company Act in the future. The steps we may need to take could
      include selling all or part of our minority investments in those companies,
      investing in a greater proportion of tangible assets relative to our total
      assets or acquiring control (as such term is defined in the US Investment
      Company Act) over those companies. Depending on timing and other factors, taking
      one or more of these steps may divert us from our strategy of expanding our
      business. If we are unable to take the necessary steps to avoid being
      inadvertently deemed an investment company or otherwise being required to
      register under the US Investment Company Act, we would not be able to offer
      our
      securities in the United States until we were no longer deemed an investment
      company under the US Investment Company Act. We could also be subject to other
      adverse consequences.





***The
      integration of Denong into Origin might increase our operation costs and might
      have an adverse effect on our operating results.***





By
      October, 2006, we have acquired approximately 95% equity interest in Denong
      Zhengcheng Seed Company, Ltd., or Denong, a developer, producer and marketer
      of
      rice, corn, canola and cotton in the southwest region of China. To integrate
      Denong into our growth strategies, we may need to invest considerable financial
      and human resources, which will likely increase our operation costs.
      Furthermore, the integration process could divert our management’s attention
      from our business, which might have an adverse effect on our operating
      results.





***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, Origin Biotechnology
      is entitled to a preferential tax rate of 15% as a high technology company,
      and
      was exempted from income tax for 2006. 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.




13




***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 our sales and profitability or restrict our ability to conduct
      our 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 carried by 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. 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 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 Northwest railway is deficient in terms 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 increase accordingly with the increase in transportation costs, which
      may
      adversely affect our business.





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





Seed
      storage entails significant risks, including difficulties in management of
      moisture, temperatureand 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 corn, rice and cotton seed lasts from October to June; the delivery
      of
      canola lasts from July to September. We generally do not have sales revenue
      from
      July to September, which results in cyclical changes of our cash flow and
      operating activities. From July to September each year, our cash flow will
      be
      very limited. 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.





***Aged
      inventory may result in an increase of our administrative expenses and cause
      operating losses.***





Due
      to
      the nature of the seed industry, we normally produce seeds according to our
      production plan before we deliver the seeds to our customers. Our production
      plan could be too aggressive, and therefore we could produce more seeds than
      demanded by the market which could result in aged seeds. We may decide not
      to
      sell the aged seeds if we take into account factors such as the quality of
      the
      seeds. In that case, the aged inventory could eventually be sold as common
      products at greatly reduced prices. Aged inventory could result in assets
      impairment risk, in which case we would suffer a loss and incur an increase
      of
      general and administrative expense.


14





***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 September 30, 2007, which requires us to 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 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 and decrease 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 our 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
      risk
      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, Origin, a
      non-Chinese entity that cannot directly own the shares of three of our PRC
      Operating Companies, namely, Beijing Origin Seed Limited, Changchun Origin
      Seed
      Technology Development Limited and Henan Origin Cotton Technology Development
      Limited, 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 the 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 three 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 three PRC Operating Companies and Denong
      Zhengcheng Seed Company, Ltd, which is approximately 95% owned by Beijing origin
      Seed Limited, 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 three PRC Operating
      Companies, which would reduce the reported earnings of the consolidated
      companies. The uncertainty of ownership may also affect our market
      value.





***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,
      including voting to terminate the consignment agreements.


15





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 conduct 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. 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 company and
      would
      reduce our ability to generate revenue.





***We
      may be subject to contingent tax liabilities.***





On
      December 20, 2004, Chardan China Acquisition Corp., or Chardan, entered into
      a
      stock purchase agreement with State Harvest Holdings Limited, or State Harvest,
      and all the stockholders of State Harvest for Chardan’s acquisition of State
      Harvest. In connection with the acquisition, Chardan formed its wholly-owned
      subsidiary, Origin Agritech Limited, or Origin. On November 8, 2005, Chardan
      mergered with and into Origin 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 Origin,
      and
      the assumption of all the rights and obligations of Chardan by Origin.
      Immediately after the redomestication merger, Origin acquired all the common
      stock of State Harvest by the issuance of shares and payments of cash
      consideration to the shareholders of State Harvest or their designee. The
      Company may be subject to contingent tax liabilities in connection with the
      above share exchange transaction, and considers such contingent tax liabilities
      more likely than remote. As of December 31, 2005, such contingent tax
      liabilities are reasonably possible to be in the range of RMB 39,059,000 to
      RMB
      64,218,000. The Company does not expect to incur tax liabilities at the higher
      end of the range, based on the information currently available.





***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
      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 PRC
      Operating Companies, namely, Beijing Origin Seed Limited, Changchun Origin
      Seed
      Technology Development Limited and Henan Origin Cotton Technology Development
      Limited, 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 treatment 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
      slowdown 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
      and expand our business, and may 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 C ompany
      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 a dairly 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.





***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.***





In
      October 2005, the PRC State Administration of Foreign Exchange, or SAFE,
      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 required 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. However, as these
      regulations are relatively new and there is uncertainty concerning the
      reconciliation of the new regulations with other approval requirements, it
      is
      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 a 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 Transition 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 Transition 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 or 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 Transition 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 flu 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 ordinary shares available for sale in the future
      which may increase volumes of ordinary shares available and lead to a decline
      in
      the market price of ordinary shares.***





The
      initial purchase price for the acquisition of State Harvest and its subsidiaries
      included 10,000,000 ordinary shares. 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 have 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 shares.





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





Under
      the
      stock purchase agreement among Chardan, State Harvest and all the shareholders
      of State Harvest, the former State Harvest shareholders are entitled to receive
      additional ordinary shares if certain financial performance or financing targets
      are achieved. There is no obligation to register the shares after issuance.
      However, after being held for appropriate periods, the ordinary shares will
      be
      eligible for resale under Rule 144. If the additional shares are earned, it
      will
      significantly increase the number of ordinary shares outstanding. The issuance
      of these additional shares will have a dilutive effect on the shares already
      outstanding and may cause a reduction in the trading price of our ordinary
      shares 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 shareholder 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 ordinary shares or prevent shareholders from realizing
      a
      premium over the market price for their ordinary shares. In addition, if these
      major shareholders choose 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 or prevent a change of control of us. 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 shareholders 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”), it
      having been Gazetted in 2004, the Company  was
      re-registered on July 10, 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 on October 6, 2004, and
      all
      the stockholders of State Harvest. 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.




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 8,043,752 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 and will continue to be used as
      working capital and for other corporate purposes, including future acquisitions.
      After the redemption of the warrants, Origin has approximately 23,472,910 common
      shares issued and outstanding.





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




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 holding 34.7% of Jilin Changrong. Jilin Changrong engages
      in
      the research, development, production, sale and distribution of hybrid corn
      in
      the northeast region of China.




On
      January 24, 2006, Beijing Origin acquired a 52.21% controlling interest in
      Denong Zhengcheng Seed Company Limited, or Denong. On October 18, 2006, Beijing
      Origin acquired an additional 42.42% equity interest in Denong, bringing its
      total ownership to approximately 95%. Denong is a developer, producer and
      marketer of hybrid rice, cotton, corn and canola, principally in the southwest
      region of China.




On
      October 19, 2006, Beijing Origin acquired a 19% interest in
      Biocentury Transgene (China) Co., Ltd., or Shenzhen Biocentury, a
      high-tech precursor in China's transgenic plant industry. After acquiring a
      7%
      interest in 2004 and an 8% interest in 2005, Beijing Origin now holds 34% of
      Shenzhen Biocentury.




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.




We
      spent
      about RMB15.47 million (US$1.87 million), RMB43.20 million (US$5.35 million),
      RMB25.06 million (US$3.10 million) and RMB9.50 million (US$1.20 million) for
      the
      purchase of plant and equipment for the years ended December 31, 2004 and 2005
      and for the nine months ended September 30, 2005 and 2006, respectively.




21




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




***Overview***




Origin
      Agritech is one of the leading crop seed companies in China. We specialize
      in the research and development, production and sales and marketing of crop
      seeds throughout the PRC. Currently, we specialize in four principal products:
      corn, rice, cotton and canola. Origin was founded as one of the first private
      hybrid seed company in China. Beijing Origin seed limited, or Beijing Origin,
      was formed in 1997, and began operations shortly thereafter in 1998. Beijing
      Origin began operations by licensing existing hybrid corn seeds for development
      and commercial distribution. Our first hybrid corn seed was YuYu
      22.




We
      have
      since expanded product offerings to include an increasing number of proprietary
      seed products. Proprietary hybrid seed development began 1998. To date, we
      have
      internally developed ten corn seed products, six rice seed products and two
      canola seed products in production and distribution. The rice and canola
      products were internal seed varieties developed by Denong. While we continue
      to
      increase our proprietary crop seed products in China, the majority of our
      revenues are from licensed seeds.




Our
      sales
      offices are spread through the central, northern, and southern regions of China.
      Our initial focus was on hybrid corn seed. In 2001, we expanded our business
      activities to include cotton seeds. We further expanded into rice seeds in
      2004.
      The acquisition of Denong in 2006 greatly increased our selection of rice seeds
      and brought us new canola products. Geographically, we expanded our market
      penetration through acquisitions, especially in the southwest region of China.
      Over the past three years, the number of corn, cotton, rice and canola varieties
      we have sold (both licensed and proprietary) has increased significantly. The
      following diagram illustrates the increase in the number of the seed varieties
      we sold over the past three years.




**Varieties
      of Seed Products:**





**Varieties
                of Seed Products****Year**
            
            Corn
            
            Cotton
            
            Rice
            
            Canola
            
            Total2004
            
            
            19
            
            
            4
            
            
            1
            
            
            0
            
            
            242005
            
            
            29
            
            
            8
            
            
            2
            
            
            0
            
            
            392006
            
            
            42
            
            
            15
            
            
            32
            
            
            8
            
            
            97





***Commercial
      Product Development*** **





We
      believe that we maintain a strict seed quality control system. We were the
      first
      Chinese seed company to gain ISO9001-2000 certification.





To
      maintain our position as a quality producer, we budget approximately 5% of
      our
      gross revenues based on each prior year’s results for 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
      RMB6,773,621 (US$818,416) ,RMB6,977,000 (US$865,000), RMB 5,963,096 (US$736,913)
      and RMB13,143,768 (US$ 1,662,926 ) in each of the years ended December 31,
      2004,
      and 2005, and for the nine months ended September 30, 2005 and 2006,
      respectively.





We
      produce our hybrid seeds by contracting with local farmers through which we
      provide them with parental seeds and technical support. Our seed conditioning
      plants located in Changchun, Shenyang, Henan, Yunnan, Beijing and Sichuan supply
      finished products nationwide. We believe that we have significant processing
      capability and use advanced equipment for efficiency and maintaining a high
      quality of seed products. 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.


22




We
      have
      established technological co-operations with various universities and research
      entities within China in connection with research of conventional breeding,
      including China Agricultural University, Henan Agricultural University, China
      Academy of Science, China Academy of Agricultural Science, Liaoning Agricultural
      Academy, Yunnan Agricultural Academy, Guizhou Agricultural Academy of Science,
      Jilin Agricultural Academy of Science, Beijing Agricultural Academy of Science
      and China Rice Academy. In biotechnology, we are cooperating with the Institute
      of Microbiology at the Chinese Academy of Sciences to undertake one of Beijing
      Significant High-tech Achievements Transformation Projects, “Transformation of
      glutamate dehydrogenase gene of fungus into maize.” These co-operations help
      improve our research capabilities and enable us to develop and commercialize
      our
      products.





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. We have already been successful in marketing BT cotton varieties in
      China
      and plan to continue to develop other new seed varieties.





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 100,000 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.





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





We
      have
      our own sales organization consisting of 191 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 3,200 first-level
      distributors and over 60,000 second-level distributors and some retailers.
      The
      distributors in turn sell our products to retailers and the retailers sell
      them
      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
      territorial integrity and enforcement of contractual penalties, which may
      include termination of distribution rights and cancellation of price discounts
      or preferential prices, 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 payment prior
      to
      delivery. Distributors that place orders, and make deposits on an order for
      sales to be made the following year, two months before the delivery are
      generally offered a discount. At the end of the annual sales season, we set
      a
      final sales price that is often below the suggested retail price. 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. 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 further 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.





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.


23





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 our production demonstrations in cooperation with local villages and
      seed distributors, to which we invite farmers and others in the seed
      distribution chain. At these demonstrations, our teams show their hybrid seeds,
      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
      us
      to build brand identity and loyalty, contributing to our total sales growth
      over
      the last several years.





Using
      mass communication, such as local TV, radio broadcasts and newspapers, we
      promote our brand to over 70% of our geographic market, reaching over
      twenty-four million individual farmer households. Additionally, we publish
      a
      seasonal newspaper, “Technology and Service,” with a distribution to about
      thirty million farmers, which 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 our crop seed
      products 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 thirteen trademarks, including four trademarks
      registered in 2006. The patents and trademarks include names, designs and
      method that are used in connection with our seed products packaging and
      production. One of the patents relating to the method of producing hybrid
      corn seed is owned by Henan Agriculture University and Beijing Origin. In
      addition, we have applied for eight additional trademarks, and the applications
      have been accepted and are now being reviewed by the Trademark Office of China’s
      State Administration for Industry and Commerce.





We
      delivered two new proprietary seed products in 2004, four new proprietary seed
      products in 2005, and four new proprietary seed products in 2006. With our
      research, breeding system and management, we have 70 proprietary corn seed
      products and 19 proprietary cotton seed products in the government testing
      and
      approval cycle without taking into account the proprietary seed products of
      Denong, including 46 new proprietary corn seed products and 11 proprietary
      cotton seed products in 2006.





The
      following table lists our self-developed proprietary seed products which have
      been approved by the national variety authorization committee or provincial
      variety authorization committee without
      taking into account the
      self-developed proprietary seed products of Denong:





Name
                of Variety
            
            Name
                of Seed Product
            
            Name
                of Proprietor
            
            Date
                of ApprovalAoYu
                3108
            
            Corn
            
            Beijing
                Origin
            
            June,
                2006AoYu
                3118
            
            Corn
            
            Beijing
                Origin
            
            April,
                2006AoYu
                3206
            
            Corn
            
            Beijing
                Origin
            
            December,
                2005AoYu
                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,
                2004Ao
                Yu 3210
            
            Corn
            
            Beijing
                Origin
            
            March,2006Ao
                Yu Qing Zhu 5102
            
            Corn
            
            Beijing
                Origin
            
            March,2006





24





So
      far,
      Denong has delivered six rice seed products and two canola products and has
      introduced 54 proprietary rice seed products, 13 proprietary canola products,
      6
      proprietary corn seed products and 2 proprietary cotton seed products in the
      government testing and approval cycle, including 41 new proprietary rice seed
      products, 13 new proprietary canola products and 5 new proprietary corn seed
      in
      2006.





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-four varieties of corn, five
      varieties of cotton, and two varieties of rice seed. 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 agreements with Hubei Province Shiyan Agricultural Sciences
      Institute and Handan Agricultural Academy, which have terms expiring on January
      10, 2008 and July 1, 2011, respectively, these agreements generally have no
      fixed term or termination date. The agreements may be terminated for breach
      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 Liyu, under which we and Liyu are to develop
      several varieties of corn seeds. Under these agreements, we have developed
      and
      produced six varieties of corn seeds, which together have represented a
      substantial amount of sales in each year ended December 31, 2004, 2005, and
      in
      the nine months ended September 30, 2005 and 2006, as illustrated in the
      following chart:





Varieties
                of Corn Seeds
            
            Percentage
                of
              2004
                Sales
            
            Percentage
                of
              2005
                Sales
            
            Percentage
                of the nine months ended September 30,
              2005
                Sales
            
            Percentage
                of the nine months ended September 30,
              2006
                SalesLinAo1
            
            
            50.50
            %
            
            21.00
            %
            
            20.74
            %
            
            11.66
            %AoYu
                17
            
            
            7.44
            %
            
            2.95
            %
            
            2.92
            %
            
            3.10
            %Liyu
                16
            
            
            0.11
            %
            
            26.01
            %
            
            26.06
            %
            
            13.27
            %AoYu
                19
            
            
            0.57
            %
            
            0.00
            %
            
            0.00
            %
            
            0.21
            %Liyu
                26
            
            
            0.02
            %
            
            0.00
            %
            
            0.00
            %
            
            0.07
            %Liyu35
            
            
            —
            
            
            —
            
            
            —
            
            
            0.00
            %**Total**
            
            
            58.64
            %
            
            49.96
            %
            
            49.72
            %
            
            28.31
            %




We
      have
      exclusive rights to produce and market the seeds developed under the agreements
      until the agreements are terminated, and Liyu has agreed that it will not
      develop any derivative hybrids from these seeds. Moreover, Liyu will pay the
      government fees to protect our exclusive rights. The agreement has no
      termination date, hence it continues until the parties jointly agree to
      terminate or breach of the agreement by one party or the other.





In
      addition to exclusive license agreements set forth above, we also have
      non-exclusive license agreements. The non-exclusive license fees tend to be
      lower than the typical exclusive license fees. Those licensors that lack
      production ability or distribution channels of their own grant us the right
      to
      produce, distribute and propagate the variety of  seeds, provide us with
      technical materials and instructions, supervise seed quality and evaluate
      growing areas. We are responsible for undertaking all the propagation costs,
      maintaining quality standards and safeguarding the variety reputation and rights
      of the licensors. So far, Beijing Origin has entered into these types of
      agreements with Henan Agriculture University for YuYu 22, Liaocheng Huafeng
      Maize Breeding Research Institution for Feng Liao 008 and Handan Academy of
      Agricultural Sciences for Ao Mian 885 and Ao Mian 802. The agreements may be
      terminated for breach by either party. We may terminate the agreements at any
      time, in effect, by not producing seeds thereunder, without penalty.


25




Except
      as
      discussed immediately above, no other seed products represented more than 10%
      of
      our sales in 2004, 2005 or the nine months ended September 30, 2006. 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 proprietary seeds, the number of seeds
      with
      respect to which we obtain licenses from others will gradually decline.





***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 the use 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 seeds that have
      been
      grown in their respective locales for years.





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 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 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.


26




***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
      that we can continue to do so in 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. 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 our 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.





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. 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 crop seed product that has 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 we have
      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;


27




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




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 engage in 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 nationwide. As described below, among other standards, 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 a
                registered capital of at least RMB30 million (approximately
                $3,717,380);




·
            to
                obtain a provincial license to distribute hybrid seed varieties,
                the
                licensee must have a 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 a 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 a 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 theprovincial
                  variety authorization committee;
 28




·
            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 an 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:




·
            Submit
                the application to the nationalvariety
                authorization committee;




·
            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 Company 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 33.0%
      (30.0% of state income tax plus 3.0% local income tax). However, the majority
      of
      our PRC Operating Companies are entitled to a preferential tax rate of
      15.0%.


29




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, foreign-invested enterprises in China are required
      to
      set aside at least 10% of their after-tax profit based on PRC accounting
      standards each year for their general reserves until the accumulative amount
      of
      such reserves reaches 50% of 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) funds which
      may not be distributed to equity owners except in the event of
      liquidation.





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




**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 December 31, 2006:










(1)
      We do
      not have any ownership interest in Beijing Origin, Henan Origin, Changchun
      Origin or Denong. 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.


30




***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.





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 and supervisors, 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 residual 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 allowed ownership 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 right to control the shares that are
      subject to the consignment agreements. The agreements are binding on the heirs
      of the respective consigning stockholders.


31




The
      importance of the stock consignment agreements is that State Harvest may
      consolidate the financial reporting of those 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. 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.





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
            %





***Techn*** ***ical
      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
      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. 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 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.




32




**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 use right to the land currently
      secures a loan of RMB26 million and the principal offices building currently
      secures a loan of RMB17 million. Both loans are extended by the China
      Construction Bank Beijing Shangdi Branch to Beijing Origin. The warehouse in
      Luojiang County, Sichuan Province secures a loan of RMB2 million by Deyang
      Commercial Bank to Denong. 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, Shanxi, Sichuan, Guizhou, Hainan, Hubei, Anhui,
      Guangxi, Hunan and Jiangxi provinces, and in Daxing of Beijing. These facilities
      include approximately 248,000 square meters of land and approximately 35,000
      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.





We
      also
      have additional new facilities in Shenyang, Liaoning Province, including 7,810
      square meters of new office and warehouse and 19,999 square meters of seed
      processing plant. The construction of the office and warehouse was completed
      in
      October 2006.





We
      believe that our existing facilities 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 Transition 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 Transition 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 Transition 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
      are
      providers of crop seeds to farmers in the People’s Republic of China. We
      specialize in the research, development, production, sale and distribution
      of
      crop seeds, including corn, cotton, rice, and canola. Our initial focus was
      on
      hybrid corn seed. We expanded our business activities to hybrid cotton seeds
      in
      2001, and hybrid rice seeds in 2004. Through our hybrid seed product line,
      we
      seek to increase crop productivity, and produce better quality seeds. The
      Company currently provides branded products and technical service to farmers
      in
      29 of the 31 provinces within China.





We
      conduct our business operations mainly through our PRC Operating Companies
      in
      China. We develop, produce and supply both internally developed and licensed
      seed products to the Chinese agricultural market.




We
      began
      to develop our own proprietary hybrid seed varieties in 1998. As of 2006, we
      have 10 proprietary corn seed products, 6 proprietary rice seed products and
      2
      proprietary canola seed products that are in commercial production and
      distribution. Currently, we have 16 breeding stations and employ 49 full
      time research personnel. We have cooperative relationships with several
      universities and research institutes in China. 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 been
      successful in marketing BT cotton varieties in China and plan to continue to
      develop other new seed varieties.




33




We
      produce our hybrid seeds by contracting with local farmers through which we
      provide them with parental seeds and technical support. At present, we have
      about 60,000 corn seed formers and 40,000 rice seed farmers through contract
      producing for us. We have 212 production personnel and have 6 seed
      conditioning plants in China to supply finished products
      nationwide.




We
      have a
      sales and marketing team of 191 employees located in 15 sale offices nationwide.
      Our nationwide distribution network covers most parts of China, and consists
      of
      over 3,200 first-level distributors and over 60,000 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 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 October 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.




Our
      fiscal year before July 2006 ended on December 31. Our selling seasons generally
      began in October and end in June of the following year. Under a fiscal year
      ended December 31, our reported revenues mainly reflected sales generated from
      January to June of that fiscal year and sales generated from October to December
      of the prior year, and our deferred revenues generally reflected products
      delivered between October and December of that year. We have changed our fiscal
      year-end to September 30. This change will reduce the amount of our deferred
      revenues and better reflect our results of operations in our statement of
      operations on a fiscal year basis.





**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;




·
            Our
                ability to develop new products through research and development;





·
            Potential
                fluctuations 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;




34





·
            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 a
                materially adverse impact on our business and results of operation,
                as
                there is currently no agriculture insurance available in China against
                natural disasters;




·
            The
                Chinese government’s continuing support for the growth and development of
                the agriculture sector;




·
            Our
                benefits from certain government incentives including tax incentives,
                the
                expiration of which, or changes to which, could have a material adverse
                effect on our operating results; and




·
            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, cotton,
      rice and canolain seeds China. The sale of corn seeds accounted for
      approximately 94.54% and 65.38% of our revenues for the 9 months ended September
      30, 2005 and 2006, respectively; the sale of cotton seeds accounted for 4.13%
      and 6.26% of our revenues for the 9 months ended September30, 2005 and 2006,
      respectively; and the sale of rice seeds accounted for 1.33% and 28.36% of
      our
      revenues for the 9 months ended on September 30, 2005 and 2006, respectively.
      The percentage of sales of corn seeds decreased and rice seeds increased
      substantially primarily due to the inclusion of the operating results of Denong.
      Denong’s main seed products include rice, corn, cotton and canola seeds, and the
      sales of rice seeds accounted for approximately 84.74% of its total sales from
      February to September of 2006. For the 9 months ended September 30, 2006, we
      had
      no canola revenues because the sales price for canola had not been finalized
      with customers as of September 30 2006. Such revenues will be deferred to and
      recognized in the following year.





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 our revenue recognition policy, we sometimes carry sizeable deferred revenue
      on our balance sheet. This deferred revenue reflects 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
      September 30 fiscal year.




We
      had a
      deferred revenue of RMB 24.10 million (US$3.05 million) and RMB181.58 million
      (US$22.50 million) as of September 30, 2006 and December 31, 2005, respectively.
      The deferred revenue of RMB181.58 million (US$22.50 million) reflects products
      delivered between October and December of 2005 and was recognized as revenue
      in
      2006. The deferred revenue of RMB24.10 million (US$3.05 million)reflects the
      canola seed sales of Denong, the price of which has not been finalized with
      customers as of September 30, 2006.




35




**Cost
      of revenues**




Our
      cost
      of revenues consist 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 costs, 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.




*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, which
      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 costs for producing seeds.




**Operating
      expenses**




Our
      operating expenses consist of general and administrative expenses, research
      and
      development expenses and selling and marketing expenses. Our operating expenses
      have increased for the nine months ended September 30, 2006 compared to the
      same
      period in 2005 primarily due to the inclusion of Denong’s operating expenses and
      increases in professional fees and share-based compensation




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.




*General
      and administrative expenses* .
      General
      and administrative expenses primarily consist of salary, depreciation,
      amortization, legal fees, inventory provision, professional expenses and other
      expenses, including travel and other general business expenses and office
      supplies.




*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 as percentage of revenues 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.




*Selling
      and marketing expenses* .
      Our
      selling and marketing expenses primarily consist of salary and compensation
      for
      our sales and marketing personnel, advertisement and promotion expenses,
      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
      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.


36





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 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 September 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 and RMB 3,986,377 ($504,349) for the nine
      months ended September 30, 2006.




**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, cotton,
      rice and canola 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 reflects 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 are 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 September 30 fiscal year.




*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 to be 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.




37





*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 measure our issued share options based on the grant-date
      fair value of the options and recognized as compensation expense over the
      requisite service period, with a corresponding addition to equity. We adopt
      the
      Black-Scholes Model to value the fair value of the share options and the
      following major assumptions are adopted: average risk-free rate of return of
      4.47%, expected option life of 3.5 years, volatility rate of 30.79% and dividend
      yield of nil.




**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,**
            
            **For
                the nine months ended**
              **September
                30,**2002
            
            2003
            
            2004
            
            2005
            
            2005
            
            2006In
              thousands
                RMB
            
            as
                %
              of
                net revenue
            
            In
              thousands
                RMB
            
            as
                %
              of
                net revenue
            
            In
              thousands
                RMB
            
            as
                %
              of
                net revenue
            
            In
                thousands RMB
            
            as
                %
              of
                net revenue
            
            In
                thousands RMB
            
            as
                %
              of
                net revenue
            
            In
                thousands RMB
            
            as
                %
              of
                net revenueConsolidated
                statement of operations and comprehensive income data:Revenues
            
            
            98,717
            
            
            100.00
            
            
            191,645
            
            
            100.00
            
            
            301,520
            
            
            100.00
            
            
            207,291
            
            
            100.00
            
            
            208,380
            
            
            100.00
            
            
            522,999
            
            
            100.00Cost
                of revenues
            
            
            (46,006
            )
            
            (46.60
            )
            
            (118,977
            )
            
            (62.08
            )
            
            (178,313
            )
            
            (59.14
            )
            
            (129,162
            )
            
            (62.31
            )
            
            (126,418
            )
            
            (60.67
            )
            
            (358,804
            )
            
            (68.61
            )Gross profit
            
            
            52,711
            
            
            53.40
            
            
            72,669
            
            
            37.92
            
            
            123,207
            
            
            40.86
            
            
            78,129
            
            
            37.69
            
            
            81,962
            
            
            39.33
            
            
            164,195
            
            
            31.39Selling
                and marketing
            
            
            (6,480
            )
            
            (6.56
            )
            
            (13,310
            )
            
            (6.95
            )
            
            (20,390
            )
            
            (6.76
            )
            
            (27,037
            )
            
            (13.04
            )
            
            (18,993
            )
            
            (9.11
            )
            
            (49,651
            )
            
            (9.49
            )General
                and administrative
            
            
            (9,642
            )
            
            (9.77
            )
            
            (18,948
            )
            
            (9.89
            )
            
            (24,149
            )
            
            (8.01
            )
            
            (28,983
            )
            
            (13.98
            )
            
            (19,712
            )
            
            (9.46
            )
            
            (45,111
            )
            
            (8.63
            )Research
                and development
            
            
            (5,372
            )
            
            (5.44
            )
            
            (5,288
            )
            
            (2.76
            )
            
            (6,774
            )
            
            (2.25
            )
            
            (6,977
            )
            
            (3.37
            )
            
            (5,963
            )
            
            (2.86
            )
            
            (13,144
            )
            
            (2.51
            )Total
                operating expenses
            
            
            (21,494
            )
            
            (21.77
            )
            
            (37,546
            )
            
            (19.59
            )
            
            (51,313
            )
            
            (17.02
            )
            
            (62,997
            )
            
            (30.39
            )
            
            (44,668
            )
            
            (21.44
            )
            
            (107,906
            )
            
            (20.63
            )other
                operating income
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,309
            
            
            1.11
            
            
            -
            
            
            
            
            
            -
            
            
            -Income
                from operations
            
            
            31,217
            
            
            31.62
            
            
            35,122
            
            
            18.33
            
            
            71,894
            
            
            23.84
            
            
            17,441
            
            
            8.41
            
            
            37,294
            
            
            17.90
            
            
            56,289
            
            
            10.76Interest
                income
            
            
            440
            
            
            0.45
            
            
            845
            
            
            0.44
            
            
            371
            
            
            0.12
            
            
            886
            
            
            0.43
            
            
            421
            
            
            0.20
            
            
            8,783
            
            
            1.68Interest
                expenses
            
            
            (417
            )
            
            (0.42
            )
            
            (483
            )
            
            (0.25
            
            
            (831
            )
            
            (0.28
            )
            
            (1,829
            )
            
            (0.88
            )
            
            (1,443
            )
            
            (0.69
            )
            
            (5,005
            )
            
            (0.96
            )Other
                income (expense)
            
            
            (606
            )
            
            (0.61
            )
            
            1,137
            
            
            0.59
            
            
            149
            
            
            0.05
            
            
            300
            
            
            0.14
            
            
            62
            
            
            0.03
            
            
            2,893
            
            
            0.55Equity
                in earnings of associated company
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,925
            
            
            0.64
            
            
            879
            
            
            0.42
            
            
            305
            
            
            0.15
            
            
            12,828
            
            
            2.45Income
                before income taxes
            
            
            30,634
            
            
            31.03
            
            
            36,621
            
            
            19.11
            
            
            73,508
            
            
            24.38
            
            
            17,677
            
            
            8.53
            
            
            36,639
            
            
            17.58
            
            
            75,788
            
            
            14.49Income
                tax
            
            
            (1,498
            )
            
            (1.52
            )
            
            (7,808
            )
            
            (4.07
            )
            
            (7,698
            )
            
            (2.55
            )
            
            (1,405
            )
            
            (0.68
            )
            
            (1,205
            )
            
            (0.58
            )
            
            (367
            )
            
            (0.07
            )Income
                before minority interests
            
            
            29,136
            
            
            29.51
            
            
            28,813
            
            
            15.03
            
            
            65,810
            
            
            21.83
            
            
            16,272
            
            
            7.85
            
            
            35,434
            
            
            17.00
            
            
            75,421
            
            
            14.42Minority
                interests
            
            
            (2,575
            )
            
            (2.61
            )
            
            138
            
            
            0.07
            
            
            (351
            )
            
            (0.12
            )
            
            137
            
            
            0.07
            
            
            (510
            )
            
            (0.24
            )
            
            910
            
            
            0.17Net
                income
            
            
            26,561
            
            
            26.91
            
            
            28,951
            
            
            15.11
            
            
            65,459
            
            
            21.71
            
            
            16,409
            
            
            7.92
            
            
            34,924
            
            
            16.76
            
            
            76,331
            
            
            14.59




**Nine
      Months Ended September 30, 2006 Compared to Nine Months Ended September 30,
      2005**




***Revenues***




Our
      revenues for the nine months ended September 30, 2006 increased approximately
      150.98% to RMB523.00 million (US$66.17 million) from RMB208.38 million (US$25.75
      million) in the same period of 2005. Without taking into account the revenue
      of
      RMB153.41 million (US$19.41million) of Denong, our revenues increased
      approximately 77.36% to RMB369.59 million (US$46.76 million) from RMB208.38
      million (US$25.75 million).





The
      77.36% increase in our revenues for the nine months ended September 30, 2006
      as
      compared to our revenues for the nine months ended September 30, 2005 is
      primarily due to the difference in the amount of deferred revenue and
      recognition of those deferred revenues as revenues. Our revenue is recognized
      only after a sale is made and the price is fixed and determinable, which usually
      occurs at the end of the selling season. As a result, we recorded deferred
      revenues amounting to RMB181.58 million (US$22.50 million) as of December 31,
      2005. The above amount of deferred revenue reflects products delivered between
      October and December of 2005 and was recognized in the nine months ended
      September 30, 2006. In 2004, we confirmed final sales prices for a portion
      of
      our products delivered between October and December of that year to customers
      principally located in the southwest region of China, and recognized that
      portion of the sales amounting to RMB89.12 million (US$ 10.77 million) as
      revenue in 2004. As a result, only RMB37.92 million (US$4.58 million) was
      recorded as deferred revenue as of December 31, 2004 and recognized in the
      nine
      months ended September 30, 2005.


38




With
      respect to our growth on a yearly basis, exclusive of the result of Denong,
      our
      revenues for the twelve months ended September 30, 2006 increased approximately
      24.1% to RMB368.5 million (US$46.62 million) from RMB296.97 million (US$36.7
      million) for the nine months ended September 30, 2005.





***Cost
      of revenues***




The
      cost
      of revenues increased by 183.82% to RMB358.80 million (US$45.40 million) for
      the
      nine months ended September 30, 2006 from RMB126.42 million (US$15.62 million)
      in the same period of 2005. Without taking into account the cost of revenues
      of
      RMB124.03 million (US$15.69 million) of Denong, our cost of revenues increased
      approximately 85.71% to RMB234.77 million (US$29.71 million).





The
      85.71% increase in our cost of revenues for the nine months ended September
      30,
      2006 as compared to our cost of revenues for the nine months ended September
      30,
      2005 is primarily due to the difference in the amount of cost of deferred
      revenue and recognition of such amount of cost of deferred revenues as costs.
      In
      line with the recognition of deferred revenue, we recognized cost of deferred
      revenues of RMB117.39 million (US$14.55 million) during the nine months ended
      September 30, 2006 as compared to RMB20.91 million (US$2.53 million) cost of
      deferred revenue for the nine months ended September 30, 2005.





With
      respect to increase of cost of revenues on a yearly basis, exclusive of the
      results of Denong, our cost of revenues for the twelve months ended September
      30, 2006 increased approximately 37.57% to RMB237.52 million (US$30.05 million)
      from RMB172.66 million (US$21.34 million) for the twelve months ended September
      30, 2005.





***Gross
      profit***




Our
      gross
      profit for the nine months ended September 30, 2006 increased approximately
      100.34% to RMB164.20 million (US$20.77 million) from RMB81.96 million (US$10.13
      million) in the same period of 2005. Without taking into account Denong, our
      gross profit increased approximately 64.49% to RMB134.82 million (US$17.05
      million).





Gross
      profit increased 29.0% in twelve months ended September 30, 2006 to RMB160.36
      million (US$20.29 million) from RMB124.32 million (US$15.36 million) in the
      same
      period of 2005.





***Gross
      margin***




As
      a
      percentage of total revenues, our gross margin was 31.39% in the nine months
      ended September 30, 2006, as compared with 39.33% in the same period of 2005.
      The decline in gross margins was the result of the inclusion of the operating
      results of Denong.




***Operating
      expenses*** ****




Operating
      expenses increased by 141.57% to RMB107.91 million (US$13.65 million) for the
      nine months ended September 30, 2006 from RMB44.67 million (US$5.52 million)
      for
      the same period of 2005. The increase in operating expenses was primarily
      attributable to the following factors:





(1)
      the
      inclusion of RMB33.71 million (US$4.27 million) of operating expenses of Denong
      in the eight-month period from the acquisition date of January 24, 2006 to
      September 30, 2006. Without taking into account Denong’s operating expenses, our
      operating expenses increased approximately 66.11% to RMB74.20 million (US$9.38
      million);


39





(2)
      the
      recognition of transportation fees of deferred revenues. We recognized
      transportation fees of deferred revenues of RMB1.49 million (US$0.19 million)
      during the nine months ended September 30, 2006 as compared to NIL
      transportation fees of deferred revenue in the same period of the prior
      year;





(3)
      the
      inclusion of professional fees of RMB9.68 million (US$ 1.22 million) and stock
      based compensation of RMB3.40 million (US$ 0.43). There were no such
      professional fees and stock based compensation for the nine months ended
      September 30, 2005.





Without
      taking into account the above factors, our operating expenses increased
      approximately by 33.56% to RMB59.66 million (US$7.55 million).





*Selling
      and marketing*





Selling
      and marketing expenses increased by 161.45% to RMB49.65 million (US$6.28
      million) for the nine months ended September 30, 2006 from RMB18.99 million
      (US$2.35 million) in the same period of 2005. This increase is primarily due
      to
      (1) the inclusion of RMB17.20 million (US$2.18 million) in selling expenses
      related to Denong; (2) a stock-based compensation of RMB1.40 million (US$0.18
      million); and (3) transportation fees of the deferred revenues amounting to
      RMB1.49 million (US$0.19 million). Other expenses include advertising expenses,
      which rose by RMB2.77 million (US$0.35 million), and transportation fees, which
      increased by RMB2.53 million (US$0.32 million) as a result of a higher volume
      of
      goods delivered.




*General
      and administrative*




General
      and administrative expenses increased by 128.87% to RMB45.11 million
      (US$5.71million) for the nine months ended September 30, 2006 from RMB19.71
      million (US$2.44 million) in the same period of 2005. This increase is primarily
      due to the following reasons: (1) inclusion of RMB12.73 million (US$1.61
      million) in general and administrative expenses related to Denong, (2) audit
      fees of RMB 3.04 million (US$ 0.38 million) accrued for the 9 months ended
      September 30, 2006 (the audit fees for 2005 were charged to the fourth quarter
      of 2005), (3) other professional service fees, which increased by RMB6.64
      million (US$0.84 million), and (4) stock-based compensation of RMB1.66 million
      (US$0.21 million).





*Research
      and development*




Research
      and development expenses increased by 120.42% to RMB13.14 million (US$1.66
      million) for the nine months ended September 30, 2006 from RMB5.96 million
      (US$0.74 million) in the same period of 2005. This increase is primarily due
      to
      the increase of RMB3.4 million (US$ 0.44 million) in research and development
      expenses of Origin and the inclusion of RMB3.78 million (US$0.48 million) in
      research and development expenses related to Denong. Without taking into account
      Denong, research and development expenses increased by 57.05% to RMB9.36 million
      (US$ 1.18 million). In addition, stock-based compensation amounted to RMB0.34
      million (US$ 0.04 million).





***Income
      from operations***




As
      a
      result of the foregoing, we had income from operations in the nine months ended
      September 30, 2006 of RMB56.29million (US$7.12 million), compared with income
      from operations of RMB37.29 million (US$4.61 million) in the same period of
      2005.




***Interest
      expense***




Interest
      expense increased by 246.81% to RMB5.01 million (US$0.63 million) in the nine
      months ended September 30, 2006 from RMB1.44 million (US$0.18 million) in the
      same period of 2005. The increase in interest expense was primarily attributable
      to the amount of short-term loans outstanding, which increased from RMB45.86
      million (US$5.67 million) as of September 30, 2005 to RMB253 million (US$32.01
      million) as of September 30, 2006.




***Share
      of earnings in equity investee companies***




Shares
      of
      earnings in equity investee companies increased to RMB12.83 million (US$1.62
      million) in the nine months ended September 30, 2006 from RMB 0.31 million
      (US$0.04 million) in the same period of 2005. This increase was primarily
      attributable to our pro-rata share of earnings in Jinlin Changrong of RMB11.80
      million (US$ 1.49 million) for the nine months ended September 30, 2006. We
      acquired 34.76% equity interest in Jilin Changrong in 2006.


40




***Other
      income***




Other
      income increased to RMB2.89 million (US$ 0.37 million) in the nine months ended
      September 30, 2006 from RMB0.06 million (US$0.01 million) in the same period
      of
      2005. This increase is primarily due to the inclusion of RMB1.88 million
      (US$0.24 million) of other income attributable to Denong for its transfer of
      technology use rights.





***Income
      taxes***




Income
      taxes decreased 69.58% to RMB0.37 million (US$0.05 million) in the nine months
      ended September 30, 2006 from RMB1.21 million (US$0.15 million) in the same
      period of 2005, primarily due to an increase in deferred tax assets of RMB1.06
      million (US$0.13 million) after a reclassification of RMB2.65 million (US$
      0.33
      million) from income tax recoverable brought forward from 2005 to the
      deferred tax assets. This increase mainly derived from the recognition of
      Beijing Origin’s tax loss for the nine months ended September 30,
      2006.




The
      applicable tax rate of the PRC enterprise income tax to Beijing Origin is 33.0%
      (30.0% of state income tax plus 3.0% local income tax). However, the majority
      of
      our PRC Operating Companies are entitled to a preferential tax rate of 15.0%,
      and Origin Biotechnology is also entitled to a preferential tax rate of 15%
      as a
      high technology company and is exempted from income tax for 2006. For the nine
      months ended September 30, 2005 and 2006, the effect of the preferential tax
      treatment is 24%.  The
      effective income tax rate for the nine months ended September 30, 2005 and
      2006
      was 3% and 1%, respectively.





***Net
      income***




Our
      net
      income increased by 118.56% to RMB76.33 million (US$9.66 million) in the nine
      months ended September 30, 2006 from RMB34.92 million (US$4.32 million) in
      the
      same period of 2005.





**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 October and end in June of the following year. 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
      October and December of that year to customers principally located in the
      southwestern region of China, and recognized 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.




41





***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.





*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 confirmation of final sales price for a portion of our
      product deliveries between September and December of 2004 as discussed above,
      which resulted in the recognition of revenues of those sales in
      2004.




***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 companies***




Equity
      in
      earnings of associated companies 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 we
      hold
      an 30% equity interest.




42





***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.




**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 partially 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 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 increase in net revenue was due to changes in our product sales mix. In
      2003, the corn seed product brand YuYu 22 was the principal product followed
      by
      Linao 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 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 was 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, an increase in technology
      usage fees and the shipping costs in 2004 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 fees was more than the increase
      of cost of sales, which was mainly due to the amount sold of product
      YuYu 22, which had a lower charge for technology usage fees, 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 changes in
      our
      product sales mix, an increase in the selling price and effective cost controls.




43





***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 for
      materials to educate our customers about the basics of planting our seed
      products; RMB9.17 million (US$1.11 million) 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,
      and
      costs associated with setting up three new marketing departments in Changchun,
      Baoding and Shenyang; and the increase in incentive bonuses for our marketing
      staff.




*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 an increase in general personnel expenses of RMB3.67 million (US$0.44
      million), an 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 expenses 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 to an increase in the average interest rate from 5.04% to 5.33%.




***Equity
      in earnings of associated companies***




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 a 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 Operating Companies, which were either
      exempted or enjoyed reduced rates of taxation under the enterprise income tax
      in
      2004.




44





***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
      September 30, 2006, we had approximately RMB140.95 million (US$17.83
      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 and invest in U.S. government bonds.




We
      financed our operations through cash generated from operating activities and
      short term borrowings. We had total short-term borrowings of RMB253.00 million
      (US$32.01 million) and a total long-term borrowings of RMB1.88 million (US$0.24
      million). A portion of our short-term borrowings (RMB26.00 million) is
      secured by our land use rights and another portion of our short-term borrowings
      (RMB17.00 million) is secured by the office building, both of which are in
      the Zhongguancun Life Science Park. A portion of our short-term borrowings
      (RMB2.00 million) is secured by our warehouse in Luojiang County, Sichuan
      Province and another portion of our short-term borrowings (RMB88.00
      million) is secured by an account held at Fidelity Investment. Another
      portion of our short-term borrowings (RMB100.00 million) is guaranteed by
      Gengchen Han and Origin Biotechnology. Our long-term borrowings consist of
      a
      third-party loan of RMB1.88 million (US$0.24 million) which is due in 2008
      and
      2009 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 2002, 2003, 2004, 2005 and
      nine
      months ended September 30, 2005 and 2006:




**Year
                ended December 31**
            
            **Nine
                months ended**
              **September
                30**(in
                thousands)
            
            2002
            
            2003
            
            2004
            
            2005
            
            2005
            
            2006RMB
            
            RMB
            
            RMB
            
            RMB
            
            RMB
            
            RMB
            
            US$Net
                cash (used in) provided byoperating
                activities
            
            
            55,976
            
            
            (14,961
            
            
            42,745
            
            
            24,387
            
            
            (19,900
            )
            
            (123,260
            )
            
            (15,594
            )Net
                cash (used in) provided by investing activities
            
            
            (24,586
            )
            
            (32,962
            )
            
            (27,201
            )
            
            (62,722
            )
            
            (39,082
            )
            
            (244,972
            )
            
            (30,993
            )Net
                cash (used in) provided by financing activities
            
            
            10,000
            
            
            18,446
            
            
            4,083
            
            
            207,706
            
            
            6,740
            
            
            275,006
            
            
            34,793Net
                increase(decrease) in cash andcash
                equivalents
            
            
            41,390
            
            
            (29,477
            )
            
            19,627
            
            
            169,371
            
            
            (52,242
            )
            
            (93,226
            )
            
            (11,794
            )Cash
                and cash equivalents,beginning
                of year
            
            
            37,308
            
            
            78,698
            
            
            49,221
            
            
            68,848
            
            
            68,848
            
            
            237,828
            
            
            30,090Effect
                of exchange rate changes on cash and cash equivalents
            
            
            -
            
            
            -
            
            
            -
            
            
            (391
            )
            
            45
            
            
            (3,649
            )
            
            (463
            )Cash
                and cash equivalents, end of year
            
            
            78,698
            
            
            49,221
            
            
            68,848
            
            
            237,828
            
            
            16,651
            
            
            140,953
            
            
            17,833




45





Net
      cash
      used in operating activities was RMB123.26 million (US$15.59 million) in
      the nine months ended September 30, 2006 compared to RMB19.90 million (US$2.46
      million) in the same period of 2005. This decrease was primarily due to a
      decrease in deferred revenue of RMB247.36 million (US$31.30 million), a decrease
      in advances from customers of RMB 75.39 million (US$9.54 million), a decrease
      due to growers of RMB27.40million (US$3.47 million), and a decrease in other
      payables and accrued expenses of RMB23.22 million (US$2.94 million), and offset
      by an increase in net income of RMB41.41million (US$5.24 million), an increase
      in our inventory of RMB215.40 million (US$27.25 million) and an increase in
      prepaid expenses and other current assets of RMB45.17 million (US$5.72 million).
      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 RMB49.05 million
      (US$6.06 million), an increase of our inventory of RMB121.56 million (US$15.06
      million), a decrease 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
      used in investing activities was RMB244.97 million (US$30.99 million) in the
      nine months ended September 30, 2006, of which RMB201.54 million (US$25.50
      million) was used in the purchase of debt securities and RMB55.12 million
      (US$6.97 million) was proceeds from sale of the debt securities, RMB36.30
      million (US$4.59 million) was used to acquire a 52.21% interest in Denong,
      RMB
      10.94 million (US$1.38 million) was deposit for the purchase of acquired
      technology, RMB10.43 million (US$1.32 million) was used to acquire a 34.7%
      interest in Jilin Changrong, RMB10 million (US$1.27million) was deposit for
      the
      purchase of an equity investment in Jilin Jinong Hi−tech Limited ("Jinong"), RMB
      9.50 million (US$1.20 million) was used in the purchase of plant and equipment,
      and RMB 7.37 million (US$0.93 million) was used in the purchase of intangible
      assets. Net cash used in investment activities was RMB39.08 million (US$4.83
      million) in the nine months ended September 30, 2005, of which RMB25.06 million
      (US$3.10 million) was used to construct our headquarter offices and in the
      purchase of fixed assets, RMB5.68 million (US$0.70 million) was used to acquire
      an additional 7% interest of Biocentury Transgene (China) Co., Ltd, and RMB5.19
      million (US$0.64 million) was deposits for the purchase of plant and equipment.





Net
      cash
      provided by financing activities was RMB275.01million (US$34.79million) in
      the
      nine months ended September 30, 2006, which mainly reflects our proceeds from
      short-term borrowings of RMB231.00 million (US$29.23 million) and repayment
      of
      short-term borrowings of RMB41.00 million (US$5.19 million), the exercise of
      warrants of RMB211.71 million (US$26.79 million) and the additional payment
      of
      RMB120.98 million (US$15.31 million) to the shareholders of State Harvest and
      their designee. Net cash provided by financing activities was RMB6.74million
      (US$0.83 million) in the nine months ended September 30, 2005, which reflects
      our proceeds from short-term borrowings of RMB65.42million (US$8.09 million)
      and
      repayment of short-term borrowings of RMB58.68 million (US$7.25
      million).





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 our 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.





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 requires that annual appropriations of 10% to15%
      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.




46





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.




**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 also have sixteen
      breeding stations located in different regions with seven being used for corn,
      four for rice, two for cotton, two for canola and one winter nursery for these
      different seed products.





We
      have
      established technological cooperative relationships with three universities
      and
      sixteen research institutes in China, including China Agricultural University
      and Chinese Academy of Sciences. We employ 49 full time research personnel.
      Our
      research and development expenditures were $0.82 million, $0.87 million, $0.74
      million and $1.66 million in each of the years ended December 31, 2004, and
      2005, and for the nine months ended September 30, 2005 and 2006,
      respectively.




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




Other
      than as disclosed elsewhere in this Transition Report, we are not aware of
      any
      trends, uncertainties, demands, commitments or events for the period from
      January 1, 2006 to September 30, 2006 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** **Commitments
      and Contingencies**




We
      have
      various contractual obligations that will affect our liquidity. The following
      table sets forth our contractual obligations as of September 30,
      2006:




Payments
                due by September 30,WithinTotal
            
            2007
            
            2008
            
            2009
            
            2010
            
            2011
            
            ThereafterRMB
            
            RMB
            
            RMB
            
            RMB
            
            RMB
            
            RMB
            
            RMBOperating
                Lease Obligations
            
            
            18,036,322
            
            
            2,874,752
            
            
            1,180,010
            
            
            936,011
            
            
            746,597
            
            
            746,597
            
            
            11,552,355Capital
                Commitments (1)
            
            
            8,336,225
            
            
            8,336,225Short-Term
                Debt Obligations (2)
            
            
            253,000,000
            
            
            253,000,000Long-Term
                Debt Obligations (3)
            
            
            1,880,000
            
            
            
            
            
            940,000
            
            
            940,000Total
            
            
            281,252,547
            
            
            264,210,977
            
            
            2,120,010
            
            
            1,876,011
            
            
            746,597
            
            
            746,597
            
            
            11,552,355








(1)
            Includes
                capital commitments for purchase of plant, building construction,
                equipment, land use rights and technology use rights.(2)
            Represents
                short term loans from China Construction Bank Shangdi Branch, Beijing
                Bank
                Shangdi Branch and Deyang Commercial
                Bank.





(3)
            Represents
                a third party’s loan repayable in 2008 and 2009 by two equal installments
                and bearing interest of 2.4% per annum. The borrowings are not secured.





47





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 transferred a 23% equity interest in Jilin Jinong Hi−tech Limited
      ("Jinong") to the Company for RMB21,880,000.





During
      2006, the Company entered into an agreement with Wanmeng Investment Limited
      to
      acquire an additional 19% equity interest in Biocentury Transgene (China) Co.,
      Ltd. (“Biocentury”) for RMB16,700,000, of which RMB 5,000,000 has been
      paid. The transaction was approved by the relevant government authorities
      on October 19, 2006.




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.





**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 September 30, 2006.




Name
            
            Age
            
            PositionGengchen
                Han
            
            51
            
            Chairman
                of the Board and Chief Executive OfficerYasheng
                Yang
            
            43
            
            Director
                and President, Treasurer and Chief Operating OfficerOfficerLiang
                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 each of our PRC Operating
      Companies. 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 for Pioneer Hi-bred
      International from 1990 to 1996; his positions there included Regional Technical
      Coordinator for Asia/Pacific and Regional Supervisor for China Business.


48





*Yasheng
      Yang* is a
      director and the president, treasurer and Chief Operating Officer of Origin
      and
      is an executive officer of each of 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 Or igin.
        Professor Zhang serve s in Henan
      Agriculture University since 1985, and occupies the position of president from
      1994 to 2003. He is also acting as a representative of the National People’s
      Congress. As a result of his work in the field of agriculture, he has received
      numerous honors, including 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 Beijingsince 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. Propper 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.





*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, Mr. 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.


49





*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, a Mitsubishi subsidiary in northern California and Sinotech
      Investment Management. Mr. Wang graduated from University of Illinois at
      Urbana-Champaign and Peking University.





**B.
      Compensation.**




The
      aggregate cash compensation paid to our directors and executive officers as
      a
      group was RMB 2,905,347.06 (US$367,579.33) for
      the
      nine months ended September 30, 2006 .
      In
      addition, options to acquire an aggregate of 395,000 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 certain of our employees. The table set forth below
      summarizes our outstanding options for directors as of September 30, 2006.
      All
      of the options granted to directors have a vesting period of three
      years.





**Name**
            
            **Ordinary
                Shares Underlying Outstanding Option**
            
            **Exercise
                Price**
            
            **Grant
                Date**
            
            **Expiration
                Date**Gengchen
                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 for each of them and a discretionary cash bonus based on growth
      in
      the combined companies’ 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.




50





***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.





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 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;


51





·
            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 was to administer our stock
      option plans, including authority to make and modify awards under such plans.
      Initially, our only plan was 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.





***Summary
      of Significant Differences in Corporate Governance Practices for Purposes of
      Rule 4350 of the Nasdaq Marketplace Rules***





We
      are
      incorporated under the laws of the British Virgin Islands. Our ordinary shares
      are registered with the United States Securities and Exchange Commission and
      are
      listed on the Nasdaq Stock Market LLC. As a result, our corporate governance
      framework is subject to laws of the British Virgin Islands, or BVI, and the
      securities laws and regulations of the United States.





Under
      Rule 4350 of the Nasdaq Marketplace Rules, a foreign private issuer may follow
      its home country practice in lieu of the requirements of Rule 4350. Rule 4350
      requires U.S. domestic listed companies have a majority of independent directors
      on its board of directors. We are not required to have a majority of independent
      directors on our board of directors under BVI laws. Currently, three of nine
      directors are independent directors.





Under
      Rule 4350, a U.S. domestic issuer must solicit proxies and provide proxy
      statements for all meetings of shareholders. There are no such mandatory
      requirements under BVI laws. Our board of directors convened an annual
      shareholders meeting on December 15, 2006. There were no specific items that
      our
      board of directors requested the shareholders to vote on. We did not provide
      proxy statements for the meeting.




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




We
      had
      423, 511 and 743 employees as of December 31, 2004, 2005 and 2006,
      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 September 30, 2006:




Areas
                of Operations
            
            Number
                of Employees
            
            Percentage
                of TotalResearch
                and Development
            
            
            49
            
            
            6.59
            %Sales
                and Marketing
            
            
            191
            
            
            25.7
            %Production
            
            
            212
            
            
            28.5
            %Quality
                Control
            
            
            49
            
            
            6.59
            %Others
            
            
            242
            
            
            32.57
            %Total
            
            
            743
            
            
            100
            %





52





From
      time
      to time, we also employ part-time employees, including independent contractors
      to support our research and development and production activities, and other
      temporary employees. During 2006, we had an aggregate of 58 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 December 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.




**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)
            
            
            236,142
            
            
            1.01
            %Steven
                Urbach
              *Director*(5)
            
            
            80,749
            
            
            0.34
            %Michael
                W. Trimble
            
            
            9,532
            
            
            0.04
            %**Principal
                Shareholders:**Jeff
                Feinberg
            
            
            1,804,619
            
            
            7.69
            %JLF
                Asset Management LLC
            
            
            1,247,705
            
            
            5.32
            %








*
      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.


53




(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)
            The
                business address of Messrs. Propper and Trimble 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.




***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: RMB 1.2 Yuan per kilogram of corn sold by the party receiving
      the
      technical services; RMB 6 Yuan per kilogram of rice sold by the party receiving
      the technical service and RMB 12 Yuan 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.


54


***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 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
      Transition Report, we have not made any 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 Transition 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.





***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 Transition 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 Joint Development agreements with Shijiazhuang Liyu
      Technology Development Co., Ltd. on March 30, 2006 to jointly develop 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 rights to 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. For the nine months ended September
      30, 2006, Beijing Origin paid RMB201 (US$ 25) to Shijiazhuang Liyu for the
      development of Liyu 35.





***Joint
      Development Agreements***





Beijing
      Origin, or its predecessor, has entered into three joint development 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 a
      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 were 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 agreed 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 rights 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 breach 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 were $1.08 million, $1.49 million, $0.16 million and
      $0.55million for the years ended December 31, 2004, and 2005, and for the
      nine months ended September 30, 2005 and 2006, respectively.


55





***Technology
      Transfer Agreement***





Beijing
      Origin, or its predecessor, entered into this agreement with Henan Agriculture
      University in 1998. Henan Agriculture University currently owns a 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 (unit 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.





***Amounts
      due from and to minority shareholders of Denong***





As
      of
      September 30, 2006, amounts due from minority shareholders of Denong are RMB
      2.74 million (US$ 0.35 million ). The amounts represent receivables from a
      group
      of minority shareholders for unpaid capital of a subsidiary of Denong. Amounts
      to minority shareholders of Denong are RMB 7.71 million (US$ 0.98 million).
      The
      amounts represent temporary fund by four minority shareholders of Denong and
      are
      payable on demand with no interest.





***Loan
      Agreement***





On
      January 2006, Beijing Origin entered into a loan agreement with the shareholders
      of Jilin Changrong. Under this agreement, Beijing Origin provided a loan of
      RMB
      6.5 million (US$ 0.82 million) to the shareholders of Jilin Changrong to set
      up
      Jilin Changrong. The loan will be repaid within 3 years with an interest rate
      which will be equivalent to the bank interest rate on the date of
      repayment.





***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.


56




**ITEM
      8. FINANCIAL INFORMATION**




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




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





***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 the 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 Transition
      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.




57




**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*Year
                2006 (until December 31, 2006)*
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            18.35
            
            
            9.31*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*Third
                Quarter 2006*
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            14.54
            
            
            9.31*Fourth
                Quarter 2006*
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            15.12
            
            
            10.15*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
            
            
            12.18July
                2006
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            14.54
            
            
            9.40August
                2006
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            12.00
            
            
            9.31September
                2006
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            12.46
            
            
            10.57October
                2006
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            11.99
            
            
            10.69November
                2006
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            15.12
            
            
            10.57December
                2006
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            12.85
            
            
            10.15January
                2007
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            11.88
            
            
            8.61





**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.**




We
      incorporate by reference into this Transition Report the description of our
      amended and restated memorandum and articles of association contained in our
      20-F annual report (File No. 000-51576 ),
      as
      amended, initially filed with the Commission on July 14, 2006.


58




**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 Transition Report on Form 20-F.




**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 our 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 our 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, and 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 which 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.




59




**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.
      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.




60


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.




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.


61




*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 will
      be
      treated as owning our proportionate share of the assets and earning our
      proportionate share of the income of any other corporation in which we own,
      directly or indirectly, 25% or more (by value) of the stock.




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 number 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 producing passive income or held for the production of passive income.
      We
      could also be a PFIC for any taxable year if the gross income that we and our
      subsidiaries earn from passive investments 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 the 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.




62




***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.




63




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




Not
      applicable.




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




We
      have
      filed this Transition Report on Form 20-F with the Securities and Exchange
      Commission under the Securities Exchange Act of 1934, as amended. Statements
      made in this Transition 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 Transition 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 Transition 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 Transition 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/losses in net income for the nine months
      ended September 30, 2006, 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. ****


64




**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**




(a)*Disclosure
      Controls and Procedures:*As of
      September 30, 2006 (the “Evaluation Date“), the Company conducted an evaluation
      (under the supervision and with the participation of the Company’s management,
      including the Chief Executive Officer and Chief Financial Officer), pursuant
      to
      Rule 13a-15 promulgated under the Securities Exchange Act of 1934, as amended
      (the “Exchange Act“), of the effectiveness of the design and operation of the
      Company’s disclosure controls and procedures. Based on this evaluation, the
      Company’s Chief Executive Officer and Chief Financial Officer concluded that as
      of the Evaluation Date such disclosure controls and procedures were reasonably
      designed to ensure that information required to be disclosed by the Company
      in
      reports it files or submits under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the rules and
      forms
      of the Securities and Exchange Commission.




(b) *Report
      of Origin*’*s Management on Internal Control Over Financial
      Reporting:* Origin’s
      Executive Board and management are responsible for establishing and maintaining
      adequate internal control over financial reporting as of September 30, 2006.
      The
      Company’s internal control system was designed to provide reasonable assurance
      to the Company’s management and Executive Board regarding the reliability of
      financial reporting and the preparation and fair presentation of its published
      consolidated financial statements.




All
      internal control systems, no matter how well designed, have inherent
      limitations. Therefore, even those systems determined to be effective may not
      prevent or detect misstatements and can provide only reasonable assurance with
      respect to financial statement preparation and presentation. Also, projections
      of any evaluation of effectiveness to future periods are subject to the risk
      that controls may become inadequate because of changes in conditions, or that
      the degree of compliance with the policies or procedures may deteriorate.




65




Origin’s
      management assessed the effectiveness of the Company’s internal control over
      financial reporting as of September 30, 2006. In making this assessment, it
      used
      the criteria established in Internal Control - Integrated Framework issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      Based on the evaluation under these criteria, management has concluded that,
      as
      of September 30, 2006, The Company’s internal control over financial reporting
      is effective.




(c) *Changes in internal control over financial reporting* :
      There
      were no changes to our internal control over financial reporting that occurred
      during the period covered by this Form 20-F 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.




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





On
      January 18, 2007, our board of directors adopted a code of ethics for senior
      executive and financial officers (i) to
      promote the honest and ethical conduct of our senior executive and financial
      officers, including the ethical handling of actual or apparent conflicts of
      interest between personal and professional relationships, (ii) to promote
      full, fair, accurate, timely and understandable disclosure in periodic reports
      required to be filed with or submitted to the United States Securities and
      Exchange Commission and in other public communications by us; (iii) to
      promote compliance with all applicable laws, rules and regulations that
      apply to the Company and its senior executive and financial officers; (iv)
      to
      deter wrongdoing; and (v) to promote prompt internal reporting of breaches
      of,
      and accountability for adherence to, this code. A copy of the code of ethics
      is
      filed as an exhibit to this Transition Report.




On
      January 18, 2007, our board of directors also adopted a code of conduct for
      our
      employees, including directors and officers. The purpose of this Code of Conduct
      (this “ Code ”)
      is to
      provide a summary of certain of the Company’s key policies and procedures, and
      to ensure lawful and ethical conduct. A copy of the code of conduct is filed
      as
      an exhibit to this Transition Report.





**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.  The aggregate fees billed for the nine
      months ended September 30, 2006 for professional services rendered by BDO McCabe
      Lo Limited for the review of the financial statements of the six months ended
      June 30, 2006 and for the audit of the financial statements of the nine months
      ended September 30, 2006 of Origin Agritech Limited were $0.38
      million.


66





**(b)      
      Audit - Related Fees**





No
      fees
      were billed in each of the last three 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, 2005 and for the
      nine months ended September 30, 2005 and 2006.




**(c)       
      Tax Fees**





We
      did
      not enter into any engagement in 2004, 2005 or 2006 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**




The
      consolidated financial statements for the Company and its subsidiaries are
      included at the end of this Transition 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(Incorporated by reference to Exhibit 1.1 of our Annual Report 20-F
                (file
                no.000-51576)
                filed with the Securities and Exchange Commission on July 14,
                2006)





67





2.1
            
            
            Specimen
                Common Stock Certificate (Incorporated by reference to Exhibit 4.2
                of 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
                (Incorporated by reference to Exhibit 4.2 of our Annual Report 20-F
                (file
                no.000-51576)
                filed with the Securities and Exchange Commission on July 14,
                2006)4.3
            
            
            Technical
                Service Agreement between Origin Biotechnology and Beijing Origin
                (Incorporated by reference to Exhibit 10.14 of 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 of 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 of 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
                of 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 of 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 of 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 of 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 of 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 of our Registration Statement S-4/A
                (file
                no. 333-124709) filed with the Securities and Exchange Commission
                on
                August 22, 2005)4.12
            
            
            Technology
                Transfer Agreement between Henan Agriculture University and Beijing
                Origin
                (YuYu22)(Incorporated by reference to Exhibit 10.27 of 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 of our Registration Statement
                S-4/A (file no. 333-124709) filed with the Securities and Exchange
                Commission on August 22, 2005)





68





4.14
            
            
            Joint
                Development Agreement with Corn Research Institute of Li County
                (2ndAgreement)(Incorporated
                by reference to Exhibit 10.29 of 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 of 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. dated
                as ofJanuary
                16, 2006(Incorporated by reference to Exhibit 4.16 of our Annual Report 20-F
                (file
                no.000-51576)
                filed with the Securities and Exchange Commission on July 14,
                2006)4.17
            
            
            Equity
                Transfer Agreement between Beijing Origin and Jilin Academy of Agriculture
                Science dated as of December 6, 2005(Incorporated by reference to Exhibit 4.17 of our Annual Report 20-F
                (file
                no.000-51576)
                filed with the Securities and Exchange Commission on July 14,
                2006)4.18
            
            
            Equity
                Transfer Agreement between Beijing Origin andChina
                National Center for Biotechnology Developmentdated as of December 28, 2004(Incorporated by reference to Exhibit
                4.18 of
                our Annual Report 20-F (file no.000-51576)
                filed with the Securities and Exchange Commission on July 14,
                2006)4.19
            
            
            Capital
                Contribution Agreement (Incorporated by reference to Exhibit 4.19
                of our
                Annual Report 20-F (file no.000-51576)
                filed with the Securities and Exchange Commission on July 14,
                2006)4.20
            
            
            New
                Corn Seed Liyu 35 Joint Development Agreement between Beijing Origin
                and
                Shijiazhuang Liyu Technology Development Co., Ltd. dated as ofMarch
                30, 2006(Incorporated by reference to Exhibit 4.20 of our Annual Report 20-F
                (file
                no.000-51576)
                filed with the Securities and Exchange Commission on July 14,
                2006)4.21
            
            
            Joint
                Development Agreement between Beijing Origin and Corn Research Institute
                of Li County dated January 31, 2002 (Incorporated by reference to
                Exhibit
                4.21 of our Annual Report 20-F (file no.000-51576)
                filed with the Securities and Exchange Commission on July 14,
                2006)4.22
            
            
            Joint
                Development Agreement between Beijing Origin and Corn Research Institute
                of Li County dated January 9, 2003 (Incorporated by reference to
                Exhibit
                4.22 of our Annual Report 20-F (file no.000-51576)
                filed with the Securities and Exchange Commission on July 14,
                2006)4.23
            
            
            Technology
                Transfer and Cooperation Agreement Concerning a New Corn Hybrid Yuyu
                20
                (Incorporated by reference to Exhibit 4.23 of our Annual Report 20-F
                (file
                no.000-51576)
                filed with the Securities and Exchange Commission on July 14,
                2006)4.24
            
            
            Renminbi
                Capital Loan Contract (Incorporated by reference to Exhibit 4.24
                of our
                Annual Report 20-F (file no.000-51576)
                filed with the Securities and Exchange Commission on July 14,
                2006)4.25
            
            
            Mortgage
                Contract (Incorporated by reference to Exhibit 4.25 of our Annual
                Report
                20-F (file no.000-51576)
                filed with the Securities and Exchange Commission on July 14,
                2006)4.26
            
            
            Form
                of Hybrid Corn Seed Sales Contract (Incorporated by reference to
                Exhibit
                4.26 of our Annual Report 20-F (file no.000-51576)
                filed with the Securities and Exchange Commission on July 14,
                2006)4.27
            
            
            Corn
                Hybrid Seed Production Booking Contract Dated April 4, 2006 between
                Beijing Origin andJilin
                Changrong4.28
            
            
            Share
                Transfer Agreement and Supplementary Agreement Dated June 13, 2006
                between
                Beijing Origin and China M&A Management Holdings,
                Inc.





69





4.29
            
            Renminbi
              Capital Loan Contract Dated July 24, 2006 between Beijing Origin andChina
              Construction Bank Corporation Beijing Shangdi Sub-Branch4.30
            
            Mortgage
              Contract Dated July 18, 2006 between Beijing Origin andChina
              Construction Bank Corporation Beijing Shangdi Sub-Branch4.31
            
            Loan
              Contract Dated September 14, 2006 between Beijing Origin andBank
              of Beijing Shangdi Sub-Branch4.32
            
            Loan
              Contract Dated February 13, 2006 between Denong and Deyang City Commercial
              Bank4.33
            
            Loan
              Agreement Dated January 19, 2006 and Supplementary Agreement Dated
              November 9, 2006 between Beijing Origin and Individuals8.1
            
            
            Updated
                List of subsidiaries11.1
            
            
            Code
                of Ethics11.2
            
            
            Code
                of Coduct12.1
            
            
            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


70




**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 Transition Report on its behalf.


ORIGIN AGRITECH LIMITEDDate:
                February 15, 2007
            
            /s/
                Han GengchenName: Han
                Gengchen
                Title: Chief
                  Executive Officer


71


ORIGIN
      AGRITECH LIMITED


Reports
        of Independent Registered Public Accounting Firms and Consolidated
        Financial Statements
 For
        the
        years ended December 31, 2004, 2005 and the nine months ended September 30,
        2006
  
  **ORIGIN
        AGRITECH LIMITED**
 
 **INDEX
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 CONTENTS
              
              PAGEREPORTS
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
              
              F−1CONSOLIDATED
                  BALANCE SHEETS AS OF DECEMBER 31, 2005 AND SEPTEMBER 30,
                  2006
              
              F−2CONSOLIDATED
                    STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2004
AND 2005,
                    AND THE NINE MONTHS ENDED SEPTEMBER 30,2005 (UNAUDITED) AND SEPTEMBER
                    30,
                    2006
              
              F-3CONSOLIDATED
                    STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR
                    THE YEARS
                    ENDED DECEMBER 31, 2004, 2005 AND THE NINE MONTHS ENDED SEPTEMBER
                    30, 2005
                    (UNAUDITED) AND SEPTEMBER 30, 2006
              
              F−4CONSOLIDATED
                    STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004
                    AND 2005,
                    AND THE NINE MONTHS ENDED SEPTEMBER 30, 2005 (UNAUDITED) AND
                    SEPTEMBER 30,
                    2006
              
              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 sheet of Origin Agritech
          Limited
          and its subsidiaries and variable interest entities (the "Company") as
          of
          December 31, 2005 and the related consolidated statements of operations,
          shareholders' equity and comprehensive income, and cash flows for each
          of the
          two 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, 2005
          and the
          results of its operations and its cash flows for each of the two years
          ended
          December 31, 2005 in conformity with accounting principles generally accepted
          in
          the United States of America.
  The
          accompanying consolidated statement of operations and cash flows of Origin
          Agritech Limited and its subsidiaries and variable interest entities for
          the
          nine months ended September 30, 2005 were not audited by us and, accordingly,
          we
          do not express an opinion on them.
  /s/
          Deloitte Touche Tohmatsu CPA Ltd.
 Beijing,
          China
 July
          14,
          2006
   F-1A
  **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 sheet of Origin Agritech Limited
        and its subsidiaries and variable interest entities (the "Company") as of
        September 30, 2006 and the related consolidated statement of operations,
        shareholders' equity, and cash flows for the nine months ended September
        30,
        2006, 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 audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. The Company is not required
        to
        have, nor were we engaged to perform, an audit of its internal control over
        financial reporting. Our audit includes 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. Our audit also includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements, assessing the accounting principles used and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation. We believe that our audit provides a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of the Company
        as
        of September 30, 2006 and the result of its operations and its cash flows
        for
        the nine months ended September 30, 2006 in conformity with accounting
        principles generally accepted in the United States of America.
 
 BDO
        McCabe Lo Limited
 Hong
        Kong, February 15, 2007
 
  F-1B
  **CONSOLIDATED
        BALANCE SHEETS**
 **(In
        thousands, except share data)**
 
 **December
                  31,**
              
              **September
                  30,****2005**
              
              **2006**
              
              **2006****RMB**
              
              **RMB**
              
              **US$**AssetsCurrent
                  assets:Cash
                  and cash equivalents
              
              
              237,828
              
              
              140,953
              
              
              17,833Debt
                  securities (note 3)
              
              
              -
              
              
              146,816
              
              
              18,575Accounts
                  receivables, less allowances for doubtful amountsof
                  RMBNil and RMB1,388 as of December 31, 2005 and September 30, 2006
                  respectively
              
              
              -
              
              
              12,467
              
              
              1,577Due
                  from related parties (note 4)
              
              
              3,373
              
              
              6,868
              
              
              869Advances
                  to suppliers (note 5)
              
              
              38,626
              
              
              3,559
              
              
              451Advances
                  to growers
              
              
              -
              
              
              49,250
              
              
              6,230Inventories
                  (note 6)
              
              
              355,699
              
              
              343,575
              
              
              43,468Income
                  tax recoverable
              
              
              3,366
              
              
              2,186
              
              
              277Prepaid
                  expenses and other current assets (note 7)
              
              
              10,334
              
              
              12,766
              
              
              1,615Total
                  current assets
              
              
              649,226
              
              
              718,440
              
              
              90,895Land
                  use rights, net (note 8)
              
              
              16,616
              
              
              16,923
              
              
              2,141Plant
                  and equipment, net (note 9)
              
              
              104,987
              
              
              125,425
              
              
              15,869Equity
                  investments (note 10)
              
              
              16,830
              
              
              38,888
              
              
              4,920Goodwill
                  (note 1)
              
              
              -
              
              
              10,900
              
              
              1,379Due
                  from related parties (note 4)
              
              
              -
              
              
              6,500
              
              
              822Acquired
                  intangible assets, net (note 11)
              
              
              4,778
              
              
              29,878
              
              
              3,780Deferred
                  income tax assets (note 17)
              
              
              327
              
              
              4,042
              
              
              511Other
                  assets (note 12)
              
              
              6,005
              
              
              33,130
              
              
              4,191Total
                  assets
              
              
              798,769
              
              
              984,126
              
              
              124,508Liabilities,
                  minority interests and shareholder’s equityCurrent
                  liabilities:Short-term
                  borrowings (note 13)
              
              
              63,000
              
              
              253,000
              
              
              32,009Accounts
                  payable
              
              
              28,823
              
              
              22,012
              
              
              2,785Due
                  to growers
              
              
              66,195
              
              
              38,794
              
              
              4,908Due
                  to related parties (note 4)
              
              
              1,938
              
              
              10,335
              
              
              1,308Advances
                  from customers
              
              
              102,743
              
              
              76,143
              
              
              9,633Deferred
                  revenues
              
              
              181,583
              
              
              24,101
              
              
              3,049Income
                  tax payable
              
              
              39,251
              
              
              39,059
              
              
              4,942Other
                  payables and accrued expenses (note 14)
              
              
              16,083
              
              
              46,187
              
              
              5,840Total
                  current liabilities
              
              
              499,616
              
              
              509,631
              
              
              64,474Long-term
                  borrowings (note 13)
              
              
              1,880
              
              
              1,880
              
              
              238Other
                  long-term liability (note 15)
              
              
              2,872
              
              
              1,000
              
              
              127Total
                  liabilities
              
              
              504,368
              
              
              512,511
              
              
              64,839Minority
                  interests
              
              
              3,234
              
              
              13,049
              
              
              1,651Commitments
                  and contingencies (note 21)Shareholder’s
                  equity:Preferred
                  stock (no par value;1,000,000 shares authorized, none
                  issued)
              
              
              -
              
              
              -
              
              
              -Common
                  stock (no par value; 60,000,000 shares authorized, 18,203,193 shares
                  issued and outstanding as of December 31, 2005; 23,472,910 shares
                  issued
                  and outstanding as of September 30, 2006 )
              
              
              -
              
              
              -
              
              
              -Additional
                  paid-in capital
              
              
              246,093
              
              
              340,810
              
              
              43,119Retained
                  earnings
              
              
              45,465
              
              
              121,796
              
              
              15,410Accumulated
                  other comprehensive loss
              
              
              (391
              )
              
              (4,040
              )
              
              (511
              )Total
                  shareholders’ equity
              
              
              291,167
              
              
              458,566
              
              
              58,018Total
                  liabilities, minority interests and shareholders’ equity
              
              
              798,769
              
              
              984,126
              
              
              124,508
 
 The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-2
  **CONSOLIDATED
        STATEMENT OF OPERATIONS**
 **(In
        thousands, except share data)**
 
 **Year
                  ended December 31,**
              
              **Nine
                  months ended September 30,****2004**
              
              **2005**
              
              **2005**
              
              **2006**
              
              **2006****RMB**
              
              **RMB**
              
              **RMB**
              
              **RMB**
              
              **US$**(Unaudited)Revenues
              
              
              301,520
              
              
              207,291
              
              
              208,380
              
              
              522,999
              
              
              66,169Cost
                  of revenues
              
              
              (178,313
              )
              
              (129,162
              )
              
              (126,418
              )
              
              (358,804
              )
              
              (45,395
              )Gross
                  profit
              
              
              123,207
              
              
              78,129
              
              
              81,962
              
              
              164,195
              
              
              20,774Operating
                  expenses:Selling
                  and marketing
              
              
              (20,390
              )
              
              (27,037
              )
              
              (18,993
              )
              
              (49,651
              )
              
              (6,282
              )General
                  and administrative
              
              
              (24,149
              )
              
              (28,983
              )
              
              (19,712
              )
              
              (45,111
              )
              
              (5,707
              )Research
                  and development
              
              
              (6,774
              )
              
              (6,977
              )
              
              (5,963
              )
              
              (13,144
              )
              
              (1,663
              )Total
                  operating expenses
              
              
              (51,313
              )
              
              (62,997
              )
              
              (44,668
              )
              
              (107,906
              )
              
              (13,652
              )Other
                  operating income
              
              
              -
              
              
              2,309
              
              
              -
              
              
              -
              
              
              -Income
                  from operations
              
              
              71,894
              
              
              17,441
              
              
              37,294
              
              
              56,289
              
              
              7,122Interest
                  expense
              
              
              (831
              )
              
              (1,829
              )
              
              (1,443
              )
              
              (5,005
              )
              
              (633
              )Share
                  of earnings in equity investee companies
              
              
              1,925
              
              
              879
              
              
              305
              
              
              12,828
              
              
              1,623Interest
                  income
              
              
              371
              
              
              886
              
              
              421
              
              
              8,783
              
              
              1,111Other
                  income
              
              
              149
              
              
              300
              
              
              62
              
              
              2,893
              
              
              366Income
                  before income taxes and minority interests
              
              
              73,508
              
              
              17,677
              
              
              36,639
              
              
              75,788
              
              
              9,589Income
                  tax expense (note 17)Current
              
              
              (5,975
              )
              
              (1,313
              )
              
              (1,563
              )
              
              (1,428
              )
              
              (181
              )Deferred
              
              
              (1,723
              )
              
              (92
              )
              
              358
              
              
              1,061
              
              
              135Income
                  tax expense
              
              
              (7,698
              )
              
              (1,405
              )
              
              (1,205
              )
              
              (367
              )
              
              (46
              )Income
                  before minority interests
              
              
              65,810
              
              
              16,272
              
              
              35,434
              
              
              75,421
              
              
              9,543Minority
                  interests
              
              
              (351
              )
              
              137
              
              
              (510
              )
              
              910
              
              
              115Net
                  income
              
              
              65,459
              
              
              16,409
              
              
              34,924
              
              
              76,331
              
              
              9,658Net
                  income per share - basic (note 18)
              
              
              RMB6.55
              
              
              RMB1.52
              
              
              RMB3.49
              
              
              RMB3.25
              
              
              US$0.41Net
                  income per share - diluted (note 18)
              
              
              RMB6.55
              
              
              RMB1.46
              
              
              RMB3.49
              
              
              RMB3.03
              
              
              US$0.38Shares
                  used in calculating basic net income per share
              
              
              10,000,000
              
              
              10,786,719
              
              
              10,000,000
              
              
              23,472,910
              
              
              23,472,910Shares
                  used in calculating diluted net income per share
              
              
              10,000,000
              
              
              11,220,157
              
              
              10,000,000
              
              
              25,187,753
              
              
              25,187,
                  753Cash
                  dividend per share
              
              
              RMB0.20
              
              
              RMB0.73
              
              
              -
              
              
              -
              
              
              -
  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)**
  **Retained**
              
              **Accumulated****Additional**
              
              **Earnings**
              
              **Other**
              
              **Total****Common
                  shares**
              
              **paid-in**
              
              **(accumulated**
              
              **Comprehensive**
              
              **Shareholders’**
              
              **Comprehensive****Shares**
              
              **Amount**
              
              **capital**
              
              **deficit)**
              
              **loss**
              
              **equity**
              
              **income****RMB**
              
              **RMB**
              
              **RMB**
              
              **RMB**
              
              **RMB**
              
              **RMB**Balance
                  as of January 1, 2004
              
              
              -
              
              
              -
              
              
              100,000
              
              
              (26,566
              )
              
              -
              
              
              73,434Net
                  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
              
              
              -
              
              
              136,976For
                  the year ended December 31, 2004
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              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 19)
              
              
              2,793,868
              
              
              -
              
              
              112,872
              
              
              -
              
              
              -
              
              
              112,872
              
              
              -Issuance
                  of common shares upon conversion of Unit Purchase Options (note
                  19)
              
              
              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
              )
              
              291,167For
                  the year ended December 31, 2005
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              16,018Net
                  income
              
              
              -
              
              
              -
              
              
              
              
              
              76,331
              
              
              -
              
              
              76,331
              
              
              76,331Issuance
                  of common shares upon exercise of Unit Purchase Options (note
                  19)
              
              
              19,833
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  of common shares upon exercise of Warrants (note 19)
              
              
              5,249,884
              
              
              -
              
              
              211,712
              
              
              -
              
              
              -
              
              
              211,712
              
              
              -Share-based
                  compensation expense
              
              
              -
              
              
              -
              
              
              3,986
              
              
              -
              
              
              -
              
              
              3,986
              
              
              -Cumulative
                  translation adjustment
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              (3,649
              )
              
              (3,649
              )
              
              (3,649
              )Deemed
                  distribution (note 1)
              
              
              -
              
              
              -
              
              
              (120,981
              )
              
              -
              
              
              -
              
              
              (120,981
              )
              
              -Balance
                  as of September 30, 2006
              
              
              23,472,910
              
              
              -
              
              
              340,810
              
              
              121,796
              
              
              (4,040
              )
              
              458,566For
                  the nine months ended September 30, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              72,682In
                  US$
              
              
              
              
              
              -
              
              
              43,119
              
              
              15,410
              
              
              (511
              )
              
              58,018
              
              
              9,196
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
  F-4
  **CONSOLIDATED
        STATEMENT OF CASH FLOWS**
 **(In
        thousands)**
 
 **Year
                  ended December 31,**
              
              **Nine
                  months ended September 30,****2004**
              
              **2005**
              
              **2005**
              
              **2006**
              
              **2006****RMB**
              
              **RMB**
              
              **RMB**
              
              **RMB**
              
              **US$**(Unaudited)Operating
                  activities:Net
                  income
              
              
              65,459
              
              
              16,409
              
              
              34,924
              
              
              76,331
              
              
              9,658Adjustments
                  to reconcile net income to net cash provided by (used in) operating
                  activities:Depreciation
                  and amortization
              
              
              5,225
              
              
              6,754
              
              
              4,284
              
              
              11,677
              
              
              1,477Loss
                  (gain) on disposal of plant and equipment
              
              
              76
              
              
              (26
              )
              
              347
              
              
              146
              
              
              18Gain
                  on disposal of debt securities
              
              
              -
              
              
              -
              
              
              -
              
              
              (394
              )
              
              (50
              )Bad
                  debt provision
              
              
              -
              
              
              125
              
              
              -
              
              
              (116
              )
              
              (15
              )Inventory
                  write down
              
              
              -
              
              
              1,685
              
              
              3,522
              
              
              4,194
              
              
              531Interest
                  capitalized in plant and equipment
              
              
              -
              
              
              (1,207
              )
              
              -
              
              
              -
              
              
              -Written-off
                  of acquired research & development expenses
              
              
              -
              
              
              -
              
              
              -
              
              
              1,297
              
              
              164Minority
                  interests
              
              
              351
              
              
              (137
              )
              
              510
              
              
              (910
              )
              
              (115
              )Share-based
                  compensation expense
              
              
              -
              
              
              774
              
              
              -
              
              
              3,986
              
              
              504Share
                  of earnings in equity investee companies
              
              
              (1,925
              )
              
              (879
              )
              
              (305
              )
              
              (12,828
              )
              
              (1,623
              )Changes
                  in operating assets and liabilities:Accounts
                  receivable, net
              
              
              -
              
              
              -
              
              
              -
              
              
              (9,954
              )
              
              (1,259
              )Due
                  from related parties
              
              
              (264
              )
              
              (2,588
              )
              
              86
              
              
              (754
              )
              
              (95
              )Advances
                  to growers
              
              
              -
              
              
              -
              
              
              (7,141
              )
              
              (49,250
              )
              
              (6,230
              )Advances
                  to suppliers
              
              
              5,727
              
              
              (36,982
              )
              
              (7,620
              )
              
              25,533
              
              
              3,230Inventories
              
              
              (64,933
              )
              
              (121,563
              )
              
              94,012
              
              
              215,400
              
              
              27,252Income
                  tax recoverable
              
              
              (6,081
              )
              
              4,166
              
              
              6,196
              
              
              1,180
              
              
              149Prepaid
                  expenses and other current assets
              
              
              (1,765
              )
              
              (4,734
              )
              
              (3,147
              )
              
              45,173
              
              
              5,715Deferred
                  income tax assets
              
              
              1,723
              
              
              92
              
              
              (357
              )
              
              (3,715
              )
              
              (470
              )Other
                  assets
              
              
              (82
              )
              
              (70
              )
              
              (321
              )
              
              1,484
              
              
              188Accounts
                  payable
              
              
              8,267
              
              
              6,081
              
              
              (19,860
              )
              
              (56,994
              )
              
              (7,211
              )Due
                  to growers
              
              
              47,946
              
              
              (17,162
              )
              
              (83,357
              )
              
              (27,401
              )
              
              (3,467
              )Due
                  to related parties
              
              
              1,413
              
              
              (1,497
              )
              
              8,538
              
              
              688
              
              
              87Advances
                  from customers
              
              
              5,264
              
              
              24,060
              
              
              (15,259
              )
              
              (75,388
              )
              
              (9,538
              )Deferred
                  revenues
              
              
              (27,375
              )
              
              143,662
              
              
              (37,903
              )
              
              (247,364
              )
              
              (31,296
              )Income
                  tax payable
              
              
              1,152
              
              
              (960
              )
              
              (1,175
              )
              
              (192
              )
              
              (24
              )Other
                  long-term liabilities
              
              
              -
              
              
              -
              
              
              2,000
              
              
              (1,872
              )
              
              (237
              )Other
                  payables and accrued expenses
              
              
              2,567
              
              
              8,384
              
              
              2,126
              
              
              (23,217
              )
              
              (2,937
              )Net
                  cash provided by (used in) operating activities
              
              
              42,745
              
              
              24,387
              
              
              (19,900
              )
              
              (123,260
              )
              
              (15,594
              )Investing
                  activities:Dividends
                  received
              
              
              -
              
              
              -
              
              
              -
              
              
              1,200
              
              
              152Purchase
                  of plant and equipment
              
              
              (15,470
              )
              
              (43,198
              )
              
              (25,062
              )
              
              (9,504
              )
              
              (1,202
              )Purchase
                  of debt securities
              
              
              -
              
              
              -
              
              
              -
              
              
              (201,544
              )
              
              (25,499
              )Loan
                  to shareholders of an equity investee
              
              
              -
              
              
              -
              
              
              -
              
              
              (6,500
              )
              
              (822
              )Proceeds
                  from disposal of plant and equipment
              
              
              255
              
              
              94
              
              
              (200
              )
              
              1,015
              
              
              128Proceeds
                  from sale of debt securities
              
              
              -
              
              
              -
              
              
              -
              
              
              55,122
              
              
              6,974Purchase
                  of land use rights
              
              
              (536
              )
              
              (5,701
              )
              
              (2,456
              )
              
              (5,379
              )
              
              (681
              )Acquisition
                  of cost method investment
              
              
              (8,320
              )
              
              (5,676
              )
              
              (5,676
              )
              
              -
              
              
              -Acquisition
                  of equity method investment
              
              
              (30
              )
              
              -
              
              
              -
              
              
              (10,430
              )
              
              (1,320
              )Deposit
                  for purchase of a subsidiary
              
              
              -
              
              
              (2,000
              )
              
              -
              
              
              -
              
              
              -Deposits
                  for purchase of acquired technology
              
              
              -
              
              
              (1,995
              )
              
              -
              
              
              (10,940
              )
              
              (1,384
              )Deposits
                  for purchase of plant and equipment
              
              
              -
              
              
              (1,325
              )
              
              (5,188
              )
              
              (4,341
              )
              
              (549
              )Business
                  acquisition, net of cash acquired(note
                  1)
              
              
              -
              
              
              -
              
              
              -
              
              
              (36,298
              )
              
              (4,592
              )Deposit
                  for purchase of equity investment
              
              
              -
              
              
              -
              
              
              -
              
              
              (10,000
              )
              
              (1,265
              )Purchase
                  of intangible assets
              
              
              (3,100
              )
              
              (2,921
              )
              
              (500
              )
              
              (7,373
              )
              
              (933
              )Net
                  cash used in investing activities
              
              
              (27,201
              )
              
              (62,722
              )
              
              (39,082
              )
              
              (244,972
              )
              
              (30,993
              )
  F-5
  **CONSOLIDATED
        STATEMENT OF CASH FLOWS - CONTINUED**
 **(In
        thousands)**
 
 **Year
                  ended December 31,**
              
              **Nine
                  months ended September 30,****2004**
              
              **2005**
              
              **2005**
              
              **2006**
              
              **2006****RMB**
              
              **RMB**
              
              **RMB**
              
              **RMB**
              
              **US$**(Unaudited)Financing
                  activities:Proceeds
                  from short-term borrowings
              
              
              41,000
              
              
              77,000
              
              
              65,420
              
              
              231,000
              
              
              29,226Repayment
                  of short-term borrowings
              
              
              (35,000
              )
              
              (55,000
              )
              
              (58,680
              )
              
              (41,000
              )
              
              (5,187
              )Repayment
                  of third party loans
              
              
              -
              
              
              -
              
              
              -
              
              
              (10,693
              )
              
              (1,353
              )Proceeds
                  from long-term borrowings
              
              
              -
              
              
              1,880
              
              
              -
              
              
              -
              
              
              -Net
                  cash inflow from the Share Exchange Transaction, net of transaction
                  costs
                  (note 1)
              
              
              -
              
              
              159,831
              
              
              -
              
              
              -
              
              
              -Cash
                  dividend
              
              
              (2,000
              )
              
              (7,837
              )
              
              -
              
              
              -
              
              
              -Dividend
                  paid to minority owners
              
              
              -
              
              
              (163
              )
              
              -
              
              
              -
              
              
              -Deemed
                  distribution (note 1)
              
              
              -
              
              
              (80,877
              )
              
              -
              
              
              (120,981
              )
              
              (15,306
              )Issuance
                  of share capital
              
              
              83
              
              
              -
              
              
              -
              
              
              -
              
              
              -Advance
                  from a shareholder
              
              
              -
              
              
              8,276
              
              
              -
              
              
              -
              
              
              -Advance
                  from minority shareholders of Denong
              
              
              -
              
              
              -
              
              
              
              
              
              4,968
              
              
              628Repayment
                  to a shareholder
              
              
              -
              
              
              (8,276
              )
              
              -
              
              
              -
              
              
              -Exercise
                  of warrants
              
              
              -
              
              
              112,872
              
              
              -
              
              
              211,712
              
              
              26,785Net
                  cash provided by financing activities
              
              
              4,083
              
              
              207,706
              
              
              6,740
              
              
              275,006
              
              
              34,793Net
                  increase (decrease) in cash and cash equivalents
              
              
              19,627
              
              
              169,371
              
              
              (52,242
              )
              
              (93,226
              )
              
              (11,794
              )Cash
                  and cash equivalents, beginning of year
              
              
              49,221
              
              
              68,848
              
              
              68,848
              
              
              237,828
              
              
              30,090Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              -
              
              
              (391
              )
              
              45
              
              
              (3,649
              )
              
              (463
              )Cash
                  and cash equivalents, end of year
              
              
              68,848
              
              
              237,828
              
              
              16,651
              
              
              140,953
              
              
              17,833Supplemental
                  disclosure of cash flow information:Income
                  taxes paid
              
              
              10,905
              
              
              4,700
              
              
              1,782
              
              
              2,382
              
              
              301Interest
                  paid
              
              
              831
              
              
              3,036
              
              
              2,360
              
              
              4,852
              
              
              614
  The
        accompanying notes are an integral part of these consolidated financial statements.
  F-6
  **NOTES
          TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
          30, 2006**
 (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 September 30, 2006, details
                  of the
                  Company’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
              
              100%
              
              Investment
                  holding(“State
                  Harvest”)
              
              
              
              IslandsBeijing
                  Origin State Harvest
              
              December
                  1, 2004
              
              People’s
                  Republic
              
              100%
              
              Hybrid
                  seedBiotechnology
                  Limited
              
              
              
              of
                  China (“PRC”)
              
              
              
              technologydevelopmentVariable
                  interest entity:Beijing
                  Origin Seed Limited (note (i))
              
              December
                  26, 1997
              
              PRC
              
              -
              
              Hybrid
                  crop seed development,production
                  anddistributionSubsidiaries
                  held by Beijing Origin Seed LimitedHe
                  Nan Origin Cotton Technology Development Limited (note
                  (i))
              
              March
                  2, 2001
              
              PRC
              
              90%
              
              Hybrid
                  crop seed development, production anddistributionChang
                  Chun Origin Seed Technology Development Limited (note (i))
              
              April
                  29, 2003
              
              PRC
              
              99%
              
              Hybrid
                  crop seed development, production anddistributionDenong
                  Zhengcheng Seed Limited (note (ii))
              
              June
                  21,2000
              
              PRC
              
              52.21%
              
              Hybrid
                  crop seed development, production anddistributionSubsidiaries
                  held by Denong:Guizhou
                  Denong Seed Limited(note(ii))
              
              January
                  2,2001
              
              PRC
              
              56.6%
              
              Hybrid
                  crop seed development, production anddistributionHunan
                  Denong Seed Limited(note(ii))
              
              January
                  16,2001
              
              PRC
              
              72.5%
              
              Hybrid
                  crop seed development, production anddistribution
  Note
        (i):
        Beijing Origin Seed Limited, He Nan Origin Cotton Technology Development
        Limited
        and Chang Chun Origin Seed Technology Development Limited are collectively
        referred to as "Beijing Origin".
  Note
        (ii): Denong
        Zhengcheng Seed Limited and its
        subsidiaries are collectively referred to as "Denong".
  F-7
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **1.**
              **ORGANIZATION
                  AND PRINCIPAL ACTIVITIES -
                  CONTINUED**
 
 ***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.
 
 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
  F-8
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **1.**
              **ORGANIZATION
                  AND PRINCIPAL ACTIVITIES -
                  CONTINUED**
 
 ***The
        Share Exchange Transaction- continued***
  Additional
        purchase price payments would 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
 
 (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
                  of September 30, 2006, Agritech received US$40,218 (equivalent
                  to
                  approximately RMB324,584) in gross proceeds as a result of the
                  call of the
                  issued and outstanding warrants assumed by Agritech on the Closing
                  Date
                  (note 19). Accordingly, Agritech paid an additional US$15,000 (equivalent
                  to approximately RMB120,981) to State Harvest Shareholders and
                  their
                  designee. The payments of the additional purchase price are accounted
                  for
                  as a deemed distribution.
 
 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:
 
 After-tax
                  profitUS$Year
                  ended June 30, 2006
              
              
              11,000Year
                  ending June 30,2007
              
              
              16,0002008
              
              
              21,0002009
              
              
              29,000
 
 As
        of
        September 30, 2006, the above-mentioned contingent purchase price payment
        in the
        form of common stock has not been approved by the board of directors of the
        Company.
 
 ***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**
 **SEPTEMBER
        30, 2006**
 (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.
 
 ***Business
        acquisition in 2006***
 
 On
        January 24, 2006 Beijing Origin acquired 52.21% of the equity interest in
        Denong
        for RMB 41,766. The financial statements of Denong have been consolidated
        into
        Agritech since that date. Denong is engaged in development, production and
        distribution of hybrid seeds including hybrid rice, cotton and rape seeds
        in the
        southwest region of PRC.
 
 The
        Company has allocated the purchase price of RMB41,766 to estimated share
        of fair
        values of the acquired assets and liabilities as follows:
  RMBCash
                  and cash equivalents
              
              
              1,810Accounts
                  receivables
              
              
              1,251Advances
                  to suppliers
              
              
              14,110Inventories
              
              
              109,891Prepaid
                  expenses and other current assets
              
              
              24,767Plant
                  and equipment
              
              
              10,149Intangible
                  assets
              
              
              18,116Goodwill
              
              
              10,900Accounts
                  payable
              
              
              (22,861
              )Advances
                  from customers
              
              
              (91,801
              )Other
                  payables and accrued expenses
              
              
              (34,566
              )41,766Supplemental
                  information:Cash
                  paid
              
              
              41,766Cash
                  acquired
              
              
              (3,468
              )Cash
                  paid, net of cash acquired
              
              
              38,298
  F-10
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **1.**  **ORGANIZATION
        AND PRINCIPAL ACTIVITIES - CONTINUED**
 
 ***Business
        acquisition in 2006 - Continued***
 
 The
        following table presents the details of the share of estimated fair value
        of the
        purchased intangible assets acquired in the Denong acquisitions. All purchased
        intangible assets are amortized using the straight-line method.
 
 Estimateduseful
                  lifeRMB
              
              (in
                  year)Technology
                  rights for licensed seeds
              
              
              11,485
              
              
              6In-processed
                  research and development products (note (iii))
              
              
              1,297
              
              
              -Distribution
                  network
              
              
              5,334
              
              
              1418,116
  Note
        (iii): In-processed research and development products were expensed immediately
        upon acquisition.
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES**
 
 Principles
                  of consolidation
 
 The
                  consolidated financial statements of the Company are prepared in
                  accordance with accounting principles generally accepted in the
                  United
                  States of America ("US GAAP"), include the assets, liabilities,
                  revenues,
                  expenses and cash flows of all subsidiaries and variable interest
                  entities. Intercompany balances, transactions and cash flows are
                  eliminated on consolidation.
 
 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
        noon buying rate in New York city for the cable transfers as certified for
        customs purposes by the Federal Reserve Bank of New York on September 29,
        2006
        of RMB7.904 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
        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, cash accounts, interest bearing
        savings accounts, time certificates of deposit and debt securities with a
        maturities of three months or less when purchased.
  F-11
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **2.** **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES -** **CONTINUED**
 
 Debt
        securities
 
 The
        Company classifies its debt securities into held-to-maturity and available
        for
        sales.
 
 Held-to-maturity
        securities are those securities in which the Company has the ability and
        intent
        to hold the security until maturity. Held-to-maturity
        securities are recorded at amortized cost, adjusted for the amortization
        or
        accretion of premiums or discounts. Any decline in the market of any
        held-to-maturity security below cost, that is deemed to be other than temporary,
        results in a reduction in the carrying amount to fair value. The impairment
        is
        charged to earnings and a new cost basis for the security is established.
        Premiums and discounts are amortized or accreted over the life of the related
        held-to-maturity security as an adjustment to yield using the straight ling
        method.
 
 Available-for-sale
        securities are measured at fair value and unrealized holding gains and losses
        is
        excluded from earnings and reported as a net amount in a separate component
        of
        shareholders' equity until realized. Other than temporary impairments in
        value
        of available-for-sale securities are included in earnings.
 
 Inventories
 
 Inventories
        are stated at the lower of cost, determined by weighted-average method, or
        market. Working-in-progress and finished goods inventories consist of raw
        materials, direct labour and overhead associated with the manufacturing process.
 
 Prepaid
        expenses and other current assets
 
 Prepaid
        expenses and other current assets consist principally of advance to staff,
        prepayments and other miscellaneous receivables.
 
 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.
        Maintenance and repairs are charged to expense as incurred. 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
              5-8
                  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.
  F-12
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES -****CONTINUED**
 
 Goodwill
 
 Goodwill
        is the excess of purchase price over the fair value of net assets acquired.
        The
        Company adopt Statement of Financial Accounting Standards No. 142 “Goodwill and
        other Intangible Assets”, which requires the carrying value of goodwill to be
        evaluated for impairment on an annual basis, using a fair-value-based approach.
        No impairment of goodwill has been identified during any of the periods
        presented.
 
 Acquired
        intangible assets, net
 
 Acquired
        intangible assets primarily consist of purchased technology rights, self
        developed technology rights and distribution network and are stated at cost
        less
        accumulated amortization. Amortization is calculated on a straight-line basis
        over the estimated useful lives of these assets and recorded in cost of
        revenues.
 
 Valuation
        of long-lived assets
 
 The
        Company reviews the carrying value of long-lived assets to be held and used,
        including other intangible assets subject to amortization, when events and
        circumstances warrants such a review. The carrying value of a long-lived
        asset
        is considered impaired when the anticipated undiscounted cash flow from such
        asset is separately identifiable and is less than its carrying value. In
        that
        event, a loss is recognized based on the amount by which the carrying value
        exceeds the fair market value of the long-lived asset. Fair market value
        is
        determined primarily using the anticipated cash flows discounted at a rate
        commensurate with the risk involved. Losses on long-lived assets to be disposed
        of are determined in a similar manner, except that fair market values are
        reduced for the cost to dispose.
 
 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.
  F-13
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES -****CONTINUED**
 
 Government
        subsidies
 
 A
        government subsidy is recognized only when there is reasonable assurance
        that
        the enterprise will comply with any conditions attached to the grant and
        the
        grant will be received.
 
 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
        and the cost of plant and equipment.
 
 (a)
              The
                  Company received RMB71 and RMB859, to fund research and development
                  activities for the years ended December 31, 2004 and 2005 respectively.
                  Such amounts are recorded as a reduction of research and development
                  expenses for the respective years. No such government subsidies
                  have been
                  received for the nine months ended September 30, 2006.
 
 (b)
              The
                  Company received a government incentive of RMB3,720 for the year
                  ended
                  December 31, 2004, in the form of a reduction in the cost of land
                  use
                  rights. No such items have been received for the year ended December
                  31,
                  2005 and nine months ended September 30,
                  2006.
 
 (c)
              The
                  Company received a government subsidy of RMB1,543 for the year
                  ended
                  December 31, 2005, in the form of a reduction in the cost of plant
                  and
                  equipment. No such items have been received for the nine months
                  ended
                  September 30, 2006.
 
 (d)
              The
                  Company received a government incentive of RMB300 for the 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.
                  No such
                  items have been received for the nine months ended September 30,
                  2006.
 
 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 when incurred. Advertising costs were RMB3,154, RMB4,288,
        RMB3,288 (unaudited) and RMB7,534 respectively for the years ended
        December 31, 2004, 2005 and nine months ended September 30, 2005 and 2006,
        and
        included as part of selling and marketing expenses.
 
 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 2004 and 2005 were
        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 2004 and 2005 were RMB6,322 and RMB5,870, respectively.
  During
        the nine months ended September 30, 2005 and 2006, shipping and handling
        costs
        included in selling and marketing expenses were RMB4,373 (unaudited) and
        RMB11,189, respectively.
 
 Allowance
        for doubtful account
 
 The
        Company regularly monitors and assesses the risk of not collecting amounts
        owed
        to the company by customers. This evaluation is based upon a variety of factors
        including: an analysis of amounts current and past due along with relevant
        history and facts particular to the customer. Based upon the results of this
        analysis, the Company records an allowance for uncollectible accounts for
        this
        risk.
  F-14
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES -****CONTINUED**
 
 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 of 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.
 
 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 .
 
 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 or period presented has been disclosed within the consolidated statements
        of shareholders' equity and comprehensive income separately.
 
 Income
        per share
 
 Basic
        income per share is computed by dividing net income by the weighted average
        number of common shares outstanding during the years or period. Diluted income
        per share gives effect to all dilutive potential common shares outstanding
        during the years or period. The weighted average number of common shares
        outstanding is adjusted to include the number of additional common shares
        that
        would have been outstanding if the dilutive potential common shares had been
        issued. In computing the dilutive effect of potential common shares, the
        average
        stock price for the period is used in determining the number of treasury
        shares
        assumed to be purchased with the proceeds from the exercise of options.
  F-15
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES -****CONTINUED**
 
 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.
 
 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 did 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.
 
 In
        March
        2006, the FASB issued SFAS No. 156, “Accounting for Transfers and Servicing of
        Financial Assets and Amendment of Statement No. 140” This Statement requires an
        entity to recognize a servicing asset or servicing liability each time it
        undertakes an obligation to service a financial asset by entering into a
        servicing contract in any of the certain situations. Those standards are
        based
        on consistent application of a financial-components approach that focuses
        on
        control. Under that approach, after a transfer of financial assets, an entity
        recognizes the financial and servicing assets it controls and the liabilities
        it
        has incurred, derecognizes financial assets when control has been surrendered,
        and derecognizes liabilities when extinguished. An entity should adopt this
        Statement as of the beginning of its first fiscal year that begins after
        September 15, 2006 with earlier application permitted. The Company does not
        expect the adoption of SFAS No. 156 will have a material impact on its
        consolidated result of operations and financial condition.
  F-16
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **2.**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES -****CONTINUED**
 
 Recently
        issued accounting standards - Continued
 
 In
        July
        2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
        Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in
        income taxes recognized in an enterprise’s financial statements in accordance
        with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes
        a
        recognition threshold and measurement attribute for the financial statement
        recognition and measurement of a tax position taken or expected to be taken
        in a
        tax return. This Interpretation also provides guidance on derecognition,
        classification, interest and penalties, accounting in interim periods,
        disclosure, and transition. This Interpretation is effective for fiscal years
        beginning after December 15, 2006, with earlier adoption permitted. The Company
        is currently evaluating the provisions of FIN 48.
 
 In
        September 2006, FASB issued SFAS No. 157, “Fair Value Measurements” This
        Statement defines fair value, establishes a framework for measuring fair
        value
        in generally accepted accounting principles (GAAP), and expands disclosures
        about fair value measurements. This Statement applies under other accounting
        pronouncements that require or permit fair value measurements. The definition
        of
        fair value retains the exchange price notion in earlier definitions of fair
        value. This Statement emphasizes that fair value is a market-based measurement,
        not an entity-specific measurement. This Statement is effective for financial
        statements issued for fiscal years beginning after November 15, 2007, and
        interim periods within those fiscal years. Earlier application is encouraged.
        The Company does not expect the adoption of SFAS No. 157 has a material impact
        on its consolidated financial statements.
 
 In
        September 2006, FASB issued SFAS No. 158,”Employers’ Accounting for Defined
        Benefit Pension and Other Postretirement Plans-An amendment of SFAS No. 87,
        88,
        106, and 132(R). This Statement improves financial reporting by requiring
        an
        employer to recognize the overfunded or underfunded status of a defined benefit
        postretirement plan (other than a multiemployer plan) as an asset or liability
        in its statement of financial position and to recognize changes in that funded
        status in the year in which the changes occur through comprehensive income
        of a
        business entity or changes in unrestricted net assets of a not-for-profit
        organization. This Statement also improves financial reporting by requiring
        an
        employer to measure the funded status of a plan as of the date of its year-end
        statement of financial position, with limited exceptions. An employer with
        publicly traded equity securities is required to initially recognize the
        funded
        status of a defined benefit postretirement plan and to provide the required
        disclosures as of the end of the fiscal year ending after December 15, 2006
        with
        earlier application allowed. The Company does not expect the adoption of
        SFAS
        No. 158 has a material impact on its consolidated result of operations and
        financial condition.
 
 **3.** **DEBT
          SECURITIES**
 
 The
        Company’s investments in debt securities consist of investments in US Government
        Agencies which are classified as follows:
  December
                  31,
              
              September
                  30,2005
              
              2006Held-to-maturity
                  investments
              
              
              RMB
              
              
              RMBUS
                  Government Agencies bonds, at amortized cost
              
              
              -
              
              
              143,455Available
                  for sales securityUS
                  Government Agencies bonds, at fair value
              
              
              -
              
              
              3,361-
              
              
              146,816
 The
        fair
        value of the held-to-maturity investment as of September 30, 2006 was
        RMB141,990. Based on the evaluation and the Company’s ability and intent to hold
        these investments for a reasonable period of time sufficient for a forecasted
        recovery of fair value, the Company does not consider held-to-maturity to
        be
        other-than-temporarily impaired at September 30, 2006. The held-to-maturity
        investment at September 30, 2006 has remaining contractual maturities of
        less
        than one year.
 
 The
        Company sold certain investments of RMB54,728 (amortized cost) near their
        maturity during the period with realized profit of RMB394 in order to liquidate
        the securities for an additional capital injection to a subsidiary, Biotech.
 
 A
        bond
        with maturity date in 2023 is classified under available for sales as the
        Company has no intent to hold it to its maturity.
 
 Included
        in the held-to-maturity investments, approximately RMB 115,728 has been
        pledged for bank loan as of September 30, 2006.
  F-17
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **4.**
              **RELATED
                  PARTY BALANCES AND
                  TRANSACTIONS**
 
 (1)  Amounts
        due from related parties as of December 31, 2005 and September 30, 2006 are
        as
        follows:
  Name
                  of related party
              
              Relationship
              
              December
                  31,
              
              September
                  30,2005
              
              2006RMB
              
              RMBShijiazhuang
                  Li Yu Technology Development Co., Ltd
              
              (iii)
              
              3,173
              
              4,120Han
                  Geng Chen
              
              (i)
              
              39
              
              -Yuan
                  Liang
              
              (i)
              
              22
              
              -Yang
                  Ya Sheng
              
              (i)
              
              102
              
              -Biocentury
                  Transgene (China) Co., Ltd. (“Biocentury”)
              
              (vi)
              
              -
              
              7Other
                  State Harvest Shareholders
              
              (ii)
              
              37
              
              -Minority
                  shareholders of Denong
              
              note
              
              -
              
              2,741Shareholders
                  of Jilin Changrong High-Tech Co., Ltd. (“Jilin Changrong”)
              
              (iii)
              
              -
              
              6,5003,373
              
              13,368Reclassified
                  to non-current assets
              
              
              
              -
              
              (6,500
              )3,373
              
              6,868
 
 Note:
        The
        amount represents receivable from a group of minority shareholders for unpaid
        capital of a subsidiary of Denong. The balance is payable on demand with
        interest free.
 
 (2)  Amounts
        due to related parties as of December 31, 2005 and September 30, 2006 are
        as
        follows:
 
 Name
                  of related party
              
              Relationship
              
              December
                  31,
              
              September
                  30,2005
              
              2006RMB
              
              RMBMinority
                  shareholder of Denong
              
              note
              
              -
              
              7,709He
                  Nan Agriculture University
              
              (iv)
              
              -
              
              100Yuan
                  Liang
              
              (i)
              
              -
              
              20Company
                  controlled by Han Geng Chen
              
              
              
              673
              
              660Company
                  controlled by Yuan Liang
              
              
              
              673
              
              660Company
                  controlled by Yang Ya Sheng
              
              
              
              393
              
              385Other
                  State Harvest Shareholders
              
              (ii)
              
              178
              
              174Zhang
                  Bai Liang
              
              (v)
              
              21
              
              -Biocentury
              
              (vi)
              
              -
              
              273Jilin
                  Changrong
              
              (iii)
              
              -
              
              3541,938
              
              10,335
 
 Note:
        This is the amount temporary funded by four minority shareholders of Denong.
        The
        amount is payable on demand with interest free.
  F-18
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **4.**
              **RELATED
                  PARTY BALANCES AND TRANSACTIONS -
                  CONTINUED**
 
 (3)
              Transactions
                  with related parties for the years ended December 31, 2004, 2005
                  and nine
                  months ended September 30, 2005 (unaudited) and 2006 are
                  follows:
  (a)
              Sales
 Name
                  of related party
              
              Relationship
              
              Year
                  ended December 31,
              
              Nine
                  months endedSeptember
                  30,2004
              
              2005
              
              2005
              
              2006RMB
              
              RMB
              
              RMB
              
              RMB(Unaudited)Biocentury
              
              (vi)
              
              N/A
              
              N/A
              
              N/A
              
              1,234
 
 (b)  Purchase
  Name
                  of related party
              
              Relationship
              
              Year
                  ended December 31,
              
              Nine
                  months endedSeptember
                  30,2004
              
              2005
              
              2005
              
              2006RMB
              
              RMB
              
              RMB
              
              RMB(Unaudited)Biocentury
              
              (vi)
              
              N/A
              
              N/A
              
              N/A
              
              2,989
 
 (c)  Technology
        usage fee
  Name
                  of related party
              
              Relationship
              
              Year
                  ended December 31,
              
              Nine
                  months endedSeptember
                  30,2004
              
              2005
              
              2005
              
              2006RMB
              
              RMB
              
              RMB
              
              RMB(Unaudited)Shijiazhuang
                  Li Yu Technology Development Co., Ltd. (“Li Yu”)
              
              (iii)
              
              8,243
              
              4,958
              
              1,300
              
              201He
                  Nan Agriculture University
              
              (iv)
              
              1,104
              
              302
              
              100
              
              -9,347
              
              5,260
              
              1,400
              
              201
 
 The
        above
        amounts relate to technology usage fees paid to certain related party research
        centers for the exclusive right to use certain seed technologies.
 
 (d)  Consulting
        service fee
  Name
                  of related party
              
              Relationship
              
              Year
                  ended December 31,
              
              Nine
                  months endedSeptember
                  30,2004
              
              2005
              
              2005
              
              2006RMB
              
              RMB
              
              RMB
              
              RMB(Unaudited)Chardan
                  Capital LLC.
              
              (vii)
              
              -
              
              242
              
              -
              
              -
 
 The
        above
        amount relates to certain financial and management advisory
        services.
 
 (e)  In
        May
        2005, a principal shareholder of the Company provide RMB8,276 for capital
        injection to BioTech, which had been fully repaid s 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)  Being
        equity investees of the Company.
  (iv)  Being
        a
        minority shareholder of Beijing Origin.
  (v) Being
        a
        director of the Company.
  (vi) Being
        an
        investment of the Company with less than 20% equity interest. The Company
        considered that they have the ability to exercise significant influence over
        the
        operating policies of Biocentury subsequent to December 31, 2005. Accordingly,
        the transactions and balances with Biocentury during the nine months ended
        September 30, 2006 and as of September 30, 2006 were identified as related
        party
        transactions and balances.
  (vii) Being
        an
        affiliate of a former member of management of the Company.
  F-19
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **5.**
              **ADVANCES
                  TO SUPPLIERS**
 
 Advances
        to suppliers consist of the following:
  December
                  31,
              
              September
                  30,2005
              
              2006RMB
              
              RMBPurchases
                  of materials
              
              
              37,160
              
              
              1,667Prepayments
                  for advertisement
              
              
              1,320
              
              
              24Others
              
              
              146
              
              
              1,86838,626
              
              
              3,559
 
 Advance
        to suppliers mainly represents deposits paid but the materials and services
        have
        not yet been provided to the Company.
 
 On
        November 21, 2005, the Company entered into a purchase contract for rice
        seeds
        with Denong, a company subsequently acquired by the Company in January 2006
        (see
        Note 12). 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.
 
 **6.**
              **INVENTORIES**
 
 Inventories
        consist of the following:
  December
                  31,
              
              September
                  30,2005
              
              2006RMB
              
              RMBWork
                  in progress and supplies
              
              
              199,756
              
              
              113,200Finished
                  goods
              
              
              155,943
              
              
              230,375355,699
              
              
              343,575
 
 As
        of
        December 31, 2005 and September 30, 2006, goods already delivered to customers
        but still recorded in finished goods, are RMB119,384 and RMB12,412,
        respectively. As the Company does not recognize revenue until the selling
        prices
        of respective goods have been finalized with the customers, goods delivered
        to
        customers before the year ends will be transferred to cost of revenues when
        related revenue is recognized.
 
 The
        Company made allowances of RMB 1,685 and RMB 5,879 as of December 31, 2005
        and
        September 30, 2006 based on the assessment of the lower of cost or the
        market.
 
 **7.** **PREPAID
          EXPENSES AND OTHER CURRENT ASSETS**
 
 Prepaid
        expenses and other current assts consist of the following:
  December
                  31,
              
              September
                  30,2005
              
              2006RMB
              
              RMBAdvances
                  to staff for business use
              
              
              4,964
              
              
              8,706Deposit
                  for technology usage fees
              
              
              3,801
              
              
              -Due
                  from former minority shareholders of Denong
              
              
              -
              
              
              2,376Other
                  prepaid expenses
              
              
              1,569
              
              
              1,68410,334
              
              
              12,766
  F-20
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **8.** **LAND
          USE RIGHTS, NET**
 
 Land
        use
        rights, net consist of the following:
  December
                  31,
              
              September
                  30,2005
              
              2006RMB
              
              RMBLand
                  use rights
              
              
              17,488
              
              
              17,884Accumulated
                  amortization
              
              
              (872
              )
              
              (961
              )Land
                  use rights, net
              
              
              16,616
              
              
              16,923
 
 Land
        use
        rights with net values of RMB 2,962 and RMB 2,916 have been pledged as
        collaterals for bank loan as of 31 December 2005 and 30 September 2006,
        respectively.
 
 **9.** **PLANT
          AND EQUPMENT, NET**
 
 Plant
        and
        equipment, net consist of the following:
  December
                  31,
              
              September
                  30,2005
              
              2006RMB
              
              RMBPlant
                  and building
              
              
              76,558
              
              
              86,856Machinery
                  and equipment
              
              
              21,411
              
              
              26,853Furniture
                  and office equipment
              
              
              7,844
              
              
              9,429Motor
                  vehicles
              
              
              11,371
              
              
              14,452Leasehold
                  improvements
              
              
              55
              
              
              492Total
              
              
              117,239
              
              
              138,082Accumulated
                  depreciation and amortization
              
              
              (16,098
              )
              
              (22,758
              )Construction
                  in progress
              
              
              3,846
              
              
              10,101Plant
                  and equipment, net
              
              
              104,987
              
              
              125,425
 
 Included
        in plant and building, net values of RMB37,560 and RMB42,845 have been pledged
        for bank loan as of December 31, 2005 and September 30, 2006, respectively.
 
 Construction
        in progress relates to the production facilities under construction by the
        Company.
  F-21
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **10.** **EQUITY** **INVESTMENTS**
 
 Long-term
        investments consist of the following:
 December
                  31,
              
              September
                  30,2005
              
              2006RMB
              
              RMBEquity
                  method investment
              
              
              2,834
              
              
              24,892Cost
                  method investment
              
              
              13,996
              
              
              13,996Total
              
              
              16,830
              
              
              38,888
 
 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 accounting method. For the year ended December
        31,
        2005 and nine months ended September 30, 2006, the Company recorded its pro-rata
        share of earnings in Li Yu of RMB879 and RMB1,026 respectively. The Company
        also
        received a dividend of RMB1,200 from Li Yu during 2006. The dividend received
        was accounted for as a reduction in cost of investment.
 
 In
        2006,
        the Company acquired a 34.76% equity interest in Jilin Changrong for RMB10,430.
        The Company recorded its pro-rata share of earnings in Jilin Changrong of
        RMB11,802  as
        of
        September 30, 2006. The summarized financial information of Jilin Changrong
        is
        as follows:
 
 September
                  30,2006RMBCurrent
                  assets
              
              
              85,469Non-current
                  assets
              
              
              81Current
                  liabilities
              
              
              (21,518
              )Net
                  assets
              
              
              64,032
 
 Nine
                  months ended September 30,2006RMBRevenues
              
              
              109,182Cost
                  of revenues
              
              
              (68,175
              )Gross
                  profit
              
              
              41,007Total
                  operating expenses
              
              
              (5,126
              )Other
                  expenses, net
              
              
              (1,849
              )Income
                  before taxes
              
              
              34,032Income
                  tax expense
              
              
              -Net
                  income
              
              
              34,032
 
 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.
  **11.** **ACQUIRED
          INTANGIBLE ASSETS, NET**
 
 Acquired
        intangible assets consist of the following:
  December
                  31,
              
              September
                  30,2005
              
              2006RMB
              
              RMBTechnology
                  rights for licensed seeds
              
              
              7,012
              
              
              29,150Distribution
                  network
              
              
              -
              
              
              5,334Others
              
              
              9
              
              
              1,3567,021
              
              
              35,840Accumulated
                  amortization
              
              
              (2,243
              )
              
              (5,935
              )Impairment
                  provision
              
              
              -
              
              
              (27
              )Acquired
                  intangible assets, net
              
              
              4,778
              
              
              29,878
  Amortization
        expense for the years ended December 31, 2004 and 2005, nine months ended
        September 30, 2005 and 2006 were RMB465, RMB1,015, RMB923
        (unaudited)  and
        RMB4,400 respectively.
  F-22
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **11.**
              **ACQUIRED
                  INTANGIBLE ASSETS, NET -
                  CONTINUED**
 
 Amortization
        expense on these intangible assets for each of the next five years is as
        follows:
 
 Year
                  ending September 30,
              
              RMB2007
              
              
              6,0862008
              
              
              5,6572009
              
              
              5,1612010
              
              
              3,1202011
              
              
              912Total
              
              
              20,936
 
 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.
 
 **12.**
              **OTHER
                  ASSETS**
 
 Other
        assets consist of the following:
 December
                  31,
              
              September
                  30,2005
              
              2006RMB
              
              RMBPrepaid
                  lease
              
              
              685
              
              
              775Deposit
                  for purchase of a subsidiary
              
              
              2,000
              
              
              -Deposits
                  for purchase of acquired intangible assets
              
              
              1,995
              
              
              10,940Deposits
                  for purchase of plant and equipment
              
              
              1,325
              
              
              4,341Deposits
                  for leased properties and land use rights
              
              
              -
              
              
              7,049Deposits
                  for equity investment in Jinong (note 22)
              
              
              -
              
              
              10,000Others
              
              
              -
              
              
              256,005
              
              
              33,130
 
 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 (see Note 1). The Company completed this acquisition on
        January 24, 2006 upon obtaining the necessary government approvals.
 
 During
        2005 and 2006, the Company entered into technology transfer agreements with
        certain inventors of new seed products and prepaid deposits of RMB1,995 in
        2005
        and RMB10,940 in 2006.
 
 **13.**
              **BORROWINGS**
 December
                  31,
              
              September
                  30,2005
              
              2006RMB
              
              RMBShort-term
                  borrowings
              
              
              63,000
              
              
              253,000Long-term
                  borrowings
              
              
              1,880
              
              
              1,880
 
 Short-term
        borrowings
 
 As
        of
        September 30, 2006, short-term borrowings were comprised of secured bank
        loans
        of RMB133,000,  and
        unsecured bank loan of RMB120,000, of which RMB100,000 has been guaranteed
        by a  principal
        shareholder and
        director, Han Gengchen and a subsidiary, Biotech. The secured loan was secured
        by the Company’s land use rights of RMB2,916 (note 8), the plant and equipment
        of RMB42,845 (note 9) and debt securities of RMB115,728 (note
        3) .
        The
        annual interest rate ranged from 4.5% to 7.44%.
 
 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. The costs of obtaining
        the above third party guarantees were not significant.
  F-23
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
  **13.**  **BORROWINGS-
        CONTINUEDv**
 
 Short-term
        borrowings - Continued
 
 Interest
        expense and weighted average interest rate for the years ended December 31
        2004
        and 2005, and the nine months ended September 30, 2005 and 2006 were RMB831
        and
        5.3%, RMB3,036 and 5.4%, RMB1,443 and 5.73 %, and RMB5,005 and 5.95%
        respectively.
 
 Long-term
        borrowings
 
 As
        of
        September 30, 2006, 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.
 
 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.
 
 **14.** **OTHER
          PAYABLES AND ACCRUED EXPENSES**
 
 Other
        payables and accrued expenses consist of:
 December
                  31,
              
              September
                  30,2005
              
              2006RMB
              
              RMBPayable
                  for purchase of plant and equipment
              
              
              2,043
              
              
              5,808Payable
                  for purchase of land use rights
              
              
              620
              
              
              620Professional
                  fee payable
              
              
              4,841
              
              
              4,275Salaries
                  payable
              
              
              411
              
              
              3,613Accrued
                  welfare benefits
              
              
              4,084
              
              
              324Accrued
                  interest
              
              
              73
              
              
              3,245Other
                  taxes payable
              
              
              2,055
              
              
              1,052Deposits
                  from growers
              
              
              -
              
              
              5,251Due
                  to former minority shareholders of Denong
              
              
              -
              
              
              1,977Payable
                  for labor union and education expenses
              
              
              -
              
              
              1,290Joining
                  deposit from distributors of Denong
              
              
              -
              
              
              454Loans
                  from employees of Denong (note (i))
              
              
              -
              
              
              2,916Loans
                  from third parties (note (ii))
              
              
              -
              
              
              7,700Payable
                  for aguaranteed
                  loan for third party (note 15)
              
              
              -
              
              
              2,872Others
              
              
              1,956
              
              
              4,79016,083
              
              
              46,187
 
 Note
        (i):
        RMB2,916 was borrowed from employees of Denong with interest of 12.5% per
        annum.
 
 Note
        (ii): RMB4,700 was borrowed from third party companies with interest free
        and
        RMB3,000 was borrowed from an independent individual with interest of 8%
        per
        annum.
 
  F-24
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **15.**
              **OTHER
                  LONG-TERM LIABILITY**
 
 The
        company received RMB1,000 from Beijing Financial Administration Bureau for
        the
        achievement of a research project. However, the project has not yet completed
        until December 2007. The management considers it appropriate to record it
        under
        long-term liability until it has satisfy all the condition attached to the
        subsidy.
 
 In
        December 2000, the Company signed an agreement to be a guarantor on a loan
        given
        to Linze Xian Seed Company by Agriculture Bank of China Linze 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 Linze
        Branch
        in fulfilment of the guarantee obligation. The civil judgement of the Zhangye
        Intermediate People's Court suspended this decision pending final outcome
        of
        Linze Seed Company's bankruptcy hearings. In 2002, the final judgement was
        made
        by the court, and accordingly, the company recorded a provision of RMB 2,872.
        As
        of September 30, 2006, the management considers the payable may be made within
        one year and suitable to classify it as current liability.
  **16.**
              **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 have been granted subsequent to November
        8,
        2005. Options to purchase 526,000 ordinary shares are available under the
        Plan
        as of September 30, 2006.
 
 A
        summary
        of the share option activity under the Plan is as follows:
 
 Number
                  ofoption
              
              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
              
              
              8.75Granted
              
              
              -
              
              
              -
              
              
              -Exercised
              
              
              -
              
              
              -
              
              
              -Cancelled
              
              
              -
              
              
              -
              
              
              -Options
                  outstanding at September 30, 2006
              
              
              974,000
              
              
              70.77
              
              
              8.75
 
  F-25
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **16.**
              **SHARE
                  OPTION PLAN - CONTINUED**
 
 The
        following table summarizes information with respect to options outstanding
        at
        September 30, 2006:
 
 Options
                  outstanding and exercisableNumber
                  outstanding
              
              Weighted
                  average remaining contractual life
              
              Weighted
                  average
                fair
                  value
                as
                  of November 8,
                2005,
                  the grant dateyears
              
              RMB
              
              US$Exercise
                  price:RMB70.77
                  (US$8.75)
              
              
              974,000
              
              
              4.12
              
              
              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 and RMB3,986
        for the
        year ended December 31, 2005 and nine months ended September 30 2006. As
        of
        December 31, 2005 and September 30 2006, there were RMB18,268 and RMB14,282
        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 1.97
        years.
 
 **17.**  **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%. As a result of these
        preferential tax treatments, the reduced tax rates applicable to Beijing
        Origin
        Seed Limited for 2004, 2005 and 2006 are 15%.
 
 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 and Zhang Shi Di Shui Han
        (2006) No.44 of Carry through the Advantage Tax Treatment of West Development
        Strategy, Lin Ze Branch is entitled to a preferential tax rate of
        15%.
 
  F-26
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **17.**  **INCOME
        TAXES - CONTINUED**
 
 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 2004 and 15% for 2005 and
        2006.
 
 According
        to the document Chang Guo Shui (Gao Xin) Zi (2004) 001, Chang Chun Origin
        Seed
        Technology Development Co., Ltd. is qualified as "high technology" company,
        and
        was exempted from EIT for 2004, 2005 and 15% for 2006.
 
 According
        to the document Beijing Guo Shui No. 9365987, BioTech is entitled to a
        preferential tax rate of 15% as "high technology" company, and is exempted
        from
        Foreign Enterprise Income Tax for 2005 and 2006.
 
 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, and He
        Nan
        Origin Cotton Technology Development Limited are
        subject to income tax at a statutory rate of 33%.
 
 According
        to the document Cheng Gao Di Shui (2006) No. 73, Denong Zhengcheng Seeds
        Limited
        is exempted from Enterprise Income Tax for 2006.
 
 According
        to the document Qin Di Shui Zhi Zi (2003) No.43 and Guo Shui Fa (2002) No.47of
        Carry through the Advantage Tax Treatment of West Development Strategy, Gui
        Zhou
        Denong Seeds Limited, a subsidiary of Denong is entitled to a preferential
        tax
        rate of 15% for 2006.
 
 According
        to the document Nan Shi Guo Shui Han (2004) No.1131 and Gui Zheng Fa (2001)
        No.100 of Carry through the Advance Tax Treatment of West Development Strategy,
        Guang Xi Branch of Denong is exempted from Income Tax for 2006.
 
 The
        provision for income taxes consists of the following:
 Year
                  ended December 31,
              
              Nine
                  months endedSeptember
                  30,2004
              
              2005
              
              2005
              
              2006RMB
              
              RMB
              
              RMB
              
              RMB(Unaudited)Current
              
              
              5,975
              
              
              1,313
              
              
              1,563
              
              
              1,428Deferred
              
              
              1,723
              
              
              92
              
              
              (358
              )
              
              (1,061
              )7,698
              
              
              1,405
              
              
              1,205
              
              
              367
  F-27
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **17.**  **INCOME
        TAXES - CONTINUED**
 
 The
        principal components of the deferred income tax assets are as
        follows:
 
 December
                  31,
              
              September
                  30,2005
              
              2006RMB
              
              RMBNon-current
                  deferred tax assets:Net
                  operating loss carry forward
              
              
              1,304
              
              
              12,551Others
              
              
              327
              
              
              1,652Non-current
                  deferred income tax assets
              
              
              1,631
              
              
              14,203Valuation
                  allowances
              
              
              (1,304
              )
              
              (10,161
              )Net
                  non-current deferred income tax assets
              
              
              327
              
              
              4,042
 
 As
        of
        September 30, 2006, the Company assessed the tax position and reclassified
        an
        income tax recoverable of RMB 2,653 brought forward from 2005 to deferred
        tax
        asset.
 
 The
        Company did not have any significant temporary differences relating to deferred
        tax liabilities as of December 31, 2005 and September 30, 2006.
 
 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 expects to generate
        sufficient taxable income in the future.
 
 A
        reconciliation between total income tax expenses and the amount computed
        by
        applying the statutory Income
        tax rate to income before taxes is as follows:
 Year
                  ended December 31,
              
              Nine
                  months endedSeptember
                  30,2004
              
              2005
              
              2005
              
              2006RMB
              
              RMB
              
              RMB
              
              RMB(Unaudited)Statutory
                  rate
              
              
              33
              
              
              33
              
              
              33
              
              
              33Effect
                  of preferential tax treatment
              
              
              (31
              )
              
              (30
              )
              
              (25
              )
              
              (24
              )Effect
                  of different tax jurisdiction
              
              
              -
              
              
              10
              
              
              -
              
              
              3Permanent
                  book-tax difference
              
              
              4
              
              
              6
              
              
              (3
              )
              
              1Change
                  in valuation allowance
              
              
              5
              
              
              (17
              )
              
              (2
              )
              
              (13
              )Under
                  provision in prior year
              
              
              -
              
              
              6
              
              
              -
              
              
              1Effective
                  income tax rate
              
              
              11
              
              
              8
              
              
              3
              
              
              1
 
  F-28
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **18.**
              **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,
              
              Nine
                  months endedSeptember
                  30,2004
              
              2005
              
              2005
              
              2006RMB
              
              RMB
              
              RMB
              
              RMB(Unaudited)Net
                  income (numerator), basic and diluted
              
              
              65,459
              
              
              16,409
              
              
              34,924
              
              
              76,331Shares
                  (denominator), basic:Weighted
                  average ordinary shares outstanding used in computing basic income
                  per
                  share
              
              
              10,000,000
              
              
              10,786,719
              
              
              10,000,000
              
              
              23,472,910Shares
                  (denominator), diluted:Ordinary
                  shares outstanding
              
              
              10,000,000
              
              
              10,786,719
              
              
              10,000,000
              
              
              23,472,910Earnings
                  contingency (note 1)
              
              
              -
              
              
              -
              
              
              -
              
              
              1,500,000Incremental
                  weighted average ordinary shares from potential exercise of Warrants
                  (note
                  19)
              
              
              -
              
              
              433,438
              
              
              -
              
              
              -Share
                  options (note 16)
              
              
              -
              
              
              -
              
              
              -
              
              
              214,843Weighted
                  average ordinary shares outstanding used in computing diluted income
                  per
                  share
              
              
              10,000,000
              
              
              11,220,157
              
              
              10,000,000
              
              
              25,187,753Net
                  income per share-basic
              
              
              RMB6.55
              
              
              RMB1.52
              
              
              RMB3.49
              
              
              RMB3.25Net
                  income per share-diluted
              
              
              RMB6.55
              
              
              RMB1.46
              
              
              RMB3.49
              
              
              RMB3.03
 
 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.
 
 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 approval
        by the board of directors of the Company. For the purpose of the above diluted
        income per share calculations, these contingently issuable shares have been
        included. As disclosed in note 19, there are no  Unit
        Purchase Options outstanding as of September 30, 2006.
  F-29
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **19.**
              **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. In addition, 5,249,884 warrants were exercised during January
        1,
        2006 to January 9, 2006.
 
 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. There is
        no UPO
        converted into shares and warrants  since
        January 1, 2006.
 
 As
        of
        December 31, 2005, there were 21,216 UPO and 5,263,464 Warrants outstanding.
        As
        of September 30, 2006, there were  no
        UPO
        and warrants outstanding.
 
 **20.**
              **EMPLOYEE
                  BENEFIT PLAN 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
        RMB1,577, RMB2,605, RMB2,140 (unaudited) and RMB4,137  for
        the
        years ended December 31, 2004 and 2005, and nine months ended September 30,
        2005
        and 2006 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 statutory 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 RMB9,800,
        RMB4,348 for the years ended December 31, 2004, 2005 and none of appropriation
        has been made for the nine months ended September 30, 2005 and 2006.
  F-30
 
 **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **21.**
              **COMMITMENTS
                  AND CONTINGENCIES**
 
 (a)  Capital
        commitments
 
 As
                  of September 30, 2006, capital commitments for the purchase of
                  long-term
                  assets are as follows:
 RMBPlant
                  and building construction
              
              
              1,116Equipment
              
              
              2,661Land
                  use right
              
              
              3,359Technology
                  use rights
              
              
              1,2008,336
 
 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, of which the Company has paid RMB10,000
        and the commitment as of September 30, 2006 is Rmb11,880. The remaining amount
        was paid in November 2006 as stated in note 22.
 
 During
        2006, the Company entered into an agreement with Wanmeng Investment Limited
        to
        acquire an additional 19% equity interest in Biocentury Transgene (China)
        Co.,
        Ltd. (“Biocentury”) for RMB16,700. The transaction was approved by the relevant
        government authorities on October 19, 2006. Of the consideration RMB5,000
        was
        settled and the balance of RMB11,700 remains unpaid up to the reporting date
        (note 22).
 
 (b)  Operating
        lease
 
 The
        Company acquired certain land use rights for seed development and office
        premises under non-cancellable leases. Rental expenses under operating leases
        for the years ended December 31, 2004 and 2005 were RMB2,868 and RMB2,134,
        and
        for the nine months ended September 30, 2005 and 2006 were
        RMB1,847(unaudited)  and
        RMB2,768  respectively.
 
 As
        of
        September 30, 2006, the Company was obligated under operating leases requiring
        minimum rental as follows:
 
 Year
                  ending September 30,
              
              RMB2007
              
              
              2,8752008
              
              
              1,1802009
              
              
              9362010
              
              
              7472011
              
              
              747Thereafter
              
              
              11,55218,037
  F-31
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **21.**
              **COMMITMENTS
                  AND CONTINGENCIES -
                  CONTINUED**
 
 (c)  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.
 
 **22.**
              **SUBSEQUENT
                  EVENT**
 
 As
        disclosed elsewhere in the consolidated financial statements, the following
        event occurred subsequent to September 30, 2006.
 
 (a)
              On
                  October 18, 2006, the Company acquired an additional 42.42% of
                  equity
                  interest in Denong for RMB10,063 on 18 October 2006, bringing its
                  total
                  ownership to approximately 95%.
 
 (b)
              On
                  November 14, 2006, the Company paid a final payment of RMB11,880
                  for the
                  initial acquisition of 23% equity interest in Jilin Jinong Hi−tech Limited
                  (“Jilin Jinong”). The total purchase price for acquiring the 23% equity
                  interest in Jilin Jinong is RMB21,880.
 
 (c)
              On
                  October 19, 2006, the relevant government authorities approved
                  that an
                  additional 19% equity interest in Biocentury Transgene (China)
                  Co., Ltd.
                  (“Biocentury”) can be transferred to the Company. The consideration for
                  the additional 19% equity interest was RMB16,700 of which RMB5,000
                  was
                  settled and the balance of RMB11,700 remains unpaid up to the reporting
                  date.
 
 **23.** **FAIR
          VALUE OF FINANCIAL INSTRUMENTS**
 
 The
        carrying amounts of cash and cash equivalents, debt securities, accounts
        receivable and accounts payable are reasonable estimates of their value.
        All the
        financial instruments are for trade purposes.
 
 **24.**
              **SEGMENT
                  AND GEOGRAPHIC INFORMATION**
 
 The
        Company’s main products include hybrid corn, rice and cotton seeds and the
        company’s reportable segments have been organized around all products. 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. In accordance
        with SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
        Information", the Company is not required to report the segment information
        for
        the products as it is impractical to do so.
 
 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-32
  **NOTES
        TO THE CONSOLIDATED FINANCIAL STATEMENTS**
 **SEPTEMBER
        30, 2006**
 (In
        thousands,
        except
        share data and unless otherwise stated)
 
 **25.**  **OPERATING
        RISK**
 
 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.
 
 Country
        risk
  The
        Company has significant investments in PRC. The operating results of the
        Company
        may be adversely affected by changes in the political and social conditions
        in
        PRC and by changes in Chinese government policies with respect to laws and
        regulations, anti-inflationary measures, currency conversion and remittance
        abroad, and rates and methods taxation, among other things. There can be
        no
        assurance, however, those changes in political and other conditions will
        no
        result in any adverse impact.
 
 F-33