UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549




FORM
10-K/A


Amendment
No.1




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




For
the fiscal year ended December 31, 2009




OR





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




For the transition period from
  
  to




Commission
file number: 001-32616


Bodisen
Biotech, Inc.


(Exact
name of registrant as specified in its charter)





Delaware
            
            98-0381367(State or other jurisdiction of incorporation or organization)
            
            (I.R.S. Employer Identification No.)





Room 2001, FanMei Building
                No. 1 Naguan Zhengjie
                Xi’an, Shaanxi 710068
                People’s Republic of China
              
              710068(Address
      of principal executive offices)
              
              (Zip
      Code)




Registrant’s
telephone number: 011-86-29-87074957





Securities
registered pursuant to Section 12(b) of the Act: None


Securities
registered pursuant to Section 12(g) of the Act: Common Stock




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


Yes  ̈ No þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes  ̈ No þ




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes þ No  ̈




Indicat e
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the   preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).


 ̈
Yes       ̈ No





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained herein, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.  ̈




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





Large accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈
            Smaller
      reporting company þ




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes  ̈ No þ





At June
30, 2009, the end of our second fiscal quarter, the aggregate market value of
common stock held by non-affiliates of the registrant was approximately
$3,791,154 based on the closing price of $0.22 as quoted by Nasdaq OTC Bulletin
Board on June 30, 2009.





APPLICABLE
ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.        ̈ Yes  ̈ No





(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.





Number of
shares of common stock outstanding as of October 15,
2010:  18,710,250.





DOCUMENTS
INCORPORATED BY REFERENCE





List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).





Explanatory
Note





The
Company changed its revenue recognition policy to the cost recovery method as
the Company does not believe that collection is reasonably
assured.  Under the cost recovery method, no profit is recognized
until cash payments exceed the cost of the goods sold and the Company records
deferred revenue which is the gross profit that has not been
realized.  As a result of the change in the revenue recognition
policy, the Company is filing an amendment to the Form 10-K that was originally
filed with the Securities and Exchange Commission on March 30,
2010.









TABLE
OF CONTENTS


TO
ANNUAL REPORT ON FORM 10-K/A


FOR
YEAR ENDED DECEMBER 31, 2009




PagePART
      IItem
      1.
                
                Business
                
                1Item
      1A.
                
                Risk
      Factors
                
                8Item
      1B.
                
                Unresolved
      Staff Comments
                
                13Item
      2.
                
                Properties
                
                13Item
      3.
                
                Legal
      Proceedings
                
                14Item
      4.
                
                (Removed
      and Reserved)
                
                15PART
      IIItem
      5.
                
                Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                
                15Item
      6.
                
                Selected
      Financial Data
                
                16Item
      7.
                
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                16Item
      7A.
                
                Quantitative
      and Qualitative Disclosures About Market Risk
                
                19Item
      8.
                
                Financial
      Statements and Supplementary Data
                
                20Item
      9.
                
                Disagreements
      With Accountants on Accounting and Financial Disclosure
                
                21Item
      9A.(T)
                
                Controls
      and Procedures
                
                21Item
      9B.
                
                Other
      Information
                
                22PART
      IIIItem
      10.
                
                Directors,
      Executive Officers and Corporate Governance
                
                22Item
      11.
                
                Executive
      Compensation
                
                26Item
      12.
                
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                
                27Item
      13.
                
                Certain
      Relationships and Related Transactions, and Director
      Independence
                
                28Item
      14.
                
                Principal
      Accounting Fees and Services
                
                28PART
      IVItem
      15.
                
                Exhibits,
      Financial Statement Schedules
                
                30Signatures
                
                31




i




FORWARD
LOOKING STATEMENTS AND CERTAIN TERMINOLOGY





This
annual report contains “forward-looking statements” - that is, statements
related to future, not past, events. In this context, forward-looking statements
often address our expected future business and financial performance, and often
contain words such as “expect,” “anticipate,” “intend,” “plan,” “believe,”
“seek,” or “will.” Forward-looking statements by their nature address matters
that are, to different degrees, uncertain. For us, particular uncertainties that
could adversely or positively affect our future results include: our business
strategy; expectations of market and customer response; liquidity and capital
expenditures; future sources of revenues; expansion of our proposed product
line; government policies in the People’s Republic of China; trends in industry
activity generally and litigation concerning the matters surrounding our
delisting from the American Stock Exchange, or Amex, as well as litigation
concerning our ownership of shares in China Natural Gas. These uncertainties may
cause our actual future results to be materially different than those expressed
in our forward-looking statements. Any “forward-looking statements” contained in
this report are only predictions and involve known and unknown risks,
uncertainties and other factors, including, but not limited to, the risks
outlined under “Risk Factors,” that may cause our or our industry’s actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. Although
we believe that the expectations reflected in the forward looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. We undertake no obligation to update or revise any
forward-looking statements other than as required by applicable law or
regulations




As used
in this annual report, the terms “we,” “us,” “our,” the “Company” and “Bodisen”
mean Bodisen Biotech, Inc., a Delaware corporation, and its subsidiaries (unless
the context indicates a different meaning). Bodisen is a trademark of Bodisen
Biotech, Inc. All other company names and trademarks included in this annual
report are trademarks, registered trademarks or trade names of their respective
owners.









PART
I





ITEM
1. BUSINESS




Overview
of Business





We are
engaged in developing, manufacturing and selling organic fertilizers, liquid
fertilizers, pesticides and insecticides in the People’s Republic of China, and
have developed a product line of over 60 items. We manufacture our proprietary
product lines, which are then marketed and sold to distributors, which
distributors in turn sell our products to farmers. In addition to our
manufacturing and sales and marketing efforts, we conduct research and
development to further improve existing products and to develop new formulae and
products.





Bodisen
Biotech, Inc. was incorporated on January 14, 2000, and our current structure is
the result of a series of mergers and other combinations, including a reverse
triangular merger with our predecessor, Stratabid.com, Inc. As a result of these
transactions, Bodisen Biotech, Inc. owns 100% of Bodisen Agricultural Technology
Co., Ltd., or “Bodisen Agricultural,” which in turn owns 100% of Yang Ling
Bodisen Biology Science and Technology Development Company Limited, or “Yang
Ling.” Yang Ling, which is our sole operating subsidiary, is located in the
People’s Republic of China. Further details regarding these transactions are
provided below in the summary of our history.





Our over
60 products cover three categories: organic compound fertilizers, liquid
fertilizers, and pesticides and insecticides. Organic compound fertilizer
products are our leading product category, accounting for approximately 97.9%
and 48.6% of our revenue in 2008 and 2007, respectively. Liquid fertilizers
accounted for approximately 1.2% and 34.9% of our revenue in 2008 and 2007,
respectively. Pesticides and insecticides accounted for approximately 0.9% and
16.5% of our revenue in 2008 and 2007, respectively.





We
currently distribute our products solely in the People’s Republic of China, and
our products are currently sold within a group of approximately 20 Chinese
agricultural provinces and government-controlled cities. Approximately 80% of
our sales are attributable to the local Shaanxi province, 8% of sales are
attributable to Henan province, and 5% of sales are attributable to Shanxi
province. We also sell a smaller percentage of our products to additional
provinces and government-controlled cities, including Ningxia province,
Guangdong province and Heilongjiang province.





History
and Company Structure





Bodisen
Biotech, Inc. was incorporated on January 14, 2000 in Delaware, and our
principal place of business is based in the People’s Republic of China. Our
principal executive offices are located at: Room 2001, FanMei Building, No. 1
Naguan Zhengjie, Xi’an, Shaanxi, China, 7100068. Our telephone number is
+011-86-29-87074957. Our current structure is the result of a series of mergers
and other combinations, including a reverse triangular merger with our
predecessor, Stratabid.com, Inc. A summary of these transactions is provided
below.





Prior to
March 1, 2004, we were called Stratabid.com, Inc., which was a startup stage
Internet-based commercial mortgage origination business. We operated primarily
through our wholly-owned subsidiary, Stratabid.com Online (B.C.) Ltd., or
“Stratabid.com Online,” which provided services in Canada.





Our sole
operating subsidiary, Yang Ling, was founded in the People’s Republic of China
on August 31, 2001. Yang Ling, which is located in the Yang Ling Agricultural
High-Tech Industries Demonstration Zone, was primarily engaged in developing,
manufacturing and selling pesticides and compound organic fertilizers in the
People’s Republic of China. On November 19, 2003, Yang Ling incorporated Bodisen
International, Inc., or “Bodisen International,” a Delaware corporation, as a
non-operative holding company.





On
December 15, 2003, Bodisen International entered in to an agreement with all of
the stockholders of Yang Ling to exchange all of the outstanding stock of
Bodisen International for all of the issued and outstanding stock of Yang Ling.
After the consummation of the transaction, the former stockholders of Yang Ling
owned 1,500 shares of common stock of Bodisen International, which represented
100% of Bodisen International’s issued and outstanding shares, and Bodisen
International owned 100% of Yang Ling. For U.S. federal income tax purpose, the
transaction was intended to be qualified as a tax-free transaction under section
351 of the Internal Revenue Code of 1986, as amended.










1




We
accounted for the exchange of shares with Yang Ling as a reverse acquisition
under the purchase method of accounting because the stockholders of Yang Ling
obtained control of the consolidated entity. Accordingly, the merger of the two
companies was recorded as a recapitalization of Yang Ling, with Yang Ling being
treated as the continuing entity.





On
January 14, 2004, we created a wholly-owned subsidiary corporation currently
known as Bodisen Holdings, Inc., a Delaware corporation, or “Bodisen Holdings”
(formerly Bodisen Acquisition Corp.), to pursue a merger with Bodisen
International, the parent of Yang Ling. On February 11, 2004, we and Bodisen
Holdings entered into an Agreement and Plan of Merger with Bodisen International
and the shareholders of Bodisen International, providing for the merger of
Bodisen International into Bodisen Holdings, with Bodisen Holdings being the
surviving entity in the merger. The transactions provided for in the Agreement
and Plan of Merger closed on February 24, 2004.











In the
merger, we acquired 100% of Bodisen International’s outstanding stock in
exchange for the issuance of 3,000,000 shares of our common stock to the holders
of Bodisen International shares. The common stock issued in the merger
constituted approximately 66% of our outstanding shares after the
merger.





The
exchange of shares with Stratabid was accounted for as a reverse acquisition
under the purchase method of accounting because the stockholders of Bodisen
International obtained control of Stratabid. Accordingly, the merger of the two
companies was recorded as a recapitalization of the Company, with the Company
being treated as the continuing entity.





On
February 25, 2004, we sold Stratabid.com Online to Derek Wasson, our former CEO.
In consideration of the sale, Mr. Wasson returned 750,000 (pre-dividend) shares
of our common stock to us for cancellation and forgave all of our indebtedness
to him. Other than indebtedness of Bodisen International, we had no indebtedness
or other liability of any kind or nature after the sale of the business to Mr.
Wasson, save and except for liabilities incurred in connection with the
merger.











After the
merger, we paid a three for one stock dividend and then, by prior agreement,
cancelled the shares that were previously returned by our former CEO. After
these transactions, the shareholders of Bodisen International held approximately
79% of our outstanding common stock. On March 1, 2004, we changed our name to
Bodisen Biotech, Inc.





In March
2005, we formed a new wholly-owned subsidiary by the name of Yang Ling Bodisen
Agricultural Technology Co., Ltd., or “Bodisen Agriculturee” under the laws of
the People’s Republic of China.  In June 2005, Bodisen Agriculture
completed a transaction with Yang Ling, our operating subsidiary in the People’s
Republic of China, which resulted in Bodisen Agriculturee owning 100% of Yang
Ling.











2





As a
result of the foregoing, we now own 100% of Bodisen Agricultural, which in turn
owns 100% of Yang Ling. Bodisen Holdings remains our subsidiary.




In June
2006, Yang Ling created another wholly owned subsidiary in Xinjiang, China by
the name of “Xinjiang Bodisen Agriculture Material Co. Ltd.”





Industry
Background and Markets





The
People’s Republic of China is the exclusive market for our organic compound
fertilizers, liquid fertilizers, pesticides and insecticides. We sell our
products within a group of 20 Chinese agricultural provinces and
government-controlled cities. Approximately 80% of our sales are attributable to
the local Shaanxi province, 8% of sales are attributable to Henan province, and
5% of sales are attributable to the neighboring Shanxi province. We also sell a
smaller percentage of our products to additional provinces and government
controlled cities, including Ningxia province, Guangdong province and
Heilongjiang province.





Although
the People’s Republic of China has the world’s largest population of over 1.3
billion people, its arable land on a per capita basis is only 0.09 hectares
(Source: 2006 China Statistical Yearbook), or less than one-sixth of that
present in the United States (Source: U.S. State Department, www.america.gov ).
This combination of limited arable land and a large and growing population has
created a significant need to increase the amount of crops per hectare in the
People’s Republic of China.





Our
Business and Products





As noted
above in the “Business Overview” section of this report, we manufacture over 60
products, which can be broken down into the following categories:




·
            Organic compound
      fertilizers;


·
            Liquid fertilizers;
      and


·
            Pesticides and
      insecticides.




Organic
Compound Fertilizers





Organic
compound fertilizers are our leading products, accounting for approximately
80.48% and 97.9% of our revenue in 2009 and 2008, respectively.




Organic
fertilizers are composed of natural nutritional elements that not only improve
the quality and yield of the crops but also improve the soil quality; this in
turn improves the yield. Organic compound fertilizer accelerates reproduction of
soil microbes to improve soil quality through the decomposition of organic
material and the improvement of the soil’s retention of nitrogen. Moreover, this
application can activate dormant soil by increasing soil nitrates and moisture
content that otherwise is not enhanced by traditional chemical fertilizers. This
process controls the release of nutritional elements that enhances the quality,
quantity and health of crops. Although organic compound fertilizers typically
are more expensive than chemical fertilizers, we believe that the extra cost is
justified by the increase of yield and quality and, consequently, the increased
margin attained at the market.





Plants
tend to easily absorb organic fertilizer without many of the side effects found
in chemical fertilizer products, and this organic process strengthens
photosynthesis, which improves the overall health of a plant in resisting
drought and disease.




Organic
fertilizers also improve the cation exchange capacity, or “CEC,” of soil, which
refers to the soil’s ability to hold positively charged ions (cations), making
them available for uptake by the plant roots. This not only allows for improved
uptake of nutrients by the plant but can also reduce leaching, which is of
particular concern in sandy soil. Leaching moves nutrients away from the plant
roots and into the subsurface water. Additional functions of organic compound
fertilizer include:





·
            preserving nitrogen and improving
      soil fertility;


·
            allowing phosphorus and potash
      fertilizer to gradually
dissolve;


·
            promoting disease resistance;
      and


·
            activating and maintaining soil
      moisture content.




Our
organic fertilizer line includes compound organic fertilizers containing organic
matter content levels of 20%, 25%, 35% and 45%. Each of these organic compound
fertilizers can then be further narrowed into one of the following product
types: wide field, fruit, vegetable, melon or pepper. We also produce various
“Bulk Blend” or “BB” organic fertilizers, which contain organic matter content
levels of 35%, 40% and 54%. In addition, we produce various solid organic
fertilizers.




3




Our
process for manufacturing organic compound fertilizer products has received ISO
9001: 2000 certification. ISO 9000 has become an international reference for
quality management requirements in business-to-business dealings, and the ISO
9000 family is primarily concerned with quality management.





Liquid
Fertilizers





Liquid
fertilizer products accounted for approximately 1.89% and 4.25% of our revenue
in 2009 and 2008, respectively.





The early
application of liquid fertilizers aids absorption of the key elements and
nutrients of the fertilizer, which may increase the rate of photosynthesis and
improve the health of the plant, making it more resistant to disease, drought
and cold weather. Liquid fertilizer increases the plant’s yield and shortens the
time to harvest while heightening the color and luster of fruit and vegetables.
These products may also prolong growing periods, guarantee sufficient nutrition
during different crop stages and improve pest resistance in certain fruits and
vegetables and other crops. Liquid fertilizer is sold to farmers in a
concentrated form and needs to be mixed with water before it is sprayed onto
plants.




Our
liquid fertilizer line includes the following products: “New Guo Li Dan (500G
and 250G),” “New Shi Kang Lu (500G),” New Jia An Gai,” “An Fu Lv Ye Wang,” “Tian
Feng,” and “Feng Chan Su (20KG).”





Pesticides
and Insecticides





Our
pesticides and insecticides account for approximately 1.3% and 9.59% of our
revenues in 2009 and 2008 respectively.





Our
pesticide products can be applied to all fruit trees and vegetable crops, and
are used to kill various insects and pests that reduce crop yield. Our
insecticide products are applied to various fruit trees, vegetables and other
crops to kill bacteria and to prevent the reproduction of harmful insects and
pests.





Our
pesticides and insecticides include the following products: “Wei Te Li Oil,” “A
Wei Chai Oil,” “Lun Mei Su,” “Li Jun Sha,” “Jin Li Sheng,” and “Lun Mei
Qing.”





Methods
of Distribution





We
currently sell each of the products identified above through a network of over
150 regional distributors in the People’s Republic of China. These distributors
in turn sell the products to the end-users (typically farmers). Typically, we
enter into non-exclusive, short-term written distribution agreements with our
distributors. Upon signing a distribution agreement, the distributor will
indicate its intent to purchase specified products, and we agree to provide
those products upon the distributor’s request. We generally make sales to
distributors on a rolling basis. This means that there is a lag between when we
deliver our products to our distributors (and recognize revenues for those
shipments) and when we receive payment for those products. Typically, accounts
are settled anywhere from one to two months and up to seven months after
delivery of our products, often in connection with an order for additional
product, although we may extend other payment terms to our distributors
depending on their ability to pay. We also make advances to suppliers for the
purchase of their materials. The products are then sold to farmers and other
end-users by the distributor.





Each year
we participate in the Yang Ling region’s annual agricultural trade fair and
exhibition. Many of our distributors attend this trade fair, and the event
accounts for the vast majority of our sales contracts. Sales are then made
pursuant to these contracts throughout the year.





We expect
to distribute products that are manufactured in our new Xinjiang facility
through similar arrangements with distributors; however, we have not yet
established relationships with distributors. The construction of our Xinjiang
facility is nearly finished and we are in the process of applying production
license from government.





Raw
Materials





Production
of organic fertilizer products, pesticides and insecticides requires a variety
of raw materials, and Shaanxi Province provides numerous suppliers of such
materials. We currently maintain short-term (typically one-year) supply
contracts with 11 material suppliers, 7 of whom are considered “key” suppliers.
This is a decrease from 19 relationships we maintained in the past. We have
terminated some of our prior relationships based on problems with the quality of
materials and supplier inability to satisfy contract requirements.





Three
vendors provided 30%, 23% and 20% of the Company’s raw materials for the year
ended December 31, 2009, and one vendor provided 16% of the Company’s raw
materials for the year ended December 31, 2008  During 2009 and 2008,
we did not experience any significant delays in receiving raw materials from our
suppliers,





The specific raw
materials and suppliers used for each of our product lines are described
below.




4




Organic
Compound Fertilizer Raw Materials and Suppliers





To
manufacture organic compound fertilizer, we use carbamide, monoammonium
phosphate, ammonium acid carbonate, humic acid, oil shale, zeolite powder,
phosphorus, coarse whiting, potassium, iron oxide red and potassium chloride. We
obtain these raw materials for organic compound fertilizers from many different
suppliers in the People’s Republic of China.





Liquid
Fertilizer Raw Materials and Suppliers





The raw
materials we use to manufacture our liquid fertilizer are carbamide, potassium
chloride, ammonium bicarbonate, borax, ferrous sulphate, bluestone, zinc
sulphate, manganese sulfate, citric acid, chlorocholine chloride, dodecane,
peregal, ethene, calcium chloride, monoammonium phosphate, bitter salt, amino
acid, sodium humate, polyacrylimide, humic acid and carbon white. There are
several suppliers from whom we obtain these raw materials.




Pesticide and Insecticide Raw
Materials and Suppliers





The raw
materials used to manufacture pesticides and insecticides include
jiajiliujunlung, thiram, muzhisuhuansuanna, active floridin, vaseline,
meiduowei, phoxin, qingwujuzhi, emulsifying agent, dimethylbenzene, aweijunsu,
#0 diesel oil, damanling, sulfur powder, carbendazim, mancozeb, dodecane,
hexamethylenamine, french chalk, malathion, shellfish powder, xiuqingjuzhi,
together with additional raw materials that constitute part of our proprietary
formulae.





We obtain
these raw materials for pesticides and insecticides from Shaanxi Tianshun
Chemical Industry Co., Ltd. We also have access to additional suppliers for each
of the necessary raw materials in the event that our primary supplier is unable
to satisfy our manufacturing needs.





Intellectual
property





We rely
on trade secret protection for our proprietary technology and formulae. We
currently do not own any patents and have not applied for any patents on our
proprietary technology and formulae. A patent application requires a detailed
description of our technology and formulae, which would then be made available
to the general public. We believe that a patent application and disclosure would
be detrimental to our business, as it would reveal features unique to our
products. Most of our intellectual property was developed in-house or with
various universities and research laboratories (which may not be owned by our
company). For information regarding the potential consequences of our
intellectual property strategy, please see the paragraph of Item 1A, “Risk
Factors,” titled “ We may not
be able to adequately protect and maintain our intellectual property.
”





We hold
certain government approved intellectual property rights in our trade secrets
and proprietary information. Certain intellectual property rights in the
People’s Republic of China are decided by the government registry, and we have
registered our formulae and proprietary information with the Chinese government.
We hold certificates for these rights, which must be registered on an annual
basis.





We also
own trademarks in the “Bodisen” name, which are used on all
products.





Seasonality
and Volatility





The
fertilizer and pesticide businesses are highly seasonal, based upon the
planting, growing and harvesting cycles. The seasonality of these industries has
its primary effect on the sales volume of our product. Typically, we experience
a higher sales volume in the second and third quarters, with a lower volume in
the first and fourth quarters.





Our sales
volume can be volatile as a result of a number of factors,
including:





·
            Weather patterns and field
      conditions (particularly during periods of high fertilizer
      consumption);


·
            Quantities of fertilizers
      imported to primary markets;


·
            Current and projected grain
      inventories and prices, which are heavily influenced by U.S. exports,
      worldwide grain markers, and domestic demands (food, feed,
      biofuel);


·
            Government regulation,
      intervention and unexpected changes in government policies;
      and


·
            The reputation of our products
      and company in the
marketplace.





In
addition to the effect on sales volume, certain factors may have an effect on
the prices of our organic fertilizer, pesticide and insecticide products. These
factors include raw material and other product related costs, as well as
expenses related to our workforce and employees.




5




Inventory
and Working Capital





For each
of our products, we maintain an inventory system to meet customer demands.
Typically, we produce our products upon receipt of customer orders. We do,
however, hold excess inventory to ensure an adequate supply of products. We
maintain a larger inventory for “in-season” products, while our inventory for
out of season products is less.




In order
to ensure a continuous allotment of goods and raw materials, we operate on an
advanced payment system with our suppliers. We pay our suppliers based on our
projected needs for raw materials and other supplies, which allows us to
maintain a stock of such materials and supplies sufficient to sustain continued
production.





We do not
have policies related to warranties or the return of merchandise. We do,
however, provide our customers with extended payment terms and payment
options.





Although
each company in the fertilizer, pesticide and insecticide industry adopts its
own practices based on its employees, equipment, materials and other resources,
we believe that our operations are generally consistent with those of other
companies in the industry. We are continuing in our efforts to ensure that we
exceed industry expectations for product quality, development and overall
performance.





Sales
and Marketing





We market
and promote the Bodisen brand through trade fairs, conventions and the print
media, and through television and radio advertising in the People’s Republic of
China. As noted previously, a significant portion of our sales are generated
directly or indirectly via the annual trade fair and agricultural exhibition in
Yang Ling. Because the end-users of our products are local farmers, we also
conduct educational seminars to promote products and organic fertilizers
directly to farmers. In addition, we send our promotional team to the
countryside and other agricultural areas to advance product recognition through
field tests. To capture additional markets, we distribute free samples of our
products to new areas, allowing for a product trial period. The results of these
trials are then made known to surrounding areas. The cost of such efforts is not
material and is typically offset by new sales in those test zones.





Our
primary tasks with respect to sales goals are to strengthen our home market in
the Shaanxi province and to expand the market outside the Shaanxi province into
new districts where our products are not well established.





It is our
intention to increase marketing in regions where our products are not well
known. We anticipate that once we commence operations in our new facility in
Xinjiang, we will begin efforts to promote and market our products within that
region. In addition, we expect to engage in general promotion of our products
through national newspapers in the People’s Republic of China, where we plan to
explain the advantages of the high-tech nature of our environmentally friendly
product lines. Although we considered selling exclusive franchise opportunities
to new wholesale agents, we have since decided against proceeding with any such
projects.





Customers





We sell
our products directly to over 150 regional distributors in the People’s Republic
of China through written sales contracts. Typically, these non-exclusive
distribution contracts have a one-year term and, upon signing the contract, the
distributor will indicate its intent to purchase a certain quantity of our
products. Distributors who fail to place orders for the quantities estimated
under these contracts are generally not held responsible for failing to place
orders reflecting the estimated quantity.





All of
our sales currently are directed to our distributors, and we do not make any
sales directly to farmers or other end users of our products.





T hree
customers accounted for 24% and 12% of the Company ’ s sales for the year ended
December 31, 2009.  One customer accounted for 7 % of the Company ’ s
sales for the year ended December 31, 2008.




In
November 2007 we entered into contracts providing for approximately $9.4 million
worth of sales for 2008. As of December 31, 2008, we had received approximately
$5.1 million in net revenues in connection with these and other sales
contracts.





Following
the November 2008 agricultural trade fair and exhibition in Yang Ling, we have
received approximately $9 million in commitments for 2009. We had received
approximately $4.38 million in connection with these contracts. At the November
2009 agricultural trade fair and exhibition in Yang Ling, we have received
approximately$ 9million in commitments for 2010





Competition





The
organic fertilizer industry in the People’s Republic of China is largely
fragmented with most competitors operating small regional factories, serving
local requirements. Most companies in this industry do not widely promote their
products. We have not yet identified any competitors in the Shaanxi province
that operate in all of our product lines (organic compound fertilizer, liquid
fertilizer and pesticide and insecticides). We believe that we occupy nearly 10%
of the Shaanxi fertilizer market, and that no fertilizer company possesses a
larger market share in Shaanxi. This conclusion is based on our knowledge of the
Shaanxi Province’s land and area and its fertilizer needs. Our competitive
position in the fertilizer industry is strengthened by our emphasis on the use
of “environmentally friendly” fertilizer products.




6




We
believe that our only international competitor is DuPont.





Research
and Development





In 2008,
we budgeted to spend approximately $2,100 for research and development and in
2008, we focused our research and development efforts on our liquid fertilizer
product line.





In 2009,
we budgeted approximately $12,000 for research and development, which we also
used towards research ad development of our liquid fertilizer product
line.  Currently, we have not budgeted any funds to spend in 2010 on
research and development due to the financial crisis





Government
and Environmental Regulation





Our
products and services are subject to regulation by governmental agencies in the
People’s Republic of China and Shaanxi Province. Business and company
registrations, along with the products, are certified on a regular basis and
must be in compliance with the laws and regulations of the People’s Republic of
China and provincial and local governments and industry agencies, which are
controlled and monitored through the issuance of licenses. We believe that we
have complied with all registrations and requirements for the issuance and
maintenance of the licenses required of us by the governing bodies. As of the
date of this annual report, all of our license fees and filings are current. Our
licenses include:





National
Certificate for Production of Industrial Products





The
National Certificate for Production of Industrial Products for compounded
fertilizers was issued by the National Industrial Products Production License
Office on February 27, 2004. This certificate, on renewal, is valid until
February 26, 2014.





Certificate
for Pesticide Registration





Pesticide
registration is required for the production of liquid fertilizer and issued by
the Ministry of Agriculture of the People’s Republic of China. This registration
also applies to our production of insecticides.





Production
standard





We are
registered with Bureau of Quality Controls and Technology, Shaanxi Provincial
Government, Xi’an.





The cost
of obtaining and maintaining these licenses is not prohibitive and it is illegal
to do business without these licenses. If we were to lose any of these licenses,
we would only have a limited time to reapply for such licenses and would face
possible regulatory fines.





While we
are subject to relevant environmental laws and regulations that require outlay
of capital and the obtaining of relevant permits, we do not anticipate any
extraordinary capital expenditures in 2010 for such purposes. We did not make
any extraordinary capital expenditures in 2009 or 2008 related to compliance
with environmental laws and regulations, including expenditures necessary to
obtain relevant permits.





Our new
Mancozeb product is awaiting government approval. Prior to the launch of our
Mancozeb product, the Chinese government pesticide office instituted a review of
all pesticide production companies. As a result, we suspended the installation
of our Mancozeb facility pending completion of this government review. Although
we continue to work with the government and local authorities to advance the
approval process, we have not yet received such approval and do not know when
such approval will be received, if at all. Once the government has completed its
review and subject to receipt of approval, we expect to continue the
installation and launch of the Mancozeb facility.





Except
for approvals that have already been obtained, our anticipated new facility in
Xinjiang will not require any additional permits or authorizations.





Employees





As of
December 31, 2009, we had a total of 283 employees. Of these employees,
approximately 23 were executive and senior managers, 80 were business and
accounting staff, 14 were warehouse and purchasing staff, and 20 were drivers or
secretaries. The balance consists of production workers. We have not experienced
any work stoppages and we consider relations with our employees to be good. We
are not a party to any collective bargaining agreements.




7




Available
Information





We file
electronically with the Securities and Exchange Commission, or the “SEC,” our
annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports
on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934. The public may read and copy any materials we file with the SEC at the
SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The
public may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that
site is http://www.sec.gov.





Our
website is located at http://www.bodisen.com. We currently do not make our
annual reports on Form 10-K, quarterly reports on Form 10-Q or current reports
on Form 8-K or amendments thereto available on our website because the
information is available via the SEC website. You may, however, obtain a free
copy of such reports and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act, as amended (15 U.S.C.
78m(a) or 78o(d)) on the day of filing with the SEC by contacting the Investor
Relations Department at our corporate offices by calling +011-86-29-87074957 or
by sending an e-mail message to info@bodisen.com
..





ITEM
1A. RISK FACTORS





Risks
Related To Our Business





Legal
actions could result in financial losses or harm to our business.





We are,
and in the future may be, subject to legal actions in the ordinary course of our
operations, both domestically and internationally. In late 2006, various
shareholders of our company filed eight purported class actions in the U.S.
District Court for the Southern District of New York against our company and
certain of our officers and directors (among others), asserting claims under the
federal securities laws.   In 2007, the Court consolidated each of the
actions into a single proceeding. On September 26, 2008, the Court entered a
judgment in favor of the Company and closed the case.





In
addition, we recently settled the litigation regarding our ownership of shares
of China Natural Gas, Inc., which was our single largest asset, except
construction in progress, based on market value of such shares at December 31,
2008. Pursuant to the settlement terms, we sold our 1,031,884 shares in China
Natural Gas, Inc. to Ji Xiang, the original litigant, at a repurchase price of
$3.80 per share, for an aggregate repurchase price of $3,921,159.  For
more information relating to these matters, see Item 3 “Legal Proceedings.”
Substantial legal liability in these or future legal or regulatory actions could
have a material financial effect or cause significant reputational harm, which
in turn could seriously harm our business prospects and our ability to continue
as a going concern.





We
may be exposed to potential risks relating to our internal control over
financial reporting and our ability to have those controls attested to by our
independent auditors.





We are
(and were required last year) to include a report of management on our internal
control over financial reporting in our annual reports on Form 10-K. Although
beginning this year, because we are now a smaller reporting issuer, our
independent registered public accounting firm is not required to attest to and
report on management’s assessment of the effectiveness of our internal control
over financial reporting as well as the operating effectiveness of such internal
controls for this year, such attestation of our independent registered public
accounting firm was required in our annual report for the year ended December
2006, when we were considered to be an accelerated filer. We are in the process
of instituting changes to satisfy our obligations in under the Sarbanes-Oxley
Act. We will need to continue to improve our financial and managerial controls,
reporting systems and procedures, and documentation thereof. If our
financial and managerial controls, reporting systems or procedures fail, we
may not be able to provide accurate financial statements on a timely basis or
comply with the Sarbanes-Oxley Act. Any failure of our internal controls or our
ability to provide accurate financial statements could cause the trading price
of our common stock to decrease substantially.  While we have no
reason to believe that our reported financial results and other information
included in this annual report are inaccurate or incomplete in any material
respect, we may nevertheless identify significant deficiencies or material
weaknesses in our internal control over financial reporting in connection with
the completion of our report. In the event we identify significant deficiencies
or material weaknesses in our internal controls that we cannot remediate in a
timely manner or we are unable to receive a positive attestation from our
independent auditors with respect to our internal controls, it could have a
material adverse effect on our business, financial condition and results of
operations.





We may require additional financing
in the future and a failure to obtain such required financing could inhibit our
ability to grow.





As of
December 31, 2009, we had $4,824,135 of cash and cash equivalents. Although we
expect that our cash and cash flow from operations will be sufficient to meet
our anticipated needs for the next twelve months, if we decide to expand our
business more broadly than currently estimated, or if our business grows more
rapidly than we expect, we may need to raise additional financing in the future.
Our ability to obtain additional funding would be subject to a number of
factors, including market conditions, operational performance and investor
sentiment. These factors may make the timing, amount, terms and conditions of
additional funding unattractive, or unavailable, to us. If we are not able to
obtain additional financing in the future, we will not be able to grow our
business, which could have a material adverse effect on our financial condition,
results of operations and liquidity.




8




The
terms of any future financing may adversely affect your interest as stockholders
and could restrict the operation of our business.





If we
require additional financing, we may be required to incur indebtedness or issue
equity securities, the terms of which may adversely affect your interests in our
company. For example, any future indebtedness may be senior in right of payment
to your shares upon liquidation. In addition, the terms of any future
indebtedness may limit the operation of our business by imposing restrictions on
our ability to grant security interests in our assets or make distributions,
require us to comply with certain financial covenants or obtain consent before
undertaking certain actions. Similarly, the terms of any equity securities we
issue may be senior in right of payment of dividends to our common stock and may
contain superior rights and other rights as compared to our common stock.
Further, any such issuance of equity securities may dilute your interest in our
company.





We
may not be able to adequately protect and maintain our intellectual
property.





Our
success will depend on our ability to continue to develop and market fertilizer
and pesticide/insecticide products. We protect our proprietary technology and
formulae by keeping such technology or formulae confidential. If such technology
or formulae are disclosed to a third party that is not under an obligation to
keep the technology confidential, we may not be able to protect our technology
or formulae against being exploited by third parties. We currently have not
applied for patents for our technology products or formulae as we believe an
application for such patents would result in public disclosure of our
proprietary technology and formulae with no guarantee that we would have
enforceable rights in our intellectual property. Public knowledge of our
proprietary technology and formulae without enforceable intellectual property
rights could have a material adverse effect on our business, financial condition
and results of operations.





Our
success depends on our management team and other key personnel, the loss of any
of whom could disrupt our business operations.





Our
future success will depend in substantial part on the continued service of our
senior management. The loss of the services of one or more of our key personnel
could impede implementation of our business plan and result in reduced
profitability. We do not carry key person life or other insurance in respect of
any of our officers or employees (other than Directors’ & Officers’ (or
D&O) insurance). Our future success will also depend on the continued
ability to attract, retain and motivate highly qualified technical sales and
marketing customer support. Because of the rapid growth of the economy in the
People’s Republic of China, competition for qualified personnel is intense. We
cannot guarantee that we will be able to retain our key personnel or that we
will be able to attract, assimilate or retain qualified personnel in the future.
If we are unsuccessful in our efforts in this regard, it could have an adverse
effect on our business, financial condition and results of
operations.





We
do not have supplier contracts with all of our trade vendors.





As is
typical in the agricultural industry in the People’s Republic of China, we do
not have supplier contracts with all of our trade vendors. Where we do not have
contracts in place, we conduct business on an order-by-order basis. Because we
do not have supply contracts in place, we have no guarantee that we will be able
to continue to receive adequate supplies for the production of our products or
that our suppliers will not continually raise their prices. Despite not having
supplier contracts in place in every case, we believe that we have very good
relations with the agricultural vendor community. Nonetheless, because we
conduct business in this fashion, it exposes us to some risk in the production
of our products, which could have an adverse effect on our business, financial
condition and results of operations.





We currently rely on a small number
of suppliers for raw materials used to produce our products
..





Three
vendors provided 30%, 23% and 20% of the Company’s raw materials for the year
ended December 31, 2009, and one vendor provided 16% of the Company’s raw
materials for the year ended December 31, 2008.  Although we have
written agreements with these suppliers, we cannot guarantee that they will
comply with the terms of our agreements, or that they will be able to deliver
sufficient quantities of these raw materials in order for us to meet the
increasing demand for our products. If we are not able to manufacture our
products because of issues in the supply of necessary raw materials, it could
have a material adverse effect on our business, financial condition and results
of operations.





Disruptions to our chain of
production could have a material adverse effect on our
business.





If there
is disruption in our chain of production - from receipt of raw materials, to
stoppages at our facilities, to delivery of our products - for whatever reason,
it could have a material adverse effect on our business. The manufacture of our
products relies on the delivery of raw materials to our facilities, the absence
of work stoppages or other problems at our manufacturing facilities, as well as
the ability to ship our products in a timely fashion. Although disruptions are
infrequent, they can have an effect on our operations. For example, in mid-2006,
road construction began in front of one of our manufacturing facilities, which
affected our ability to receive supplies and ship products and consequently had
a negative effect on our business. Similar road improvement projects over which
we have no control could occur in the future. If we are unable to manufacture
and deliver our products in a timely fashion, we could suffer harm to our
reputation and our revenues and operating expenses could be negatively
affected.




9




We may be unable to pass along raw
materials price increases to our customers, which could negatively affect our
results of operations .





The raw
materials that we use in the manufacture of our products are subject to
fluctuation due to market prices. If raw materials prices significantly increase
and we are unable to pass along these costs to our customers, our operating
expenses will increase and our results of operations could be negatively
affected.





We sell many of our products on
credit, which exposes us to risk of payment defaults. We also make interest-free
and unsecured advances to suppliers for the purchase of materials, which exposes
us to risk of default .





As is
typical in the People’s Republic of China, we generally sell our products to
distributors on a rolling basis. This means that there is a lag between when we
deliver our products to our distributors (and recognize revenues for those
shipments) and when we receive payment for those products. Typically, accounts
are settled anywhere from one to two months and up to seven months after
delivery of our products, although we may extend other payment terms to our
distributors depending on their ability to pay. Often times, if a customer does
not order additional products for delivery, we do not have significant leverage
to ensure prompt payment of outstanding accounts. In addition to accounts
receivables from customers, we also make advances to suppliers for the purchase
of their materials. These activities expose us to risk of default. A farmer’s
inability to sell his agricultural goods, or grow crops due to inclement
weather, could hinder his ability to timely pay his credit obligations to our
distributors, which affects their ability to make payment to us. Notably, in
2009, many of our customers did not make payments to our company for products
delivered and we no longer believe that we will be able to collect such
payments. Further, we have no guarantee that our suppliers will meet their
delivery obligations to our company in order for us to produce our goods in a
timely fashion. As of December 31, 2009, we had accounts receivable, net of
allowance for doubtful accounts, of $2,346,583 compared to $2,590,277 in 2008,
advances to suppliers of $541,754 compared to $0 in 2008, and we had allowances
for doubtful accounts of $2,196,072 compared to $4,199,030 in 2008. If an
unexpected number of our suppliers and creditors continue to default in their
obligations to us, it could have a material adverse effect on our
liquidity.





Adverse
weather conditions could reduce demand for our products, which could have a
negative effect on our revenues.





Demand
for our products fluctuates significantly with weather conditions, which may
delay the use of our products on crops or render them unnecessary at all. In
addition, demand for our products is also affected by natural disasters such as
floods, drought, hail, tornadoes and earthquakes. If demand for our products
declines, this would have a negative effect on our revenues. In addition, in the
event that crop yields are reduced for any reason, including natural disasters,
farmers may default on their payments to our distributors, who, in turn, could
default on their payments to our company. Further, we have no guarantee that our
suppliers will meet their delivery obligations to our company in order for us to
produce our goods in a timely fashion. In 2007, for example, there was
unseasonably cold spring weather in Shaanxi, which was followed by a flood and
drought in the third quarter of 2007. These events affected crop plantings and
the use of fertilizers, which had a material adverse effect on our 2007
revenues. Further, many of our customers did not make payments to our company in
2007 for products delivered and we had allowances for doubtful accounts of
$2,196,072 at December 31, 2009 compared to $4,199,030 at December 31, 2008.
Continued defaults could have a negative effect on our cash flows and results of
operations.





Our
success depends upon the development of the People’s Republic of China’s
agricultural industry.





The
People’s Republic of China is currently the world’s most populous country and
one of the largest producers and consumers of agricultural products. Over 40% of
the People’s Republic of China’s labor force is engaged in agriculture, even
though only about 14% of the land is suitable for cultivation. (Source: CIA
Factbook) Although the People’s Republic of China hopes to further increase
agricultural production, incomes for Chinese farmers are stagnating. Despite the
Chinese government’s continued emphasis on agricultural self-sufficiency,
inadequate port facilities and a lack of warehousing and cold storage facilities
impedes the domestic agricultural trade. If the Chinese agricultural market does
not develop, or develops slower than we expect, it could have an adverse effect
on our business, financial condition and results of operations.




Our
operating subsidiary may be restricted from making distributions to our
company.





We are a
legal entity separate and distinct from Yang Ling, which is our indirect
wholly-owned operating subsidiary. Aside from our financing activities, the
receipt of dividends from Yang Ling is currently our only other source of cash
to pay shareholder dividends and to meet our other obligations. Yang Ling is
subject to Chinese regulations that currently permit the payment of dividends
only out of accumulated profits as determined in accordance with Chinese
accounting standards and regulations. These accounting standards and regulations
also require Yang Ling to set aside a portion of its after tax profits to fund
certain reserve funds. See Note 11 to our consolidated financial statements
included in this annual report for more information about these regulations.
Although it has been able to do so, to date Yang Ling has not paid us any
dividends. In the future, if Yang Ling does not accumulate sufficient profits
under Chinese accounting standards and regulations after funding the required
reserves, it will not be able to pay us any dividends, and consequently, we may
be unable to pay any dividends to our stockholders.





We
do not anticipate paying dividends on our common stock.





We have
never paid dividends on our common stock and do not anticipate paying dividends
in the foreseeable future. Our Board of Directors currently intends to follow a
policy of retaining all of our earnings, if any, to finance the development and
expansion of our business.




10




Our
corporate structure may subject you to two levels of taxation on the payment of
dividends or upon a disposition of our operating subsidiary, thereby
substantially reducing the return on your investment.





If Yang
Ling, our wholly-owned indirect subsidiary, pays a dividend to us, its parent
company, for distribution to our stockholders as a dividend, or if Yang Ling
(rather than us, its parent company) is ultimately sold, the dividend or the
proceeds of that transaction would be subject to two levels of tax: one at the
parent corporate level and one at the parent stockholder level. Because we
conduct our operations through Yang Ling, any dividends we pay must come from
Yang Ling. Additionally, if a sale were to occur, it would most likely be Yang
Ling that would be sold, rather than our company. Because of applicable tax
laws, if Yang Ling pays a dividend to us in the future or if Yang Ling is sold
in the future, those proceeds may be subject to two levels of taxation: (i) we
will pay tax on the dividend or sale proceeds received from Yang Ling, and (ii)
our stockholders will pay tax on the distribution of the dividend or the
proceeds of the sale. These two levels of taxation will effectively reduce the
financial return on your investment in our company.





The
industry in which we do business is highly competitive and we face competition
from numerous fertilizer manufacturers in China and elsewhere.





We
compete with numerous local Chinese fertilizer manufacturers. Although we may
have greater resources than many of our competitors, most of which are small
local fertilizer companies, it is possible that these competitors have better
access in certain local markets to customers and prospects, an enhanced ability
to customize products to a particular region or locality and established local
distribution channels within a small region. Furthermore, we may face
competition from international producers and traders who import products into
China that generally are of higher quality than those produced in the local
Chinese market. Although we believe that we have many competitive strengths that
differentiate our products and the Bodisen brand, we nevertheless must compete
aggressively to maintain and grow our market share. If we are not successful in
our marketing and advertising efforts to increase awareness of our brands, our
revenues could decline and it could have a material adverse effect on our
business, financial condition and results of operations.





We
may not be able to obtain regulatory or governmental approvals for our
products.





The
manufacture and sale of our agricultural products in the People’s Republic of
China is regulated by the People’s Republic of China and the Shaanxi Provincial
Government. The legal and regulatory regime governing our industry is evolving,
and we may become subject to different, including more stringent, requirements
than those currently applicable to our company. Because we must obtain permits
and other regulatory approvals for the manufacture of our products, we may be
vulnerable to local and national government agencies or other parties who wish
to renegotiate the terms and conditions of, or terminate their agreements or
other understandings with us, or implement new or more stringent requirements,
which may require us to suspend or delay production of our products. For
example, we are still delaying the launch of our Mancozeb product line because
the Chinese government pesticide office instituted a review of all pesticide
production companies. Although our licenses and regulatory filings are current,
we have had to suspend the installation of our Mancozeb facility pending the
completion of the government review. If we are unable to manufacture and
distribute our products, even temporarily, it could have a material adverse
effect on our business, financial condition and results of
operations.





Risks Related to the People’s
Republic of China





The
People’s Republic of China’s Economic Policies could affect our
Business.





Virtually
all of our assets are located, and virtually all of our revenues are derived
from our operations, in the People’s Republic of China. Accordingly, our
business, financial condition and results of operations are subject, to a
significant extent, to the economic, political and legal developments in the
People’s Republic of China.





While the
People’s Republic of China’s economy has experienced significant growth in the
past twenty years, such growth has been uneven, both geographically and among
various sectors of the economy. The Chinese government has implemented various
measures to encourage economic growth and guide the allocation of resources.
Some of these measures benefit the overall economy of the People’s Republic of
China, but they may also have a negative effect on us. For example, operating
results and financial condition may be adversely affected by the government
control over capital investments or changes in tax regulations.





Over the
past 20 years, the Chinese economy has experienced periods of rapid expansion
and fluctuating rates of inflation. These factors have led to the adoption by
the Chinese government, from time to time, of various corrective measures
designed to restrict the availability of credit or regulate growth and contain
inflation. High inflation may in the future cause the Chinese government to
impose controls on credit and/or prices, or to take other action that could
inhibit economic activity in China, and thereby harm the market for our
products, which could have a negative effect on our business, financial
condition and results of operations.





The
economy of the People’s Republic of China has been changing from a planned
economy to a more market-oriented economy. In recent years the Chinese
government has implemented measures emphasizing the utilization of market forces
for economic reform and the reduction of state ownership of productive assets,
and the establishment of corporate governance in business enterprises; however,
a substantial portion of productive assets in the People’s Republic of China are
still owned by the Chinese government. In addition, the Chinese government
continues to play a significant role in regulating industry development by
imposing industrial policies. It also exercises significant control over the
People’s Republic of China’s economic growth through the allocation of
resources, the control of payment of foreign currency- denominated obligations,
the setting of monetary policy and the provision of preferential treatment to
particular industries or companies.




11




Capital
outflow policies in the People’s Republic of China may hamper our ability to
remit income to the United States.





The
People’s Republic of China has adopted currency and capital transfer
regulations. These regulations may require us to comply with complex regulations
for the movement of capital. Although we believe that we are currently in
compliance with these regulations, should these regulations or the
interpretation of them by courts or regulatory agencies change; we may not be
able to remit all income earned and proceeds received in connection with its
operations or from the sale of its operating subsidiary to our
stockholders.





Fluctuation
of the Renminbi may indirectly affect our financial condition and your
investment by affecting the volume of cross- border money flow.





The value
of the Renminbi against the U.S. dollar and other currencies may fluctuate and
is affected by, among other things, changes in the PRC's political and economic
conditions. According to the currency website www.xe.com, as
of December 31, 2009, $1 = 6.828 Renminbi. As we rely entirely on revenue
earned in the PRC, any significant revaluation of the Renminbi may materially
and adversely affect our cash flows, revenue and financial condition. For
example, to the extent that we need to convert U.S. dollars we receive from an
offering of our securities into Renminbi for Yang Ling’s operations,
appreciation of the Renminbi against the U.S. dollar would diminish the value of
the proceeds of the offering and this could harm Xi’an Pharmaceuticals’
business, financial condition and results of operations because it would reduce
the proceeds available to us for capital investment in proportion to the
appreciation of the Renminbi. Thus if we raise 1,000,000 dollars and the
Renminbi appreciates against the U.S. dollar by 15%, then the proceeds will be
worth only RMB 5,803,800 as opposed to RMB 6,828,000 prior to the appreciation.
Conversely, if we decide to convert our Renminbi into U.S. dollars for the
purpose of making payments for dividends on our common shares or for other
business purposes and the U.S. dollar appreciates against the Renminbi; the U.S.
dollar equivalent of the Renminbi we convert would be reduced in proportion to
the amount the U.S. dollar appreciates. In addition, the depreciation of
significant RMB denominated assets could result in a charge to our income
statement and a reduction in the dollar value of these assets. Thus if
Xi’an Pharmaceuticals has RMB 1,000,000 in assets and Renminbi is depreciated
against the U.S. dollar by 15%, then the assets will be valued at $124,487
as opposed to $146,456 prior to the depreciation.




On July
21, 2005, the PRC government changed its decade-old policy of pegging the value
of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is
permitted to fluctuate within a narrow and managed band against a basket of
certain foreign currencies. This change in policy has resulted in an
approximately 17.5% appreciation of the Renminbi against the U.S. dollar as of
December 31, 2009. While the international reaction to the Renminbi revaluation
has generally been positive, there remains significant international pressure on
the PRC government to adopt an even more flexible currency policy, which could
result in a further and more significant appreciation of the Renminbi against
the U.S. dollar.





We
may have difficulty establishing adequate management, legal and financial
controls in the People’s Republic of China.





The
People’s Republic of China historically has not adopted a Western style of
management and financial reporting concepts and practices, modern banking,
computer or other control systems. We may have difficulty in hiring and
retaining a sufficient number of qualified employees to work in the People’s
Republic of China. As a result of these factors, we may experience difficulty in
establishing management, legal and financial controls, collecting financial data
and preparing financial statements, books of account and corporate records and
instituting business practices that meet Western standards.





Because
most of our directors and all of our officers reside outside of the United
States and virtually all of our assets are located in the People’s Republic of
China, you may have difficulty enforcing certain rights.




Any
parties who file litigation against our officers and directors may have
difficulty serving their lawsuit and acquiring personal jurisdiction because all
of our executive officers and most of our directors reside in the People’s
Republic of China. For the same reason, it may be difficult for parties who file
litigation against those of our officers and directors who reside in the
People’s Republic of China to enforce judgments that a jurisdiction other than
the People’s Republic of China enters against them. In addition, because
virtually all of our assets are located in the People’s Republic of China, it
may be difficult to access those assets to satisfy any monetary judgment that a
jurisdiction other than the People’s Republic of China enters against
us.




12




Risks
Related to Our Common Stock




Our
common stock is no longer listed on the American Stock Exchange, or Amex, and
until February 2010 was quoted only on the Pink Sheets in the United States,
which may have an unfavorable impact on our stock price and
liquidity.




On
November 6, 2006, we received notice of deficiency from the Amex that we were
not in compliance with certain continued listing standards and on March 22,
2007, we received notice from Amex of its intent to delist our shares of common
stock. We decided not to appeal Amex’s decision and from April 2007 through
January 2010 our common stock was quoted in the United States on the Pink Sheets
under the symbol “BBCZ.” As of February 1, 2010, we have obtained clearance from
FINRA and have been quoted on the Over-the-Counter Bulletin Board (the “OTCBB”)
under the symbol “BBCZ.” See Item 5 of this annual report for more information
regarding the market for shares of our common stock. The Pink Sheets and the
OTCBB are a significantly more limited market than the Amex and the quotation of
our shares on the Pink Sheets or OTCBB may result in a less liquid market
available for existing and potential stockholders to trade shares of our common
stock in the United States. This could depress the trading price of our common
stock and could have a long-term adverse impact on our ability to raise capital
in the future.




The
market price for our common stock may be volatile, which could result in a
complete loss of your investment.




Our
common stock is not widely traded or traded in great volume. This was the case
even prior to delisting from Amex. Because of the limited trading market and
volume, the market price for our common stock is likely to be highly volatile
and subject to wide fluctuations in response to factors including the
following:




·
            actual
      or anticipated fluctuations in our operating
  results;





·
            changes
      in financial estimates by securities
analysts;





·
            market
      conditions, including new product announcements by us or our competitors,
      changes in the economic performance or market valuations of competitor
      companies, as well as acquisition
announcements;





·
            additions
      or departures of key personnel; and





·
            legal and regulatory
      developments.





Volatility
in our common stock price may make the value of an investment in our shares more
speculative.




We
could become subject to penny stock regulations and restrictions, which could
make it difficult for our stockholders to sell their shares of stock in our
company.




SEC
regulations generally define “penny stocks” as equity securities that have a
market price of less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exemptions. As of March 25, 2009, the
closing bid price for our common stock was $0.25 per share. Although we
currently meet the net worth exemption from the “penny stock” definition, no
assurance can be given that such exemption will be maintained. If we lose the
exemption, our common stock may become subject to Rule 15g-9 under the Exchange
Act, which regulations are commonly referred to as the “Penny Stock Rules.” The
Penny Stock Rules impose additional sales practice requirements on
broker-dealers prior to selling penny stocks, which may make it burdensome to
conduct transactions in our shares. If our shares become subject to the Penny
Stock Rules, it may be difficult to sell shares of our stock, and because it may
be difficult to find quotations for shares of our stock, it may be impossible to
accurately price an investment in our shares. There can be no assurance that our
common stock will continue to qualify for an exemption from the Penny Stock
Rules. In any event, even if our common stock continues to remain exempt from
the Penny Stock Rules, we remain subject to Section 15(b)(6) of the Exchange
Act, which gives the SEC the authority to restrict any person from participating
in a distribution of a penny stock if the SEC determines that such a restriction
would be in the public interest.





ITEM
1B. UNRESOLVED STAFF COMMENTS





Not
applicable.




ITEM
2. PROPERTIES





Our
principal executive offices are located in leased office space located at Room
2001, FanMei Building No. 1 Naguan Zhengjie, Xian, Shaanxi province, People’s
Republic of China, 710068, and the telephone number is +011-86-29-87074957. The
office space is approximately 328 square meters in area and we lease the space
at a rate of RMB 53 per square meter per year.





We also
maintain two separate factories in Yang Ling, China, situated at differing
locations within the Yang Ling Agriculture High-Tech Industries Demonstration
Zone. These two factories occupy an aggregate of approximately 56,745 square
meters of land and contain our three production lines, as well as office
buildings, warehouses and two research laboratories. These leases require
monthly rental payments of $2,550 and the leases expire in 2013.





We have
entered into land-lease arrangements for the above-mentioned factories. We do
not own any land because, under the People’s Republic of China’s governmental
regulations, the government owns all land.




13




In
connection with an agreement with the city government of A La Er, China (which
is located in the Uygur autonomous region of Xinjiang, China), we agreed to
invest in the construction of a manufacturing facility that will be able to
produce up to 200,000 metric tons of fertilizer and pesticide products. This
facility is located in Xinjiang, China and is approximately 120 acres (80,000
square meters). We believe that, with the strong government support that we are
receiving and the regional market demand for fertilizer and pesticide products,
Xinjiang represents a significant long-term growth opportunity for Bodisen. We
began construction of the facility in April 2006 and originally believed
construction would be completed in November 2006. However, there have been a
series of delays, including delays caused by local weather conditions (an early
winter, late spring and frequent sandstorms). To date, we have spent
approximately $14.8 million on this facility. Although, as of December 31, 2009,
construction of the facility was complete, we are waiting for government
approval of our production license before we can commence
operations.





In August
2006, we entered into a 30-year land-lease arrangement with the government of
the People’s Republic of China for the 80,000 square meter plot of land in
Xinjiang, under which we pre-paid $2,529,818 upon execution of the contract of
lease expense for the next 15 years. We agreed to make a prepayment for the
subsequent eight years in November 2021 and will make a final pre-payment in
November 2029 for the remaining seven years. The annual lease expense amounts to
approximately $169,580. On July 15, 2008, the Company entered into a 50 year
land rights agreement for the rights to use the 80,000 square meter plot of
land.





Following
the 2006 admission of our shares to trading on the AIM market of the London
Stock Exchange plc, we indicated that we intended to use certain proceeds from
that offering to construct an additional facility in Northeast China. We have
since decided not to pursue this project at this time.





We
believe that our owned and leased properties, along with the properties being
developed in our current facility expansion plans, will be sufficient for our
current and immediately foreseeable operating needs.





ITEM
3. LEGAL PROCEEDINGS




From time
to time, we may become involved in various lawsuits and legal proceedings that
arise in the ordinary course of business. Litigation is, however, subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. Other than the matters
described below, we are currently not aware of any such legal proceedings or
claims that we believe would or could have, individually or in the aggregate, a
material adverse affect on our business, financial condition, results of
operations or liquidity.





In late
2006, various shareholders of our company filed eight purported class actions in
the U.S. District Court for the Southern District of New York against our
company and certain of our officers and directors (among others), asserting
claims under the federal securities laws. The complaints contain allegations
about the our prior financial disclosures and our internal controls and a prior,
now-terminated relationship with a financial advisor. The complaints do not
specify an amount of damages that plaintiffs seek.





The eight
actions are Stephanie Tabor vs. Bodisen, Inc., et al., Case No. 06-13220 (filed
November 2006), Fraser Laschinger vs. Bodisen, Inc., et al., Case No. 06-13254
(filed November 2006), Anthony DeSantis vs. Bodisen, Inc., et. al., Case
No. 06-13454 (filed November 2006), Yuchen Zhou vs. Bodisen, Inc., et. al.,
Case No. 06-13567 (filed November 2006), William E. Cowley vs. Bodisen,
Inc., et. al., Case No. 06-13739 (filed December 2006), Ronald Stubblefield
vs. Bodisen, Inc., et. al., Case No. 06-14449 (filed December 2006), Adam
Cohen vs. Bodisen, Inc., et. al., Case No. 06-15179 (filed December 2006)
and Lawrence M. Cohen vs. Bodisen, Inc., et. al., Case No. 06-15399 (filed
December 2006). Plaintiffs have not specified an amount of damages they seek.
Last year, the Court consolidated each of the actions into a single
proceeding.  On September 26, 2008, the Court entered a judgment in
favor of the Company and closed the case.





In 2007, Ji Xiang,
a shareholder of China Natural Gas (and son of its Chairman and CEO)
instituted litigation in the Chinese court system in Shaanxi province
challenging the validity of our ownership of 1,031,884 (2,063,768 pre-stock
split) shares of China Natural Gas common stock. We obtained these shares in
September 2005 in a share transfer agreement and assert that we have fully
performed our obligations under the agreement and are entitled to own the
shares. Also, in January 2008, the same shareholder instituted litigation in the
State of Utah District Court, Salt Lake County, against Yangling Bodisen Biotech
Development Co. Ltd. and Interwest Transfer Co. (China Natural Gas’s transfer
agent) seeking to prevent us from selling our shares in China Natural Gas.
Plaintiff obtained an order from the Utah court provisionally preventing us from
selling the China Natural Gas shares pending a decision on the merits of the
underlying dispute. In May 2009, Ji Xiang and Yangling entered into a settlement
agreement through mediation in the Supreme Court of Shaanxi province and the
case was dismissed. Pursuant to the settlement agreement, Xiang Ji agreed
to withdraw the lawsuit he filed against Yangling in the State of Utah
District Court, Salt Lake County, and Yangling agreed to sell back to Ji Xiang
the 1,031,884 shares at a repurchase price of $3.80 per share, for an
aggregate repurchase price of $3,921,159.





As of
October 29, 2009, the Utah court lifted the injunction preventing us from
selling our shares in China Natural Gas and allowed for the certificate
representing the 1,031,884 shares to be transferred to Ji Xiang.  In
November 2009, the Company effected a transfer of the shares through a United
States transfer agent in accordance with the settlement agreement among the
parties.  The lawsuit in Utah was thereafter dismissed and has no further
potential effect or impact upon the operation or financial condition of the
Company.




14




ITEM
4. (REMOVED AND RESERVED)




PART
II




ITEM
5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES




Market
Information





Since
February 1, 2010, our common stock has been traded on the OTCBB under the symbol
“BBCZ.”  From April 2, 2007 to January 29, 2010, our common stock has
been traded on the Pink Sheets under the symbol “BBCZ.” Prior to April 2, 2007,
our common stock was traded on the American Stock Exchange under the symbol
“BBC.” Prior to August 29, 2005, our common stock traded on the Over-the-Counter
Bulletin Board under the symbol “BBOI.” In addition, since February 6, 2006, our
common stock has been traded on AIM, a market operated by the London Stock
Exchange plc, under the symbol “BODI.”





The
following table sets forth the high and low bid prices of our common stock for
the periods indicated. The quotations set forth below reflect inter-dealer
prices, without retail mark-up, markdown or commission and may not represent
actual transactions.





QUARTER
                  
                  HIGH ($)
                  
                  
                  LOW ($)1st
      Quarter 2008
                  
                  $
                  1.01
                  
                  
                  $
                  0.652nd
      Quarter 2008
                  
                  $
                  0.80
                  
                  
                  $
                  0.403rd
      Quarter 2008
                  
                  $
                  0.65
                  
                  
                  $
                  0.114th
      Quarter 2008
                  
                  $
                  0.55
                  
                  
                  $
                  0.101st
      Quarter 2009
                  
                  $
                  0.40
                  
                  
                  $
                  0.122nd
      Quarter 2009
                  
                  $
                  0.27
                  
                  
                  $
                  0.163rd
      Quarter 2009
                  
                  $
                  0.25
                  
                  
                  $
                  0.104th
      Quarter 2009
                  
                  $
                  0.30
                  
                  
                  $
                  0.19





As of
March 22, 2010, there were approximately 1,220 holders of record of our common
stock.





Of the
approximately 1,220 holders of record, 28 holders of record currently hold
shares of our common stock on behalf of additional persons residing in the
People’s Republic of China. Some or all of the 19 stockholders of Bodisen
International (which, prior to the “reverse merger,” was the parent of Yang
Ling, our principal operating subsidiary) who received stock in the “reverse
merger” held at least a portion of such shares on behalf of additional persons
residing in the People’s Republic of China. Prior to the reverse merger that
resulted in our current corporate structure, various individuals provided
investment capital to Yang Ling. After the reverse merger, we issued share
certificates for our common stock to reflect the value of the earlier
investments. Pursuant to an arrangement with the initial investors, we issued
share certificates to certain individuals other than the initial investors
(including Qiong Wang, a Director, and Bo Chen, our Chairman, CEO and
President), who held title to those shares as nominee for the benefit of those
investors. Following our reverse merger and our payment of a three for one stock
dividend, Ms. Wang held legal title to a total of 3,748,780 shares, of which she
held 3,028,780 as nominee for the benefit of the initial investors and 720,000
for her own benefit, and Mr. Chen held legal title to 3,584,096 shares, of which
he held 2,894,096 as nominee for the benefit of the initial investors and
690,000 for his own benefit. Thus, Ms. Wang and Mr. Chen held 5,922,876 shares
beneficially for others, apart from the shares they held for
themselves.




In late
2005, some of the initial investors began to request that the beneficially-held
shares be transferred to them so that they could hold the shares in their own
names. In response, Ms. Wang and Mr. Chen transferred shares they held
beneficially for the initial investors to their children, who in turn
effectuated the transfer of such shares to the initial investors. Over time,
this process continued so that eventually, Ms. Wang and Mr. Chen transferred
indirectly through their children all of the 5,922,876 beneficially-held shares
to the initial investors, with the exception of approximately 738,000 shares. We
hold the originals of 28 stock certificates representing these approximate
738,000 shares in our offices in Xi’an, China.





The record holders of the
28 share certificates are nominees only and hold the shares for the benefit of
initial investors or their assigns. The nominees have not asserted any interest
in or made any claim to these shares. We have confirmed that the share
certificates are genuine and that the records of our transfer agent are
consistent with the information that appears on the certificates.




Dividends





We have
never declared or paid any cash dividends on our common stock. We currently
intend to retain future earnings, if any, to finance the expansion of our
business. As a result, we do not anticipate paying any cash dividends in the
foreseeable future.





In
addition, as stipulated by the Company Law of the People’s Republic of China,
net income after taxation can only be distributed as dividends after
appropriation has been made for the following:





·
            making up cumulative prior years’
      losses, if any;


·
            allocations to the “statutory
      surplus reserve” of at least 10% of income after tax, as determined under
      the People’s Republic of China’s accounting rules and regulations, until
      the fund amounts to 50% of a company’s registered
      capital;


·
            allocations of 5-10% of income
      after tax, as determined under the People’s Republic of China’s accounting
      rules and regulations, to a company’s “statutory common welfare fund,”
      which is established for the purpose of providing employee facilities and
      other collective benefits to a company’s employees;
    and


·
            allocations to the discretionary
      surplus reserve, if approved in the stockholders’ general
      meeting.





15




Accordingly,
we established a reserve for the annual contribution of 10% of net income to the
welfare fund, and the amount included in the statutory reserve for the years
ended December 31, 2009 and 2008 amounted to $0 and $0,
respectively.





Recent
Issuances of Unregistered Securities





In
October 2008, we issued 400,000 shares of common stock to Valuerich, Inc. and
its designees as consideration for certain business and management consulting
services rendered pursuant to a strategic consulting agreement between the
Company and Valuerich, Inc. dated April 14, 2008.   In connection with
the foregoing, we relied upon the exemption from securities registration
afforded by Rule 506 of Regulation D and/or Section 4(2) of the Securities Act,
and transfers of such shares were restricted by the Company in accordance with
the requirements of the Securities Act. All of the above-referenced persons were
provided with access to our Securities and Exchange Commission
filings.





Issuer
Repurchases of Equity Securities





None.




ITEM
6. SELECTED FINANCIAL DATA





Not
applicable.





ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





FORWARD
LOOKING STATEMENTS





The
following information should be read in conjunction with our selected
consolidated financial and operating data and the accompanying consolidated
financial statements and related notes thereto included elsewhere in this annual
report. The following discussion may contain forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in these forward-looking statements. Factors
that could cause or contribute to these differences include, but are not limited
to, those discussed below and elsewhere in this annual report, particularly in
“Risk Factors” and “Note Regarding Forward Looking Statements.”





Virtually
all of our revenues and expenses are denominated in Renminbi ("RMB"), the
currency of the People's Republic of China. Because we report our financial
statements in U.S. dollars, we are exposed to translation risk resulting from
fluctuations of exchange rates between the RMB and the U.S. dollar. There is no
assurance that exchange rates between the RMB and the U.S. dollar will remain
stable. A devaluation of the RMB relative to the U.S. dollar could adversely
affect our business, financial condition and results of operations. See “Risk
Factors.” We do not engage in currency hedging and to date, inflation has not
had a material impact on our business.





Unless
otherwise specified, references to Notes to our consolidated financial
statements are to the Notes to our audited consolidated financial statements as
of December 31, 2009 and 2008 and for the two-year period ended December 31,
2009.





Overview





We are
incorporated under the laws of the state of Delaware and our operating
subsidiary, Yang Ling, is headquartered in Shaanxi Province, the People’s
Republic of China. We are engaged in developing, manufacturing and selling
organic fertilizers, liquid fertilizers, pesticides and insecticides in the
People’s Republic of China and produce numerous proprietary product lines, from
pesticides to crop-specific fertilizers. We market and sell our products to
distributors throughout the People's Republic of China, and these distributors,
in turn, sell our products to farmers. We also conduct research and development
to further improve existing products and develop new formulas and
products.





Results
of Operations





Year ended December 31, 2009
compared to year ended December 31, 2008





Revenue
:





We
generated revenue of $5,217,277 for the year ended December 31, 2009, a decrease
of $2,395,450 or 31.5%, compared to $7,612,727 for the year ended December 31,
2008.  The decrease in revenue is primarily attributable to the
overall slowdown in both the global and the Chinese economy. Also in order to
increase sales volume and to give more customers access our products, we
decreased our product’s sales price by 25% in 2009.  The decrease in
revenue is attributed to both lower sales volume and lower sales prices. 
The decrease in revenue is due to a 3% decrease in sales price and a 97%
decrease in volume.  We anticipate that revenue will increase as both the
global and Chinese economy increases.




16




Gross Profit :





We
achieved a gross profit of $1.359.356 for the year ended December 31, 2009, an
increase of $935,852 or 221%, compared to $423,504 for the year ended December
31, 2008.  The gross profit percentage was 26.1% and 5.6% for the
years ended December 31, 2009 and 2008, respectively.  The increase in
gross profit margin was primarily attributable to a large write down in
inventory in 2008 that was charged to cost of revenue offset by to higher
material costs and a decrease in the selling price for our products as mentioned
above in 2009.   In 2008 we wrote down our inventory by approximately
$1,625,000 due to obsolescence.  In 2009 we reserved approximately
$76,000 as an inventory obsolescence reserve which decreased our gross profit by
1.7%.





Operating
expenses:





We
incurred net operating expenses of $2,316,592 for the year ended December 31,
2009, a decrease of $5,200,562 or 69.2%, compared to $7,517,154 for the year
ended December 31, 2008.  The decrease in our operating expenses is
primarily attributable to a decrease in our general cost of operations due to
the reduction of our revenue during the past few years.  We have
attempted to reduce our operating expense due to the reduction in revenue over
the past few years.  We expect our operating expenses to remain at
their current levels for the foreseeable future.





Selling
expenses accounted for $151,756 of our operating expenses for the year ended
December 31, 2009, a decrease of $2,406,640 or 94.1%, compared to $2,558,396 for
the year ended December 31, 2008.  The decrease in our selling
expenses is primarily attributable to a decrease in marketing costs principally
related to advertising in trade publications.   General and
administrative expenses accounted for $2,060,553 for the year ended December 31,
2009, a decrease of $1,910,826 or 48.1% compared to $3,971,379 for the year
ended December 31, 2008. The decrease in general and administrative
expenses is primarily related to a decrease in our general cost of operations
due to the reduction of our revenue during the past few years, a reduction in
personnel resulting in lower payroll costs and a write off of certain loan
receivables.





Loss
from operating:





Based on
the above we incurred loss from operations of $957,236 for the year ended
December 31, 2009, a decrease of $6,136,414 or 86.5%, compared to $7,093,650 for
the year ended December 31, 2008.  Our loss from operations was offset
by non-operating income.  See discussions of non-operating income
below.





Non
Operating Income and Expenses





We had
total non-operating income of $1,327,700 for the year ended December 31, 2009,
an increase of $1,161,424 or 698.5%, compared to $166,276 for the year ended
December 31, 2008.  Total non-operating income includes interest
income of $2,939 for the year ended December 31, 2009 compared to $155,936 for
year ended December 31, 2008.  The decrease in interest income is
primarily attributable to less cash in the bank generating interest
income.  Also included in non-operating income (expense) for the year
ended December 31, 2009 is $842,145 related to the sale of two investments and
$484,794 in equity income of another investment that we account for under the
equity method.  We do not expect other income in the future to be such
a large percentage of our net income.  The gain on the sale of two
investments was a one-time event that we do not expect in the
future.  Our equity investment dropped below 20%; therefore we will
not be account for this investment on the equity method in the
future.





Net Income :





For the
foregoing reasons, we had a net income of $370,464 for the year ended December
31, 2009, an increase in net income of $7,256,072 or 105.3%, compared to a net
loss of $6,885,608 for the year ended December 31, 2008.  We had
earnings (loss) per share of $0.02 and $(0.37) for the year ended December 31,
2009 and 2008, respectively.




Liquidity
and Capital Resources





We are
primarily a parent holding company for the operations carried out by our
indirect operating subsidiary, Yang Ling, which carries out its activities in
the People’s Republic of China.  Because of our holding company
structure, our ability to meet our cash requirements apart from our financing
activities, including payment of dividends on our common stock, if any,
substantially depends upon the receipt of dividends from our subsidiaries,
particularly Yang Ling.





During
2008, we exchanged $3,291,264 of receivables for a 28.8% ownership interest in a
Chinese company, Shanxi Jiali Pharmaceutical Co. Ltd (“Jiali”).  We
have written down the value of this investment by $987,860 at December 31,
2008.  This investment is accounted for under the equity method and we
recorded equity income in this investment for the year ended December 31, 2009
of $484,728.  We received our ownership in Jiali a result of settling
an old receivable.  We believed that we had a better chance of
realizing the value of this receivable by accepting ownership in Jiali than
pursuing a cash payment from our customer.  In September 2009 Jiali
merged with a U.S. public company trading on the OTC Bulletin Board, which
should give us liquidity in this investment.  At the date of the
change, the investment was valued at $2,829,732.  As of December 31,
2009, the fair value of the investment is $8,175,290 which is reflected in the
consolidated balance sheet at December 31, 2009.  The unrealized gain
of $2,021,600 for the year ended December 31, 2009, is reflected as other
comprehensive income in the consolidated statement of stockholder’s
equity.





During
the fourth quarter of 2009, we sold our 1,031,884 shares of China Natural Gas
for $3,921,159 or $3.80 a share for a realized gain of
$1,053,813.  The sale of the stock was due to a settlement agreement
with one of the shareholders of China Natural Gas.





As of
December 31, 2009, we had $4,824,135 of cash and cash equivalents compared to
$90,716 as of December 31, 2008.   Based on past performance and
current expectations, we believe our cash and cash equivalents and cash
generated from operations will satisfy our current working capital needs,
capital expenditures and other liquidity requirements associated with our
operations. However, to the extent our allowance for bad debts in insufficient
to cover our actual bad debt experience, our liquidity would be negatively
impacted.




17




Cash
Flows





Operating:





Cash
provided by operating for the year ended December 31, 2009 was $79,511compared
to $6,161,699 for the year ended December 31, 2008.  The decrease in
the cash provided by operating activities is principally due to the changes in
advances to suppliers.  For the year ended December 31, 2009, we had
an increase in advances to suppliers of $541,422 compared to a decrease in
advance to suppliers of 10,242,896 for the year ended December 31,
2008.  During the year ended December 31, 2009, the Company recorded
bad debt recoveries of $469,246 compared to an increase in the allowance for bad
debts of $4,780,347 for the year ended December 31, 2008. For the years ended
December 31, 2009 and 2008, the Company had a decrease in deferred revenue of
$1,175,304 and $6,693,334, respectively.  The other significant
difference was the change in inventory.  During 2008, inventory
increased $2,968,248 and during 2009, inventory decreased by
$2,016,028.  During 2009, sales began to decrease
significantly.  In response to this decline, we began reducing our
purchases to reduce our inventory levels.  As the economy begins to
strengthen, we expect to increase our inventory levels to meet the increased
demand.





Investing:





Our
investing activities generated $4,651,927 of cash for the year ended December
31, 2009, compared to $6,924,024 of cash used in investing activities for the
year ended December 31, 2008.  The increase is primarily attributable
to a sale of assets during 2009.





Financing:





We had no
cash provided by financing activities for the year ended December 31, 2009 and
2008.





Contractual
Commitments





In August
2006, we entered into a 30-year land-lease arrangement with the government of
the People’s Republic of China, under which we pre-paid $2,529,818 upon
execution of the contract of lease expense for the next 15 years. We agreed to
make a prepayment for the next eight years in November 2021, and will make a
final pre-payment in November 2029 for the remaining seven years. The annual
lease expense amounts to approximately $169,580. Our land-lease arrangement is
currently our only material on- and off-balance sheet expected or contractually
committed future obligation.





Off-Balance
Sheet Arrangements





We
currently do not have any material off-balance sheet arrangements except for the
remaining pre-payments under the land-lease arrangement described
above.





Critical
Accounting Policies and Estimates





Our
financial statements and related public financial information are based on the
application of accounting principles generally accepted in the United States
("US GAAP"). US GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenues and expenses amounts reported. These estimates can
also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and financial condition. We
believe our use of estimates and underlying accounting assumptions adhere to
GAAP and are consistently and conservatively applied. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ materially from
these estimates under different assumptions or conditions. We continue to
monitor significant estimates made during the preparation of our financial
statements.





We
believe the following is among the most critical accounting policies that impact
our consolidated financial statements. We suggest that our significant
accounting policies, as described in our condensed consolidated financial
statements in the Summary of Significant Accounting Policies, be read in
conjunction with this Management's Discussion and Analysis of Financial
Condition and Results of Operations. See also Note 2 to our consolidated
financial statements for further discussion of our accounting
policies.





Accounts
receivable





We
maintain reserves for potential credit losses on accounts receivable and record
them primarily on a specific identification basis. In order to establish
reserves, we review the composition of accounts receivable and analyze
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy of these reserves. This analysis and evaluation requires the use of
judgments and estimates. Because of the nature of the evaluation, certain of the
judgments and estimates are subject to change, which may require adjustments in
future periods.




18




Inventories




We value
inventories at the lower of cost (determined on a weighted average basis) or
market. When evaluating our inventory, we compare the cost with the market value
and make allowance to write them down to market value, if lower. The
determination of market value requires the use of estimates and judgment by our
management.





Intangible
assets





We
evaluate intangible assets for impairment, at least on an annual basis and
whenever events or changes in circumstances indicate that the carrying value may
not be recoverable from its estimated future cash flows. This evaluation
requires the use of judgments and estimates, in particular with respect to
recoverability. Recoverability of intangible assets, other long-lived assets
and, goodwill is measured by comparing their net book value to the related
projected undiscounted cash flows from these assets, considering a number of
factors including past operating results, budgets, economic projections, market
trends and product development cycles. If the net book value of the asset
exceeds the related undiscounted cash flows, the asset is considered impaired,
and a second test is performed to measure the amount of impairment
loss.





Recent
Accounting Pronouncements





On July
1, 2009, we adopted Accounting Standards Update (“ASU”) No. 2009-01, “Topic
105 - Generally Accepted Accounting Principles - amendments based on Statement
of Financial Accounting Standards No. 168 , “The FASB Accounting Standards
CodificationTM and the Hierarchy of Generally Accepted Accounting Principles”
(“ASU No. 2009-01”).  ASU No. 2009-01 re-defines authoritative GAAP
for nongovernmental entities to be only comprised of the FASB Accounting
Standards CodificationTM (“Codification”) and, for SEC registrants, guidance
issued by the SEC.  The Codification is a reorganization and
compilation of all then-existing authoritative GAAP for nongovernmental
entities, except for guidance issued by the SEC.  The Codification is
amended to effect non-SEC changes to authoritative GAAP.  Adoption of
ASU No. 2009-01 only changed the referencing convention of GAAP in Notes to
the Consolidated Financial Statements.





In
October 2009, the FASB issued an Accounting Standards Update
("ASU") regarding accounting for own-share lending arrangements in
contemplation of convertible debt issuance or other financing.  This
ASU requires that at the date of issuance of the shares in a share-lending
arrangement entered into in contemplation of a convertible debt offering or
other financing, the shares issued shall be measured at fair value and be
recognized as an issuance cost, with an offset to additional paid-in capital.
Further, loaned shares are excluded from basic and diluted earnings per share
unless default of the share-lending arrangement occurs, at which time the loaned
shares would be included in the basic and diluted earnings-per-share
calculation.  This ASU is effective for fiscal years beginning on or
after December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years. We are
currently evaluating the impact of this ASU on our consolidated financial
statements.





On
December 15, 2009, the FASB issued ASU No. 2010-06 Fair Value Measurements and
Disclosures Topic 820 “Improving Disclosures about Fair Value
Measurements”.  This ASU requires some new disclosures and clarifies
some existing disclosure requirements about fair value measurement as set forth
in Codification Subtopic 820-10. The FASB’s objective is to improve these
disclosures and, thus, increase the transparency in financial
reporting.  The adoption of this ASU will not have a material impact
on our consolidated financial statements.





For
information regarding these and other recent accounting pronouncements and their
expected impact on our future financial condition or results of operations, see
Note 2 to our consolidated financial statements.





ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK





Not
Applicable.




19




ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




Bodisen
Biotech, Inc. and Subsidiaries


Consolidated
Financial Statements


Years
Ended December 31, 2009 and 2008




Contents





PageReport
      of Independent Registered Public Accounting Firm
                    
                    
                    F-1Financial
      Statements:Consolidated
      Balance Sheets as of December 31, 2009 and 2008
                    
                    
                    F-2Consolidated
      Statements of Operations and Other Comprehensive Loss for the years ended
      December 31, 2009 and 2008
                    
                    
                    F-3Consolidated
      Statement of Stockholders' Equity for the years ended December 31, 2009
      and 2008
                    
                    
                    F-4Consolidated
      Statements of Cash Flows for the years ended December 31, 2009 and
      2008
                    
                    
                    F-5Notes
      to Consolidated Financial Statements
                    
                    
                    F-6




20




ACSBAcquavella, Chiarelli,
Shuster, Berkower & Co., LLP


517
      Route One
            One
      Penn PlazaIselin,
      New Jersey 08830
            36th
      Floor732.
      855.9600
            New
      York, NY  10119Fax:732.855.9559
            212.867.1319


www.acsbco.com




Report of
Independent Registered Public Accounting Firm




To the
Board of Directors and


Stockholders
of Bodisen Biotech, Inc.





We have
audited the accompanying consolidated balance sheets of Bodisen Biotech, Inc (a
Delaware corporation) and its subsidiaries as of December 31, 2008 and 2009, and
the related statements of operations, stockholders’ equity and comprehensive
income, and cash flows for each of the two years in the period ended December
31, 2009. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our 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 audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Bodisen Biotech,
Inc  and subsidiaries as of December 31, 2009 and 2008, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 2009,  in conformity with accounting
principles generally accepted in the United States of America.




Acquavella,
Chiarelli, Shuster, Berkower & Co., LLP


Certified
Public Accountants





New York,
NY


March 8,
2010





Expect
for Note 14


October
27, 2010





F-1




BODISEN
BIOTECH, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS


AS
OF DECEMBER 31, 2009 AND 2008





2009
                        
                        
                        2008As Restated
                        
                        
                        As RestatedASSETSCURRENT
      ASSETS:Cash
      & cash equivalents
                        
                        $
                        4,824,135
                        
                        
                        $
                        90,716Accounts
      receivable and other receivable, net of allowance for doubtful accounts of
      $2,196,072 and $4,199,030
                        
                        
                        2,346,583
                        
                        
                        
                        2,590,277Other
      receivables
                        
                        
                        26,298
                        
                        
                        
                        375,780Inventory
                        
                        
                        991,140
                        
                        
                        
                        2,629,280Advances
      to suppliers
                        
                        
                        541,754
                        
                        
                        
                        -Prepaid
      expense and other current assets
                        
                        
                        966,942
                        
                        
                        
                        803,091Total
      current assets
                        
                        
                        9,696,852
                        
                        
                        
                        6,489,144PROPERTY
      AND EQUIPMENT, net
                        
                        
                        11,837,406
                        
                        
                        
                        5,373,232CONSTRUCTION
      IN PROGRESS
                        
                        
                        10,422,641
                        
                        
                        
                        17,542,626MARKETABLE
      SECURITY, AVAILABLE-FOR-SALE
                        
                        
                        8,175,290
                        
                        
                        
                        6,191,304INTANGIBLE
      ASSETS, net
                        
                        
                        4,873,904
                        
                        
                        
                        5,093,073OTHER
      ASSETS
                        
                        
                        -
                        
                        
                        
                        3,669,063TOTAL
      ASSETS
                        
                        $
                        45,006,093
                        
                        
                        $
                        44,358,442LIABILITIES AND STOCKHOLDERS'
      EQUITYCURRENT
      LIABILITIES:Accounts
      payable
                        
                        $
                        71,504
                        
                        
                        $
                        710,475Accrued
      expenses
                        
                        
                        161,673
                        
                        
                        
                        102,556Deferred
      revenue
                        
                        
                        917,147
                        
                        
                        
                        2,092,451Total
      current liabilities
                        
                        
                        1,150,324
                        
                        
                        
                        2,905,482STOCKHOLDERS'
      EQUITY:Preferred
      stock, $0.0001 per share; authorized 5,000,000 shares; nil issued and
      outstandingCommon
      stock, $0.0001 per share; authorized 30,000,000 shares; issued and
      outstanding  18,710,250 and 18,710,250
                        
                        
                        1,871
                        
                        
                        
                        1,871Additional
      paid-in capital
                        
                        
                        33,945,822
                        
                        
                        
                        33,945,822Accumulated
      other comprehensive income
                        
                        
                        13,473,307
                        
                        
                        
                        11,440,962Statutory
      reserve
                        
                        
                        4,314,488
                        
                        
                        
                        4,314,488Retained
      Earnings
                        
                        
                        (7,879,719
                        )
                        
                        
                        (8,250,183
                        )Total
      stockholders' equity
                        
                        
                        43,855,769
                        
                        
                        
                        41,452,960TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                        
                        $
                        45,006,093
                        
                        
                        $
                        44,358,442





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





F-2




BODISEN
BIOTECH, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





2009
                  
                  
                  2008As Restated
                  
                  
                  As RestatedNet
      Revenue
                  
                  $
                  5,217,277
                  
                  
                  $
                  7,612,727Cost
      of Revenue
                  
                  
                  3,857,921
                  
                  
                  
                  7,189,223Gross
      profit
                  
                  
                  1,359,356
                  
                  
                  
                  423,504Operating
      expensesSelling
      expenses
                  
                  
                  151,756
                  
                  
                  
                  2,558,396General
      and administrative expenses
                  
                  
                  2,060,553
                  
                  
                  
                  3,971,379Writedown
      of assets
                  
                  
                  104,283
                  
                  
                  
                  987,379Total
      operating expenses
                  
                  
                  2,316,592
                  
                  
                  
                  7,517,154Loss
      from operations
                  
                  
                  (957,236
                  )
                  
                  
                  (7,093,650
                  )Non-operating
      income (expense):Other
      income (expense)
                  
                  
                  (2,178
                  )
                  
                  
                  10,340Interest
      income, net
                  
                  
                  2,939
                  
                  
                  
                  155,936Gain
      on sale of investment, net
                  
                  
                  842,145
                  
                  
                  
                  -Equity
      income in investment
                  
                  
                  484,794
                  
                  
                  
                  -Total
      non-operating income (expense)
                  
                  
                  1,327,700
                  
                  
                  
                  166,276Income
      (loss) before provision for income taxes
                  
                  
                  370,464
                  
                  
                  
                  (6,927,374
                  )Provision
      (benefit) for income taxes
                  
                  
                  -
                  
                  
                  
                  (41,766
                  )Net
      income (loss)
                  
                  
                  370,464
                  
                  
                  
                  (6,885,608
                  )Other
      comprehensive incomeForeign
      currency translation gain
                  
                  
                  10,745
                  
                  
                  
                  2,968,882Unrealized
      gain (loss) on marketable equity security
                  
                  
                  2,021,600
                  
                  
                  
                  (8,048,695
                  )Comprehensive
      income (loss)
                  
                  $
                  2,402,809
                  
                  
                  $
                  (11,965,421
                  )Weighted
      average shares outstanding :Basic
                  
                  
                  18,710,250
                  
                  
                  
                  18,474,388Diluted
                  
                  
                  18,710,250
                  
                  
                  
                  18,474,388Earnings
      per share:Basic
                  
                  $
                  0.02
                  
                  
                  $
                  (0.37
                  )Diluted
                  
                  $
                  0.02
                  
                  
                  $
                  (0.37
                  )





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





F-3




BODISEN
BIOTECH, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





AccumulatedAdditional
                  
                  
                  Other
                  
                  
                  
                  
                  
                  
                  
                  
                  TotalCommon Stock
                  
                  
                  Paid
                  
                  
                  Comprehensive
                  
                  
                  Statutory
                  
                  
                  Accumulated
                  
                  
                  Stockholders'Shares
                  
                  
                  Amount
                  
                  
                  in Capital
                  
                  
                  Income
                  
                  
                  Reserve
                  
                  
                  Deficit
                  
                  
                  EquityBalance,
      December 31, 2007, As Restated
                  
                  
                  18,310,250
                  
                  
                  $
                  1,831
                  
                  
                  $
                  33,860,062
                  
                  
                  $
                  16,520,775
                  
                  
                  $
                  4,314,488
                  
                  
                  $
                  (1,364,575
                  )
                  
                  $
                  53,332,581Change
      in foreign currency translation gain
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,968,882
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,968,882Change
      in unrealized gain on marketable equity security
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (8,048,695
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (8,048,695
                  )Issuance
      of 400,000 common stock for consulting services
                  
                  
                  400,000
                  
                  
                  
                  40
                  
                  
                  
                  59,960
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  60,000Value
      of warrants issued for consulting services
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25,800
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  25,800Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (6,885,608
                  )
                  
                  
                  (6,885,608
                  )Transfer
      to statutory reserve
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Balance,
      December 31, 2008, As Resated
                  
                  
                  18,710,250
                  
                  
                  
                  1,871
                  
                  
                  
                  33,945,822
                  
                  
                  
                  11,440,962
                  
                  
                  
                  4,314,488
                  
                  
                  
                  (8,250,183
                  )
                  
                  
                  41,452,960Change
      in foreign currency translation gain
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,745
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  10,745Change
      in unrealized gain on marketable equity security
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,021,600
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,021,600Net
      income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  370,464
                  
                  
                  
                  370,464Transfer
      to statutory reserve
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Balance,
      December 31, 2009, As Restated
                  
                  
                  18,710,250
                  
                  
                  $
                  1,871
                  
                  
                  $
                  33,945,822
                  
                  
                  $
                  13,473,307
                  
                  
                  $
                  4,314,488
                  
                  
                  $
                  (7,879,719
                  )
                  
                  $
                  43,855,769





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





F-4




BODISEN
BIOTECH, INC. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





2009
                  
                  
                  2008As Restated
                  
                  
                  As RestatedCASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      income (loss)
                  
                  $
                  370,464
                  
                  
                  $
                  (6,885,608
                  )Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activities:Depreciation
      and amortization
                  
                  
                  818,995
                  
                  
                  
                  519,370Gain
      on sale of investment, net
                  
                  
                  (842,145
                  )Loss
      on disposal of fixed asset
                  
                  
                  104,283Allowance
      (recovery) of bad debts
                  
                  
                  (469,246
                  )
                  
                  
                  4,780,347Write
      down of assets
                  
                  
                  -
                  
                  
                  
                  2,612,257Common
      stock issued for services
                  
                  
                  -
                  
                  
                  
                  60,000Value
      of warrants issued for services
                  
                  
                  -
                  
                  
                  
                  25,800Equity
      income in investment
                  
                  
                  (484,794
                  )(Increase)
      / decrease in assets:Accounts
      receivable
                  
                  
                  713,597
                  
                  
                  
                  (1,468,913
                  )Other
      receivables
                  
                  
                  312,616
                  
                  
                  
                  2,041,625Inventory
                  
                  
                  2,016,028
                  
                  
                  
                  (2,968,248
                  )Advances
      to suppliers
                  
                  
                  (541,422
                  )
                  
                  
                  10,242,896Prepaid
      expense
                  
                  
                  (178,385
                  )
                  
                  
                  4,442,283Other
      assets
                  
                  
                  14,634
                  
                  
                  
                  95,574Increase
      / (decrease) in current liabilities:Accounts
      payable
                  
                  
                  (638,890
                  )
                  
                  
                  (512,590
                  )Accrued
      expenses
                  
                  
                  59,080
                  
                  
                  
                  (129,760
                  )Deferred
      revenue
                  
                  
                  (1,175,304)
                  
                  
                  
                  (6,693,334)Net
      cash provided by operating activities
                  
                  
                  79,511
                  
                  
                  
                  6,161,699CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisition
      of property and equipment
                  
                  
                  -
                  
                  
                  
                  (64,871
                  )Additions
      to construction in progress
                  
                  
                  (15,289
                  )
                  
                  
                  (9,117,104
                  )Acquisition
      of intangible assets
                  
                  
                  -
                  
                  
                  
                  (306,981
                  )Repayment
      of loans receivable
                  
                  
                  -
                  
                  
                  
                  2,564,932Proceeds
      from sale of assets
                  
                  
                  4,667,216
                  
                  
                  
                  -Net
      cash provided by (used in) investing activities
                  
                  
                  4,651,927
                  
                  
                  
                  (6,924,024
                  )Effect
      of exchange rate changes on cash and cash equivalents
                  
                  
                  1,981
                  
                  
                  
                  235,635NET
      INCREASE IN CASH & CASH EQUIVALENTS
                  
                  
                  4,733,419
                  
                  
                  
                  (526,690
                  )CASH
      & CASH EQUIVALENTS, BEGINNING OF PERIOD
                  
                  
                  90,716
                  
                  
                  
                  617,406CASH
      & CASH EQUIVALENTS, END OF PERIOD
                  
                  $
                  4,824,135
                  
                  
                  $
                  90,716SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      paid
                  
                  $
                  -
                  
                  
                  $
                  -Income
      taxes paid
                  
                  $
                  -
                  
                  
                  $
                  -SUPPLEMENTAL
      NON-CASH INVESTING AND FINANCING ACTIVITIES:Transfer
      of construction in process to property and equipment
                  
                  $
                  7,166,581
                  
                  
                  $
                  -Transfer
      of land rights from other assets to intangible assets
                  
                  $
                  -
                  
                  
                  $
                  2,696,003Receivables
      exchanged for investment interest in Chinese Company
                  
                  $
                  -
                  
                  
                  $
                  3,291,264





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





F-5




BODISEN
BIOTECH, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





Note
1 - Organization and Basis of Presentation





Organization and Line of
Business





Yang Ling
Bodisen Biology Science and Technology Development Company Limited (“BBST”) was
founded in the People’s Republic of China on August 31, 2001. BBST, located in
Yang Ling Agricultural High-Tech Industries Demonstration Zone, is primarily
engaged in developing, manufacturing and selling pesticides and compound organic
fertilizers in the People’s Republic of China.





On
February 24, 2004, Bodisen International, Inc. (“BII”), the non-operative
holding company of BBST (accounting acquirer) consummated a merger agreement
with Stratabid.com, Inc. (legal acquirer) (“Stratabid”), a Delaware corporation,
to exchange 12,000,000 shares of Stratabid to the stockholders of BII, in which
BII merged into Bodisen Holdings, Inc. (BHI), an acquisition subsidiary of
Stratabid, with BHI being the surviving entity. As a part of the merger,
Stratabid cancelled 3,000,000 shares of its issued and outstanding stock owned
by its former president and declared a stock dividend of three shares on each
share of its common stock outstanding for all stockholders on record as of
February 27, 2004.




Stratabid
was incorporated in the State of Delaware on January 14, 2000 and before the
merger, was a start- up stage Internet based commercial mortgage origination
business based in Vancouver, BC, Canada.





The
exchange of shares with Stratabid has been accounted for as a reverse
acquisition under the purchase method of accounting because the stockholders of
BII obtained control of Stratabid. On March 1, 2004, Stratabid was renamed
Bodisen Biotech, Inc. (the “Company”). Accordingly, the merger of the two
companies has been recorded as a recapitalization of the Company, with the
Company (BII) being treated as the continuing entity. The historical financial
statements presented are those of BII.





As a
result of the reverse merger transaction described above the historical
financial statements presented are those of BBST, the operating
entity.





In March
2005, Bodisen Biotech Inc. completed a $3 million convertible debenture private
placement through an institutional investor. Approximately $651,000 in
incremental and direct expenses relating to this private placement has been
amortized over the term of the convertible debenture. None of the expenses were
paid directly to the institutional investor. The net proceeds from this offering
were invested as initial start-up capital in a newly created wholly-owned
Bodisen subsidiary by the name of “Yang Ling Bodisen Agricultural Technology
Co., Ltd. (“Agricultural”). In June 2005, Agricultural completed a transaction
with Yang Ling Bodisen Biology Science and Technology Development Company
Limited (“BBST”), Bodisen Biotech, Inc.’s operating subsidiary in China, which
resulted in Agricultural owning 100% of BBST.





In June
2006, BBST created another wholly owned subsidiary in the Uygur autonomous
region of Xinjiang, China by the name of Bodisen Agriculture Material Co. Ltd.
(“Material”).





Basis of
Presentation





The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America.
The Company’s functional currency is the Chinese Renminbi; however the
accompanying consolidated financial statements have been translated and
presented in United States Dollars ($).





Foreign Currency
Translation





The
accounts of the Company’s Chinese subsidiaries are maintained in the RMB and the
accounts of the U.S. parent company are maintained in the USD. The accounts of
the Chinese subsidiaries are were translated into USD in accordance with
Accounting Standards Codification (“ASC”) Topic 830 “Foreign Currency Matters,”
with the RMB as the functional currency for the Chinese subsidiaries. According
to Topic 830, all assets and liabilities are translated at the exchange rate on
the balance sheet date, stockholders ’ equity is translated at historical rates
and statement of operations items are translated at the weighted average
exchange rate for the period. The resulting translation adjustments are reported
under other comprehensive income in accordance with ASC Top i c 220, “
Comprehensive Income.





F-6




BODISEN
BIOTECH, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





Note
2 – Summary of Significant Accounting Policies





Reclassifications





Certain
amounts in the 2008 consolidated financial statements have been reclassified to
confirm with the 2009 presentation with no effect to previously reported net
income (loss).





Use of
Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions.  These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. It is possible that accounting estimates and assumptions
may be material to the Company due to the levels of subjectivity and judgment
involved.





Cash and Cash
Equivalents





Cash and
cash equivalents include cash in hand and cash in time deposits, certificates of
deposit and all highly liquid debt instruments with original maturities of three
months or less.





Accounts
Receivable





The
Company maintains reserves for potential credit losses for accounts receivable.
Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness,
current economic trends and changes in customer payment patterns to evaluate the
adequacy of these reserves.  Reserves are recorded based on the Company’s
historical collection history.





Advances to
Suppliers





The
Company advances to certain vendors for purchase of its material. The advances
to suppliers are interest free and unsecured.





Inventories





Inventories
are valued at the lower of cost (determined on a weighted average basis) or
market. The Management compares the cost of inventories with the market value
and allowance is made for writing down their inventories to market value, if
lower.





Property & Equipment and
Capital Work In Progress





Property
and equipment are stated at cost. Expenditures for maintenance and repairs are
charged to earnings as incurred; additions, renewals and betterments are
capitalized. When property and equipment are retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations. Depreciation of
property and equipment is provided using the straight-line method for
substantially all assets with estimated lives of:





Operating
      equipment
              10
      yearsVehicles
              8
      yearsOffice
      equipment
              5
      yearsBuildings
              30 years




F-7






BODISEN
BIOTECH, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





The
following are the details of the property and equipment at December 31, 2009 and
December 31, 2008, respectively:





December 31,
                  
                  
                  December 31,2009
                  
                  
                  2008Operating
      equipment
                  
                  $
                  4,650,919
                  
                  
                  $
                  1,112,855Vehicles
                  
                  
                  687,791
                  
                  
                  
                  760,694Office
      equipment
                  
                  
                  87,552
                  
                  
                  
                  87,552Buildings
                  
                  
                  8,656,077
                  
                  
                  
                  5,120,66714,082,339
                  
                  
                  
                  7,081,768Less
      accumulated depreciation
                  
                  
                  (2,244,933
                  )
                  
                  
                  (1,708,536
                  )Property
      and equipment, net
                  
                  $
                  11,837,406
                  
                  
                  $
                  5,373,232





Depreciation
expense for the years ended December 31, 2009 and 2008 was $599,960 and
$364,640, respectively.





On
December 31, 2009 and 2008, the Company had “Capital Work in Progress”
representing the construction in progress of the Company’s manufacturing plant
amounting $10,422,641 and $17,542,626 respectively. During the year ended
December 31, 2009, $7,167,559 was transferred from construction in progress to
property and equipment.





Marketable
Securities





The
Company applies the guidance of ASC Topic 320 “Investments-Debt and Equity
Securities,” which requires investments in equity securities to be classified as
either trading securities or available-for-sale
securities.  Marketable securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities and are reported at fair value, with unrealized gains and
losses recognized in earnings. Marketable equity securities not classified as
trading are classified as available for sale, and are carried at fair market
value, with the unrealized gains and losses, net of tax, included in the
determination of comprehensive income and reported in shareholders’
equity.





Long-Lived
Assets





The
Company applies the provisions of ASC Topic 360, “ Property, Plant, and
Equipment,” which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. ASC 360 requires impairment losses
to be recorded on long-lived a ssets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets ’ carrying amounts. In that event, a
loss is recognized based on the amount by which the c a rrying amount exceeds
the fair value of the long-lived assets. Loss on long-lived assets to be
disposed of is determined in a similar manner, except that fair values are
reduced for the cost of disposal. Based on its review, the Company believes that
as o f December 31, 2009 and 2008, there was no significant impairment of its
long-lived assets.





Intangible
Assets





Intangible
assets consist of Rights to use land and Fertilizers proprietary technology
rights. The Company evaluates intangible assets for impairment, at least on an
annual basis and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable from its estimated future cash flows.
Recoverability of intangible assets, other long-lived assets and, goodwill is
measured by comparing their net book value to the related projected undiscounted
cash flows from these assets, considering a number of factors including past
operating results, budgets, economic projections, market trends and product
development cycles. If the net book value of the asset exceeds the related
undiscounted cash flows, the asset is considered impaired, and a second test is
performed to measure the amount of impairment loss.





F-8




BODISEN
BIOTECH, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008




Fair Value of Financial
Instruments





For
certain of the Company ’ s fi nancial instruments, including cash and cash
equivalents, restricted cash, accounts receivable, accounts payable, accrued
liabilities and short-term debt, the carrying amounts approximate their fair
values due to their short maturities. In addition, the C o mpany has long-term
debt with financial institutions. The carrying amounts of the line of credit and
other long-term liabilities approximate their fair values based on current rates
of interest for instruments with similar characteristics.





ASC Topic
820, “ Fair Value Measurements and Disclosures,” requires disclosure of the fair
value of financial instruments held by the Company. ASC Topic 825, “ Financial
Instruments,” defines fair value, and establishes a three-level valuation
hierarchy f or disclosures of fair value measurement that enhances disclosure
requirements for fair value measures.  The carrying amounts reported
in the consolidated balance sheets for receivables and current liabilities each
qualify as financial instruments and are   a reasonable estimate of their
fair values because of the short period of time between the origination of such
instruments and their expected realization and their current market rate of
interest. The three levels of valuation hierarchy are defined as fol l
ows:





·
            Level 1 inputs to the valuation
      methodology are quoted prices for identical assets or liabilities in
      active markets.





·
            Level 2 inputs to the valuation
      methodology include quoted prices for similar assets and liabilities in
      active markets, and inputs that are observable for the asset or liability,
      either directly or indirectly, for substantially the full term of the
      financial instrument.





·
            Level 3 inputs to the valuation
      methodology are unobservable and significant to the fair value
      measurement.





The
Company analyzes all financial instruments with features of both liabilities and
equity under ASC 480, “ Distinguishing Liabilities from Equity,” and ASC
815.





The
following table represents our assets and liabilities by level measured at fair
value on a recurring basis as of December 31, 2009.




Description
                  
                  Level 1
                  
                  
                  Level 2
                  
                  
                  Level 3AssetsMarketable
      securities
                  
                  $
                  8,175,290
                  
                  
                  $
                  -
                  
                  
                  $
                  -





The
Company did not identify any other non-recurring assets and liabilities that are
required to be presented in the consolidated balance sheets at fair value in
accordance with ASC 825.





Revenue
Recognition





The
Company’s revenue recognition policies are in compliance with Staff accounting
bulletin (SAB) 104. Because collection is not reasonably assured, sales revenue
is recognized using the cost recovery method. Under the cost recovery method, no
profit is recognized until cash payments exceed the cost of the goods
sold.




Advertising
Costs





The
Company expenses the cost of advertising as incurred or, as appropriate, the
first time the advertising takes place. Advertising costs for the years ended
December 31, 2009 and 2008 were insignificant.





Stock-Based
Compensation





The
Company records stock-based compensation in accordance with ASC T opic 718, “
Compensation – Stock Compensation.”   ASC 718 requires companies to
measure compensation cost for stock-based employee compensation at fair value at
the grant date and recognize the expense over the employee ’ s requisite service
period. The Compa n y recognizes in the statement of operations the grant-date
fair value of stock options and other equity-based compensation issued to
employees and non-employees. There were 536,000 options outstanding as of
December 31, 2009.





F-9




BODISEN
BIOTECH, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008




Income
Taxes





The
Company accounts for income taxes in accordance with ASC Topic 740, “ Income
Taxes.” ASC 740 requires a company to use the asset and liability method of
accounting for income taxes, whereby deferred tax assets are recognized for
deductible temporary di f ferences, and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation a l lowance 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.  Deferred tax assets
and liabilities are adjusted for the effects of changes in tax laws and rates on
the da t e of enactment.





Under ASC
740, a tax position is recognized as a benefit only if it is “ more likely than
not” that the tax position would be sustained in a tax examination, with a tax
examination being presumed to occur. The amount recognized is the large st
amount of tax benefit that is greater than 50% likely of being realized on
examination. For tax positions not meeting the “ more likely than not” test, no
tax benefit is recorded. The adoption had no effect on the Company ’ s
consolidated financial statem e nts.





In March
2005, Bodisen Biotech Inc. formed Agricultural. Under Chinese law, a newly
formed wholly owned subsidiary of a foreign company enjoys an income tax
exemption for the first two years and a 50% reduction of normal income tax rates
for the following 3 years. In order to extend such tax benefits, in June 2005,
Agricultural completed a transaction with BBST, which resulted in Agricultural
owning 100% of BBST.





Foreign Currency
Transactions and Comprehensive Income





Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income.  Certain statements, however, require
entities to report specific changes in assets and liabilities, such as gain or
loss on foreign currency translation, as a separate component of the equity
section of the balance sheet.  Such items, along with net income, are
components of comprehensive income.  The functional currency of the
Company’s Chinese subsidiaries is the Chinese Yuan
Renminbi.  Translation gains of $8,127,749 and $8,117,004 at December
31, 2009 and 2008, respectively are classified as an item of other comprehensive
income in the stockholders’ equity section of the consolidated balance
sheet.  During the years ended December 31, 2009 and 2008, other
comprehensive income in the consolidated statements of operations and other
comprehensive income included translation gains of $10,745 and $2,968,882,
respectively. A detail of accumulated other comprehensive income is summarized
below:





AccumulatedForeign
                  
                  
                  
                  
                  
                  OtherCurrency
                  
                  
                  Unrealized
                  
                  
                  ComprehensiveTranslation
                  
                  
                  Gain
                  
                  
                  IncomeBalance,
      December 31, 2008
                  
                  $
                  8,117,004
                  
                  
                  $
                  3,323,958
                  
                  
                  $
                  11,440,962Adjustments
                  
                  
                  10,745
                  
                  
                  
                  2,021,600
                  
                  
                  
                  2,032,345Balance,
      December 31, 2009
                  
                  $
                  8,127,749
                  
                  
                  $
                  5,345,558
                  
                  
                  $
                  13,473,307





Basic and Diluted Earnings
Per Share





Earnings
per share is calcula ted in accordance with the ASC Topic 260, “ Earnings Per
Share.”   Basic earnings per share is based upon the weighted average
number of common shares outstanding.  Diluted earnings per share is
based on the assumption that all dilutive convertible shares a n d stock
warrants were converted or exercised. Dilution is computed by applying the
treasury stock method. Under this method, warrants are assumed to be exercised
at the beginning of the period (or at the time of issuance, if later), and as if
funds obtain e d thereby were used to purchase common stock at the average
market price during the period.   There were 426,000 options as of
December 31, 2009 that were excluded from the diluted loss per share calculation
due to their exercise price being greater than the Company’s average stock price
for the year.





Statement of Cash
Flows





In
accordance ASC Topic 230, “ Statement of Cash Flows,” cash flows from the
Company ’ s operations are calculated based upon the local currencies using the
average translation rates. As a result, amounts related to assets and
liabilities reported on the consolidated statements of cash flows will not
necessarily agree with changes in the corresponding balances on the consolidated
balance sheets.





Segment
Reporting





ASC Topic
280, “Segment Report,” requires use of the “management approach” model for
segment reporting. The management approach model is based on the way a company’s
management organizes segments within the company for making operating decisions
and assessing performance.  ASC Topic 280 has no effect on the
Company’s consolidated financial statements as the Company consists of one
reportable business segment.  All revenue is from customers in
People’s Republic of China and all of the Company’s assets are located in
People’s Republic of China.





F-10




BODISEN
BIOTECH, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008




Recent Accounting
Pronouncements





On July
1, 2009,  the Company adopted Accounting Standards Update (“ ASU” ) No.
2009-01, “ Topic 105 - Generally Accepted Ac counting Principles - amendments
based on Statement of Financial Accounting Standards No. 168 , “ The FASB
Accounting Standards CodificationTM and the Hierarchy of Generally Accepted
Accounting Principles” (“ ASU No. 2009-01” ).  ASU No. 2009-01
re-defines aut horitative GAAP for nongovernmental entities to be only comprised
of the FASB Accounting Standards CodificationTM (“ Codification” ) and, for SEC
registrants, guidance issued by the SEC.  The Codification is a
reorganization and compilation of all then-existi ng authoritative GAAP for
nongovernmental entities, except for guidance issued by the SEC.  The
Codification is amended to effect non-SEC changes to authoritative
GAAP.  Adoption of ASU No. 2009-01 only changed the referencing
convention of GAAP in Notes t o the Consolidated Financial
Statements.





In
October 2009, the FASB issued an Accounting Standards Update
("ASU") regarding accounting for own-share lending arrangements in
contemplation of convertible debt issuance or other financing.  This
ASU requires that at the date of issuance of the shares in a share-lending
arrangement entered into in contemplation of a convertible debt offering or
other financing, the shares issued shall be measured at fair value and be
recognized as an issuance cost, with an offset to additional paid-in capital.
Further, loaned shares are excluded from basic and diluted earnings per share
unless default of the share-lending arrangement occurs, at which time the loaned
shares would be included in the basic and diluted earnings-per-share
calculation.  This ASU is effective for fiscal years beginning on or
after December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years. The Company
is currently evaluating the impact of this ASU on its consolidated financial
statements.





On
December 15, 2009, the FASB issued ASU No. 2010-06 Fair Value Measurements and
Disclosures Topic 820 “Improving Disclosures about Fair Value
Measurements”.  This ASU requires some new disclosures and clarifies
some existing disclosure requirements about fair value measurement as set forth
in Codification Subtopic 820-10. The FASB’s objective is to improve these
disclosures and, thus, increase the transparency in financial
reporting.  The adoption of this ASU will not have a material impact
on the Company’s consolidated financial statements.




Note
3 – Principles of Consolidation





The
accompanying consolidated financial statements include the accounts of Bodisen
Biotech, Inc., its 100% wholly-owned subsidiaries Bodisen Holdings, Inc. (BHI),
Yang Ling Bodisen Agricultural Technology Co., Ltd (Agricultural), which was
incorporated in March 2005, and Sinkiang Bodisen Agriculture Material Co., Ltd.
(Material), which was incorporated in June 2006, as well as the accounts of
Agricultural’s 100% wholly- owned subsidiary Yang Ling Bodisen Biology Science
and Technology Development Company Limited (BBST).  All significant
inter-company accounts and transactions have been eliminated in
consolidation.





F-11




BODISEN
BIOTECH, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008




Note
4 – Inventory





Inventory
at December 31, 2009 and 2008 consisted of the following:




December 31,
                  
                  
                  December 31,2009
                  
                  
                  2008Raw
      materials
                  
                  $
                  355,714
                  
                  
                  $
                  1,290,592Packaging
                  
                  
                  59,729
                  
                  
                  
                  100,926Finished
      goods
                  
                  
                  652,202
                  
                  
                  
                  1,237,7621,067,645
                  
                  
                  
                  2,629,280Less
      obsolescence reserve
                  
                  
                  (76,505
                  )
                  
                  
                  -Inventory,
      net
                  
                  $
                  991,140
                  
                  
                  $
                  2,629,280





Note
5 – Marketable Security





During
2005, the Company purchased 1,031,884 (after 2 for 1 split in 2009) shares of
China Natural Gas, Inc. (traded on the NASDAQ: CHNG) for $2,867,346. This
investment was classified as available-for-sale and valued at fair value at each
reporting period with the change being recorded to unrealized gain/loss in the
company’s consolidated statement of stockholder’s equity.  However, in
2007, a shareholder of China Natural Gas instituted litigation challenging the
validity of our ownership of the 1,031,884 shares.  A settlement was
reached which the shareholder agreed to buy back the shares at $3.80 per share
for a total of $3,921,159.  In October 2009, the Company sold the
shares back the plaintiff.  As a result of the above transaction, the
Company recorded a realized gain of $1,053,813 which is reflected in the
consolidated statement of operations for the year ended December 31,
2009.





During
2008, the Company exchanged $3,291,264 of receivables for a 28.8% ownership
interest in a Chinese company, Shanxi Jaili Pharmaceutical Co. Ltd
(“Jaili”).  The Company had written down the value of this investment
by $987,860 at December 31, 2008.  This investment was originally
accounted for under the equity method and the Company recorded equity income in
this investment through September 30, 2009.  During the fourth quarter
of 2009, Jaili was purchased by China Pediatric Pharmaceutical, a public
company.  After the transaction, the Company owned 18.8% of China
Pediatric Pharmaceutical.  The Company then changed the accounting
method for the investment from the equity method to the fair value
method.  At the date of the change, the investment was valued at
$2,829,732.  As of December 31, 2009, the fair value of the investment
is $8,175,290 which is reflected in the consolidated balance sheet at December
31, 2009.  The unrealized gain of $2,021,600 for the year ended
December 31, 2009 is reflected as other comprehensive income in the consolidated
statement of stockholder’s equity. Below is a table showing statement of
operations data for Jaili for the nine months ended September 30, 2009 (the
period for which the Company accounted for Jaili on the equity
method):





Nine MonthsEnded9/30/2009(unaudited)Sales
                  
                  $
                  11,357,539Gross
      profit
                  
                  $
                  6,859,006Income
      from continuing operations
                  
                  $
                  3,000,285Net
      income
                  
                  $
                  2,401,235





Note
6 -Other Long-term Assets





During
2006, the Company acquired a 19.5% and a 19.8% interest in two local companies
by investing a total amount of $1,156,861 in cash.  One of these
investments was sold during the first quarter of 2009 for $732,550 resulting in
a loss of $130,336 and the other was sold during the second quarter of 2009 in
exchange for inventory valued at $378,789 resulting in a loss of
$81,332.





Note
7– Intangible Assets





Net
intangible assets at December 31, 2009 and 2008 were as follows:




December 31,
                    
                    
                    December 31,2009
                    
                    
                    2008Rights
      to use land
                    
                    $
                    4,999,725
                    
                    
                    $
                    5,061,427Fertilizers
      proprietary technology
      rights
                    
                    
                    1,173,600
                    
                    
                    
                    1,173,6006,173,325
                    
                    
                    
                    6,235,027Less
      accumulated amortization
                    
                    
                    (1,299,421
                    )
                    
                    
                    (1,141,954
                    )Intangibles,
      net
                    
                    $
                    4,873,904
                    
                    
                    $
                    5,093,073





The
Company’s office and manufacturing site is located in Yang Ling Agricultural
High-Tech Industries Demonstration Zone in the province of Shanxi, People’s
Republic of China. The Company leases land per a real estate contract with the
government of People’s Republic of China for a period from November 2001 through
November 2051. Per the People’s Republic of China’s governmental regulations,
the Government owns all land.





F-12






BODISEN
BIOTECH, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





During
July 2003, the Company leased another parcel of land per a real estate contract
with the government of the People’s Republic of China for a period from July
2003 through June 2053.





The
Company has recognized the amounts paid for the acquisition of rights to use
land as intangible asset and amortizing over a period of fifty years. The
“Rights to use land” is being amortized over a 50 year period.





The
Company acquired Fluid and Compound Fertilizers proprietary technology rights
with a life ending December 31, 2011. The Company is amortizing Fertilizers
proprietary technology rights over a period of ten years.





On July
15, 2008, the Company entered into a 50 year land rights agreement.





Amortization
expense for the Company’s intangible assets for the years ended December 31,
2009 and 2008 amounted to $219,035 and $154,730, respectively.





Amortization
expense for the Company’s intangible assets over the next five fiscal years is
estimated to be:   2010-$218,000, 2011-$160,000, 2012- $100,000; 2013
- $100,000; 2015 - $100,000 and thereafter - $4,196,000.





Note
8 – Stock Options and Warrants





Stock
Options





Following
is a summary of the stock option activity:


Options
                            Outstanding
                          
                          
                          Weighted
                            Average
                            Exercise Price
                            Price
                          
                          
                          Aggregate
                            Intrinsic
                            ValueOutstanding
      at December 31, 2007
                          
                          
                          136,000
                          
                          
                          $
                          5.39Granted
                          
                          
                          400,000
                          
                          
                          
                          0.70Canceled
                          
                          
                          -
                          
                          
                          
                          -Exercised
                          
                          
                          -
                          
                          
                          
                          -Outstanding
      at December 31, 2008
                          
                          
                          536,000
                          
                          
                          
                          1.89Granted
                          
                          
                          -Canceled
                          
                          
                          (110,000
                          )
                          
                          
                          5.07Exercised
                          
                          
                          -
                          
                          
                          
                          -Outstanding
      at December 31, 2009
                          
                          
                          426,000
                          
                          
                          $
                          1.07
                          
                          
                          $
                          -Exercisable
      at December 31, 2009
                          
                          
                          426,000
                          
                          
                          $
                          1.07
                          
                          
                          $
                          -




F-13


BODISEN
BIOTECH, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008




Following
is a summary of the status of options outstanding at December 31,
2009:




Options OutstandingWeightedAverageNumber
                        
                        RemainingRange of
                        
                        Outstanding
                        
                        Contractual LifeExercise Price
                        
                        December 31, 2009
                        
                        (Years)$
                        0.70
                        
                        
                        400,000.00
                        
                        1.25$
                        6.72
                        
                        
                        26,000.00
                        
                        0.76426,000




Options ExercisableWeightedAverageNumber
                        
                        RemainingRange of
                        
                        Outstanding
                        
                        Contractual LifeExercise Price
                        
                        December 31, 2009
                        
                        (Years)$
                        0.70
                        
                        
                        400,000.00
                        
                        1.25$
                        6.72
                        
                        
                        26,000.00
                        
                        0.76426,000





Note
9 – Employee Welfare Plans





The
Company has established its own employee welfare plan in accordance with Chinese
law and regulations.  The Company makes annual contributions of 14% of
all employees’ salaries to employee welfare plan.  The total expense
for the above plan were $0 and $0 for the years ended December 31, 2009 and
2008, respectively.  The Company has recorded welfare payable of
$0 and $0 at and December 31, 2009 and 2008,
respectively.





Note
10 – Statutory Common Welfare Fund





As
stipulated by the Company Law of the People’s Republic of China (PRC), net
income after taxation can only be distributed as dividends after appropriation
has been made for the following:





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





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





iii.
            Allocations of 5-10% of income
      after tax, as determined under PRC accounting rules and regulations, to
      the Company’s “Statutory common welfare fund”, which is established for
      the purpose of providing employee facilities and other collective benefits
      to the Company’s employees;
and





iv.
            Allocations to the discretionary
      surplus reserve, if approved in the stockholders’ general
      meeting.





Pursuant
to the new Corporate Law effective on January 1, 2006, there is now only one
"Statutory surplus reserve" requirement.  The reserve is 10 percent of
income after tax, not to exceed 50 percent of registered capital.





The
Company has appropriated $0 and $0 as reserve for the statutory surplus reserve
and welfare fund for the years ended December 31, 2009 and 2008,
respectively.


F-14


BODISEN
BIOTECH, INC. AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





Note
11 – Factory Location and Lease Commitments





The
Company’s principal executive offices are located at North Part of Xinquia Road,
Yang Ling Agricultural High-Tech Industries Demonstration Zone Yang Ling,
Shaanxi province, People’s Republic of China. BBST owns two factories, which
includes three production lines, an office building, one warehouse, and two
research labs and, is located on 10,900 square meters of land. These leases
require monthly rental payments of $2,550 and the leases expire in
2013.  Future payments under these leases are as follows:




Year
                    
                    Amount2010
                    
                    $
                    30,6002011
                    
                    $
                    30,6002012
                    
                    $
                    30,6002013
                    
                    $
                    3,731





Note 12 – Current Vulnerability Due
to Certain Concentrations





Three
vendors provided 30%, 23% and 20% of the Company’s raw materials for the year
ended December 31, 2009, and one vendor provided 16% of the Company’s raw
materials for the year ended December 31, 2008.





Three
customers accounted for 24% and 12% of the Company’s sales for the year ended
December 31, 2009.  One customer accounted for 1 7 % of the Company’s
sales for the year ended December 31, 2008.





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





Note
13 – Litigation





From time
to time, we may become involved in various lawsuits and legal proceedings that
arise in the ordinary course of business. Litigation is, however, subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm our business. Other than the matters
described below, we are currently not aware of any such legal proceedings or
claims that we believe would or could have, individually or in the aggregate, a
material adverse affect on our business, financial condition, results of
operations or liquidity.





In late
2006, various shareholders of our company filed eight purported class actions in
the U.S. District Court for the Southern District of New York against our
company and certain of our officers and directors (among others), asserting
claims under the federal securities laws. The complaints contain allegations
about our prior financial disclosures and our internal controls and a prior,
now-terminated relationship with a financial advisor. The complaints did not
specify an amount of damages that plaintiffs seek.





The eight
actions were Stephanie Tabor vs. Bodisen, Inc., et al., Case No. 06-13220 (filed
November 2006), Fraser Laschinger vs. Bodisen, Inc., et al., Case No. 06-13254
(filed November 2006), Anthony DeSantis vs. Bodisen, Inc., et. al., Case
No. 06-13454 (filed November 2006), Yuchen Zhou vs. Bodisen, Inc., et. al.,
Case No. 06-13567 (filed November 2006), William E. Cowley vs. Bodisen,
Inc., et. al., Case No. 06-13739 (filed December 2006), Ronald Stubblefield
vs. Bodisen, Inc., et. al., Case No. 06-14449 (filed December 2006), Adam
Cohen vs. Bodisen, Inc., et. al., Case No. 06-15179 (filed December 2006)
and Lawrence M. Cohen vs. Bodisen, Inc., et. al., Case No. 06-15399 (filed
December 2006). In 2007, the Court consolidated each of the actions into a
single proceeding. On September 26, 2008, the Court entered a judgment in favor
of the Company and closed the case.





In
2007, Ji Xiang, a shareholder of China Natural Gas (and son of
its Chairman and CEO) instituted litigation in the Chinese court system in
Shaanxi province challenging the validity of our ownership of 1,031,884
(2,063,768 pre stock split) shares of China Natural Gas common stock. We
obtained these shares in September 2005 in a share transfer agreement and assert
that we have fully performed our obligations under the agreement and are
entitled to own the shares. The parties in the Chinese litigation have submitted
their evidence and now await a decision from the Chinese court. Also, in January
2008, the same shareholder instituted litigation in the State of Utah District
Court, Salt Lake County, against Yangling Bodisen Biotech Development Co. Ltd.
and Interwest Transfer Co. (China Natural Gas’s transfer agent) seeking to
prevent us from selling our shares in China Natural Gas. Plaintiff has obtained
an order from the Utah court provisionally preventing us from selling the China
Natural Gas shares pending a decision on the merits of the underlying dispute.
In May 2009, Ji Xiang and Yangling entered into a settlement agreement through
mediation in the Supreme Court of Shaanxi province. Pursuant to
the settlement agreement, Xiang Ji agreed to withdraw the lawsuit he filed
against Yangling in the State of Utah District Court, Salt Lake County, and
Yangling agreed to sell back to Ji Xiang the 1,031,884 shares at a
repurchase price of $3.80 per share, for an aggregate repurchase price of
$3,921,159.


F-15





As of
October 29, 2009 , the Utah court had lifted the injunction preventing us from
selling our shares in China Natural Gas and allowed for the certificate
representing the 1,0 31,884 shares to be transferred to Ji Xiang.  In
November 2009, the Company effected a transfer of the shares through a U.S.
transfer agent in accordance with the settlement agreement among the
parties.  The lawsuit in  Utah was thereafter dismissed and has
no further potential effect or impact upon the operation or financial condition
of the Company .





Note
14 – Restatement





The
Company changed its revenue recognition policy to the cost recovery method as
the Company does not believe that collection is reasonably assured. Under the
cost recovery method, no profit is recognized until cash payments exceed the
cost of the goods sold and the Company records deferred revenue which is the
gross profit that has not been realized. As a result of the change in the
revenue recognition policy, the Company is filing an amendment to the Form 10-K
that was originally filed with the Securities and Exchange Commission on March
30, 2010.




The
following adjustments were made to the December 31, 2009 and 2008 financial
statements.




December 31, 2009
                  
                  
                  
                  
                  
                  December 31, 2009As Reported
                  
                  
                  Adjustment
                  
                  
                  RestatedAccounts
      receivable
                  
                  $
                  1,791,042
                  
                  
                  $
                  555,541
                  
                  
                  $
                  2,346,583Current
      assets
                  
                  
                  9,141,311
                  
                  
                  
                  555,541
                  
                  
                  
                  9,696,852Total
      assets
                  
                  
                  44,450,552
                  
                  
                  
                  555,541
                  
                  
                  
                  45,006,093Deferred
      revenue
                  
                  
                  -
                  
                  
                  
                  917,147
                  
                  
                  
                  917,147Total  current
      liabilities
                  
                  
                  233,177
                  
                  
                  
                  917,147
                  
                  
                  
                  1,150,324Retained
      earnings
                  
                  
                  (7,518,113
                  )
                  
                  
                  (361,606
                  )
                  
                  
                  (7,879,719
                  )Total
      stockholders' equity
                  
                  
                  44,217,375
                  
                  
                  
                  (361,606
                  )
                  
                  
                  43,855,769Total
      liabilities and stockholders' equity
                  
                  $
                  44,450,552
                  
                  
                  $
                  555,541
                  
                  
                  $
                  45,006,093





December 31, 2008
                  
                  
                  
                  
                  
                  December 31, 2008As Reported
                  
                  
                  Adjustment
                  
                  
                  RestatedAccounts
      receivable
                  
                  $
                  719,607
                  
                  
                  $
                  1,870,670
                  
                  
                  $
                  2,590,277Current
      assets
                  
                  
                  4,618,474
                  
                  
                  
                  1,870,670
                  
                  
                  
                  6,489,144Total
      assets
                  
                  
                  42,487,772
                  
                  
                  
                  1,870,670
                  
                  
                  
                  44,358,442Deferred
      revenue
                  
                  
                  -
                  
                  
                  
                  2,092,451
                  
                  
                  
                  2,092,451Total  current
      liabilities
                  
                  
                  813,031
                  
                  
                  
                  2,092,451
                  
                  
                  
                  2,905,482Retained
      earnings
                  
                  
                  (8,028,402
                  )
                  
                  
                  (221,781
                  )
                  
                  
                  (8,250,183
                  )Total
      stockholders' equity
                  
                  
                  41,674,741
                  
                  
                  
                  (221,781
                  )
                  
                  
                  41,452,960Total
      liabilities and stockholders' equity
                  
                  $
                  42,487,772
                  
                  
                  $
                  1,870,670
                  
                  
                  $
                  44,358,442




For the Year Ended
                  
                  
                  
                  
                  
                  For the Year EndedDecember 31, 2009
                  
                  
                  
                  
                  
                  December 31, 2009As Reported
                  
                  
                  Adjustment
                  
                  
                  RestatedNet
      revenue
                  
                  $
                  4,351,164
                  
                  
                  $
                  866,113
                  
                  
                  $
                  5,217,277Gross
      profit
                  
                  
                  493,243
                  
                  
                  
                  866,113
                  
                  
                  
                  1,359,356General
      and administrative expenses
                  
                  
                  1,054,615
                  
                  
                  
                  1,005,938
                  
                  
                  
                  2,060,553Total
      operating expenses
                  
                  
                  1,310,654
                  
                  
                  
                  1,005,938
                  
                  
                  
                  2,316,592Income
      (loss) from operations
                  
                  
                  (817,411
                  )
                  
                  
                  (139,825
                  )
                  
                  
                  (957,236
                  )Income
      (loss) before provision for income taxes
                  
                  
                  510,289
                  
                  
                  
                  (139,825
                  )
                  
                  
                  370,464Net
      income (loss)
                  
                  
                  510,289
                  
                  
                  
                  (139,825
                  )
                  
                  
                  370,464Comprehensive
      loss
                  
                  
                  2,542,634
                  
                  
                  
                  (139,825
                  )
                  
                  
                  2,402,809Basic
      earnings (loss) per share
                  
                  
                  0.03
                  
                  
                  
                  (0.01
                  )
                  
                  
                  0.02Diluted
      earnings (loss) per share
                  
                  $
                  0.03
                  
                  
                  $
                  (0.01
                  )
                  
                  $
                  0.02




For the Year Ended
                  
                  
                  
                  
                  
                  For the Year EndedDecember 31, 2008
                  
                  
                  
                  
                  
                  December 31, 2008As Reported
                  
                  
                  Adjustment
                  
                  
                  RestatedNet
      revenue
                  
                  $
                  7,594,458
                  
                  
                  $
                  18,269
                  
                  
                  $
                  7,612,727Gross
      profit
                  
                  
                  405,235
                  
                  
                  
                  18,269
                  
                  
                  
                  423,504General
      and administrative expenses
                  
                  
                  3,986,539
                  
                  
                  
                  (15,160
                  )
                  
                  
                  3,971,379Total
      operating expenses
                  
                  
                  7,532,314
                  
                  
                  
                  (15,160
                  )
                  
                  
                  7,517,154Income
      (loss) from operations
                  
                  
                  (7,127,079
                  )
                  
                  
                  33,429
                  
                  
                  
                  (7,093,650
                  )Loss
      before provision for income taxes
                  
                  
                  (6,960,803
                  )
                  
                  
                  33,429
                  
                  
                  
                  (6,927,374
                  )Net
      loss
                  
                  
                  (6,919,037
                  )
                  
                  
                  33,429
                  
                  
                  
                  (6,885,608
                  )Comprehensive
      loss
                  
                  
                  (11,998,850
                  )
                  
                  
                  33,429
                  
                  
                  
                  (11,965,421
                  )Basic
      loss per share
                  
                  
                  (0.37
                  )
                  
                  
                  -
                  
                  
                  
                  (0.37
                  )Diluted
      loss per share
                  
                  $
                  (0.37
                  )
                  
                  $
                  -
                  
                  
                  $
                  (0.37
                  )





Note
15 – Subsequent Events





Pursuant
to Financial Accounting Standards Board Accounting Standards Codification
855-10, the Company has evaluated all events or transactions that occurred from
January 1, 2010, through the filing with the SEC.  The Company did not
have any material recognizable subsequent events during this
period.


F-16


ITEM
9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES





None.





ITEM
9A(T). CONTROLS AND PROCEDURES





Disclosure
Controls and Procedures





As
required by Rule 13a-15 under the Exchange Act, our management, including Bo
Chen, our Chief Executive Officer, and Junyan Tong, our Chief Financial Officer,
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures as of December 31, 2009.





Disclosure
controls and procedures refer to controls and other procedures designed to
ensure that information required to be disclosed in the reports we file or
submit under the Securities Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the SEC
and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating our disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control
objectives, and management is required to apply its judgment in evaluating and
implementing possible controls and procedures.





Management
conducted its evaluation of disclosure controls and procedures under the
supervision of our chief executive officer and our chief financial officer.
Based on that evaluation, Messrs. Bo and Tong concluded that because of the
material weakness in internal control over financial reporting described below,
our disclosure controls and procedures were not effective as of December 31,
2009.





Management’s
Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act.  Our management is also required to
assess and report on the effectiveness of our internal control over financial
reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002
(“Section 404”).   Management assessed the effectiveness of our
internal control over financial reporting as of December 31, 2009.  In
making this assessment, we used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control – Integrated Framework.




Notwithstanding
the aforementioned controls implemented in December 2006, during management’s
assessment of the effectiveness of internal control over financial
reporting as of December 31, 2009, management identified deficiencies
related to (i) the U.S. GAAP expertise of our internal accounting staff, (ii) a
lack of segregation of duties within accounting functions, (iii) our
internal risk assessment functions, and (iv) our communication functions..
Management believes that these deficiencies amount to a material weakness that
render our internal controls over financial reporting ineffective as of December
31, 2009.





A
material weakness (within the meaning of PCAOB Auditing Standard No. 5) is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis.





In order
to correct the foregoing deficiencies, we have taken the following remediation
measures:




·
            Although our accounting staff is
      professional and experienced in accounting requirements and procedures
      generally accepted in the PRC, management has determined that they require
      additional training and assistance in U.S. GAAP matters.   Management
      has determined that our internal audit function is also significantly
      deficient due to insufficient qualified resources to perform internal
      audit functions. We retained an outside consulting firm in September 2006,
      which has since been assisting us in the implementation of Section
      404.





·
            We have committed to the
      establishment of effective internal audit functions and have instituted
      various anti-fraud control and financial and account management policies
      and procedures to strengthen our internal controls over financial
      reporting.  Due to the scarcity of qualified candidates with
      extensive experience in U.S. GAAP reporting and accounting in the region,
      we were not able to hire sufficient internal audit resources before the
      end of 2009. However, we will increase our search for qualified candidates
      with assistance from recruiters and through
    referrals.





·
            Due to our size and nature,
      segregation of all conflicting duties may not always be possible and may
      not be economically feasible.  However, to the extent possible,
      we will implement procedures to assure that the initiation of
      transactions, the custody of assets and the recording of transactions will
      be performed by separate
individuals.





·
            As
      of the fiscal year ended December 31, 2009, we have not yet established an
      effective risk assessment system that enables us to collect related
      information comprehensively and systematically, assess risks in a timely,
      realistic manner, and take appropriate measures to control risks
      effectively. The Company is working with its outside consultant to devise
      an effective risk assessment system and our Chief Financial Officer Junyan
      Tong is responsible for overseeing such
  measures.





In
addition to the above mentioned deficiencies, subsequent to December 31, 2009,
as a result of comments raised by the SEC, we determined that accounting errors
were made in our revenue recognition procedures which have resulted in the
restatement of our previously issued financial statements.


21





·
            As of the fiscal year ended
      December 31, 2009, we are working to strengthen efforts to establish an
      effective communication system with clear procedures that will enable us
      to collect, process and deliver information related to internal controls
      in a timely fashion.  Due to our limited staff, our Chief
      Financial Officer, Mr. Tong, will initially be primarily responsible for
      collecting and delivering such information among the different levels of
      Company management.





We
believe that the foregoing steps will remediate the significant deficiency
identified above, and we will continue to monitor the effectiveness of these
steps and make any changes that our management deems appropriate.





Notwithstanding
the conclusion that our internal control over financial reporting was not
effective as of the end of the period covered by this report, the Chief
Executive Officer and the Chief Financial Officer believe that the financial
statements and other information contained in this annual report present fairly,
in all material respects, our business, financial condition and results of
operations.  Nothing has come to the attention of management that
causes them to believe that any material inaccuracies or errors exist in our
financial statements as of December 31, 2009.  The reportable conditions
and other areas of our internal control over financial reporting identified by
us as needing improvement have not resulted in a material restatement of our
financial statements. Nor are we aware of any instance where such reportable
conditions or other identified areas of weakness have resulted in a material
misstatement of omission in any report we have filed with or submitted to the
Commission.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. 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 and procedures may deteriorate.





Auditor
Attestation





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
 Management’s report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit us to provide only management’s report in this
annual report.





Changes in Internal Control over
Financial Reporting





There
were no changes in internal control over financial reporting (as defined in Rule
13a-15f under the Exchange Act) that occurred during the fourth quarter of 2009
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.





ITEM
9B. OTHER INFORMATION





None.


PART III





ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE





Below are
the names and certain information regarding our current executive officers and
directors:




Name
              
              Age
              
              PositionBo
      Chen
              
              52
              
              Chairman,
      Chief Executive Officer and PresidentQiong
      Wang
              
              44
              
              DirectorChenglin
      Guo
              
              41
              
              DirectorChunsheng
      Wang
              
              46
              
              Chief
      Operating OfficerJunyan
      Tong
              
              38
              
              Chief
      Financial Officer





Officers
are elected annually by the Board of Directors, at our annual meeting, to hold
such office until an officer’s successor has been duly appointed and qualified,
unless an officer sooner dies, resigns or is removed by the Board.





As of
July 2009, we have a vacancy in our board created by the death of Mr. Patrick
McManus. As of the date of this report, the Board has been looking for suitable
candidates to fill this vacancy.





Background
of Executive Officers and Directors





Bo Chen, Chairman, Chief
Executive Officer and President of Bodisen; Director and President of our
subsidiary, Yang Ling - Mr. Chen is one of Bodisen’s original founders and
stockholders. He has served as Bodisen’s Chairman and Chief Executive Officer
since January 5, 2007, and as President since 2004. From August 1997 to August
2001, Mr. Bo Chen was Chief Operations Officer and Chief Technology Officer of
Shaanxi Bodisen Chemical Co., Ltd. From July 1994 to December 1997, he was the
Chief Executive Officer and President of Yang Ling Shikanglu Chemurgical
Technology Development Co., Ltd. Mr. Chen received his Bachelor of Science
degree from Shaanxi Normal College in July 1984.


22





Qiong Wang, Director of
Bodisen; Director of Yang Ling - Mrs. Wang Qiong has served as a Director of
Bodisen since the merger of Bodisen Holding and Bodisen International and she
has been on the board of Yang Ling since Yang Ling was founded in August 2001.
She also served as the Chairman of the Board of Bodisen Biotech, Inc. until
January 5, 2007. Mrs. Wang Qiong has over 10 years experience in the fertilizer
and chemical industry. From 1997 to May 2001, she was the Chief Executive
Officer and President of Shaanxi Bodisen Chemical Co., Ltd., which changed its
name to Yang Ling Bodisen Biology Science and Technology Development
Company Limited on August 31, 2001. From May 1996 to December 1997, she was
the President of Yang Ling Kangyuan Agricultural Chemical Company, a company
dedicated to the research and development of agricultural products. Mrs. Wang
Qiong graduated from North-West Agronomy College, with a Bachelor of Science
degree in 1986.





Chenglin Guo, Director of
Bodisen - Mr. Guo has an economic management Bachelor Degree from Tianjing
Commercial University.  He is also an engineer and from 1995 to 1996
Mr. Guo was the Manager of Yangling Industry and Commercial Union Training
School.  From 1997 to 1999 he was the head of Xianyang Industry and
Commercial Union Training School, the Vice Head Secretary of Xianyang Commercial
Union, and Manager of Xianyang Industry and Commercial Economic Consulting
Center. From 2000 to present, he has been working in a social service
position.





Chunsheng Wang, Chief
Operating Officer of Bodisen, Executive Vice President and Chief Operating
Officer of Yang Ling - Mr. Wang Chunsheng joined Bodisen in September 2001 as
Chief Operating Officer. From September 1999 to August 2001, Mr. Wang Chunsheng
was Vice General Manager of the Shaanxi Bodisen Chemical Co. Ltd. responsible
for sales and marketing. From January 1997 to July 1999, he held a position as
Senior Sales Manager with the Yang Ling Kangyuan Agricultural Chemical Company.
Mr. Wang Chunsheng holds an agronomist certification.





Junyan Tong, Chief Financial
Officer of Bodisen and Yang Ling - Promoted to the position of Chief Financial
Officer on June 4, 2007. Since 2005, Ms. Tong was serving as the Company’s
Assistant Chief Financial Officer. From 1998-2002, Ms. Tong was Chief Financial
Officer of Shenzhen Rongxun Industry Co., Ltd, a fitness equipment manufacturing
company, where she was in charge of banking, tax matters, foreign currency
issues, general ledgers, budgeting and financial analysis. From 1995-1998, Ms.
Tong served as Financial Manager of Guangdong Zhongyunhui Electric Co., Ltd., a
telecommunications company. There, Ms. Tong was responsible for cost control,
budgeting and foreign currency issues. From 1991-1995, Ms. Tong was Accounting
Manager at Guangdong Dongguan Anbao Industry Co., Ltd., a China-based
electronics appliance company. As Accounting Manager, Ms. Tong handled financial
statements, general ledger and cost control matters. Ms. Tong holds a degree in
financial management from Harbin Economic Management Institute





Board
of Directors





Our
Directors are elected by the vote of a plurality in interest of the holders of
our voting stock and hold office for a term of one year and until a successor
has been elected and qualified.




A
majority of the authorized number of directors constitutes a quorum of the Board
for the transaction of business. The directors must be present at the meeting to
constitute a quorum. However, any action required or permitted to be taken by
the Board may be taken without a meeting if all members of the Board
individually or collectively consent in writing to the action.





The board
and its committees held the following number of meetings during the fiscal year
of 2009:




Board
      of Directors
                  
                  
                  4Compensation
      Committee
                  
                  
                  2Nominating
      Committee
                  
                  
                  2





The
meetings include meetings that were held by means of a conference telephone
call, but do not include actions taken by unanimous written
consent.





Each
director attended at least 75% of the total number of meetings of the board and
those committees on which he served during the year. Our non-management
directors did not meet in executive session during 2009.


23





Director
Experience





The Board
believes that each of the Company’s directors should possess the highest
personal and professional ethics, integrity and values, and be committed to
representing the long-term interests of the Company’s shareholders. When
evaluating candidates for election to the Board, the Nominating Committee seeks
candidates with certain qualities that it believes are important, including
integrity, an objective perspective, good judgment, and leadership skills. The
Board has also considered the fact that all of our directors have worked for, or
served on the boards of directors of, a variety of companies in a range of
industries. The Board believes that through their varying backgrounds, the
Company’s directors bring a wealth of experiences, new ideas and solutions to
the Board. Specifically, the Board has noted that our directors have the
following skills and qualifications that, among others, have made them
particularly suited to serve as a director of Bodisen:


·
            Mr. Bo Chen is a founder of
      Bodisen and has served in executive level positions at Bodisen since 2004.
      He has extensive knowledge of Bodisen and the fertilizer and chemical
      industries.].


·
            Ms. Qiong Wang is the former
      Chairwoman and CEO of Bodisen and also is a founder of Bodisen and has
      served in executive level positions at Bodisen since 2004.  She
      has extensive knowledge of Bodisen and the fertilizer and chemical
      industries andsubstantial experience in sales and marketing. Mr. Chenglin
      Guo is the independent director of Bodisen. He has substantial management
      and sales experience.





Committees





Our Board
of Directors has a Nominating Committee and a Compensation
Committee.





Due to
Mr. McManus’ death, currently only Chenglin Guo serves on the Nominating and
Compensation Committees. The Board is currently in the process of looking for
additional members to serve on these committees.





Compensation
Committee





Our
compensation committee assists the board in reviewing and approving the
compensation structure of our directors and executive officers, including all
forms of compensation to be provided to our directors and executive
officers.  Members of the compensation committee are not prohibited
from direct involvement in determining their own compensation.  Our
chief executive officer may not be present at any committee meeting during which
his compensation is deliberated.  The compensation committee is
responsible for, among other things:





●
            approving and overseeing the
      compensation package for our executive
  officers;





●
            reviewing and making
      recommendations to the board with respect to the compensation of our
      directors;





●
            Establish and review at least
      annually the Company’s general compensation policies applicable to our
      chief executive officer and other executive officers, evaluating the
      performance of our chief executive officer and other employees whose
      compensation is within the jurisdiction of the committee, and setting the
      compensation level of our chief executive officer and other executive
      officers based on this evaluation;
and





●
            reviewing periodically and making
      recommendations to the board regarding any long-term incentive
      compensation or equity plans, programs or similar arrangements, annual
      bonuses, employee pension and welfare benefit plans;
      and





●
            reviewing and advising the board
      (and if deemed appropriate, retain consultants) with respect to regional
      and industry-wide compensation practices and trends in order to assess the
      adequacy and competitiveness of the our executive compensation programs
      among comparable companies in our
  industry.





Our board
of directors has adopted a written compensation committee
charter.  The charter is currently available on our website at
www.bodisen.com.  Chenglin Guo, the director who currently serves on
the compensation committee is an "independent" director based on the definition
of independence in the listing standards of the National Association of
Securities Dealers.





Nominating
Committee





The
corporate governance and nominating committee assists the board of directors in
identifying individuals qualified to become our directors and in determining the
composition of the board and its committees.  The corporate governance
and nominating committee is responsible for, among other things:





●
            identifying and recommending to
      the board nominees for election or re-election to the board, or for
      appointment to fill any
vacancy;





●
            identifying and recommending to
      the board the directors to serve as members of the board’s
      committees;





●
            Regularly reporting its
      activities to the board; and





●
            Evaluating the performance of the
      nominating committee.


24





Chenglin
Guo, the director who currently serves on the nominating committee is an
"independent" director based on the definition of independence in the listing
standards of the National Association of Securities Dealers. The nominating
committee has a written charter. The charter is currently available on our
website at www.bodisen.com.





At this
time, no additional specific procedures to propose a candidate for consideration
by the nominating committee, nor any minimum criteria for consideration of a
proposed nomination to the board, have been adopted.





Code
of Ethics





We have
adopted a code of ethics to apply to all of our executive officers, including
our principal executive, financial and accounting officers, our directors, our
financial managers and all employees are expected to adhere and promote
regarding individual and peer responsibilities, and responsibilities to other
employees, the Company, the public and other
stakeholders.  Shareholders may request a free copy of the Code of
Ethics by contacting the Investor Relations Department at our corporate offices
by calling +86-29-87895373, or by sending an e-mail message to
info@bodisen.com.





Audit
Committee





At a July
30, 2007 meeting of our Board of Directors, our Board of Directors took action
to disband our audit committee in light of the fact that our securities are no
longer listed on a national securities exchange or listed in an automated
inter-dealer quotation system of a national securities association, effective
July 30, 2007.





At the
present time, we believe that the members of Board of Directors are collectively
capable of analyzing and evaluating our financial statements and understanding
internal controls and procedures for financial reporting.  We do, however,
recognize the importance of good corporate governance and intend to appoint an
audit committee comprised entirely of independent directors, including at least
one financial expert, in the near future.





Board
Leadership and Risk Oversight





Our Chief
Executive Officer also serves as Chairman of the Board. We have two other
directors, one of whom is independent. The Board believes that the Company’s
Chief Executive Officer is best situated to serve as Chairman of the Board
because he is the director most familiar with our business and industry and the
director most capable of identifying strategic priorities and executing our
business strategy. In addition, having one person serve as both Chairman and
Chief Executive Officer eliminates potential for confusion and provides clear
leadership for the Company, with a single person setting the tone and managing
our operations. The Board oversees specific risks, including, but not limited
to:





•
            appointing, retaining and
      overseeing the work of the independent auditors, including resolving
      disagreements between the management and the independent auditors relating
      to financial reporting;





•
            approving all auditing and
      non-auditing services permitted to be performed by the independent
      auditors;





•
            reviewing annually the
      independence and quality control procedures of the independent
      auditors;





•
            Reviewing, approving, and
      overseeing risks arising from proposed related party
      transactions;





•
            discussing the annual audited
      financial statements with the
management;





•
            meeting separately with the
      independent auditors to discuss critical accounting policies, management
      letters, recommendations on internal controls, the auditor’s engagement
      letter and independence letter and other material written communications
      between the independent auditors and the management;
      and





•
            monitoring the risks associated
      with management resources, structure, succession planning, development and
      selection processes, including evaluating the effect the compensation
      structure may have on risk
decisions.





Employment
Agreements





There are
currently no employment agreements between the Company and any of its named
executive officers. Further details regarding executive compensation are
provided in Item 11 of this report.


25





Family
Relationships





Mr. Bo
Chen and Ms. Qiong Wang are husband and wife. Mr. Chungsheng Wang, our Chief
Operating Officer, and Ms. Qiong Wang, a member of our Board of Directors, are
siblings.





Beneficial
Ownership Reporting Compliance





Section
16(a) of the Exchange Act, as amended, requires our executive officers,
directors and persons who beneficially own more than 10% of our shares of common
stock to file reports of their beneficial ownership and changes in ownership
(Forms 3, 4 and 5, and any amendment thereto) with the SEC. Executive officers,
directors and greater-than-10% holders are required to furnish us with copies of
all Section 16(a) forms they file.





Based
upon a review of the Forms 3, 4 and 5 (and amendments thereto) furnished to us
for the fiscal year ended December 31, 2009, we have determined that our
directors, officers and greater-than-10% beneficial owners complied with all
applicable Section 16 filing requirements.





Code
of Ethics





The
Company has adopted a Code of Ethics that applies to all officers, directors and
employees of the Company, including the Company’s principal executive officer,
principal financial officer, principal accounting officer and controller. A copy
of the Company’s Code of Ethics is included as an exhibit to this annual report.
Stockholders may request a free copy of the Code of Ethics by contacting the
Investor Relations Department at our corporate offices by calling
+011-86-29-87074957, or by sending an e-mail message to
info@bodisen.com.





Nominating
Procedures





During
2009 there were no material changes to the procedures by which security holders
may recommend nominees to our Board of Directors.





ITEM
11. EXECUTIVE COMPENSATION





Executive
Compensation





The
following table contains information concerning the compensation of our
executive officers and other most highly compensated executive officers for the
fiscal year ended December 31, 2009.





Summary
Compensation Table




Name And
                                              Principal Position
                                              (a)
                                            
                                            Year
                                              (b)
                                            
                                            Salary
      (1)
                                              ($)
                                              (c)
                                            
                                            
                                            Bonus
                                              ($)
                                              (d)
                                            
                                            Stock
                                              Awards
                                              ($)
                                              (e)
                                            
                                            Option
                                              Awards
                                              ($)
                                              (f)
                                            
                                            Non-Equity
                                              Incentive
                                              Plan
                                              Compen-
                                              sation
                                              ($)
                                              (g)
                                            
                                            Nonqualified
                                              Deferred
                                              Compen-
                                              sation
                                              Earnings
                                              ($)
                                              (h)
                                            
                                            All Other
                                              Compensation
                                              ($)
                                              (i)
                                            
                                            Total
                                              ($)
                                              (j)Qiong
      Wang, former
                                            
                                            2009
                                            
                                            
                                            7,007
                                            
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            7,007Chief
      Executive Officer
                                            
                                            2008
                                            
                                            
                                            6,223
                                            
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            6,223Bo
      Chen
                                            
                                            2009
                                            
                                            
                                            8,759
                                            
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            8,759President
      and current
                                              Chief
      Executive Officer
                                            
                                            2008
                                            
                                            
                                            7,628
                                            
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            7,628Junyan
      Tong
                                            
                                            2009
                                            
                                            
                                            4,029
                                            
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            4,029current
      ChiefFinancial
      Officer
                                            
                                            2008
                                            
                                            
                                            3,712
                                            
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            3,712Chunsheng
      Wang
                                            
                                            2009
                                            
                                            
                                            4,730
                                            
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            4,730Chief
      OperatingOfficer
                                            
                                            2008
                                            
                                            
                                            4,327
                                            
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            N/A
                                            
                                            
                                            4,327





(1)
All compensation for the officers identified in this table was paid in Chinese
Renminbi, and is expressed in U.S. dollars based on the exchange rate in effect
as of the last day of the relevant period. The exchange rates between the
Renminbi and the U.S. dollar were 6.828 and 6.820 Renminbi to every one U.S.
dollar at December 31, 2009 and 2008, respectively.


26





Outstanding
Equity Awards at Fiscal Year-End





None of
our named executive officers had unexercised options, stock that has not vested,
or equity incentive plan awards outstanding as of December 31,
2009.





Compensation
of Directors




Directors
of the Company receive compensation for their services and reimbursement for
their expenses as determined by the Board of Directors from time to
time.





Name
                                    (a)
                                  
                                  Year
                                  
                                  Fees
                                    Earned or
                                    Paid
                                    in Cash
                                    ($)
                                    (b)
                                  
                                  
                                  Stock
                                    Awards
                                    ($)
                                    I
                                  
                                  Option
                                    Awards
                                    ($)
                                    (d)
                                  
                                  Non-Equity
                                    Incentive
                                    Plan Compen-
                                    sation
                                    ($)
                                    (e)
                                  
                                  Nonqualified
                                    Deferred
                                    Compensation
                                    Earnings
                                    ($)
                                    (f)
                                  
                                  All Other
                                    Compensation
                                    ($)
                                    (g)
                                  
                                  Total
                                    ($)
                                    (h)Patrick
      McManus
                                  
                                  2009
                                  
                                  
                                  12,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  12,0002008
                                  
                                  
                                  24,000
                                  
                                  
                                  N/A
                                  
                                  N/A
                                  
                                  N/A
                                  
                                  N/A
                                  
                                  N/A
                                  
                                  
                                  24,000Chenglin
      Guo
                                  
                                  2009
                                  
                                  
                                  02008
                                  
                                  
                                  0
                                  
                                  
                                  
                                  N/A
                                  
                                  N/A
                                  
                                  N/A
                                  
                                  N/A
                                  
                                  N/A
                                  
                                  
                                  0Linzhang
      Zhu*
                                  
                                  2009
                                  
                                  
                                  0
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  02008
                                  
                                  
                                  3,870
                                  
                                  
                                  
                                  N/A
                                  
                                  N/A
                                  
                                  
                                  N/A
                                  
                                  N/A
                                  
                                  N/A
                                  
                                  
                                  3,870




*
      Mr. Zhu resigned from our Board effective December 8,
  2008.





ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS





Securities
Authorized for Issuance under Equity Compensation Plans





Pursuant
to our 2004 Stock Option Plan, we are authorized to issue stock options for up
to 1,000,000 shares of our common stock. On June 4, 2004, we granted David
Gatton and Patrick McManus, who were each members of our Board of Directors at
such time, 50,000 stock options each, having an exercise price of $5.00 per
share, which was the same as the market price of the shares at the time of
granting of the option. Of the options subject to such grants, 25,000 of each
grant vested immediately and the remaining 25,000 vested over 8 equal quarterly
installments, where the first installment vested at the end of the second
quarter 2004.





We
granted Messrs. Gatton and McManus an additional 5,000 options each on December
28, 2004, which vested on December 31, 2004. The option exercise price for these
options was $5.80 per share, which was the same as the market price of the
shares at the time of granting of the options.





On October 4, 2005, we
granted an additional 13,000 stock options to each Messrs. Gatton and McManus.
Of each grant, 10,000 stock options vested immediately, with the remaining 3,000
stock options vesting over the next three months. The option exercise price was
$6.72, which was the same as fair value of the shares at the time of granting of
the options.





Equity Compensation Plan InformationPlan category
                    
                    Number of securities to
                      be issued upon exercise
                      of outstanding options,
                      warrants and rights
                    
                    
                    Weighted-average
                      exercise price of
                      outstanding options,
                      warrants and rights
                    
                    
                    Number of securities
                      remaining available for
                      future issuance under
                      equity compensation
                      plans (excluding
                      securities reflected in
                      column (a)(a)
                    
                    
                    (b)
                    
                    
                    (c)Equity
      compensation plans approved by security holders
                    
                    
                    N/A
                    
                    
                    
                    N/A
                    
                    
                    
                    N/AEquity
      compensation plans not approved by security holders
                    
                    
                    136,000
                    
                    
                    $
                    5.39
                    
                    
                    
                    864,000Total
                    
                    
                    136,000
                    
                    
                    
                    
                    
                    
                    
                    864,000





During
2008, we also granted to a consultant 400,000 options to purchase shares of our
common stock for $0.70 per share.  These shares were granted outside
of the 2004 Stock Option Plan.


27





Security
Ownership of Certain Beneficial Owners and Management





The
following table sets forth certain information, as of March 22, 2010, with
respect to the beneficial ownership of the outstanding common stock by (i) any
holder of more than five (5%) percent of our common stock; (ii) each of our
current executive officers and directors; and (iii) our current directors and
executive officers as a group. Except as otherwise indicated, each of the
stockholders listed below has sole voting and investment power over the shares
beneficially owned.





Name of Beneficial Owner(1)
                  
                  Number of Shares
                    Beneficially Owned
                  
                  
                  Percentage of Shares
                    Beneficially Owned(2)Qiong
      Wang
                  
                  
                  720,000
                  
                  
                  
                  3.85
                  %Bo
      Chen
                  
                  
                  690,000
                  
                  
                  
                  3.69
                  %Chunsheng
      Wang
                  
                  
                  0
                  
                  
                  
                  *Junyan
      Tong
                  
                  
                  0
                  
                  
                  
                  *Chenglin
      Guo
                  
                  
                  0
                  
                  
                  
                  *All
      officers and directors as a group (6 persons)
                  
                  
                  1,478,000
                  
                  
                  
                  7.87
                  %




*
            Less than
    1%.





(1)
            Except as otherwise indicated,
      the address of each beneficial owner is c/o Bodisen Biotech, Inc., Room
      2001, FanMei Building, No. 1 Naguan Zhengjie, Xi’an, Shaanxi, China,
      710068.





(2)
            Applicable percentage ownership
      is based on 18,710,520 shares of common stock outstanding as of March 22,
      2010, together with securities exercisable or convertible into shares of
      common stock within 60 days of March 22, 2010, for each stockholder.
      Beneficial ownership is determined in accordance with the rules of the
      Securities and Exchange Commission and generally includes voting or
      investment power with respect to securities. Shares of common stock that
      are currently exercisable or exercisable within 60 days of March 22, 2010,
      are deemed to be beneficially owned by the person holding such securities
      for the purpose of computing the percentage of ownership of such person,
      but are not treated as outstanding for the purpose of computing the
      percentage ownership of any other
person.





No
Director, executive officer, affiliate or any owner of record or beneficial
owner of more than 5% of any class of our voting securities is a party adverse
to us or has a material interest adverse to us.





ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS AND DIRECTOR INDEPENDENCE





Related
Party Transactions





None.





Director
Independence





Our Board
of Directors has determined that Chenglin Guo meets the criteria for
independence set forth in Rule 10A-3(b)(1) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”). Our Board of Directors has also
determined that Mr. Guo has no material relationships with us - either directly
or as a partner, stockholder or officer of any entity which could be
inconsistent with a finding of their independence as members of our Board of
Directors.





ITEM 14.   PRINCIPAL ACCOUNTING FEES AND
SERVICES





The
aggregate fees billed for each of the fiscal years ended December 31, 2009 and
2008 for professional services rendered by the principal accountant for the
audit our annual financial statements and review of the financial statements
included our Form 10-K or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements for these
fiscal periods were as follows:




Year Ended December 31, 2009
                  
                  
                  Year Ended December 31, 2008Audit
      Fees
                  
                  $
                  $98,360
                  
                  
                  $
                  98,360Audit
      Related Fees
                  
                  $
                  22,100
                  
                  
                  
                  22,100Tax
      Fees
                  
                  
                  -
                  
                  
                  
                  -All
      Other Fees
                  
                  
                  -
                  
                  
                  
                  -Total
                  
                  $
                  124,460
                  
                  
                  $
                  124,460




28





Audit
services include fees associated with the annual audit and the review of
documents filed with the Securities and Exchange Commission. Audit-related fees
principally include fees reasonably related to the performance of the audit or
review of our financial statements and that are not reported as Audit Fees. Tax
fees included tax compliance, tax advice and tax planning work.





Pre-Approval
Policies and Procedures





Because
we no longer have an audit committee, the following protocol by which we approve
in advance any audit or permissible non-audit services to be provided to the
Company by its independent auditor is now performed by our full Board of
Directors. Prior to the engagement of the independent auditor for any fiscal
year’s audit, our Board discusses with management anticipated recurring audit,
audit-related, tax and other services expected to be provided by the auditor
during that fiscal year. The Board establishes terms for the performance of the
recurring services that it has pre-approved, and informs on a timely basis, and
in any event for the next scheduled meeting, of any such services rendered by
the independent auditor and the related fees.





The fees
for any services thus approved are budgeted, and our Board requires the
independent auditor and management to report actual fees versus the budget
periodically throughout the year. Our Board will require additional pre-approval
if circumstances arise where it becomes necessary to engage the independent
auditor for additional services above the amount of fees originally
pre-approved. Any audit or non-audit service must be separately pre-approved by
our Board on a case-by-case basis.





Every
request to provide services that are not pre-approved must include a statement
by the independent auditor as to whether, in its view, the request is consistent
with the SEC’s rules on auditor independence.





Our Board
will not grant approval for:




·
            any services prohibited by
      applicable law or by any rule or regulation of the SEC or other regulatory
      body applicable to the
Company;





·
            provision by the independent
      auditor to the Company of strategic consulting services of the type
      typically provided by management consulting firms;
    or





·
            the retention of the independent
      auditor in connection with a transaction initially recommended by the
      independent auditor, the tax treatment of which may not be clear under the
      Internal Revenue Code and related regulations and which it is reasonable
      to conclude will be subject to audit procedure during an audit of the
      Company’s financial
statements.





Tax services proposed to
be provided by the auditor to any director, officer or employee of the Company
who is in an accounting role or financial reporting oversight role must be
approved by our Board on a case-by-case basis where such services are to be paid
for the by the Company, and our Board will be informed of any services to be
provided to such individuals that are not to be paid for by the
Company.





In
determining whether to grant pre-approval of any non-audit services in the “all
other” category, our Board will consider all relevant facts and circumstances,
including the following four basic guidelines:




·
            whether the service creates a
      mutual or conflicting interest between the auditor and the
      Company;





·
            whether
      the service places the auditor in the position of auditing his or her own
      work;




·
            whether the service results in
      the auditor acting as management or an employee of the Company;
      and





·
            whether
      the service places the auditor in a position of being an advocate for the
      Company.




29




PART
IV





ITEM 15.   EXHIBITS, FINANCIAL STATEMENT
SCHEDULES





Financial
Statements





A list of
the financial statements of the Company filed as part of this Report can be
found in the Index to Financial Statements on page F-1.




Exhibit
                  Number
                
                Description of Exhibit3.1
                
                Certificate
      of Incorporation (incorporated by reference to Company’s Form SB-2 filed
      September 3, 2002).3.2
                
                By-Laws
      (incorporated by reference to Company’s Form SB-2 filed September 3,
      2002).10.1
                
                Bodisen
      Biotech, Inc. 2004 Stock Option Plan (incorporated by reference to
      Company’s Form 10-KSB filed March 31, 2005).10.2
                
                Form
      of Bodisen Biotech, Inc. Nonstatutory Stock Option Agreement (incorporated
      by reference to Company’s Form 10-KSB filed March 31,
    2005).14.1
                
                Code
      of Ethics and Business Conduct for Officers, Directors and Employees of
      Bodisen Biotech, Inc. (incorporated by reference to the Company’s Form
      10-K filed April 30, 2007).21.1
                
                Schedule
      of Subsidiaries.23.1
                
                Consent
      of Morgenstern, Svoboda & Baer, CPA’s, PC.*31.1
                
                Certification
      of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended.*31.2
                
                Certification
      of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a),
      promulgated under the Securities and Exchange Act of 1934, as
      amended.*32.1
                
                Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002.*





* Filed
herewith


30


SIGNATURES





In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




Bodisen
      Biotech, Inc.October
      27, 2010
              By:
              /s/ Bo ChenBo
      ChenChief
      Executive Officer
                (Principal
      Executive Officer)October
      27, 2010
              By:
              /s/ Junyan TongJunyan
      TongChief
      Financial Officer(Principal
      Financial and Accounting
Officer)





In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.




SIGNATURE
                
                TITLE
                
                DATE/s/ Bo ChenBo
      Chen
                
                Chairman,
      Chief Executive Officer and President
                
                October
      27, 2010/s/ Junyan TongJunyan
      Tong
                
                Chief
      Financial Officer
                
                October
      27, 2010/s/ Wang QiongWang
      Qiong
                
                Director
                
                October
      27, 2010/s/ Chenglin GuoChenglin
      Guo
                
                Director
                
                October
      27, 2010




31