**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549










**FORM
      10-K**




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




For
      the
      fiscal year ended December 31, 2006,


or





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





For
      the
      transition period from  ________ to
      ________ .





*Commission
      File Number: 000-31539*







**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,
                Shaanxi710068
              People’s
                Republic of China
              (Address
                of principal executive offices, including Zip Code)




86-29- 87895373


(Registrant’s
      telephone number, including area code)





Securities
      registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange 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 o No
x





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 o No
x





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 o No x









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





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





Large
      Accelerated Filer o    Accelerated
      Filer x   Non-Accelerated
      Filer o





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





As
      of
      June 30, 2006 the aggregate market value of the registrant’s voting and
      non-voting common equity held by non-affiliates was $ 226,521, 049,
      based on the average bid and asked price of $13.51 per share as of June 30,
      2006. Shares of common stock held by each executive officer and director have
      been excluded from the calculation because such persons may be deemed to be
      affiliates. This determination of affiliate status is not necessarily a
      conclusive determination for other purposes.





As
      of
      April 27, 2007, there wer e
      18,310,250 sh ares
      of
      the registrant’s common stock outstanding.




**DOCUMENTS
      INCORPORATED BY REFERENCE**





None.




-
          2 -




**TABLE
      OF CONTENTS**





Page
                No.PART
                I
            
            4ITEM
                1. Business
            
            4ITEM
                1A. Risk Factors
            
            14ITEM
                1B. Unresolved Staff Comments
            
            20ITEM
                2. Properties
            
            20ITEM
                3. Legal Proceedings
            
            21ITEM
                4. Submission of Matters to a Vote of Security Holders
            
            22PART
                II
            
            22ITEM
                5. Market For Registrant's Common Equity, Related Stockholder Matters
                And
                Issuer Purchases Of Equity Securities
            
            22ITEM
                6. Selected Financial Data
            
            25ITEM
                7. Management's Discussion and Analysis of Financial Condition and
                Results
                of Operations
            
            26ITEM
                7A. Quantitative and Qualitative Disclosures About Market
                Risk
            
            32ITEM
                8. Financial Statements and Supplementary Data
            
            32ITEM
                9. Changes in and Disagreements With Accountants on Accounting and
                Financial Disclosure
            
            66ITEM
                9A. Controls and Procedures
            
            66ITEM
                9B. Other Information
            
            68PART
                III
            
            68ITEM
                10. Directors and Executive Officers of the Registrant
            
            68ITEM
                11. Executive Compensation
            
            72ITEM
                12. Security Ownership of Certain Beneficial Owners and Management
                and
                Related Stockholder Matters
            
            74ITEM
                13. Certain Relationships and Related Transactions
            
            75ITEM
                14. Principal Accountant Fees and Services
            
            75Part
                IV
            
            77ITEM
                15. Exhibits and Financial Statement Schedules
            
            77Signatures
            
            78




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.




-
          3 -




**NOTE
      REGARDING FORWARD-LOOKING STATEMENTS**





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; and trends in
      industry activity generally. 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.




**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.
      We have developed a product line of over 60 items, and the growing emphasis
      on
      the need to use “environmentally friendly” fertilizers has been a factor in the
      growth of our business. We produce numerous proprietary product lines, from
      pesticides to crop-specific fertilizers, which are then marketed and sold to
      distributors, who in turn sell our products to farmers. In addition to our
      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
      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 63%
      of
      our revenue in 2006. The organic fertilization process strengthens
      photosynthesis, which improves a plant’s overall ability to resist drought and
      disease. Organic fertilizer also minimizes the side effects caused by certain
      chemical fertilizers, improves soil cation exchange capacity and fertility,
      reduces leaching, preserves nitrogen, allows for the gradual dissolution of
      phosphorus and potash fertilizer, and activates and maintains soil moisture
      content.





Liquid
      fertilizers accounted for approximately 17% of our revenue in 2006. These
      products aid in the absorption of key elements and nutrients, which may increase
      the rate of photosynthesis and improve a plant’s overall ability to resist
      disease. Liquid fertilizers also increase a plant’s yield, shorten harvest time,
      and heighten the color and appearance of fruits and vegetables.





Pesticides
      and insecticides accounted for approximately 20% of our revenue in 2006.
      Pesticide products are generally applied to fruit trees and vegetable crops
      in
      an effort to kill harmful insects that reduce overall crop yields. Insecticide
      products are generally applied to fruit trees and vegetable crops in an effort
      to kill harmful bacteria that reduce overall crop yields.




-
          4 -




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 60%
      of
      our sales are attributable to the local Shaanxi province, 10% of sales are
      attributable to Henan province, and 8% 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 Heilongjian 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: Bodisen Biotech, Inc., Room 2001,
      FanMei Building, No. 1 Naguan Zhengjie, Xi’an, Shaanxi, China, 7100068. Our
      telephone number is +86-29- 87895373. 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.











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.




-
          5 -










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 3 for 1 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 Agricultural.” In June 2005,
      Bodisen Agricultural completed a transaction with Yang Ling, our operating
      subsidiary in the People’s Republic of China, which resulted in Bodisen
      Agricultural owning 100% of Yang Ling.










As
      a
      result of the foregoing, we now own 100% of Bodisen Agricultural, which in
      turn
      owns 100% of Yang Ling. Bodisen Holdings and Bodisen Agriculture Material Co.
      Ltd. are also our subsidiaries.




-
          6 -




In
      June
      2006, we created another wholly owned subsidiary in Xinjiang, China by the
      name
      of Bodisen Agriculture Material Co. Ltd., which had no operations during the
      year ended December 31, 2006.





**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 60% of our sales are attributable to the local Shaanxi province,
      10% of sales are attributable to Henan province, and 8% 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 Heilongjian
      province.





Although
      the People’s Republic of China has the world’s largest population of nearly 1.3
      billion people, its arable land on a per capita basis is only 0.04 hectare
      (Source: 2003 China statistics yearbook), or approximately 50% of that present
      in the United States (Source: U.S. Census Bureau, www.census.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. China’s agricultural output increased 19% from 1988
      to 2004 (the total crops output was 394,080,000 tons in 1988 as compared to
      469,469,000 tons in 2004) (Source: PRC Ministry of Agriculture). An increase
      in
      the use of fertilizers- 8,840,000 tons were used in 1978 compared to 46,366,000
      tons used in 2004 (Source: PRC Ministry of Agriculture)- has contributed to
      this
      growth. As a result of the expansion of the overall fertilizer market in the
      People’s Republic of China, the use of compound fertilizers in the People’s
      Republic of China has likewise increased, from 2,720,000 tons in 1980 to
      12,040,000 in 2004. In order to improve the efficient utilization of fertilizer,
      the PRC Ministry of Agriculture encourages the use of organic compound
      fertilizers instead of single nutrients, such as urea or chemical fertilizers.
      The percentage of compound fertilizer consumption to the total fertilizer
      consumption rose from 2% in 1980 to 26% in 2004. (Source: 2005 China Statistics
      Yearbook). However, the percentage of compound fertilizer consumption is still
      at a very low level compared with the worldwide average of about
      70%.





**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;·
              
              Pesticides
                  and insecticides




Each
      of
      our product lines is further described below.





*Organic
      Compound Fertilizers*





Organic
      compound fertilizers are our leading products, accounting for approximately
      63%
      of our revenue in 2006.





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. To encourage farmers, of which there are
      approximately 800 million in the People’s Republic of China, to remain on their
      land, the government eliminated the agriculture tax, which effectively increased
      farmers’ disposable income by 20%. 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.




-
          7 -




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.





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 17% of our revenue in 2006.





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 20% of our revenues in
      2006.





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, 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.




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          8 -




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 underway and we expect to begin initial production at
      the
      new facility by no later than the fourth quarter of 2007.





**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. During 2006,
      we did not experience any significant delays in receiving raw materials from
      our
      suppliers other than some minor issues related to road construction in front
      of
      one of our facilities.





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





*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.




-
          9 -




**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 is 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.





**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.




-
          10 -




**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 the home market
      in
      the Shaanxi province and to expand the market outside the Shaanxi province
      into
      new districts where the Company’s 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.





Currently
      no customers account for 10% or more of our revenues, and the highest sales
      proportion of any customer at present is less than 2%. We do not believe that
      our business would be materially harmed by the loss of any current
      customers.





In
      November 2005 we entered into contracts providing for approximately $43 million
      worth of sales for 2006. As of December 31, 2006, we had received approximately
      $43.6 million in net revenues in connection with these and other sales
      contracts.





Following
      the November 2006 agricultural trade fair and exhibition in Yang Ling, we have
      received approximately $43.8 million in commitments for 2007.





**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.




-
          11 -




Given
      recent market developments, we believe that Tian Bang Shaanxi is no longer
      our
      most significant competitor. We believe that our only international competitor
      is DuPont.





**Research
      and Development**





In
      2006,
      we budgeted to spend $130,000 on research and development, the majority of
      which
      was to be dedicated to existing research programs. Our actual research and
      development costs amounted to approximately $3,700, largely because two of
      our
      planned research and development projects for 2006 were stopped before their
      completion as described further below. In 2005, our research and development
      costs were approximately $3,850, and in 2004 we did not incur any research
      and
      development costs.





In
      2007,
      we have budgeted approximately U.S. $650,000 for research and development.
      We
      anticipate that we will be developing new products in 2007, and we plan to
      focus
      its research and development on our liquid fertilizer product line.





The
      following is an update on some of our research and development projects in
      2006:


·
                
                “Project
                      Amino Acid” is a program that was developed to build a new compound
                      fertilizer product, based on a proactive amino acid enzyme.
                      This project
                      has been completed and resulted in two new products: “New Jia An Gai” and
                      “An Fu Lv Ye Wang.”·
                
                “Project
                      Build” utilizes a new manufacturing technique, which could enhance
                      the
                      quality of our products and increase production efficiency.
                      This project
                      is related to the continued development of our Mancozeb product,
                      which
                      serves as a raw material for pesticides and as a pesticide
                      end product.
                      Pursuant to standard governmental regulations, the Chinese
                      government is
                      reviewing the Mancozeb product. Once this review is complete
                      and approval
                      is obtained, we may begin Mancozeb production.
  Two
        additional projects, previously disclosed as “Project Ion” (relating to the use
        of metal ions to prohibit the release of an intrusive enzyme from fungi)
        and
“Project Fly” (related to the development of bacteria-based pesticides) have
        been terminated. We decided to stop pursuing Project Ion after initial testing,
        and Project Fly was suspended because target components were unavailable.





**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 will be valid until February
      26,
      2009.





*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.




-
          12 -




*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 2007 for such purposes. We did not make
      any extraordinary capital expenditures in 2006 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. Subject
      to government approval, we expect to continue the installation and launch of
      the
      Mancozeb facility once the government has completed its review.





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, 2006, we had a total of 469 employees. Of these employees,
      approximately 10 were executive and senior managers, 114 were business and
      accounting staff, 10 were warehouse and purchasing staff, and 14 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.







**Executive
      Officers of the Registrant**






Certain
      information regarding our current executive officers is provided below:




**Name**
            
            **Age**
            
            **Position**Bo
                Chen
            
            50
            
            President,
                Chief Executive Officer and Chairman of the BoardChunsheng
                Wang
            
            44
            
            Chief
                Operating OfficerYiliang
                Lai
            
            42
            
            Chief
                Financial Officer





**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 +86-29-87882072 or
      by
      sending an e-mail message to info@bodisen.com.




-
          13 -




**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, both domestically and
        internationally. For example, 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 the company and certain of our officers and
        directors (among others), asserting claims under the federal securities laws.
        For more information relating to these matters, see Item 3, "Legal
        Proceedings."
 
 We
        also
        hold 28 stock certificates issued by our transfer agent that are registered
        in
        the names of nominees on behalf of certain Chinese investors who are entitled
        to
        receive our stock.  Although no investor has filed any action against
        us with respect to these certificates or indicated any right to damages or
        other
        monetary relief in connection with the certificates, we cannot assure that
        one
        or more of the investors will not file a legal proceeding regarding these
        certificates.  For a description of the share certificate entitlement,
        see Item 5 "Market for Registrant's Common Equity, Related Stockholder Matters
        and Issuer Purchases of Equity Securities."
 
 We
        also
        may be subject to other litigation from time to time in the future. 
Although we intend to defend any actions vigorously, depending on the nature
        of
        any asserted claims, an adverse outcome could have a material adverse effect
        on
        our company.
 
 *Our
        independent registered public accounting firm has emphasized that the
        uncertainty regarding the outcome of the purported class actions and the
        receipt
        of stock by the Chinese investors raise substantial doubt about our ability
        to
        continue as a going concern.*
 
 Kabani
        & Co., our independent registered accounting firm, has issued an unqualified
        opinion as to our financial results. Because of uncertainty regarding the
        outcome of the purported class actions and the acknowledged right of Chinese
        investors to receive the stock certificates we hold for their benefit, however,
        Kabani & Co. has included an "emphasis on" going concern statement in its
        opinion. We note, however, that the inclusion of such a statement does not
        mean
        any issues regarding the viability or sustainability of our business operations
        exists.


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





We
      are
      required to include a report of management on our internal controls over
      financial reporting in our annual reports on Form 10-K beginning this year.
      In
      addition, our independent registered public accounting firm auditing our
      financial statements must also attest to and report on management's assessment
      of the effectiveness of our internal controls over financial reporting as well
      as the operating effectiveness of such internal controls. For the reasons
      described under Item 9A in this annual report, we have not yet completed our
      evaluation of our internal controls over financial reporting and can provide
      no
      assurance that we will receive a positive attestation from our independent
      auditors on such evaluation when completed. 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 controls 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, 2006, we had $11,824,327 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.





*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.




-
          14 -




*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* .





For
      the
      year ended December 31, 2006, three vendors provided 47.5%, 17.7% and 12.5%
      of
      our raw materials (compared to four vendors providing 29.9%, 22.4%, 11.6% and
      11.2% of our raw materials in 2005). 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.




-
          15 -




*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. Although we were able to use the proceeds
      from
      the issue of a short-term debenture in December 2005 to lock-in raw materials
      prices for 2006, we may not always be able to lock-in raw materials prices
      in
      the future. 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. 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 could
      hinder his ability to timely pay his credit obligations to our distributors,
      which affects their ability to make payment to us. 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, 2006, we
      had
      accounts receivable, net of allowance for doubtful accounts, of $18,875,368
      compared to $7,478,152 in 2005, advances to suppliers of $12,552,139 compared
      to
      $4,563,471 in 2005, and we had allowances for doubtful accounts of $659,653
      compared to $263,376 in 2005. Although these increases result from the increase
      in our business activities and we have no reason to believe that our creditors
      or suppliers will not meet their obligations to our company, we cannot guarantee
      that they will not default. If an unexpected number of our suppliers and
      creditors 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. These 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. Roughly
      half of the People’s Republic of China’s labor force is engaged in agriculture,
      even though only about 10% of the land is suitable for cultivation. 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.




-
          16 -




*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 Chi nese
      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 16 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.





*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.





*The
      admission of the People’s Republic of China into the World Trade Organization
      could lead to increased foreign competition for us.*





As
      a
      result of the People’s Republic of China becoming a member of the World Trade
      Organization (“WTO”), import restrictions on agricultural products are expected
      to be reduced. With the lowering of import restrictions and the WTO’s
      requirement for a reduction of import tariffs as condition of membership, such
      reduced import restrictions and tariffs for us may result in an increase of
      foreign products and could in turn lead to increased competition in the domestic
      agricultural market. Increase competition from foreign products could lead
      to
      downward pricing pressure, which could have a negative effect on our gross
      profit margins and adversely affect our business, financial condition and
      results of operations .




-
          17 -




*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, in 2006, we had to delay 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.





*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.




-
          18 -




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





Because
      we report our financial statements in U.S. dollars but generate virtually all
      of
      our revenues and expenses in Renminbi, we are exposed to translation risk
      resulting from fluctuations between the value of the U.S. dollar and the value
      of the Renminbi. The value of the Renminbi fluctuates and is subject to changes
      in the People’s Republic of China’s political and economic conditions. Since
      1994, the conversion of Renminbi into foreign currencies, including U.S.
      dollars, has been based on rates set by the People’s Bank of China, which are
      set based upon the interbank foreign exchange market rates and current exchange
      rates of a basket of currencies on the world financial markets. As of December
      31, 2006, the exchange rate between the Renminbi and the U.S. dollar was 7.8175
      Renminbi to every one 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.





**Risks
      Related to Our Common Stock**




*Our
      common stock is no longer listed on the American Stock Exchange, or Amex, and
      is
      currently 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 our common stock is
      currently quoted in the United States on the Pink Sheets 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 are a significantly
      more
      limited market than the Amex and the quotation of our shares on the Pink Sheets
      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:




-
          19 -




·
            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 April 19, 2007, the
      closing bid and asked prices for our common stock were $3.00 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 +86-29- 87895373 .
      The
      office space is approximately 328 square meters in area.





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 production lines, as well as office buildings,
      warehouses and two research laboratories. We also use a leased warehouse, which
      occupies 300 square meters of land in close proximity to both of our Yang Ling
      factories.





The
      first
      of the two Yang Ling factories, which was our original factory, occupies
      approximately 10,514 square meters of land and has historically been used to
      manufacture compound fertilizer, liquid fertilizer, pesticides and insecticides.
      Although the bulk of our compound fertilizer production now takes place at
      the
      second Yang Ling factory, we plan to continue using the original factory for
      liquid fertilizer, pesticide and insecticide production.





The
      second Yang Ling factory, which is our new factory that was completed in March
      2005, occupies approximately 46,231 square meters of land. The new factory
      includes two compound fertilizer production lines, one of which is currently
      operational. The non-operational production line is still under development.
      In
      November of 2005, we broke ground on an additional facility, adjacent to the
      new
      factory, for the manufacture of our Mancozeb product line. Prior to the launch
      of the Mancozeb product line, the Chinese government pesticide office instituted
      a review of all pesticide production companies and, as a result, required that
      the Company suspend the installation of the Mancozeb production line pending
      the
      completion of the government review. We expect to continue the installation
      and
      launch of the Mancozeb production facility after we receive government pesticide
      office approval. ****




-
          20 -




In
      connection with an agreement with the city government of A La Er, 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 will be located in Xinjiang, China. 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. Construction of the facility began late in the third quarter of 2006, and we
      expect to begin initial production at the new facility by no later than the
      fourth quarter of 2007. We cannot, however, guarantee that production at this
      facility will begin in 2007. 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.





In
      2006,
      road construction in front of our original factory impacted our ability to
      receive supplies and ship products. The road construction on the main road
      is
      now complete. Additionally, in the fourth quarter of 2006 we conducted a
      month-long shutdown of our factories and existing production lines to conduct
      scheduled maintenance. The maintenance was conducted to ensure that our
      production lines are in optimum condition to meet 2007 production requirements.




As
      discussed in Note 7 to our consolidated financial statements, we have entered
      into land-lease arrangements for our properties. We do not own any land because,
      under the People’s Republic of China’s governmental regulations, the government
      owns all land.





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 class action
      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 general and
      non-specific allegations about prior financial disclosures and our internal
      controls and a prior, now-terminated relationship with New York Global Group.





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) .





The
      court
      has consolidated each of the actions into a single proceeding and as of the
      date
      of this annual report, only plaintiffs in two of the actions have served summons
      and complaint on our company. The time for us to respond formally to these
      lawsuits has not come. Thus, we have not responded to any of the complaints
      in
      these class actions. The complaints do not specify an amount of damages that
      plaintiff seek.




-
          21 -




Because
      these matters
      are in early stages, we
      cannot
      comment on whether an adverse outcome is probable or otherwise. While
      we
      believe we have meritorious defenses to each of these actions and intend to
      defend them vigorously, an adverse outcome in one or more of these matters
      could
      have a material adverse effect on our business, financial condition, results
      of
      operations or liquidity.





**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS.**





Our
      annual meeting of stockholders was held on December 27, 2006. The stockholders
      re-elected Qiong Wang, Bo Chen, Patrick McManus, David Gatton and Linzhang
      Zhu
      to serve as members of our Board of Directors and also ratified the appointment
      of Kabani & Company to serve as ours independent public accountants. With
      11,202,457 shares voting, the results of the stockholder voting at the annual
      meeting were as follow:





**For**
            
            **Withheld****Election
                of Directors**Qiong
                Wang
            
            
            10,944,006
            
            
            258,451Bo
                Chen
            
            
            10,948,066
            
            
            254,391Patrick
                McManus
            
            
            10,645,244
            
            
            557,213David
                Gatton
            
            
            10,645,054
            
            
            557,403Linzhang
                Zhu
            
            
            10,930,256
            
            
            272,201





**For**
            
            **Against**
            
            **Abstain****Ratification
                of the appointment of the Company’s independent public
                accountants**
            
            
            10,272,743
            
            
            891,735
            
            
            37,978





**PART
      II**





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





Since
      April 2, 2007, 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.




**2006****High**
            
            
            **Low**1stQuarter
            
            $
            21.97
            
            $
            13.142ndQuarter
            
            
            18.05
            
            
            8.113rdQuarter
            
            
            14.65
            
            
            8.594thQuarter
            
            
            10.84
            
            
            3.93




**2005****High**
            
            
            **Low**1stQuarter
            
            $
            6.30
            
            $
            5.052ndQuarter
            
            
            6.25
            
            
            5.043rdQuarter
            
            
            7.87
            
            
            5.104thQuarter
            
            
            15.94
            
            
            6.12




-
          22 -




As
      of
      April 27, 2007, there were approximately 519 holders of record of our common
      stock.





Of
      the
      approximate 536 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 two of our officers (Qiong Wang and Bo
      Chen), who held title to those shares as nominee for the benefit of those
      investors. Following our reverse merger and our payment of a 3 for 1 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.





Accordingly,
      we established a reserve for the annual contribution of 10% of net income to
      the
      welfare fund in 2006, 2005 and 2004. The amount included in the statutory
      reserve for the years ended December 31, 2006, 2005 and 2004 amounted to
      $1,947,557, $1,349,026 and $754,111, respectively.




-
          23 -




**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 are each members of our Board of Directors,
      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 Information****Plan
                category**
            
            **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
              
              **(a)**
            
            **Weighted-average
                exercise price of outstanding options, warrants and
                rights**
              
              **(b)**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a)**
              
              **(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





**Recent
      Issuances of Unregistered Securities**





On
      February 24, 2004, we issued 3.0 million shares of our common stock to the
      stockholders of Bodisen International in connection with the acquisition of
      Yang
      Ling, our sole operating subsidiary. For additional information about this
      transaction, please see Item 1, “Description of Business,” above. The sale was
      effective pursuant to a private placement under Section 4(2) and/or Regulation
      D
      of the Securities Act of 1933, as amended.





Effective
      March 16, 2005, we completed a private placement pursuant to a securities
      purchase agreement with an accredited investor. We received the sum of $3
      million and issued a one year 9% debenture convertible into shares of common
      stock by dividing the aggregate principal and accrued interest by a conversion
      price of $4.80; and three year warrants to purchase 187,500 shares of common
      stock at $4.80 per share. In connection with the placement, a three year warrant
      was issued to purchase 40,000 shares of common stock at $6.88 per share. During
      the course of 2005, the note was fully converted to 657,402 shares of common
      stock. All of the warrants were exercised during December 2005 and January
      2006.
      The net proceeds from this offering were used towards capital contribution
      of
      the registration of a wholly-owned Bodisen subsidiary by the name of Yang Ling
      Bodisen Agricultural Technology Co., Ltd. The sale was conducted pursuant to
      a
      private placement under Section 4(2) and/or Regulation D of the Securities
      Act
      of 1933, as amended.




-
          24 -




On
      March
      15, 2006, we issued 380,179 restricted shares of common stock at $14.00 per
      share to institutional investors in a private placement pursuant to Regulation
      S. The proceeds from this financing were used to fulfill repayment obligations
      of a $5 million short term note that we entered in December 2005, which was
      used
      to fund raw materials purchases.





Since
      November 2003 and prior to becoming a U.S. public company in February 2004,
      we
      had a relationship with Mr. Ben Wey and the companies with which he is
      affiliated, including New York Global Group. Mr. Ben Wey and the companies
      with
      which he is affiliated were involved with and provided services in connection
      with the Company’s issuance of unregistered securities as described above. The
      Company terminated the relationship in September 2006.




Over
      the
      course of our nearly three-year relationship with New York Global Group and
      Mr.
      Wey, we made payments to Tianjin NYGC Investment Consulting Co., Ltd. - a
      China-based subsidiary of New York Global Group - and affiliated companies
      of
      approximately $6,100,000. The majority of these payments were attributable
      to
      commissions and fees in connection with successful financings in March 2005,
      December 2005 and March 2006, and February 2006, and were supported by various
      written agreements. These agreements and payments were described in a press
      release attached as an exhibit to our current report on Form 8-K filed on
      January 5, 2007.





**ITEM
      6.**  **SELECTED
      FINANCIAL DATA**





As
      described in Item 1, "Business—History and Company Structure," our company is
      the result of a 2004 reverse merger. The historical consolidated financial
      information presented below for the years ended December 31, 2003 and 2002
      (the
      period prior to the reverse merger) is that of Yang Ling, while the historical
      consolidated financial information for the years ended December 31, 2006, 2005
      and 2004 is that of our company.





The
      following table of selected historical financial data is qualified by reference
      to and should be read in conjunction with our consolidated financial statements
      and notes thereto included elsewhere in this annual report on Form
      10-K.




**For
                  the year ended December 31,****2006**
              
              **2005**
              
              **2004**
              
              **2003**
              
              **2002****Balance
                  Sheet:**Total
                  current assets
              
              $
              46,240,470
              
              $
              20,600,285
              
              $
              9,601,349
              
              $
              7,446,862
              
              $
              4,765,250Total
                  assets
              
              $
              69,196,618
              
              $
              36,291,092
              
              $
              14,799,727
              
              $
              11,199,680
              
              $
              7,157,188Total
                  current liabilities
              
              $
              1,370,300
              
              $
              4,873,989
              
              $
              1,356,946
              
              $
              2,832,106
              
              $
              1,974,375**Cash
                  Flow Statement:**Net
                  cash provided by / (used in) operating activities
              
              $
              (5,920,097
              )
              $
              1,823,015
              
              $
              1,968,219
              
              $
              2,236,028
              
              $
              937,023Net
                  cash used in investing activities
              
              $
              (5,629,351
              )
              $
              (5,768,028
              )
              $
              (2,778,136
              )
              $
              (1,608,837
              )
              $
              (817,872
              )Net
                  cash provided by / (used in) financing activities
              
              $
              16,769,964
              
              $
              7,978,672
              
              $
              (111,900
              )
              $
              2,114,400
              
              $
              (205,338
              )Cash
                  & cash equivalents, end of year
              
              $
              11,824,327
              
              $
              6,276,897
              
              $
              2,121,811
              
              $
              2,974,773
              
              $
              233,182**Income
                  Statement:**Net
                  Revenue
              
              $
              43,626,984
              
              $
              30,975,350
              
              $
              16,255,896
              
              $
              9,783,784
              
              $
              4,881,350Gross
                  Profit
              
              $
              17,083,821
              
              $
              11,504,229
              
              $
              6,571,931
              
              $
              3,077,702
              
              $
              1,299,174Income
                  from Operations
              
              $
              13,558,371
              
              $
              9,072,476
              
              $
              5,048,581
              
              $
              1,873,495
              
              $
              680,030Net
                  income
              
              $
              13,370,827
              
              $
              7,421,112
              
              $
              5,027,403
              
              $
              1,970,361
              
              $
              667,583Earnings
                  (Losses) per share (Basic and Diluted)1
              
              $
              0.76
              
              $
              0.48
              
              $
              0.33
              
              $
              0.13
              
              $
              0.04
  (1)
        See
        Note 2 to our consolidated financial statements for an explanation of our
        calculation of earnings per share. Earnings per share for year end December
        31,
        2002 and 2003 have been adjusted to reflect the 15,268,000 shares issued
        and outstanding as of December 31, 2004, to present consistent presentation
        of
        the earnings per share for the period.


-
          25 -




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





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 in 2006 were 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, 2006 and 2005 and for the three-year period ended December
      31,
      2006.





**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.





**Critical
      Accounting Policies**





The
      accounting and reporting policies that we use affect our consolidated financial
      statements. Certain of our accounting and reporting policies are critical to
      an
      understanding of our results of operations and financial condition, and in
      some
      cases, the application of these policies can be significantly affected by the
      estimates, judgments and assumptions made by management during the preparation
      of our consolidated financial statements. These accounting and reporting
      policies are described below. See Note 2 to our consolidated financial statement
      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.





*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.




-
          26 -




*Intangible
      assets*





Since
      July 1, 2002, we have evaluated potential goodwill impairment in accordance
      with
      SFAS No. 142, which applied to our financial statements beginning July 1, 2002.
      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**





In
      February 2007, FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities—Including an amendment of FASB
      Statement No. 115.” The statement permits entities to choose to measure
      many financial instruments and certain other items at fair value and is
      effective as of the beginning of an entity’s first fiscal year that begins after
      November 15, 2007. We are currently analyzing the potential accounting treatment
      under this Statement.





In
      February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
      Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
      Derivative Instruments and Hedging Activities" and SFAF No. 140,
      "Accounting for Transfers and Servicing of Financial Assets and Extinguishments
      of Liabilities". SFAS No. 155 permits fair value remeasurement for any
      hybrid financial instrument that contains an embedded derivative that otherwise
      would require bifurcation and clarifies which interest-only strips and
      principal-only strips are not subject to the requirements of SFAS No. 133.
      SFAS
      No. 155 also establishes a requirement to evaluate interest in securitized
      financial assets to identify interests that are freestanding derivatives or
      that
      are hybrid financial instruments that contain an embedded derivative requiring
      bifurcation. It also clarifies that concentrations of credit risk in the form
      of
      subordination are not embedded derivatives. Finally, SFAS 155 amends SFAS No.
      140 to eliminate the prohibition on qualifying special-purpose entities from
      holding a derivative financial instrument that pertains to a beneficial interest
      other than another derivative financial instrument. This statement is effective
      for all financial instruments acquired or issued after the beginning of our
      first fiscal year that begins after September 15, 2006. We have not yet
      evaluated the impact of this pronouncement on our financial statements.





In
      March
      2006, FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets - an amendment to FASB Statement No. 140.” The new standard requires
      recognition of servicing assets in connection with any obligation to service
      a
      financial asset arising from 1) a servicing contract entered into as part of
      a
      transfer of assets meeting the requirements for sale accounting, 2) the transfer
      of assets to a special purpose entity in a guaranteed mortgage securitization
      where the transferor retains a controlling interest in the securitized asset
      or
      3) an acquisition or assumption of obligations to service financial assets
      not
      related to the servicer or its consolidated affiliates. The servicing assets
      and
      liabilities must be measured at fair value initially, if practicable, and the
      assets or liabilities must either be amortized or recorded at fair value at
      each
      reporting date. The statement allows a one-time reclassification for entities
      with servicing rights and subsequently requires separate presentation of
      servicing assets and liabilities at fair value in the statement of financial
      position. This statement is effective for the first fiscal year beginning after
      September 15, 2006, with earlier adoption permitted. We do not expect this
      implementation to have a material effect on our consolidated financial
      statements.





In
      September 2006, FASB issued SFAS No. 157 “Fair Value
      Measurements,” which defines fair value, establishes a framework for measuring
      fair value in generally accepted accounting principles (GAAP), and expands
      disclosures about fair value measurements. SFAS No. 157 applies under other
      accounting pronouncements that require or permit fair value measurements.
      Accordingly, SFAS No. 157 does not require any new fair value measurements.
      However, for some entities, the application of this Statement will change
      current practice. SFAS No. 157 is effective for financial statements issued
      for fiscal years beginning after November 15, 2007, including interim periods
      within those fiscal years. We are currently evaluating the effect of this
      pronouncement on our financial statements.




-
          27 -




In
      September 2006, FASB issued SFAS No. 158 “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements
      No. 87, 88, 106, and 132(R).” Effective for fiscal years ending after December
      15, 2008, SFAS N. 158 requires recognition of the overfunded or underfunded
      status of a defined benefit postretirement plan (other than a multi-employer
      plan) as an asset or liability in the statement of financial position as well
      as
      recognition in comprehensive income of changes in that funded status in the
      year
      in which the changes occur. Additionally, an employer with publicly traded
      equity securities is required to initially recognize the funded status of a
      defined benefit postretirement plan and to provide the required disclosures
      as
      of the end of the fiscal year ending after December 15, 2006. Different rules
      apply for employers without publicly traded equity securities. We are currently
      evaluating the effect of this pronouncement on financial
      statements.





FASB
      Staff Position on FAS No. 115-1 and FAS No. 124-1 (“the FSP”), “The
      Meaning of Other-Than-Temporary Impairment and Its Application to Certain
      Investments,” was issued in November 2005 and addresses the determination of
      when an investment is considered impaired, whether the impairment on an
      investment is other-than-temporary and how to measure an impairment loss. The
      FSP also addresses accounting considerations subsequent to the recognition
      of
      other-than-temporary impairments on a debt security, and requires certain
      disclosures about unrealized losses that have not been recognized as
      other-than-temporary impairments. The FSP replaces the impairment guidance
      on
      Emerging Issues Task Force (EITF) Issue No.  03-1 with references to
      existing authoritative literature concerning other-than-temporary
      determinations. Under the FSP, losses arising from impairment deemed to be
      other-than-temporary must be recognized in earnings at an amount equal to the
      entire difference between the securities cost and its fair value at the
      financial statement date, without considering partial recoveries subsequent
      to
      that date. The FSP also required that an investor recognize other-than-temporary
      impairment losses when a decision to sell a security has been made and the
      investor does not expect the fair value of the security to fully recover prior
      to the expected time of sale. The FSP is effective for reporting periods
      beginning after December 15, 2005. The adoption of this statement will not
      have
      a material impact on our consolidated financial statements.





FASB
      Interpretation 48 prescribes a recognition threshold and a measurement attribute
      for the financial statement recognition and measurement of a tax position taken
      or expected to be taken in a tax return. Benefits from tax positions should
      be
      recognized in the financial statements only when it is more likely than not
      that
      the tax position will be sustained upon examination by the appropriate taxing
      authority that would have full knowledge of all relevant information. The amount
      of tax benefits to be recognized for a tax position that meets the
      more-likely-than-not recognition threshold is measured as the largest amount
      of
      benefit that is greater than 50% likely of being realized upon ultimate
      settlement. Tax benefits relating to tax positions that previously failed to
      meet the more-likely-than-not recognition threshold should be recognized in
      the
      first subsequent financial reporting period in which that threshold is met
      or
      certain other events have occurred. Previously recognized tax benefits relating
      to tax positions that no longer meet the more-likely-than-not recognition
      threshold should be derecognized in the first subsequent financial reporting
      period in which that threshold is no longer met. Interpretation 48 also provides
      guidance on the accounting for and disclosure of tax reserves for unrecognized
      tax benefits, interest and penalties and accounting in interim periods.
      Interpretation 48 is effective for fiscal years beginning after December 15,
      2006. The change in net assets as a result of applying this pronouncement will
      be a change in accounting principle with the cumulative effect of the change
      required to be treated as an adjustment to the opening balance of retained
      earnings on January 1, 2007, except in certain cases involving uncertainties
      relating to income taxes in purchase business combinations. In such instances,
      the impact of the adoption of Interpretation 48 will result in an adjustment
      to
      goodwill. While our analysis of the impact of adopting Interpretation 48 is
      not
      yet complete, we do not currently anticipate that it will have a material impact
      on our consolidated financial statements.





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
      Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”),
      which provides interpretive guidance on the consideration of the effects of
      prior year misstatements in quantifying current year misstatements for the
      purpose of a materiality assessment. We adopted SAB 108 in the fourth quarter
      of
      2006 with no 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.




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          28 -




**Results
      of Operations**





*Year
      ended December 31, 2006 compared to year ended December 31,
      2005*





Revenue.
      We generated revenues of $43,626,984 for the year ended December 31, 2006,
      an
      increase of $12,651,634 or 40.8%, compared to $30,975,350 for the year ended
      December 31, 2005. The growth in revenue was primarily attributable to the
      increase in our customer base , which we believe resulted from growing awareness
      of the efficacy of our products in the markets in which we do business in
      connection with our continued efforts to aggressively market our products.
      We
      believe that the Bodisen brand name has become synonymous with proven higher
      crop yields. The completion of the new factory in early 2005 enabled us to
      meet
      the growing demand for our products.





Gross
      Profit. We achieved a gross profit of $17,083,821 for the year ended December
      31, 2006, an increase of $5,579,592 or 48.5%, compared to $11,504,229 for the
      year ended December 31, 2005. Gross margin, as a percentage of revenues,
      increased from 37.15% for the year ended December 31, 2005, to 39.2% for the
      year ended December 31, 2006. The increase in gross margin was primarily
      attributable to the price increases in our main products. During the year ended
      December 31, 2006, we raised our prices two times. The first price increase
      was
      in-line with increases throughout the industry, while the second resulted from
      realization that the marketplace would support a premium for Bodisen brand
      products. In addition, we entered into purchasing agreements to lock in 2005
      price levels for all raw materials purchased during 2006 using $5,000,000 from
      the short term note that issued in December 2005.





Operating
      expenses. We incurred operating expenses of $3,525,450 for the year ended
      December 31, 2006, an increase of $1,093,697 or 45.0%, compared to $2,431,753
      for the year ended December 31, 2005. The increase in our operating expenses
      is
      related to increased legal fees in connection with the litigation described
      under Item 3 “Legal Proceedings” as well as our increased sales and marketing
      costs in connection with our efforts to increase awareness of the efficacy
      of
      our products, which efforts we believe resulted in the 40.8% increase in sales
      for 2006.





Aggregated
      selling expenses accounted for $1,972,076 of our operating expenses for the
      year
      ended December 31, 2006, an increase of $1,036,632 or 110.8% compared to
      $935,444 for the year ended December 31, 2005. These increased expenses related
      to costs associated with sales and marketing efforts related to our products,
      as
      well as transportation of our products. As we continue to grow revenues, we
      sell
      Bodisen products at greater distances from our factories, which leads to
      increased shipping costs, most notably on the compound fertilizer product that
      is sold in 50 kilogram (110 pounds) units. The increase in the cost of fuel
      has
      also had an effect on operating expenses. General and administrative expenses
      accounted for the remaining $1,553,374 of operating expenses for the year ended
      December 31, 2006, compared to $1,496,309 for the year ended December 31, 2005,
      an increase of $57,065 or 3.8%. Operating expenses are related to the cost
      of
      maintaining our facilities, salaries and research and development. The increase
      in general and administrative expenses is due to higher legal fees. Absent
      these
      legal fees, our general and administrative expenses decreased because of
      improved cost control measures.





Non
      Operating Income and Expenses. We had total non-operating income of $172,456
      for
      the year ended December 31, 2006 compared to a total non-operating expense
      of
      $1,651,364 for the year ended December 31, 2005. Total non-operating income
      in
      2006 included other income of $612,584, the majority of which relates to foreign
      currency translation gain from the funds raised on the AIM Market of the London
      Stock Exchange plc in the United Kingdom. In 2005, total non-operating expense
      including other expense of $121,410, which related to a $108,165 loss on the
      sale of fixed assets and a $13,245 exchange loss on a foreign currency
      transaction. Total non-operating income includes interest income of $240,527
      for
      the year ended December 31, 2006 compared to $137,870 for the year ended
      December 31, 2005. The increase in 2006 is due to the increase in our cash
      balance as a result of the sale of stock in the first quarter of 2006. Interest
      expense included in total non-operating income for the year ended December
      31,
      2006 was $680,655 compared to $1,667,824 for the year ended December 31, 2005.
      In 2006, the majority of the interest expense relates to the $5 million note
      issued December 8, 2005 and repaid during March 2006 ($603,886), where in 2005,
      the majority of the interest expense related to the $3 million convertible
      debenture issued March 16, 2005 and the $5 million note payable issued December
      8, 2005.





Net
      Income. For the foregoing reasons, net income increased by 85.0% to $13,730,827
      during the year ended December 31, 2006, an increase of $6,309,715, from
      $7,421,112 for the year ended December 31, 2005. Our earnings per share (EPS)
      rose to $0.76 for the year ended December 31, 2006 from $0.48 for the year
      ended
      December 31, 2005.




-
          29 -




*Year
      Ended December 31, 2005 compared to Year Ended December 31,
      2004*





Revenue.
      We generated revenues of $30,975,350 for the year ended December 31, 2005,
      an
      increase of $14,749,454 or 90.9%, compared to $16,225,896 for the year ended
      December 31, 2004. The growth in revenue was primarily attributable to the
      increase in our customer base as we continue to aggressively market our products
      and the growing awareness in the agricultural industry in the markets in which
      we do business of the efficacy of our products. We believe the Bodisen brand
      name has become synonymous with proven higher crop yields. The completion of
      our
      new factory in early 2005 enabled us to meet the growing demand for all of
      our
      products.





Gross
      profit. We achieved gross profit of $11,504,229 for the year ended December
      31,
      2005, an increase of $4,932,298 or 75.1%, compared to $6,571,931 for the year
      ended December 31, 2004. Gross margin, as a percentage of revenues, decreased
      from 40.5% for the year ended December 31, 2004 to 37.1% for the year ended
      December 31, 2005. The decrease in gross margin was primarily attributable
      to
      increased costs of raw materials, as well as an increase in the costs of
      shipping our products. The widespread increase in the cost of all raw materials
      in the People’s Republic of China lead us to seek the $5,000,000 short term note
      payable in December 2005, so that we could lock in raw materials prices at
      off
      season levels for 2006.





Operating
      expenses. We incurred operating expenses of $2,431,753 for the year ended
      December 31, 2005, an increase of $908,403 or 59.6%, compared to $1,523,350
      for
      the year ended December 31, 2004. These operating expenses are related to
      increased sales and marketing costs related to the 90.9% increase in sales
      for
      2005.





We
      incurred expenses of $935,444 for the year ended December 31, 2005, an increase
      of $319,895 or 52%, compared to $615,549 for the year ended December 31, 2004.
      Selling expenses are related to costs associated with sales and marketing of
      our
      products and with transportation of our products. As we continue to grow
      revenues, we are selling Bodisen products greater distances from our factories,
      leading to increased shipping costs, most notably on the compound fertilizer
      product that is sold in 50 kilogram (110 pounds) units. The increase in the
      cost
      of fuel experienced in the second, third and fourth quarters of 2005 also had
      an
      effect on operating expenses. Operating expenses include general and
      administrative expenses of $1,496,309 for the year ended December 31, 2005
      and
      $907,801 for the year ended December 31, 2004, an increase of $588,508 or 64.8%.





Non
      Operating Income and Expenses. We had other non operating expense of $121,410
      for the year ended December 31, 2005, this relates to $108,165 loss on the
      sale
      of fixed assets and a $13,245 exchange loss on foreign currency transaction,
      compared to non operating income of $7,623 for the year ended December 31,
      2004.
      We had interest income of $137,870 for the year ended December 31, 2005 compared
      to $45,338 for the year ended December 31, 2004. Interest expense for the year
      ended December 31, 2005 was $1,667,824 compared to $74,139. The majority of
      the
      interest expense in 2005 relates to the $3,000,000 convertible debenture issued
      March 16, 2005 and the $5,000,000 short-term note payable issued December 8,
      2005.





Net
      Income. For the foregoing reasons, net income increased by 47.6% to $7,421,112,
      an increase of $2,393,709, from $5,027,403. Earnings per share (EPS) rose to
      $0.48 in 2005 from $0.33 in 2004.





**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.





As
      of
      December 31, 2006, we had $11,824,327 of cash and cash equivalents compared
      to
      $6,276,897 as of December 31, 2005. The significant increase in cash is due
      to
      the sale of our stock during 2006 that resulted in gross proceeds of $26,682,511
      (or $20,549,804 after deducting offering expenses of $6,132,707). We used
      $6,253,439 of these proceeds to establish a new compound fertilizer production
      base at our new facility in Urumqi, Xinjiang, as well as $1,132,395 to invest
      in
      two local Chinese companies, with the remainder going towards our working
      capital requirements, which increased as a result of our growing
      operations.




-
          30 -




*Cash
      Flows*





We
      used
      $5,920,097 of cash in our operating activities for the year ended December
      31,
      2006 compared to generating $1,823,015 of cash from operating activities in
      2005. This significant increase in the use of cash in operating activities
      is
      principally due to the increase in accounts receivable to $18,875,368 as of
      December 31, 2006 compared to $7,478,152 in 2005 as well as an increase in
      advances to suppliers to $7,775,011 as of December 31, 2006 compared to
      $3,732,975 in 2005.





We
      used
      $5,629,351 of cash for investing activities for the year ended December 31,
      2006, down slightly from $5,768,028 in 2005. In 2006 our investing activities
      consisted primarily of our land-lease arrangement ($2,529,818), as well as
      the
      investment in two local Chinese companies ($1,156,861), an increase in
      construction in progress ($1,696,321) and the acquisition of property and
      equipment ($451,358). In 2005, investing activities consisted primarily of
      the
      acquisition of property and equipment ($3,642,530), primarily for our new
      facility, and our investment in shares of China Natural Gas
      ($2,867,346).





We
      generated $16,769,964 of cash from our financing activities for the year ended
      December 31, 2006 compared to $7,978,672 for the year ended December 31, 2005.
      The significant increase is due to the capital raised from the sale of our
      common stock in the first quarter of 2006.





*Financing
      Activities*





On
      February 3, 2006, we entered into an agreement to sell 1,643,836 shares of
      our
      common stock at 730 pence per share (approximately $12.99 per share). These
      shares currently trade on the AIM Market of the London Stock Exchange plc.
      We
      received approximately £12,000,000 (approximately $21,360,000) of gross
      proceeds, which were intended for construction of two factories (one in the
      Northwest and one in the Northeast of the People’s Republic of China), as well
      as the purchase of raw materials and for general corporate purposes. We have
      since decided not to pursue construction of the factory in the
      Northeast.





On
      March
      15, 2006, we raised $5,322,506 from the issuance of 380,179 restricted shares
      of
      common stock at $14.00 per share to institutional investors in a private
      placement. We used the proceeds of this financing to repay the $5,000,000
      short-term note issued in December 2005.





For
      additional information relating to our financing activities, see Notes 9, 10
      and
      11 to our consolidated financial statements appearing elsewhere in this annual
      report.





Based
      on
      past performance and current expectations, we believe our cash and cash
      equivalents and cash generated from operations will satisfy our working capital
      needs, capital expenditures and other liquidity requirements associated with
      our
      operations.





*Loan
      Receivables*


In
        August
        2006, we made an unsecured loan of $1,153,260 to one of our
        suppliers.   Because we will receive interest payments (at a rate of
        13% per annum) on this amount from the supplier, we account for this as a
        loan
        rather than an advance to a supplier. This loan is to be repaid by April
        2008.  In November 2006, we made an unsecured $754,745 advance payment
        to a company for the installation of a facility to house a new compound
        fertilizer production line in a new building.  Because the building that
        will house the facility was only recently completed, the installation of
        that
        facility has not yet occurred.  We accounted for this as a loan under
        applicable accounting rules because the advance payment bears interest at
        rate
        of 13% per annum.  For more information relating to these loan receivables,
        see Note 2 to our consolidated financial statements appearing elsewhere in
        this
        annual report.





*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. For further information
      regarding this arrangement, see Note 7 to our consolidated financial statements.
      Our land-lease arrangement is currently our only material on- and off-balance
      sheet expected or contractually committed future obligation.




-
          31 -




*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 and
      in
      Note 7 to our consolidated financial statements.





**ITEM
      7A.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





**Foreign
      Exchange Risks**




While
      our
      reporting currency is the U.S. dollar, all of our consolidated revenues and
      consolidated costs and expenses are denominated in RMB. All of our assets are
      denominated in RMB except for cash. As a result, we are exposed to foreign
      exchange risk as our revenues and results of operations may be affected by
      fluctuations in the exchange rate between U.S. dollars and RMB. If the RMB
      depreciates against the U.S. dollar, the value of our RMB revenues, earnings
      and
      assets as expressed in our U.S. dollar financial statements will decline. We
      have not entered into any hedging transactions in an effort to reduce our
      exposure to foreign exchange risk.





**Investment
      Risk**




We
      are
      exposed to market risk as it relates to changes in the market value of our
      investments in public companies. We invest in equity instruments of public
      companies for business and strategic purposes and we have classified these
      securities as available-for-sale. These available-for-sale equity investments
      are subject to significant fluctuations in fair market value due to the
      volatility of the stock market and the industries in which these companies
      participate. Our objective in managing our exposure to stock market fluctuations
      is to minimize the impact of stock market declines to our earnings and cash
      flows. There are, however, a number of factors beyond our control. Continued
      market volatility, as well as mergers and acquisitions, have the potential
      to
      have a material impact on our results of operations in future periods.




We
      are
      also exposed to changes in the value of our investments in non-public companies,
      including start-up companies. These long-term equity investments in technology
      companies are subject to significant fluctuations in fair value due to the
      volatility of the industries in which these companies participate and other
      factors.





**Inflation**





Inflationary
      factors such as increases in the cost of our product and overhead costs may
      adversely affect our operating results. Although we do not believe that
      inflation has had a material impact on our financial position or results of
      operations to date, a high rate of inflation in the future may have an adverse
      effect on our ability to maintain current levels of gross margin and selling,
      general and administrative expenses as a percentage of net revenues if the
      selling prices of our products do not increase with these increased costs.





**ITEM
      8.**  **FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA**




**Bodisen
        Biotech, Inc. and Subsidiaries**
 **Consolidated
        Financial Statements**
 **Years
        Ended December 31, 2006, 2005 and 2004**
   **Contents**Page**Report
                  of Independent Registered Public Accounting Firm**
              33**Financial
                  Statements:**Consolidated
                  Balance Sheets as of December 31, 2006 and 2005
              34Consolidated
                  Statements of Income and Other Comprehensive Incomefor
                  the years ended December 31, 2006, 2005 and 2004
              35Consolidated
                  Statement of Stockholders' Equity for the years endedDecember
                  31, 2006, 2005 and 2004
              36Consolidated
                  Statements of Cash Flows for the years endedDecember
                  31, 2006, 2005 and 2004
              37Notes
                  to Consolidated Financial Statements
              38**Financial
                  Statement Schedule:**Schedule
                  I - Condensed financial information or Registrant - Parent only
                  scheduleUnder
                  Rule 5-04/4-08(e)(3) for the years ended December 31, 2006, 2005
                  AND
                  2004
              63


-
            32 -
  **Report
        of Independent Registered Public Accounting Firm**
  
 
 
 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 subsidiaries as of December 31, 2006 and 2005,
        and the
        related consolidated statements of income and other comprehensive income,
        stockholders' equity, and cash flows for the years ended December 31, 2006,
        2005
        and 2004 and the financial statement schedule for the years ended December
        31,
        2006, 2005 and 2004. These consolidated financial statements and financial
        statement schedule 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
        consolidated financial statements are free of material misstatement. An audit
        includes examining, on a test basis, evidence supporting the amounts and
        disclosures in the financial statements. An audit also includes assessing
        the
        accounting principles used and significant estimates made by management,
        as well
        as evaluating the overall consolidated 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 consolidated financial position of Bodisen
        Biotech, Inc. and Subsidiaries as of December 31, 2006 and 2005, and the
        consolidated results of their operations and their consolidated cash flows
        for
        the years ended December 31, 2006, 2005 and 2004, in conformity with U.S.
        generally accepted accounting principles. In addition, in our opinion, the
        financial statement schedule listed in the accompanying index presents fairly,
        in all material respects, the information set forth therein when read in
        conjunction with the related consolidated financial statements.
 The
          accompanying consolidated financial statements have been prepared assuming
          that
          the Company will continue as a going concern. However, as discussed in
          Note 23
          and Note 12, there are certain law suits filed by investors against the
          Company
          and the company is subject to potential claims from certain investors who
          have a right to receive the Company’s shares.  These conditions raise
          substantial doubt about the Company's ability to continue as a going concern.
          Management's responses in regard to these matters are also described in
          Note 23
          and Note 12. The consolidated financial statements do not include any
          adjustments that might result from the outcome of this
          uncertainty.
 
 
 /s/
        Kabani & Company, Inc.
 **Certified
        Public Accountants**
 
 Los
        Angeles, California
 March
        26,
        2007
  -33-
   **BODISEN
                    BIOTECH, INC. AND SUBSIDIARIES****CONSOLIDATED
                    BALANCE SHEETS****AS
                    OF DECEMBER 31, 2006 AND 2005****December
                    31,**
                
                **December
                    31,****2006**
                
                **2005****ASSETS****CURRENT
                    ASSETS:**Cash
                    & cash equivalents
                
                $
                11,824,327
                
                $
                6,276,897Accounts
                    receivable, net of allowance for
                
                
                18,875,368
                
                
                7,478,152doubtful
                    accounts of $659,653 and $263,376Other
                    receivable
                
                
                888,230
                
                
                1,037,683Inventory
                
                
                1,794,585
                
                
                1,180,007Advances
                    to suppliers
                
                
                12,662,139
                
                
                4,563,471Prepaid
                    expense and other current assets
                
                
                195,821
                
                
                64,075Total
                    current assets
                
                
                46,240,470
                
                
                20,600,285**PROPERTY
                    AND EQUIPMENT, net**
                
                
                5,195,283
                
                
                4,887,841**CONSTRUCTION
                    IN PROGRESS**
                
                
                3,669,807
                
                
                1,872,945**MARKETABLE
                    SECURITY**
                
                
                6,500,869
                
                
                6,810,434**INTANGIBLE
                    ASSETS, net**
                
                
                2,054,346
                
                
                2,119,587**OTHER
                    ASSETS**
                
                
                3,553,433
                
                
                -**LOAN
                    RECEIVABLE**
                
                
                1,982,410
                
                
                -**TOTAL
                    ASSETS**
                
                $
                69,196,618
                
                $
                36,291,092**LIABILITIES
                    AND STOCKHOLDERS' EQUITY****CURRENT
                    LIABILITIES:**Note
                    payable, net of discount of $603,886
                
                $
                -
                
                $
                4,396,114Accounts
                    payable
                
                
                1,022,352
                
                
                49,893Accrued
                    expenses
                
                
                347,948
                
                
                427,982Total
                    current liabilities
                
                
                1,370,300
                
                
                4,873,989**STOCKHOLDERS'
                    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 18,310,250 and 16,120,902
                
                
                1,831
                
                
                1,613Additional
                    paid-in capital
                
                
                33,860,062
                
                
                12,082,793Other
                    comprehensive income
                
                
                5,431,910
                
                
                4,531,009Statutory
                    reserve
                
                
                4,314,488
                
                
                2,366,931Retained
                    earnings
                
                
                24,218,027
                
                
                12,434,757Total
                    stockholders' equity
                
                
                67,826,318
                
                
                31,417,103**TOTAL
                    LIABILITIES AND STOCKHOLDERS' EQUITY**
                
                $
                69,196,618
                
                $
                36,291,092The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements
 -34-
  **BODISEN
                  BIOTECH, INC. AND SUBSIDIARIES****CONSOLIDATED
                  STATEMENTS OF INCOME AND OTHER COMPREHENSIVE
                  INCOME****FOR
                  THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004****Years
                  Ended December 31,****2006**
              
              **2005**
              
              **2004****Net
                  Revenue**
              
              $
              43,626,984
              
              $
              30,975,350
              
              $
              16,225,896**Cost
                  of Revenue**
              
              
              26,543,163
              
              
              19,471,121
              
              
              9,653,965**Gross
                  profit**
              
              
              17,083,821
              
              
              11,504,229
              
              
              6,571,931Operating
                  expensesSelling
                  expenses
              
              
              1,972,076
              
              
              935,444
              
              
              615,549General
                  and administrative expenses
              
              
              1,553,374
              
              
              1,496,309
              
              
              907,801Total
                  operating expenses
              
              
              3,525,450
              
              
              2,431,753
              
              
              1,523,350**Income
                  from operations**
              
              
              13,558,371
              
              
              9,072,476
              
              
              5,048,581Non-operating
                  income (expense):Other
                  income (expense)
              
              
              612,584
              
              
              (121,410
              )
              
              7,623Interest
                  income
              
              
              240,527
              
              
              137,870
              
              
              45,338Interest
                  expense
              
              
              (680,655
              )
              
              (1,667,824
              )
              
              (74,139
              )Total
                  non-operating income (expense)
              
              
              172,456
              
              
              (1,651,364
              )
              
              (21,178
              )**Net
                  income**
              
              
              13,730,827
              
              
              7,421,112
              
              
              5,027,403Other
                  comprehensive incomeForeign
                  currency translation gain
              
              
              1,210,466
              
              
              519,066
              
              
              68,855Unrealized
                  gain (loss) on marketable equity security
              
              
              (309,565
              )
              
              3,943,088
              
              
              -**Comprehensive
                  Income**
              
              $
              14,631,728
              
              $
              11,883,266
              
              $
              5,096,258**Weighted
                  average shares outstanding :**Basic
              
              
              17,966,090
              
              
              15,427,494
              
              
              15,268,000Diluted
              
              
              18,072,433
              
              
              15,589,336
              
              
              15,328,356**Earnings
                  per share:**Basic
              
              $
              0.76
              
              $
              0.48
              
              $
              0.33Diluted
              
              $
              0.76
              
              $
              0.48
              
              $
              0.33The
                  accompanying notes are an integral part of these consolidated financial
                  statements
  
 -35-
 **BODISEN
                    BIOTECH, INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENT OF STOCKHOLDERS' EQUITY****FOR
                    THE YEARS ENDED DECEMBER 31, 2006, 2005 AND
                    2004****Other**
                
                
                
                
                
                **Total****Common
                    Stock**
                
                **Additional
                    Paid**
                
                **Comprehensive**
                
                **Statutory**
                
                **Retained**
                
                **Stockholders'****Shares**
                
                **Amount**
                
                **in
                    Capital**
                
                **Income**
                
                **Reserve**
                
                **Earnings**
                
                **Equity****Balance
                    January 1, 2004**
                
                
                15,268,000
                
                $
                1,527
                
                $
                5,991,823
                
                $
                0
                
                $
                263,794
                
                $
                2,089,379
                
                $
                8,346,523Cumulative
                    translation adjustment
                
                
                
                
                
                
                
                
                
                
                
                68,855
                
                
                
                
                
                
                
                
                68,855Net
                    income for the year ended December 31, 2004
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                5,027,403
                
                
                5,027,403Transfer
                    to statutory reserve
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                754,111
                
                
                (754,111
                )
                
                0**Balance,
                    December 31, 2004**
                
                
                15,268,000
                
                
                1,527
                
                
                5,991,823
                
                
                68,855
                
                
                1,017,905
                
                
                6,362,671
                
                
                13,442,781Conversion
                    of convertible debenture and interest to
                
                
                657,402
                
                
                66
                
                
                3,155,498
                
                
                
                
                
                
                
                
                
                
                
                3,155,564common
                    StocksExercise
                    of warrants for cash
                
                
                195,500
                
                
                20
                
                
                955,020
                
                
                
                
                
                
                
                
                
                
                
                955,040Value
                    of beneficial conversion feature in connectionwith
                    $3 million convertible note
                
                
                
                
                
                
                
                
                803,381
                
                
                
                
                
                
                
                
                
                
                
                803,381Value
                    of warrants issued in connection with $3 million
                
                
                
                
                
                
                
                
                365,881
                
                
                
                
                
                
                
                
                
                
                
                365,881convertible
                    noteValue
                    of warrants issued in connection with $5 million
                
                
                
                
                
                
                
                
                811,190
                
                
                
                
                
                
                
                
                
                
                
                811,190note
                    payableChange
                    in foreign currency translation gain
                
                
                
                
                
                
                
                
                
                
                
                519,066
                
                
                
                
                
                
                
                
                519,066Change
                    in unrealized gain on marketable equity security
                
                
                
                
                
                
                
                
                
                
                
                3,943,088
                
                
                
                
                
                
                
                
                3,943,088Net
                    income for the yead ended December 31, 2005
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                7,421,112
                
                
                7,421,112Transfer
                    to statutory reserve
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,349,026
                
                
                (1,349,026
                )
                
                0**Balance,
                    December 31, 2005**
                
                
                16,120,902
                
                
                1,613
                
                
                12,082,793
                
                
                4,531,009
                
                
                2,366,931
                
                
                12,434,757
                
                
                31,417,103Sale
                    of common stock for cash, net of offeringcosts
                    of $6,132,708
                
                
                2,024,015
                
                
                202
                
                
                20,549,602
                
                
                
                
                
                
                
                
                
                
                
                20,549,804Exercise
                    of warrants for cash
                
                
                16,533
                
                
                16
                
                
                1,220,144
                
                
                
                
                
                
                
                
                
                
                
                1,220,160Value
                    of vested options issued directors
                
                
                
                
                
                
                
                
                7,523
                
                
                
                
                
                
                
                
                
                
                
                7,523Change
                    in foreign currency translation gain
                
                
                
                
                
                
                
                
                
                
                
                1,210,466
                
                
                
                
                
                
                
                
                1,210,466Change
                    in unrealized gain on marketable equity security
                
                
                
                
                
                
                
                
                
                
                
                (309,565
                )
                
                
                
                
                
                
                
                (309,565
                )Net
                    income for the year ended December 31, 2006
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                13,730,827
                
                
                13,730,827Transfer
                    to statutory reserve
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,947,557
                
                
                (1,947,557
                )
                
                0**Balance,
                    December 31, 2006**
                
                
                18,161,450
                
                $
                1,831
                
                $
                33,860,062
                
                $
                5,431,910
                
                $
                4,314,488
                
                $
                24,218,027
                
                $
                67,826,318The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements
 -36-
 
 **BODISEN
                        BIOTECH, INC. AND SUBSIDIARIES****CONSOLIDATED
                        STATEMENT OF CASH FLOWS****FOR
                        THE YEARS ENDED DECEMBER 31, 2006, 2005 AND
                        2004****Years
                        Ended December 31,****2006**
                    
                    **2005**
                    
                    **2004****CASH
                        FLOWS FROM OPERATING ACTIVITIES:**Net
                        income
                    
                    $
                    13,730,827
                    
                    $
                    7,421,112
                    
                    $
                    5,027,403Adjustments
                        to reconcile net income to net cashprovided
                        by (used in) operating activities:Depreciation
                        and amortization
                    
                    
                    455,318
                    
                    
                    324,638
                    
                    
                    302,803Common
                        stock issued for interest expense
                    
                    
                    -
                    
                    
                    155,564
                    
                    
                    -Amortization
                        of debt discounts
                    
                    
                    603,886
                    
                    
                    1,376,566
                    
                    
                    -Exchange
                        gain
                    
                    
                    (451,867
                    )
                    
                    -
                    
                    
                    -Value
                        of vested option issued to directors
                    
                    
                    7,523
                    
                    
                    -
                    
                    
                    -(Increase)
                        / decrease in assets:Accounts
                        receivable
                    
                    
                    (10,906,475
                    )
                    
                    (2,333,365
                    )
                    
                    (3,166,143
                    )Other
                        receivable & Loan Receivable
                    
                    
                    (1,759,543
                    )
                    
                    (987,322
                    )
                    
                    -Inventory
                    
                    
                    (562,179
                    )
                    
                    (388,251
                    )
                    
                    51,612Advances
                        to suppliers
                    
                    
                    (7,775,011
                    )
                    
                    (3,732,975
                    )
                    
                    1,178,306Prepaid
                        expense
                    
                    
                    (133,967
                    )
                    
                    (45,290
                    )
                    
                    -Other
                        assets
                    
                    
                    3,482
                    
                    
                    (3,388
                    )
                    
                    (48,736
                    )Increase
                        / (decrease) in current liabilities:Accounts
                        payable
                    
                    
                    959,335
                    
                    
                    (63,927
                    )
                    
                    (1,521,819
                    )Unearned
                        revenue
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (15,888
                    )Other
                        payables
                    
                    
                    (15,168
                    )
                    
                    (11,716
                    )
                    
                    (35,350
                    )Accrued
                        expenses
                    
                    
                    (76,258
                    )
                    
                    111,369
                    
                    
                    196,031Net
                        cash provided by (used in) operating activities
                    
                    
                    (5,920,097
                    )
                    
                    1,823,015
                    
                    
                    1,968,219**CASH
                        FLOWS FROM INVESTING ACTIVITIES**Issuance
                        of loan receivable
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (968,000
                    )Payment
                        on loan receivable
                    
                    
                    -
                    
                    
                    976,368
                    
                    
                    -Acquisition
                        of property and equipment
                    
                    
                    (451,358
                    )
                    
                    (3,642,530
                    )
                    
                    (435,814
                    )Additions
                        to construction in progress
                    
                    
                    (1,696,321
                    )
                    
                    (234,520
                    )
                    
                    (1,374,322
                    )Purchase
                        of marketable security
                    
                    
                    -
                    
                    
                    (2,867,346
                    )
                    
                    -Acquistion
                        of other assets
                    
                    
                    (3,481,672
                    )
                    
                    -
                    
                    
                    -Net
                        cash used in investing activities
                    
                    
                    (5,629,351
                    )
                    
                    (5,768,028
                    )
                    
                    (2,778,136
                    )**CASH
                        FLOWS FROM FINANCING ACTIVITIES:**Payments
                        on note payable
                    
                    
                    (5,000,000
                    )
                    
                    (976,368
                    )
                    
                    (111,900
                    )Loans
                        made to officers
                    
                    
                    -
                    
                    
                    (2,383,217
                    )
                    
                    -Repayments
                        of loans to officers
                    
                    
                    -
                    
                    
                    2,383,217
                    
                    
                    -Proceeds
                        from issuance of convertible note
                    
                    
                    -
                    
                    
                    3,000,000
                    
                    
                    -Proceeds
                        from issuance of note payable
                    
                    
                    -
                    
                    
                    5,000,000
                    
                    
                    -Proceeds
                        from issuance of common stock
                    
                    
                    26,682,511
                    
                    
                    -
                    
                    
                    -Payment
                        of offering costs
                    
                    
                    (6,132,707
                    )
                    
                    -
                    
                    
                    -Proceeds
                        from the exercise of warrants
                    
                    
                    1,220,160
                    
                    
                    955,040
                    
                    
                    -Net
                        cash provided by / (used in) financing activities
                    
                    
                    16,769,964
                    
                    
                    7,978,672
                    
                    
                    (111,900
                    )Effect
                        of exchange rate changes on cash and cash equivalents
                    
                    
                    326,914
                    
                    
                    121,427
                    
                    
                    68,855**NET
                        INCREASE /(DECREASE) IN CASH & CASH
                        EQUIVALENTS**
                    
                    
                    5,547,430
                    
                    
                    4,155,086
                    
                    
                    (852,962
                    )**CASH
                        & CASH EQUIVALENTS, BEGINNING OF YEAR**
                    
                    
                    6,276,897
                    
                    
                    2,121,811
                    
                    
                    2,974,773**CASH
                        & CASH EQUIVALENTS, END OF YEAR**
                    
                    $
                    11,824,327
                    
                    $
                    6,276,897
                    
                    $
                    2,121,811**SUPPLEMENTAL
                        DISCLOSURE OF CASH FLOW INFORMATION:**Interest
                        paid
                    
                    $
                    112,500
                    
                    $
                    68,144
                    
                    $
                    60,231Income
                        taxes paid
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    -The
                        accompanying notes are an integral part of these consolidated
                        financial
                        statements
  -37-
 **Bodisen
          Biotech, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006, 2005 and 2004**
 **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 since 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 province of Sinkang,
        China by the name of Bodisen Agriculture Material Co. Ltd. (“Material”).
“Material” had no operations during the year ended December 31,
        2006.
 
 -38-
 **Bodisen
          Biotech, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006, 2005 and 2004**
 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
 
 As
        of
        December 31, 2005 and 2004, the accounts of the Company were maintained,
        and
        their consolidated financial statements were expressed in the Chinese Yuan
        Renminbi (CNY). Such consolidated financial statements were translated into
        U.S.
        Dollars (USD) in accordance with Statement of Financial Accounts Standards
        ("SFAS") No. 52, "Foreign Currency Translation," with the CNY as the functional
        currency. According to the Statement, all assets and liabilities were translated
        at the exchange rate on the balance sheet date, stockholder's equity are
        translated at the historical rates and statement of operations items are
        translated at the weighted average exchange rate for the year. The resulting
        translation adjustments are reported under other comprehensive income in
        accordance with SFAS No. 130, "Reporting Comprehensive Income.”
  **Note
        2 - Summary of Significant Accounting Policies**
 
 Use
        of
        Estimates
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles requires management to make estimates and assumptions
        that
        affect the reported amounts of assets and liabilities and disclosure of
        contingent assets and liabilities at the date of the financial statements
        and
        the reported amounts of revenues and expenses during the reporting period.
        Actual results could differ from those estimates.
 
 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 on 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. Terms of the sales vary from COD through a credit
        term up to 9 to 12 months. Reserves are recorded primarily on a specific
        identification basis. Allowance for doubtful debts amounted to $659,653 and
        $263,376 as at December 31, 2006 and 2005, respectively.
 
 -39-
 **Bodisen
          Biotech, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006, 2005 and
          2004**
 Advances
        to Suppliers
 
 The
        Company advances to certain vendors for purchase of its material. The advances
        to suppliers are interest free and unsecured. The advances to suppliers amounted
        to $12,662,139 and $4,563,471 at December 31, 2006 and 2005, respectively.
  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.
 
 Loan
        Receivable
 
 On
        December 8, 2004, the Company entered in to an agreement to loan $968,000
        to an
        unrelated party. The loan was unsecured, payable by December 7, 2005 and
        carried
        an interest rate of 8.7% per annum. The amount was repaid in full by the
        due
        date.
 
 In
        August
        2006, the Company entered into an agreement to loan $1,153,260 to an unrelated
        party. The loan is unsecured, payable by April 2008 and carries an interest
        rate
        of 13% per annum. Interest receivable on this loan is $68,191.
 
 In
        November 2006, the Company entered into an agreement to loan $754,745 to
        an
        unrelated party. The loan is unsecured, payable by December 2008 and carries
        an
        interest rate of 13% per annum. Interest receivable on this loan is
        $6,214.
  Property
        & Equipment & 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
 
 -40-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 At
        December 31, 2006 and 2005, the following are the details of the property
        and
        equipment:
 
 2006
              
              2005Operating
                  equipment
              
              $
              946,252
              
              $
              923,688Vehicles
              
              
              597,239
              
              
              362,780Office
                  equipment
              
              
              74,944
              
              
              63,403Buildings
              
              
              4,426,559
              
              
              4,142,1296,044,994
              
              
              5,492,000Less
                  accumulated depreciation
              
              
              (849,711
              )
              
              (604,159
              )$
              5,195,283
              
              $
              4,887,841
 
 Depreciation
        expense for the years ended December 31, 2006, 2005 and 2004 was $307,310,
        $193,634 and $172,622, respectively.
 
 On
        December 31, 2006 and 2005, the Company has “Capital Work in Progress”
representing the construction in progress of the Company’s manufacturing plant
        amounting $3,669,807 and $1,872,945, respectively.
  Marketable
        Security
 
 Marketable
        security consists of 2,063,768 shares of China Natural Gas, Inc. (traded
        on the
        OTCBB: CHNG). This investment is classified as available-for-sale as the
        Company
        plans to hold this investment for the long-term. This investment is reported
        at
        fair value with unrealized gains and losses included in other comprehensive
        income. The fair value is determined by using the securities quoted market
        price
        as obtained from stock exchanges on which the security trades.
 
 Investment
        income, principally dividends, is recorded when earned. Realized capital
        gains
        and losses are calculated based on the cost of securities sold, which is
        determined by the "identified cost" method.
 
 Long-Lived
        Assets
 
 Effective
        January 1, 2002, the Company adopted Statement of Financial Accounting Standards
        No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS
        144”), which addresses financial accounting and reporting for the impairment
        or
        disposal of long-lived assets and supersedes SFAS No. 121, “Accounting for the
        Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
        Of,”
and the accounting and reporting provisions of APB Opinion No. 30, “Reporting
        the Results of Operations for a Disposal of a Segment of a Business.” The
        Company periodically evaluates the carrying value of long-lived assets to
        be
        held and used in accordance with SFAS 144. SFAS 144 requires impairment losses
        to be recorded on long-lived assets 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 carrying amount exceeds
        the
        fair market value of the long-lived assets. Loss on long-lived assets to
        be
        disposed of is determined in a similar manner, except that fair market values
        are reduced for the cost of disposal. Based on its review, the Company believes
        that, as of December 31, 2006 and 2005 there were no significant impairments
        of
        its long-lived assets.
 
 -41-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 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.
 
 Fair
        Value of Financial Instruments
 
 Statement
        of financial accounting standard No. 107, Disclosures about fair value of
        financial instruments, requires that the Company disclose estimated fair
        values
        of financial instruments. The carrying amounts reported in the statements
        of
        financial position for current assets and current liabilities qualifying
        as
        financial instruments are a reasonable estimate of fair value.
 
 Revenue
        Recognition
 
 The
        Company’s revenue recognition policies are in compliance with Staff accounting
        bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to
        customers when a formal arrangement exists, the price is fixed or determinable,
        the delivery is completed, no other significant obligations of the Company
        exist
        and collectibility is reasonably assured. Payments received before all of
        the
        relevant criteria for revenue recognition are satisfied are recorded as unearned
        revenue.
 
 The
        Company’s revenue is earned in three product lines, which are as
        follows:
  **For
                  the Years End December 31,****2006**
              
              **2005**
              
              **2004**Compound
                  fertilizer
              
              $
              27,380,650
              
              $
              20,639,633
              
              $
              10,013,292Liquid
                  fertilizer
              
              
              7,465,830
              
              
              5,877,151
              
              
              4,987,276Pesticide
              
              
              8,780,504
              
              
              4,458,566
              
              
              1,225,328$
              43,626,984
              
              $
              30,975,350
              
              $
              16,225,896
 
 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, 2006, 2005 and 2004 were insignificant.
 
 -42-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 Stock-Based
        Compensation
 
 The
        Company adopted SFAS No. 123 (Revised 2004), *Share
        Based Payment* (“SFAS
        No. 123R”), under the modified-prospective transition method on
        January 1, 2006. SFAS No. 123R requires companies to measure and
        recognize the cost of employee services received in exchange for an award
        of
        equity instruments based on the grant-date fair value. Share-based compensation
        recognized under the modified-prospective transition method of SFAS
        No. 123R includes share-based compensation based on the grant-date fair
        value determined in accordance with the original provisions of SFAS
        No. 123, *Accounting
        for Stock-Based Compensation,* for
        all
        share-based payments granted prior to and not yet vested as of January 1,
        2006 and share-based compensation based on the grant-date fair-value determined
        in accordance with SFAS No. 123R for all share-based payments granted after
        January 1, 2006. SFAS No. 123R eliminates the ability to account for
        the award of these instruments under the intrinsic value method prescribed
        by
        Accounting Principles Board (“APB”) Opinion No. 25, *Accounting
        for Stock Issued to Employees* ,
        and
        allowed under the original provisions of SFAS No. 123. Prior to the
        adoption of SFAS No. 123R, the Company accounted for our stock option plans
        using the intrinsic value method in accordance with the provisions of APB
        Opinion No. 25 and related interpretations.
 
 Primarily
        as a result of adopting SFAS No. 123R, the Company recognized $7,523 in
        share-based compensation expense for the year ended December, 2006. There
        were
        no new employee options granted during the year ended December 31, 2006;
        however, the expense recognized of $7,523 relates to the vesting of options
        issued to employees prior to January 1, 2006. The impact of this share-based
        compensation expense on the Company’s basic and diluted earnings per share was
        $0.00 per share. The fair value of our stock options was estimated using
        the
        Black-Scholes option pricing model.
 
 For
        periods presented prior to the adoption of SFAS No. 123R, pro forma
        information regarding net income and earnings per share as required by SFAS
        No. 123R has been determined as if we had accounted for our employee stock
        options under the original provisions of SFAS No. 123. The fair value of
        these options was estimated using the Black-Scholes option pricing model.
        For
        purposes of pro forma disclosure, the estimated fair value of the options
        is
        amortized to
        expense over the option’s vesting period. The pro forma expense to recognize
        during the years ended December 31, 2005 and 2004 is presented in Note
        12.
  Income
        Taxes
 
 The
        Company utilizes SFAS No. 109, “Accounting for Income Taxes,” which requires the
        recognition of deferred tax assets and liabilities for the expected future
        tax
        consequences of events that have been included in the financial statements
        or
        tax returns. Under this method, deferred income taxes are recognized for
        the tax
        consequences in future years of differences between the tax bases of assets
        and
        liabilities and their financial reporting amounts at each period end based
        on
        enacted tax laws and statutory tax rates applicable to the periods in which
        the
        differences are expected to affect taxable income. Valuation allowances are
        established, when necessary, to reduce deferred tax assets to the amount
        expected to be realized.
 
 According
        to the Provisional Regulations of the People’s Republic of China on Income Tax,
        the Document of Reductions and Exemptions of Income Tax for the Company had
        been
        approved by the local tax bureau and the Yang Ling Agricultural High-Tech
        Industries Demonstration Zone. The Company is exempted from income tax through
        October 2007.
 
 -43-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 In
        March
        2005, Bodisen Biotech Inc. formed a new 100% wholly-owned subsidiary named
        Yang
        Ling Bodisen Agricultural Technology Co., Ltd. (“Agricultural”) in China. 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 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.
 
 If
        the
        Company had not been exempt from paying income taxes during the years ended
        December 31, 2006, 2005 and 2004, income tax expense would have been
        approximately $4,532,000, $2,859,000 and $1,659,000, respectively, and earnings
        per share would have been reduced by $0.26, $0.19 and $0.11,
        respectively.
 
 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 is Chinese
        Renminbi. The unit of Renminbi is in Yuan. Translation gains of $1,798,387
        and
        $587,921 at December 31, 2006 and 2005, 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, 2006, 2005
        and
        2004, other comprehensive income in the consolidated statements of income
        and
        other comprehensive income included translation gains of $1,210,466, $519,066
        and $68,855, respectively.
 
 Basic
        and Diluted Earnings Per Share
 
 Earnings
        per share is calculated in accordance with the Statement of financial accounting
        standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded
        Accounting Principles Board Opinion No.15 (APB 15). Net loss per share for
        all
        periods presented has been restated to reflect the adoption of SFAS No. 128.
        Basic net loss per share is based upon the weighted average number of common
        shares outstanding. Diluted net loss per share is based on the assumption
        that
        all dilutive convertible shares and stock options were converted or exercised.
        Dilution is computed by applying the treasury stock method. Under this method,
        options and warrants are assumed to be exercised at the beginning of the
        period
        (or at the time of issuance, if later), and as if funds obtained thereby
        were
        used to purchase common stock at the average market price during the period.
 
 Statement
        of Cash Flows
 
 In
        accordance with Statement of Financial Accounting Standards No. 95, “Statement
        of Cash Flows,” cash flows from the Company’s operations are calculated based
        upon the local currencies. As a result, amounts related to assets and
        liabilities reported on the statement of cash flows will not necessarily
        agree
        with changes in the corresponding balances on the balance sheet.
 
 -44-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 Segment
        Reporting
 
 Statement
        of Financial Accounting Standards No. 131 (“SFAS 131”), “Disclosure About
        Segments of an Enterprise and Related Information” 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. Reportable segments
        are based on products and services, geography, legal structure, management
        structure, or any other manner in which management disaggregates a company.
        SFAS
        131 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. All of the Company’s assets are located
        in People’s Republic of China.
 
 Recent
        Pronouncements
  In
        February 2006, FASB issued SFAS No. 155, "Accounting for Certain Hybrid
        Financial Instruments". SFAS No. 155 amends SFAS No 133, "Accounting for
        Derivative Instruments and Hedging Activities", and SFAF No. 140, "Accounting
        for Transfers and Servicing of Financial Assets and Extinguishments of
        Liabilities". SFAS No. 155, permits fair value remeasurement for any hybrid
        financial instrument that contains an embedded derivative that otherwise
        would
        require bifurcation, clarifies which interest-only strips and principal-only
        strips are not subject to the requirements of SFAS No. 133, establishes a
        requirement to evaluate interest in securitized financial assets to identify
        interests that are freestanding derivatives or that are hybrid financial
        instruments that contain an embedded derivative requiring bifurcation, clarifies
        that concentrations of credit risk in the form of subordination are not embedded
        derivatives, and amends SFAS No. 140 to eliminate the prohibition on the
        qualifying special-purpose entity from holding a derivative financial instrument
        that pertains to a beneficial interest other than another derivative financial
        instrument. This statement is effective for all financial instruments acquired
        or issued after the beginning of the Company's first fiscal year that begins
        after September 15, 2006. The Company has not evaluated the impact of this
        pronouncement its financial statements.
  In
        March
        2006, FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets -
        an amendment to FASB Statement No. 140.” The new standard requires recognition
        of servicing assets in connection with any obligation to service a financial
        asset arising from 1) a servicing contract entered into as part of a transfer
        of
        assets meeting the requirements for sale accounting, 2) the transfer of assets
        to a special purpose entity in a guaranteed mortgage securitization where
        the
        transferor retains a controlling interest in the securitized asset, or 3)
        an
        acquisition or assumption of obligations to service financial assets not
        related
        to the servicer or its consolidated affiliates. The servicing assets and
        liabilities must be measured at fair value initially, if practicable, and
        the
        assets or liabilities must either be amortized or recorded at fair value
        at each
        reporting date. The statement allows a one-time reclassification for entities
        with servicing rights and subsequently requires separate presentation of
        servicing assets and liabilities at fair value in the statement of financial
        position. This statement is effective for the first fiscal year beginning
        after
        September 15, 2006, with earlier adoption permitted. The
        Company does not expect this implementation to have a material effect on
        our
        consolidated financial statements.
  -45-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
  In
        September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
        defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles (GAAP), and expands disclosures
        about
        fair value measurements. This Statement applies under other accounting
        pronouncements that require or permit fair value measurements, the Board
        having
        previously concluded in those accounting pronouncements that fair value is
        the
        relevant measurement attribute. Accordingly, this Statement does not require
        any
        new fair value measurements. However, for some entities, the application
        of this
        Statement will change current practice. This Statement is effective for
        financial statements issued for fiscal years beginning after November 15,
        2007,
        and interim periods within those fiscal years. The management is currently
        evaluating the effect of this pronouncement on financial
        statements.
  In
        September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
        Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
        88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
        employer to recognize the overfunded or underfunded status of a defined benefit
        postretirement plan (other than a multiemployer plan) as an asset or liability
        in its statement of financial position and to recognize changes in that funded
        status in the year in which the changes occur through comprehensive income
        of a
        business entity or changes in unrestricted net assets of a not-for-profit
        organization. This Statement also improves financial reporting by requiring
        an
        employer to measure the funded status of a plan as of the date of its year-end
        statement of financial position, with limited exceptions. An employer with
        publicly traded equity securities is required to initially recognize the
        funded
        status of a defined benefit postretirement plan and to provide the required
        disclosures as of the end of the fiscal year ending after December 15, 2006.
        An
        employer without publicly traded equity securities is required to recognize
        the
        funded status of a defined benefit postretirement plan and to provide the
        required disclosures as of the end of the fiscal year ending after June 15,
        2007. However, an employer without publicly traded equity securities is required
        to disclose the following information in the notes to financial statements
        for a
        fiscal year ending after December 15, 2006, but before June 16, 2007, unless
        it
        has applied the recognition provisions of this Statement in preparing those
        financial statements. The requirement to measure plan assets and benefit
        obligations as of the date of the employer’s fiscal year-end statement of
        financial position is effective for fiscal years ending after December 15,
        2008.
        The management is currently evaluating the effect of this pronouncement on
        financial statements.
  In
        February of 2007 the FASB issued SFAS 159, “The Fair Value Option for Financial
        Assets and Financial Liabilities—Including an amendment of FASB Statement No.
        115.” The statement permits entities to choose to measure many financial
        instruments and certain other items at fair value. The objective is to improve
        financial reporting by providing entities with the opportunity to mitigate
        volatility in reported earnings caused by measuring related assets and
        liabilities differently without having to apply complex hedge accounting
        provisions. The statement is effective as of the beginning of an entity’s first
        fiscal year that begins after November 15, 2007. The company is analyzing
        the
        potential accounting treatment.
  -46-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
  FASB
        Staff Position on FAS No. 115-1 and FAS No. 124-1 (“the FSP”), “The Meaning of
        Other-Than-Temporary Impairment and Its Application to Certain Investments,” was
        issued in November 2005 and addresses the determination of when an investment
        is
        considered impaired, whether the impairment on an investment is
        other-than-temporary and how to measure an impairment loss. The FSP also
        addresses accounting considerations subsequent to the recognition of
        other-than-temporary impairments on a debt security, and requires certain
        disclosures about unrealized losses that have not been recognized as
        other-than-temporary impairments. The FSP replaces the impairment guidance
        on
        Emerging Issues Task Force (EITF) Issue No. 03-1 with references to
        existing authoritative literature concerning other-than-temporary
        determinations. Under the FSP, losses arising from impairment deemed to be
        other-than-temporary, must be recognized in earnings at an amount equal to
        the
        entire difference between the securities cost and its fair value at the
        financial statement date, without considering partial recoveries subsequent
        to
        that date. The FSP also required that an investor recognize other-than-temporary
        impairment losses when a decision to sell a security has been made and the
        investor does not expect the fair value of the security to fully recover
        prior
        to the expected time of sale. The FSP is effective for reporting periods
        beginning after December 15, 2005. The adoption of this statement will not
        have
        a material impact on our consolidated financial statements.
  FASB
        Interpretation 48 prescribes a recognition threshold and a measurement attribute
        for the financial statement recognition and measurement of a tax position
        taken
        or expected to be taken in a tax return. Benefits from tax positions should
        be
        recognized in the financial statements only when it is more likely than not
        that
        the tax position will be sustained upon examination by the appropriate taxing
        authority that would have full knowledge of all relevant information. The
        amount
        of tax benefits to be recognized for a tax position that meets the
        more-likely-than-not recognition threshold is measured as the largest amount
        of
        benefit that is greater than fifty percent likely of being realized upon
        ultimate settlement. Tax benefits relating to tax positions that previously
        failed to meet the more-likely-than-not recognition threshold should be
        recognized in the first subsequent financial reporting period in which that
        threshold is met or certain other events have occurred. Previously recognized
        tax benefits relating to tax positions that no longer meet the
        more-likely-than-not recognition threshold should be derecognized in the
        first
        subsequent financial reporting period in which that threshold is no longer
        met.
        Interpretation 48 also provides guidance on the accounting for and disclosure
        of
        tax reserves for unrecognized tax benefits, interest and penalties and
        accounting in interim periods. Interpretation 48 is effective for fiscal
        years
        beginning after December 15, 2006. The change in net assets as a result of
        applying this pronouncement will be a change in accounting principle with
        the
        cumulative effect of the change required to be treated as an adjustment to
        the
        opening balance of retained earnings on January 1, 2007, except in certain
        cases
        involving uncertainties relating to income taxes in purchase business
        combinations. In such instances, the impact of the adoption of Interpretation
        48
        will result in an adjustment to goodwill. While the Company analysis of the
        impact of adopting Interpretation 48 is not yet complete, it do not currently
        anticipate it will have a material impact on the Company’s consolidated
        financial statements.
  In
        September 2006, the Securities and Exchange Commission issued Staff Accounting
        Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when
        Quantifying Misstatements in Current Year Financial Statements,” (“SAB
        108”),which provides interpretive guidance on the consideration of the effects
        of prior year misstatements in quantifying current year misstatements for
        the
        purpose of a materiality assessment. The Company adopted SAB 108 in the fourth
        quarter of 2006 with no impact on its consolidated financial statements.
  -47-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 
 **Note
        3 - Principles of Consolidation**
 
 The
        accompanying consolidated financial statements include the accounts of Bodisen
        Biotech, Inc., its 100% wholly-owned subsidiary Bodisen Holdings, Inc. (“BHI”),
        BHI’s 100% wholly- owned subsidiary Yang Ling Bodisen Biology Science and
        Technology Development Company Limited (BBST), a 100% wholly-owned subsidiary,
        incorporated in March 2005, named Yang Ling Bodisen Agricultural Technology
        Co.,
        Ltd (Agricultural) and a 100% wholly-owned subsidiary, incorporated in June
        2006, named Sinkiang Bodisen Agriculture Material Co., Ltd. (Material). All
        significant inter-company accounts and transactions have been eliminated
        in
        consolidation.
  **Note
        4 - Advances to officers**
 
 During
        the six month period ending June 30, 2005, the Company advanced $2,383,217
        to 4
        officers as a short term loan. Said loan was interest free, unsecured, and
        payable upon demand. These loans were repaid during the quarter ended September
        30, 2005.
 
 **Note
        5 - Inventory**
 
 The
        inventory as of December 31, 2006 and 2005 consisted of the following
        :-
 
 **2006**
              
              **2005**Raw
                  Material
              
              $
              1,257,883
              
              $
              650,745Packaging
              
              
              161,923
              
              
              146,279Finished
                  Goods
              
              
              550,280
              
              
              549,533Consumables
              
              
              395
              
              
              3,5441,970,481
              
              
              1,350,101Less
                  : Obsolescence Reserve
              
              
              (175,896
              )
              
              (170,093
              )Net
                  Inventory
              
              $
              1,794,585
              
              $
              1,180,007
 
 
 **Note
        6 - Marketable Security**
 
 During
        the year ended December 31, 2005, the Company purchased 2,063,768 shares
        of
        China Natural Gas, Inc. (traded on the OTCBB: CHNG) for $2,867,346. At December
        31, 2006 and 2005, the fair value of this investment was $6,500,869 and
        $6,810,434, respectively, which resulted in an unrealized gain (loss) of
        ($309,565) and $3,943,088 for the years ended December 31, 2006 and 2005,
        respectively, which is included in other comprehensive income. At December
        31,
        2006, this represented an 8.5% interest in China Natural Gas, Inc. The CEO
        of
        the Company  was a former board member of China Natural Gas,
        Inc .
  **Note
        7 -Other Long-term Assets**
 
 During
        the year ended December 31, 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.
 
 -48-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 In
        August, 2006, the Company entered into a land lease agreement for 30 years.
        The
        annual lease expense approximately amounts to $169,580. The lease expense
        for
        the next 15 years amounting to $2,529,818 has been prepaid on signing of
        the
        agreement. The payment schedule for the remaining 15 years as follows
        :
  ·
              in
                  November, 2021 - prepayment for next 8 years commencing on November
                  2021
                  and
 ·
              in
                  November, 2029 - prepayment of remaining 7 years commencing on
                  November
                  2029
 
 The
        land
        lease prepayment as of December 31, 2006 can be summarized as
        follows:
 
 **2006**Prepaid
                  Lease (for 15 years)
              
              $
              2,569,818Current
                  portion
              
              
              173,246Long-term
                  portion
              
              $
              2,396,572
 
 The
        amortization expense as of December 31, 2006 was $28,264.
 
 Amortization
        expense for the prepayment of land lease over the next five fiscal years
        is
        estimated to be: 2007-$169,500, 2008-$169,500, 2009-$169,500, 2010-$169,500
        and
        2011-$169,500.
 
 
 **Note
        8 - Intangible Assets**
 
 Net
        intangible assets at December 31, 2006 and 2005 were as follows:
 **2006**
              
              **2005**Rights
                  to use land
              
              $
              1,741,386
              
              $
              1,693,833Fertilizers
                  proprietary technology rights
              
              
              1,025,120
              
              
              991,3042,793,506
              
              
              2,685,137Less
                  Accumulated amortization
              
              
              (739,160
              )
              
              (565,550
              )$
              2,054,346
              
              $
              2,119,587
 
 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.
 
 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.
 
 -49-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 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.
 
 Amortization
        expense for the Company’s intangible assets for the years ended December 31,
        2006, 2005 and 2004 amounted to $134,636, $131,004 and $130,181, respectively.
 
 Amortization
        expense for the Company’s intangible assets over the next five fiscal years is
        estimated to be: 2007-$130,000, 2008-$130,000, 2009-$130,000, 2010-$130,000
        and
        2011-$130,000.
  **Note
        9 - Short-Term Loans Payable**
 
 At
        December 31, 2004, the Company had three short-term notes payable outstanding
        that totaled $980,100. During the year ended December 31, 2005, all three
        notes
        were repaid in full.
  **Note
        10 - Note Payable**
 
 On
        December 8, 2005, the Company issued a $5,000,000 note payable to Amaranth
        Partners LLC that accrued interest at 9% per annum and was due on March 8,
        2006.
        In connection with this note payable agreement, the Company also issued to
        Amaranth Partners LLC a warrant to purchase 133,333 shares of the Company
        common
        stock for $7.50 per shares. The Company first determined the value of the
        note
        and the fair value of the detachable warrants issued in connection with this
        note payable. The estimated value of the warrants of $968,282 was determined
        using the Black-Scholes option pricing model and the following assumptions:
        term
        of 5 years, a risk free interest rate of 4.00%, a dividend yield of 0% and
        volatility of 31%. The face amount of the note payable of $5,000,000 was
        proportionately allocated to the note payable and the warrant in the amount
        of
        $4,188,810 and $811,190, respectively. The amount allocated to the warrants
        of
        $811,190 was recorded as a discount on the note payable and will be amortized
        over the year life of the note payable. For the year ended December 31, 2006
        and
        2005 $603,886 and $207,304, respectively, has been amortized to interest
        expense. The $5,000,000 note plus $112,500 of accrued interest were repaid
        in
        March 2006.
  **Note
        11 - Convertible Debenture** ****
 
 On
        March
        16, 2005, the Company completed a private placement offering. The Company
        received $3,000,000 and issued a one year 9% debenture convertible into shares
        of common stock by dividing the aggregate principal and accrued interest
        by a
        conversion price of $4.80; and three year warrants to purchase 187,500 shares
        of
        common stock at $4.80 per share and three year warrants to purchase 40,000
        shares of common stock at $6.88 per share.
 
 This
        debenture was considered to have an embedded beneficial conversion feature
        because the conversion price was less than the quoted market price at the
        time
        of the issuance. The Company allocated the proceeds of the debt between the
        warrant and the debt based on relative fair values which amounted to $365,881
        and $2,634,119. The beneficial conversion feature of $803,381 was recorded
        separately based on the intrinsic value method per EITF 00-27. During the
        year
        ended December 31, 2005, the entire $3,000,000 convertible debenture and
        $155,564 of accrued interest were converted into 657,402 shares of the Company’s
        common stock. In addition, because the entire principal balance of the
        convertible debenture was converted into common stock, the entire debt discount
        of $1,169,262 was amortized to interest expense.
  -50-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 **Note
        12 - Stockholders’ Equity**
  During
        the year ended December 31, 2005, the Company issued 657,402 share of common
        stock in connection with the conversion of a $3,000,000 convertible debenture
        and $155,564 of accrued interest. In addition, the Company also issued 195,500
        shares of common stock upon the exercise of warrants and received proceeds
        of
        $955,040.
 
 On
        February 3, 2006, the Company entered into a placing agreement (the "Placing
        Agreement") with Charles Stanley & Company Limited ("Charles
        Stanley”) relating to the sale of up to 1,643,836 shares of the Company's common
        stock. Pursuant to the Placing Agreement, Charles Stanley agreed to use its
        reasonable effort s
        to sell
        all such shares of common stock at a price of 730 pence (approximately US$12.99)
        per share, resulting in gross proceeds of approximately 12 million British
        pounds sterling (US$21,360,005). The Company incurred offering costs and
        expenses of $5,144,356 related to this sale of common stock. Of this amount
        $3,385,481 was paid to a firm that is associated with Benjamin Wey (who is
        the
        president of New York Global Group).
 
 In
        connection with the placement, the Company's shares were admitted to trading
        on
        the AIM Market of the London Stock Exchange. The Company's shares would continue
        to be listed on the American Stock Exchange.
 
 On
        March
        15, 2006, the Company completed financing of $5,322,506 by issuing 380,179
        restricted shares of common stock of the Company at $14.00 per share to
        institutional investors in a private placement pursuant to Regulation S.
        The
        Company incurred offering costs and expenses of $ 988,351
        related to this sale of common stock. Of this amount $778,346 was paid to
        a firm
        that is associated with Benjamin Wey. The proceeds from this financing were
        used
        to repay the $5 million short term note that the Company entered in December
        2005.
 
 During
        the year ended December 31, 2006, 165,333 warrants were exercised and the
        Company received proceeds of $1,220,160.
  Prior
          to
          the Company effectuating a reverse merger, various individuals (the
          "Investors") provided investment capital to a predecessor entity. 
After its formation, the Company issued share certificates of common stock
          to
          reflect the value of these investments. Pursuant to apparent agreement
          with the
          Investors,  the Company, issued the share certificates to certain
          individuals other than the Investors, including two officers of the Company,
          who
          held title to those shares as nominee for the benefit of the
          Investors.  In late 2005, some of the Investors began to request that the
          beneficially-held shares be transferred to them so that they could hold
          the
          shares in their own names.  All of the shares thus owned were transferred
          with the exception of approximately 738,000 shares.
 
 The
          nominees apparently do not assert any interest in or make any claim to
          the
          remaining shares.  The Company holds the original certificates representing
          approximately 738,000 shares in its office in Xi’an, China, for the benefit of
          the Investors or their assigns. The Company does not contest the rights
          of the
          appropriate investors on the certificate and remains willing to effectuate
          the
          transfer of the shares to appropriate investors or their assigns as the
          law
          allows. The record holders of the share certificates do not dispute the
          rights
          of the affected investors to receive the transfer of the shares as the
          law
          permits.
  The
          Company is not aware that  any of the Investors has expressed the right to
          receive any monetary compensation in the form of damages, interest or otherwise
          in connection with the delivery of the shares.  In consequence, the Company
          expresses no view as to whether or not an unfavorable outcome would be
          probable
          or remote or provide an estimate or range of potential loss if the outcome
          were
          unfavorable in the event that an Investor or Investors asserts a
          claim.
  **Note
        13 - Stock Options and Warrants**
 
 Stock
        Options
 
 In
        December 2002, the FASB issued SFAS No. 148 “Accounting for Stock Based
        Compensation- Transition and Disclosure”. SFAS No. 148 amends SFAS No. 123,
“Accounting for Stock Based Compensation”, to provide alternative methods of
        transition for a voluntary change to the fair value based method of accounting
        for stock-based employee compensation. In addition, this Statement amends
        the
        disclosure requirements of Statement 123 to require prominent disclosures
        in
        both annual and interim financial statements about the method of accounting
        for
        stock-based employee compensation and the effect of the method used, on reported
        results. The Statement is effective for the Companies’ interim reporting period
        ending January 31, 2003.
 
 -51-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 In
        compliance with FAS No. 148, the Company has elected to continue to follow
        the
        intrinsic value method in accounting for its stock-based employee compensation
        plan as defined by APB No. 25 and has made the applicable disclosures below.
 
 In
        2004
        the board of directors approved the creation of the 2004 Stock Option Plan.
        This
        plan provides for the grant of incentive stock options to employees, directors
        and consultants. Options issued under this plan will expire over a maximum
        term
        of five years from the date of grant.
 
 Pursuant
        to the Stock Option Plan, during the year ended December 31, 2004, the Company
        granted 110,000 stock options to two directors (55,000 options each), of
        which
        100,000 stock options was granted on June 4, 2004 and the balance of the
        10,000
        was granted on December 28, 2004.
 
 On
        the
        first 100,000 stock options granted, 50,000 stock options vested immediately
        and
        50,000 stock options became vested over 8 equal quarterly installments, with
        the
        first installment vesting at the end of the second quarter of 2004. The 10,000
        stock options granted on December 28, 2004 vested on December 31, 2004.
 
 The
        option exercise price was $5 for the first 100,000 stock options which was
        the
        same as fair value of the shares at the time of granting of the options.
        The
        option exercise price was $5.80 for the second 10,000 stock options which
        was
        the same as fair value of the shares at the time of granting of the options.
 
 On
        October 4, 2005, the Company granted 26,000 stock options to two directors
        (13,000 options each). 20,000 stock options vested immediately and the remaining
        6,000 stock options became vested 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.
 
 Following
        is a summary of the stock option activity:
 
 Outstanding,
                  December 31, 2003
              
              
              -Granted
              
              
              110,000Forfeited
              
              
              -Exercised
              
              
              -Outstanding,
                  December 31, 2004
              
              
              110,000Granted
              
              
              26,000Forfeited
              
              
              -Exercised
              
              
              -Outstanding,
                  December 31, 2005
              
              
              136,000Granted
              
              
              -Forfeited
              
              
              -Exercised
              
              
              -Outstanding,
                  December 31, 2006
              
              
              136,000
 
 -52-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 The
        intrinsic value of the options outstanding at December 31, 2006 was
        $50,000.
 
 Following
        is a summary of the status of options outstanding at December 31, 2006:
 
 Outstanding
                  Options
              
              
              
              Exercisable
                  OptionsExercise
                Price
              
              Number
              
              Average
                  Remaining
                Contractual
                  Life
              
              Average
                Exercise
                  Price
              
              Number
              
              Average
                Exercise
                  Price$5.00
              
              
              100,000
              
              
              2.42
              
              $
              5.00
              
              
              93,750
              
              $
              5.00$5.80
              
              
              10,000
              
              
              2.99
              
              $
              5.80
              
              
              10,000
              
              $
              5.80$6.72
              
              
              26,000
              
              
              3.76
              
              $
              6.72
              
              
              24,000
              
              $
              6.72
 
 For
        options granted during the year ended December 31, 2005, the weighted-average
        fair value of such options was $3.76.
 
 The
        assumptions used in calculating the fair value of options granted using the
        Black-Scholes option- pricing model are as follows:
  Risk-free
                  interest rate
              
              
              4.0
              %Expected
                  life of the options
              
              
              5.00
                  yearsExpected
                  volatility
              
              
              62
              %Expected
                  dividend yield
              
              
              0
 
 For
        options granted during the year ended December 31, 2004, the weighted-average
        fair value of such options was $1.92.
 
 The
        assumptions used in calculating the fair value of options granted using the
        Black-Scholes option- pricing model are as follows:
  First
        100,000 stock options granted on June 4, 2004:
 
 Risk-free
                  interest rate
              
              
              4.0
              %Expected
                  life of the options
              
              
              5.00
                  yearsExpected
                  volatility
              
              
              35
              %Expected
                  dividend yield
              
              
              0
 
 -53-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 Second
        10,000 stock options granted on December 28, 2004
 
 Risk-free
                  interest rate
              
              
              4.0
              %Expected
                  life of the options
              
              
              5.00
                  yearsExpected
                  volatility
              
              
              40
              %Expected
                  dividend yield
              
              
              0
 
 Had
        the
        Company determined employee stock based compensation cost based on a fair
        value
        model at the grant date for its stock options under SFAS 123, the Company’s net
        earnings per share would have been adjusted to the pro forma amounts for
        the
        years ended December 31, 2005 and 2004 as follows ($ in thousands, except
        per
        share amounts):
 
 
 2005
              
              2004Net
                  income:As
                  reported
              
              $
              7,421,112
              
              $
              5,027,403Stock-Based
                  employee compensation expense included in reported net income,
                  net of
                  tax
              
              
              —
              
              
              —Total
                  stock-based employee compensation expense determined under
                  fair-value-based method for all rewards, net of tax
              
              
              (106,000
              )
              
              (153,000
              )Pro
                  forma
              
              $
              7,315,112
              
              $
              4,874,403Basic
                  earnings per share:As
                  reported
              
              $
              0.48
              
              $
              0.33Pro
                  forma
              
              $
              0.47
              
              $
              0.32Diluted
                  earnings per share:As
                  reported
              
              $
              0.48
              
              $
              0.33Pro
                  forma
              
              $
              0.47
              
              $
              0.32
 
 Warrants
 
 Following
        is a summary of the warrant activity:
 
 Outstanding,
                  December 31, 2004
              
              
              -Granted
              
              
              360,833Forfeited
              
              
              -Exercised
              
              
              (195,500
              )Outstanding,
                  December 31, 2005
              
              
              165,333Granted
              
              
              -Forfeited
              
              
              -Exercised
              
              
              (165,333
              )Outstanding,
                  December 31, 2006
              
              
              -
 
 -54-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 
 **Note
        14 - Supplemental Disclosure of Cash Flows**
 
 The
        Company prepares its statements of cash flows using the indirect method as
        defined under SFAS No. 95.
 
 The
        Company paid $112,500, $68,144 and $60,231 of interest and $0, $0 and $0
        of
        income taxes during the years ended December 31, 2006, 2005 and 2004,
        respectively.
  **Note
        15 - 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 the employee welfare plan. The total expense for the
        welfare plan was $3,713, $82,705 and $80,761 for the years ended December
        31,
        2006, 2005 and 2004, respectively. The Company has recorded welfare payable
        of
        $263,064 and $260,071 at December 31, 2006 and 2005, respectively, which
        is
        included in accrued expenses in the accompanying consolidated balance sheet.
  **Note
        16 - 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.
 
 Pursuant
        to the "Circular of the Ministry of Finance ( MOF) on the Issue of Corporate
        Financial Management after the Corporate Law Enforced" (No.67 [2006]), effective
        on April 1, 2006, issued by the MOF, the companies will transfer the balance
        of
        SCWF as of December 31, 2005 to Statutory Surplus Reserve. Any deficit in
        the
        SCWF will be charged in turn to Statutory Surplus Reserve, additional paid-in
        capital and undistributed profit of previous years. If a deficit still remains,
        it should be transferred to retained earnings and be reduced to zero by a
        transfer from after tax profit of following years. At December 31, 2006,
        the
        Company did not have a deficit in the SCWF.
 The
        Company has appropriated $1,947,557, $1,349,026 and $754,111as reserve for
        the
        statutory surplus reserve and welfare fund for the years ended December 31,
        2006, 2005 and 2004, respectively.
 
 -55-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 
 **Note
        17 - Factory Location and Lease Commitments**
 
 BBST’s
        principal executive offices are located at North Part of Xinquia Road, Yang
        Ling
        Agricultural High-Tech Industries Demonstration Zone Yang Ling, Shaanzi
        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 $2,180 and the leases expire in 2013.
 
 -56-
 
 **Bodisen
          Biotech, Inc. and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**
 **For
          the Years Ended December 31, 2006, 2005 and
          2004**
   **Note
        18 - Earnings Per Share**
 
 Earnings
        per share for years ended December 31, 2006, 2005 and 2004 were determined
        by
        dividing net income for the periods by the weighted average number of both
        basic
        and diluted shares of common stock and common stock equivalents outstanding.
 
 The
        following is an analysis of the differences between basic and diluted earnings
        per common share in accordance with Statement of Financial Accounting Standards
        No. 128, “Earnings Per Share”.
 
 **Year
                  Ended December 31,****2006**
              
              **2005**
              
              **2004****Per**
              
              
              
              
              
              **Per**
              
              
              
              
              
              **Per****Income**
              
              **Shares**
              
              **Share**
              
              **Income**
              
              **Shares**
              
              **Share**
              
              **Income**
              
              **Shares**
              
              **Share****Basic
                  earnings per share**Net
                  income
              
              $
              13,730,827
              
              
              
              
              
              
              
              $
              7,421,112
              
              
              
              
              
              
              
              $
              5,027,403Weighed
                  shares outstanding
              
              
              
              
              
              17,966,090
              
              
              
              
              
              
              
              
              15,427,494
              
              
              
              
              
              
              
              
              15,268,000$
              0.76
              
              
              
              
              
              
              
              $
              0.48
              
              
              
              
              
              
              
              $
              0.33**Diluted
                  earnings per share**Net
                  income
              
              $
              13,730,827
              
              
              
              
              
              
              
              $
              7,421,112
              
              
              
              
              
              
              
              $
              5,027,403Weighed
                  shares outstanding
              
              
              
              
              
              17,966,090
              
              
              
              
              
              
              
              
              15,427,494
              
              
              
              
              
              
              
              
              15,268,000Effect
                  of dilutive securitiesOptions
              
              
              
              
              
              66,074
              
              
              
              
              
              
              
              
              83,663
              
              
              
              
              
              
              
              
              60,356Warrants
              
              
              
              
              
              40,269
              
              
              
              
              
              
              
              
              78,179
              
              
              
              
              
              
              
              
              -18,072,433
              
              
              
              
              
              
              
              
              15,589,336
              
              
              
              
              
              
              
              
              15,328,356$
              0.76
              
              
              
              
              
              
              
              $
              0.48
              
              
              
              
              
              
              
              $
              0.33
 
 -57-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 **Note
        19 - Merger Agreement**
  On
        February 11, 2004, Stratabid entered into an Agreement and Plan of Merger
        with
        Bodisen Acquisition Corp., a Delaware corporation (“BAC”) wholly-owned by
        Stratabid, Bodisen International, Inc., a Delaware corporation (“BII”) and the
        stockholders of BII. BII has one 100% wholly-owned subsidiary in Shaanxi,
        China,
        Yang Ling Bodisen Biology Science and Technology Development Company Limited
        (“BBST”). Under the terms of the agreement, BAC acquired 100% of BII’s stock in
        exchange for the issuance by Stratabid of three million shares of its common
        stock to the holders of BII. The new shares constitute approximately 79%
        of the
        outstanding shares of Stratabid, which changed its name to Bodisen Biotech,
        Inc.
        (the “Company”). The Agreement and Plan of Merger was closed on February 24,
        2004.
 
 BII’s
        Chairman of the Board was appointed the Company’s Chief Executive Officer.
 
 At
        the
        Effective Time, by virtue of the Merger and without any action on the part
        of
        the BAC, BII or the BII Stockholders, the shares of capital stock of each
        of BII
        and the BAC were converted as follows:
 
 i.
              Capital
                  Stock of the BAC. Each issued and outstanding share of the BAC’s capital
                  stock continued to be issued and outstanding and was converted
                  into one
                  share of validly issued, fully paid, and non- assessable common
                  stock of
                  the Surviving Company (Bodisen Holdings, Inc.). Each stock certificate
                  of
                  the BAC evidencing ownership of any such shares continued to evidence
                  ownership of such shares of capital stock of the Surviving Company.
 
 ii.
              Conversion
                  of BII Shares. Each BII Share that was issued and outstanding at
                  the
                  Effective Time was automatically cancelled and extinguished and
                  converted,
                  without any action on the part of the holder thereof, into the
                  right to
                  receive at the time and in the amounts described in the Agreement
                  an
                  amount of Acquisition Shares equal to the number of Acquisition
                  Shares
                  divided by the number of BII Shares outstanding immediately prior
                  to
                  Closing. All such BII Shares, so converted, were no longer outstanding
                  and
                  were automatically cancelled and retired and ceased to exist, and
                  each
                  holder of a certificate representing any such shares ceased to
                  have any
                  rights with respect thereto, except the right to receive the Acquisition
                  Shares paid in consideration therefore upon the surrender of such
                  certificate in accordance with the Agreement.
 
 iii.
              Within
                  thirty (30) days from the Closing Date, Stratabid was required
                  to sell its
                  business operations, as they existed immediately prior to the Closing,
                  to
                  Derek Wasson, former president. . As part of the merger transaction
                  and in
                  consideration of the sale, Mr. Wasson returned 750,000 (3,000,000
                  post-split) Common Shares to Stratabid for cancellation. The return
                  of
                  750,000 (3,000,000 post-split) shares by Mr. Wasson was canceled
                  concurrently with the merger as part of the recapitalization of
                  the
                  Company. The return of these shares was recorded by Stratabid just
                  prior
                  to the merger; therefore, the cancellation of these shares is not
                  presented in the accompanying financial statements since the merger
                  has
                  been accounted for as a recapitalization of the Company. The accompanying
                  financial statements are those of the Company, not Stratabid. The
                  net
                  assets of Stratabid recorded as part of recapitalization were after
                  accounting for the returned shares by Mr. Wasson. In addition,
                  Mr. Wasson
                  forgave all indebtedness owed by Stratabid to Mr. Wasson. Other
                  than
                  indebtedness of BII, Stratabid 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.
 
 -58-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 
 **Note
        20 - Current Vulnerability Due to Certain Concentrations**
 
 Three
        vendors provided 47.5%, 17.7% and 12.5% of the Company’s raw materials for the
        year ended December 31, 2006. Four vendors provided 29.9%, 22.4%, 11.6% and
        11.2% of the Company’s raw materials for the year ended December 31, 2005. Four
        vendors provided 25.9%, 19.9%, 14.0% and 10.0% of the Company’s raw materials
        for the year ended December 31, 2004.
 
 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
        21 - Reclassifications**
 
 Certain
        prior period amounts have been reclassified to conform to the year ended
        December 31, 2006 presentation.
  **Note
        22 - Subsequent Events**
 
 On
        March
        22, 2007, the American Stock Exchange (“Amex”) delivered a notice to the Company
        confirming that the Amex intends to strike the common stock of the Company
        from
        the Amex by filing a delisting application with the Securities and Exchange
        Commission (the “SEC”).
 
 The
        following is the basis for delisting the Company’s common stock as determined by
        the Amex staff and as set forth in the March 22, 2007 notice from the Amex.
        The
        Company is required under applicable SEC and Amex provisions to disclose
        the
        rules upon which a delisting is sought and the specific continued listing
        deficiencies upon which the delisting is based. The recitation of what the
        AMEX
        describes as determinations of its staff regarding the Company does not mean
        that the Company accepts any of the staff determinations or any related factual
        or legal conclusions.
 
 A.
              Bodisen
                  failed to comply with its Securities and Exchange reporting obligations
                  by
                  filing incomplete, misleading and/or inaccurate information in
                  its public
                  filings through the SEC’s Electronic Data Gathering Analysis and Retrieval
                  (‘EDGAR’) system. The Company’s actions in this regard raise significant
                  public interest concerns as well as constituting material violations
                  of
                  federal and/or state securities laws. Specifically:
 
 1.
              The
                  Company’s SEC filings contained incomplete, misleading and/or inaccurate
                  disclosures regarding the beneficial ownership of its securities
                  by
                  certain officers and directors on several occasions, prior to and
                  subsequent to its listing on the Amex. These officers and directors
                  knew
                  or should have known that certain filings including Forms 3, Forms
                  10KSB
                  and 10KSB/A for the periods ended December 31, 2004 and 2005 and
                  the Form
                  DEF 14-A filed on December 1, 2006 were incomplete, misleading
                  and/or
                  inaccurate yet failed to update and/or correct the relevant disclosures
                  contained therein in subsequent SEC filings.
 
 -59-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 2.
              The
                  Company’s disclosures in applicable registration statements and periodic
                  financial filings with respect to the net proceeds from the February
                  3,
                  2006 Placing Agreement related to its listing on the AIM Market
                  of the
                  London Stock Exchange, and the offering costs and expenses related
                  to its
                  March 15, 2006 private placement were incomplete, inaccurate and/or
                  misleading.
 
 3.
              The
                  Company provided incomplete, inaccurate and/or misleading information
                  related to its relationship with, and payments to, a consultancy
                  firm and
                  its affiliates prior to and subsequent to its listing on the Amex
                  in
                  applicable registration statements and periodic financial filings.
 
 Based
        on
        the foregoing, Staff has determined that the Company is not in compliance
        with
        Sections 132(a), 134, and 1101 of the Company Guide. In addition, due to
        the
        public interest concerns, the Company is subject to suspension from dealings
        on
        the Exchange pursuant to Sections 127 and 1003(f)(iii) of the Company Guide.”
 
 B.
              The
                  Company failed to provide public clarification to rumors and/or
                  reports
                  related to the filing of various Forms 144 between August 1, 2006
                  through
                  December 1, 2006. Specifically, notwithstanding articles in the
                  press
                  concerning the filing of numerous Forms 144, the Company failed
                  to make
                  appropriate public disclosure addressing the concerns related to
                  the
                  transfer or sales of common stock by insiders and apparent inconsistencies
                  with prior public disclosure of controlling stock ownership, as
                  required
                  by Sections 132(a), 401(a), 402(a) and 403 of the Company Guide.”
 
 C.
              Bodisen
                  failed to provide information and documents reasonably requested
                  by the
                  Staff related to the beneficial ownership of the Company’s securities held
                  by certain officers and directors as required by Section 132(e)
                  of the
                  Company Guide. Further, Bodisen has been unable to provide written
                  updates
                  to the Staff as required pursuant to the terms of the acceptance
                  of the
                  Company’s plan or written responses to the Staff’s information request
                  dated March 16, 2007, as required by Section 132(e) of the Company
                  Guide.”
 
 D.
              Bodisen
                  has internal control weaknesses related to its accounting and financial
                  reporting obligations which rise to the level of a public interest
                  concern. Based on information received by the Staff, the Company
                  failed to
                  consistently review and reconcile its shareholders ownership records
                  with
                  those of its transfer agent to ensure that its SEC filings and
                  public
                  disclosures were accurate. In this regard, the Company continuously
                  reported in its SEC filings since listing on the Amex that certain
                  officers either directly or indirectly held an aggregate of 40%
                  ownership
                  in the Company’s common stock, notwithstanding that its transfer agent
                  records were inconsistent with such reports and disclosures. Further,
                  by
                  failing to reconcile these records, the Company may have inaccurately
                  reported its capitalization. Accordingly pursuant to Sections 127
                  and
                  1003(f)(iii) of the Company Guide the Company is subject to suspension
                  from dealings on the Exchange.”
 
 -60-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 The
                  deficiencies described above evidence that the Company has engaged
                  in a
                  pattern and practice of non-compliance with Amex listing requirement
                  encompassing a broad range of qualitative and corporate governance
                  concerns as well as violations of applicable federal and/or state
                  securities laws, which collectively rise to the level of a public
                  interest
                  concern and subject Bodisen to delisting pursuant to Sections 127
                  and
                  1003(f) (iii) of the Company Guide. In this regard, notwithstanding
                  that
                  it is the responsibility of management and the board of directors
                  to
                  ensure that the Company operates in compliance with all applicable
                  laws,
                  rules and regulations, the Company has evidenced that it is unable
                  to (i)
                  effectively monitor its compliance with federal and/or state securities
                  laws, as well as Amex requirements, and (ii) appropriately oversee
                  the
                  actions and activities of its consultants, agents and advisors.”
 
 E.
              On
                  March 20, 2007, Bodisen filed a Form 8-K which indicated that it
                  would be
                  unable to timely file its Form 10-K for fiscal year ended December
                  31,
                  2006, and that the Company could not predict when it would file
                  the
                  report. To date, the filing has not been made, as required by Sections
                  134
                  and 1101 of the Amex Company Guide.”
 
 The
        Company has a limited right to appeal the basis for the delisting determination
        by requesting a hearing with an Amex Listing Qualifications Panel. The Company
        has determined not to appeal.
 
 **Note
        23- Litigation**
 
 The
        company is involved in a variety of claims, suits, investigations and
        proceedings that arise from time to time in the ordinary course of its business,
        including actions with respect to contracts, intellectual property (IP),
        product
        liability, employment, benefits, securities, and other matters.  These
        actions may be commenced by a number of different constituents, including
        competitors, partners, clients, current or former employees, government and
        regulatory agencies, stockholders, and representatives of the locations in
        which
        we do business. The following is a discussion of some of the more significant
        legal matters involving the Company.
 
 -61-
 
 **Bodisen
            Biotech, Inc. and Subsidiaries**
 **Notes
            to Consolidated Financial Statements**
 **For
            the Years Ended December 31, 2006, 2005 and
            2004**
 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 general
        and non-specific allegations about prior financial disclosures and our internal
        controls and a prior, now-terminated relationship with a financial
        advisor.
 
 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).
 
 The
        court
        has consolidated each of the actions into a single proceeding and as of the
        date
        of this annual report, only plaintiffs in two of the actions have served
        summons
        and complaint on our company.  The time for us to respond formally to these
        lawsuits has not come.  Thus, we have not responded to any of the
        complaints in these class actions.  The complaints do not specify an amount
        of damages that plaintiff seek.
 
 Because
        these matters are in early stages, we cannot comment on whether an adverse
        outcome is probable or otherwise.  While we believe we have meritorious
        defenses to each of these actions and intend to defend them vigorously, an
        adverse outcome in one or more of these matters could have a material adverse
        effect on our business, financial condition, results of operations or
        liquidity.
 -62-
   **FINANCIAL
        STATEMENT SCHEDULES**
 
 **SCHEDULE
        I**
 
 
 
 **BODISEN
                  BIOTECH, INC.****BALANCE
                  SHEET - US HOLDING COMPANY ONLY****AS
                  OF DECEMBER 31, 2006 AND 2005****2006**
              
              **2005****ASSETS****INTERCOMPANY
                  RECEIVABLE, net**
              
              $
              26,503,350
              
              $
              8,955,040**TOTAL
                  ASSETS**
              
              $
              26,503,350
              
              $
              8,955,040**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****CURRENT
                  LIABILITIES:**Note
                  payable, net of discount of $603,886
              
              $
              -
              
              $
              4,396,114Accounts
                  payable
              
              
              10,427
              
              
              10,427Accrued
                  expenses
              
              
              10,623
              
              
              10,623Total
                  current liabilities
              
              
              21,050
              
              
              4,417,164**STOCKHOLDERS'
                  EQUITY:**Preferred
                  stock, $0.0001 per share; authorized 5,000,000 shares; none issuednil
                  issued and outstandingCommon
                  stock, $0.0001 per share; authorized 30,000,000 shares;18,161,450
                  and 16,120,902 issued and outstanding
              
              
              1,831
              
              
              1,613Additional
                  paid-in capital
              
              
              28,645,058
              
              
              6,089,443Retained
                  earnings
              
              
              (2,164,589
              )
              
              (1,553,180
              )Total
                  stockholders' equity
              
              
              26,482,300
              
              
              4,537,876**TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY**
              
              $
              26,503,350
              
              $
              8,955,040
 
 -63-
  
 **BODISEN
                  BIOTECH, INC.****STATEMENTS
                  OF OPERATIONS - US HOLDING COMPANY ONLY****FOR
                  THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004****2006**
              
              **2005**
              
              **2004****Net
                  Revenue**
              
              $
              -
              
              $
              -
              
              $
              -**Cost
                  of Revenue**
              
              
              -
              
              
              -
              
              
              -**Gross
                  profit**
              
              
              -
              
              
              -
              
              
              -Operating
                  expensesSelling
                  expenses
              
              
              -
              
              
              -
              
              
              -General
                  and administrative expenses
              
              
              7,523
              
              
              -
              
              
              -Total
                  operating expenses
              
              
              7,523
              
              
              -
              
              
              -**Loss
                  from operations**
              
              
              (7,523
              )
              
              -
              
              
              -Non-operating
                  income (expense):Other
                  income (expense)
              
              
              -
              
              
              -
              
              
              -Interest
                  income
              
              
              -
              
              
              -
              
              
              -Interest
                  expense
              
              
              (603,886
              )
              
              (1,532,130
              )
              
              -Total
                  non-operating income (expense)
              
              
              (603,886
              )
              
              (1,532,130
              )
              
              -**Net
                  loss**
              
              $
              (611,409
              )
              $
              (1,532,130
              )
              $
              -
  -64-
 
 **BODISEN
                  BIOTECH, INC.****STATEMENT
                  OF CASH FLOWS - US HOLDING COMPANY ONLY****FOR
                  THE YEARS ENDED DECEMBER 31, 2006 2005 AND 2004****2006**
              
              **2005**
              
              **2004****CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (611,409
              )
              $
              (1,532,130
              )
              $
              -Adjustments
                  to reconcile net loss to net cashprovided
                  in operating activities:Common
                  stock issued for interest expense
              
              
              -
              
              
              155,564
              
              
              -Amortization
                  of debt discounts
              
              
              603,886
              
              
              1,376,566
              
              
              -Value
                  of vested option issued to directors
              
              
              7,523Net
                  cash provided by operating activities
              
              
              -
              
              
              -
              
              
              -**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Advances
                  to Chinese subsidiaries
              
              
              (17,548,310
              )
              
              (8,955,040
              )
              
              -Net
                  cash used in investing activities
              
              
              (17,548,310
              )
              
              (8,955,040
              )
              
              -**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Proceeds
                  from issuance of convertible note
              
              
              -
              
              
              3,000,000
              
              
              -Proceeds
                  from issuance of note payable
              
              
              -
              
              
              5,000,000
              
              
              -Proceeds
                  from issuance of common stock
              
              
              26,682,511
              
              
              -
              
              
              -Payment
                  of offering costs
              
              
              (5,354,361
              )
              
              -
              
              
              -Proceeds
                  from the exercise of warrants
              
              
              1,220,160
              
              
              955,040
              
              
              -Payment
                  on notes payable
              
              
              (5,000,000
              )
              
              -
              
              
              -Net
                  cash provided by financing activities
              
              
              17,548,310
              
              
              8,955,040
              
              
              -**NET
                  INCREASE IN CASH & CASH EQUIVALENTS**
              
              
              -
              
              
              -
              
              
              -**CASH
                  & CASH EQUIVALENTS, BEGINNING BALANCE**
              
              
              -
              
              
              -
              
              
              -**CASH
                  & CASH EQUIVALENTS, ENDING BALANCE**
              
              $
              -
              
              $
              -
              
              $
              -**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:**Interest
                  paid
              
              $
              -
              
              $
              -
              
              $
              -Income
                  taxes paid
              
              $
              -
              
              $
              -
              
              $
              -
   -65-




**ITEM
      9.**  **CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





None.





**ITEM
      9A.**  **CONTROLS
      AND PROCEDURES**





**Disclosure
      Controls and Procedures**





The
      Chief
      Executive Officer and Chief Financial Officer conducted an evaluation of the
      effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
      of
      1934, as amended (the Exchange Act)) as of the end of the period covered by
      this
      report. Based on that evaluation, the Chief Executive Officer and Chief
      Financial Officer concluded that our disclosure controls and procedures were
      not
      effective as of the end of the period covered by this report to ensure that
      information required to be disclosed in the reports that we file or submit
      under
      the Exchange Act is accumulated and communicated to our management, including
      our Chief Executive Officer and Chief Financial Officer, as appropriate to
      allow
      timely decisions regarding required disclosures. The reasons that our Chief
      Executive Officer and Chief Financial Officer arrived at this conclusion
      are:





·
            *Our
                delisting from the Amex*.
                As described in our current report on Form 8-K dated March 28, 2007
                (the
                “March 2007 Form 8-K”), including the Exhibit thereto, the American Stock
                Exchange, or Amex, delivered notice to us confirming that it intended
                to
                strike our common stock from the Amex. As described in the March
                2007 Form
                8-K, the precise basis for the Amex delisting determination called
                into
                question certain disclosures (or the failure to make certain disclosures)
                in the reports that we filed or submitted under the Exchange Act.
                Although
                we do not accept all of the determinations or any related factual or
                legal conclusions of the staff of the Amex regarding our company,
                our
                Chief Executive Officer and Chief Financial Officer cannot make a
                determination at this time that our disclosure controls and procedures
                were effective as of the end of the period covered by this
                report.





·
            *Our
                inability to timely file this annual report on Form 10-K*.
                Effective disclosure controls and procedures ensure that management
                receives information as appropriate to allow timely decisions regarding
                required disclosures. Because of the substantial time and resources
                that
                we have devoted to our investigation of the conclusions of the staff
                of
                the Amex regarding our company as set out in the March 2007 Form
                8-K,
                information required to be disclosed in this annual report on Form
                10-K
                was not accumulated and communicated to our management as appropriate
                to
                allow timely decisions regarding the disclosures required in this
                annual
                report. For this reason, we were not able to file this annual report
                within the time period prescribed and our management is not able
                to make a
                determination at this time that our disclosure controls and procedures
                were effective as of the end of the period covered by this
                report.





·
            *Our
                inability to complete the Management’s Annual Report on Internal Control
                over Financial Reporting*.
                For the reasons described below under “Internal Control over Financial
                Reporting,” our management’s assessment of our internal controls over
                financial reporting was substantially delayed and is not complete
                as of
                the date of this annual report. Because we were not able to complete
                this
                report within the time period prescribed and include such report
                in this
                annual report on Form 10-K, our management is not able to make a
                determination at this time that our disclosure controls and procedures
                were effective as of the end of the period covered by this
                report.





In
      light
      of the foregoing, we are working diligently with our Board of Directors and
      outside advisors to design and implement more formal disclosure controls and
      procedures to ensure that such procedures are effective.





Notwithstanding
      the conclusion that our disclosure controls and procedures were 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.




-66-




**Internal
      Control over Financial Reporting**





*Management’s
      Annual 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 Exchange Act. Our internal control over financial reporting is
      designed to provide reasonable assurance regarding the reliability of financial
      reporting and the preparation of financial statements for external purposes
      in
      accordance with generally accepted accounting principles. Our internal control
      over financial reporting includes those policies and procedures that (1) pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of our assets, (2) provide reasonable
      assurances that transactions are records as necessary to permit preparation
      of
      financial statements in accordance with generally accepted accounting
      principles, and that our receipts and expenditures are being made only in
      accordance with authorizations of our management and directors; and (3) provide
      reasonable assurance regarding prevention or timely detection of unauthorized
      acquisition, use or disposition of our assets that could have a material effect
      on the consolidated financial statements.





Until
      the
      end of 2006, we did not know that we would be considered an “accelerated filer”
and would be required to assess and evaluate our internal controls over
      financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of
      2002 (“SOX 404”) as of the end of the period covered by this annual report on
      Form 10-K. Although we had previously engaged an outside consulting firm to
      assist us in preparing to implement SOX 404, because we did not have an accurate
      understanding of when compliance with SOX 404 was required, our work to
      implement SOX 404 was not sufficiently advanced in order for us to complete
      the
      evaluation on a timely basis. In addition, we devoted substantial time and
      resources to the investigation of the conclusions of the staff of the Amex
      regarding our company as set out in the March 2007 Form 8-K, which further
      delayed our ability to document, assess and evaluate our internal controls
      over
      financial reporting. For the foregoing reasons, management’s assessment of the
      effectiveness of our internal control over financial reporting has been
      substantially delayed and is not complete, which in turn has prevented our
      independent registered public accounting firm, Kabani & Company, Inc., from
      being able to satisfactorily complete an audit of our internal control over
      financial reporting pursuant to SOX 404. For this reason, Kabani & Company,
      Inc. has disclaimed an opinion on our internal control over financial reporting.





Management
      believes that it is taking appropriate steps to implement compliance with SOX
      404 and is working diligently with its independent consulting firm to document
      its internal controls over financial reporting, identify any deficiencies or
      material weaknesses in its internal controls over financial reporting, evaluate
      and implement recommended changes to its internal controls over financial
      reporting and test its internal controls over financial reporting. In making
      our
      assessment of internal control over financial reporting, management is using
      the
      criteria established in the “Internal Control - Integrated Framework” issued by
      the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
      Because our evaluation of internal controls is not yet complete, we cannot
      assure you that we will not discover any material weaknesses; however management
      will continue to work with the independent consulting firm and work towards
      compliance with SOX 404 as of December 31, 2006.





*Attestation
      Report of the Registered Public Accounting Firm*





To
      the
      Board of Directors and Shareholders of Bodisen Biotech, Inc.




We
      were
      engaged to audit management’s assessment included in the accompanying
      Management’s Report on Internal Control Over Financial Reporting, that Bodisen
      Biotech, Inc. and Subsidiaries (the “Company”) maintained effective internal
      control over financial reporting as of December 31, 2006, based on criteria
      established in Internal Control - Integrated Framework issued by the Committee
      of Sponsoring Organizations of the Treadway Commission (COSO).  Bodisen
      Biotech, Inc.. and Subsidiaries management is responsible for maintaining
      effective internal control over financial reporting and for its assessment
      of
      the effectiveness of internal control over financial reporting.




Management
      has not completed its assessment of internal control over financial reporting,
      in a timely fashion, which has prevented us from being able to satisfactorily
      complete an audit of the Company’s internal control over financial
      reporting.




-67-




A
      company’s internal control over financial reporting is a process designed to
      provide reasonable assurance regarding the reliability of financial reporting
      and the preparation of financial statements for external purposes in accordance
      with generally accepted accounting principles. A company’s internal control over
      financial reporting includes those policies and procedures that (1) pertain
      to the maintenance of records that, in reasonable detail, accurately and fairly
      reflect the transactions and dispositions of the assets of the company;
      (2) provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of financial statements in accordance with
      generally accepted accounting principles, and that receipts and expenditures
      of
      the company are being made only in accordance with authorizations of management
      and directors of the company; and (3) provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use,
      or
      disposition of the company’s assets that could have a material effect on the
      financial statements.




Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.




Since
      management has not completed all the steps necessary to enable us to
      satisfactorily complete an audit of their internal control over financial
      reporting, in a timely fashion the scope of our work was not sufficient to
      enable us to express, and we do not express, an opinion either on management’s
      assessment or on the effectiveness of the company’s internal control over
      financial reporting. We have not relied on the Company’s internal controls in
      designing our audit procedures.





We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated financial statements of
      Bodisen Biotech, Inc. and our report dated March 26, 2007 expressed an
      unqualified opinion.


/s/ Kabani
              & Co.**Certified Public
              Accountants**Los
                Angeles, California
              March
                26, 2007





*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
      2006
      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
      AND EXECUTIVE OFFICERS** **OF THE REGISTRANT**





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




**Name**
            
            **Age**
            
            **Position**Bo
                Chen
            
            50
            
            Chairman,
                Chief Executive Officer and PresidentQiong
                Wang
            
            42
            
            DirectorPatrick
                McManus
            
            52
            
            DirectorDavid
                Gatton
            
            53
            
            DirectorLinzhang
                Zhu
            
            56
            
            DirectorChunsheng
                Wang
            
            44
            
            Chief
                Operating OfficerYiliang
                Lai
            
            42
            
            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.




-68-




**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.





**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.





**Patrick
      McManus,** Director
      of Bodisen - Mr. Patrick McManus, CPA, J.D joined Bodisen’s Board of Directors
      on May 1, 2004 as an independent board member. Mr. McManus brings over 25 years
      of experience in business, finance and law to Bodisen. He was elected Mayor
      of
      the City of Lynn, Massachusetts in 1992 and served in this position until his
      retirement to the private practice of law and accounting in 2002. While serving
      the City of Lynn as its Mayor, he was elected a member and trustee of the
      Executive Committee of the U.S. Conference of Mayors (USCM) with responsibility
      for developing policy for the USCM. He also served as the Chairman of the USCM
      Science and Technology Subcommittee, the Urban Water Council, and the USCM
      Audit
      Committee. Mr. McManus started his career in business with the General Electric
      Company in 1979, and was a Professor of Business and Finance at Salem State
      College in Massachusetts. He was instrumental in establishing a close alliance
      as well as coordinating a regular exchange of visits by members of the U.S.
      Conference of Mayors and the China Association of Mayors. Mr. McManus has been
      a
      Certified Public Accountant since 1985. Mr. McManus received his Juris Doctorate
      from Boston College Law School and an MBA from Suffolk University. Mr. McManus
      also serves as a director of Harbin Electric Co., which is based in Harbin,
      China, and China Natural Gas Co., which is based in Xi’an, China.





**David
      Gatton,** Director
      of Bodisen - Mr. Gatton joined Bodisen’s Board of Directors on May 1, 2004 as an
      independent board member. Mr. Gatton also serves as the Chairman and President
      of Development Initiatives, Inc, a Washington, DC-based government relations
      firm specializing in urban affairs, business development and marketing, serving
      a variety of public and private clients. Mr. Gatton advises cities,
      organizations, and companies on business development strategies, public/private
      partnerships and marketing initiatives. He has advised various organizations
      on
      tax reform, economic development initiatives and a variety of environmental
      laws, including the reauthorization of the following Acts of the United States:
      the Clean Water Act, the Safe Drinking Water Act, the Resource Conservation
      and
      Recovery Act, Superfund and the Clean Air Act. Some of Mr. Gatton’s major
      accomplishments include: development of U.S. Sino Memorandum of Cooperation
      between U.S. and China Association of Mayors, development of a national
      brownfield redevelopment initiative, development of several multifamily low-
      and
      moderate-income housing developments, business development strategies for
      various private firms, and assistance in development of economic development
      projects for numerous cities. Mr. Gatton holds a B.A. from Cornell College,
      and
      a Master’s degree from Harvard University. Mr. Gatton also serves as an
      independent director of Harbin Electric Co., which is based in Harbin, China.





**Linzhang
      Zhu,** Director
      of Bodisen - Mr. Linzhang Zhu joined Bodisen’s Board of Directors in October
      2006 as an independent board member. Mr. Zhu was the Vice-Chairman of the
      Yangling government from December 1997 until 2000. Mr. Zhu was appointed as
      Chairman of the Yangling government in December 2000 and retired in October
      2006. Mr. Zhu received a degree from China Center Cadre Training Institute
      in
      1993.




-69-




**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.





**Yiliang
      Lai,** Chief
      Financial Officer of Bodisen and Yang Ling - Promoted to the position of Chief
      Financial Officer in November 2005, Mr. Lai originally joined the Company as
      a
      financial controller in March 2005. Mr. Lai started his career in 1986 in the
      finance department of China Shipbuilding Corporation. From 1999 to 2001, he
      was
      an auditor for Shenzhen CaiXin Accountants, after which, from 2001 to 2002,
      he
      manage the accounts and securities division of Shaanxi Kaida Company Limited.
      From 2002 to 2005, Mr. Lai was Chief Financial Officer for Xi’an Honson Biotech
      Co. Ltd. Mr. Lai graduated from Huadong Shipping University with a Bachelors
      in
      Accountancy.





**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.





**Committees**





Our
      Board
      of Directors has an Audit Committee, a Nominating Committee, and a Compensation
      Committee. Our Board of Directors
      has determined that David Gatton, Patrick McManus, and Linzhang Zhu, the members
      of these committees meet 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 these persons have 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. The
      committees and the committee members are listed below:





1.
            
            Audit
                Committee: Patrick McManus, CPA (Chairman), David Gatton and Linzhang
                Zhu2.
            
            Nominating
                Committee: Linzhang Zhu (Chairman), David Gatton and Patrick
                McManus3.
            
            Compensation
                Committee: David Gatton (Chairman), Patrick McManus and Linzhang
                Zhu





It
      is the
      judgment of the Board that Mr. McManus and Mr. Gatton are financially literate,
      and that Patrick McManus, the Audit Committee Chairman, satisfies the standard
      for “audit committee financial expert” as defined by the SEC.





**Board
      Compensation**





Directors
      may receive compensation for their services and reimbursement for their expenses
      as shall be determined from time to time by resolution of the
      Board.





**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.




-70-




**Family
      Relationships**





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





**Compliance
      with Section 16(a) of the Securities Exchange Act of 1934**




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, 2006, we have determined that our
      directors, officers and greater-than-10% beneficial owners complied with all
      applicable Section 16 filing requirements, except as described below.




**Name**
            
            **Number
                of Late Reports**
            
            **Number
                of Transactions Not Reported on a Timely Basis**
            
            **Failure
                to File Required Forms**David
                Gatton(1)
            
            1
            
            3
            
            0Patrick
                McMannus(1)
            
            1
            
            3
            
            0Bo
                Chen(2)
            
            1
            
            3
            
            1Qiong
                Wang(3)
            
            1
            
            3
            
            1Chunsheng
                Wang(4)
            
            1
            
            0
            
            0Yiliang
                Lai(4)
            
            1
            
            0
            
            0Wan
                Weirui(4)
            
            1
            
            0
            
            0Linzhang
                Zhu(5)
            
            1
            
            0
            
            1





(1) On
      March
      30, 2006, Mr. Gatton and Mr. McMannus each filed a late Form 3 as directors
      of
      Bodisen, which also reported their receipt of stock options granted on June
      4,
      2004, December 28, 2004 and October 4, 2005. Due to an inadvertent oversight,
      there was a failure of all officers, directors and greater than 10 percent
      stockholders of the Company to comply with Section 16(a) filing requirements
      in
      2005, and Mr. Gatton’s and Mr. McMannus’ filings were made to rectify the
      problem.





(2)  On
      April
      4, 2006, Mr. Chen filed a late Form 3 as a director and officer of Bodisen,
      which reported the net effect of his receipt of 896,024 shares of the Company’s
      common stock upon the Company’s reverse merger on February 20, 2004, his receipt
      of 2,688,072 shares of the Company’s common stock issued as part of the stock
      dividend paid by the Company on March 2, 2004, and his transfer of 2,894,096
      shares of the Company’s common stock to his son, Chen Jing Feng, on September
      15, 2005. Mr. Chen has not yet filed a Form 4 reflecting that shares held by
      Cheng Jing Feng, which were reported on the Form 3 filed by Mr. Chen, were
      subsequently transferred by Cheng Jing Feng on September 21, 2005. Such shares
      were transferred to 16 shareholders of record, none of which held, as a result
      of such transfer, in excess of ten percent of the Company’s then-outstanding
      shares of common stock. The Company is informed that Mr. Chen was not aware
      of
      his obligation to file such a Form 4, and the Company will work with Mr. Chen
      to
      rectify the problem.





(3) On
      April
      4, 2006, Ms. Wang filed a late Form 3 as a director and officer of Bodisen,
      which reported the net effect of her receipt of 937,195 shares of the Company’s
      common stock upon the Company’s reverse merger on February 20, 2004, her receipt
      of 2,811,585 shares of the Company’s common stock issued as part of the stock
      dividend paid by the Company on March 2, 2004, and her transfer of 3,028,780
      shares of the Company’s common stock to her daughter, Zhang Yu, on September 15,
      2005. Ms. Wang has not filed a Form 4 reflecting that shares held by Zhang
      Yu,
      which were reported on the Form 3 filed by Ms. Wang, were subsequently
      transferred by Zhang Yu on September 21, 2005. Such shares were transferred
      to
      16 shareholders of record, none of which held, as a result of such transfer,
      in
      excess of ten percent of the Company’s then-outstanding shares of common stock.
      The Company is informed that Ms. Wang was not aware of her obligation to file
      such a Form 4, and the Company will work with Ms. Wang to rectify the
      problem.




-71-




(4) On
      April
      4, 2006, Mr. Wang and Mr. Lai each filed a late Form 3 as officers of Bodisen,
      and on the same date Mr. Weirui filed a late Form 3 as a director of Bodisen.
      Due to an inadvertent oversight, there was a failure of all officers, directors
      and greater than 10 percent stockholders of the Company to comply with Section
      16(a) filing requirements in 2005, and these filings were made to rectify the
      problem.





(5) Mr.
      Zhu
      has not filed a Form 3 as a director of Bodisen. The Company is informed that
      Mr. Zhu was not aware of his obligation to file such a Form 4, and the Company
      will work with Mr. Zhu to rectify the problem.





**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 attached 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
      +86-29- 87895373, or
      by
      sending an e-mail message to info@bodisen.com.





**ITEM
      11.**  **EXECUTIVE
      COMPENSATION**





**Compensation
      Discussion and Analysis**





Our
      Board
      of Directors has not adopted or established a formal policy or procedure for
      determining the amount of compensation paid to our executive officers. Rather,
      our Board of Directors, on which Mr. Chen serves, has historically determined
      the compensation to be paid to our executive officers based on the Company's
      financial and operating performance and prospects, the level of compensation
      paid to similarly situated executives in comparably sized companies and the
      contributions made by such executive officers to the success of the Company.
      Such determination is made in part based on recommendations made by the
      Company’s Compensation Committee.





No
      pre-established, objective performance goals or metrics have been used by the
      Board of Directors in determining the compensation of our executive officers.
      Mr. Chen is involved in the Board's deliberations regarding executive
      compensation and provides recommendations with respect to other executive
      officers’ compensation, though he does not provide recommendations regarding his
      own compensation as an officer.





Our
      compensation program is currently comprised exclusively of the base salaries
      paid to our executive officers, though we have also adopted our 2004 Stock
      Option Plan to permit grants of stock options as long-term incentives. The
      base
      salaries are intended to provide our executive officers with compensation that
      is appropriate for their positions, taking into account local consumption
      levels.





Bo
      Chen
      currently serves as our Chief Executive Officer, President and Chairman. Yiliang
      Lai serves as our Chief Financial Officer. Ms. Qiong Wang served as our Chief
      Executive Officer and Chairman throughout fiscal year 2006.





Our
      three
      most highly compensated executive officers as of December 31, 2006, other than
      those persons identified above, were Chunsheng Wang, our Chief Operating
      Officer, and Huqiang An and Fengchun Tian, who each serve as our Vice Sales
      Managers.




**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, 2006.




-72-




**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)**
                
                **Changes
                    in Pension**
                  **Value
                    and Nonqualified Deferred Compen-sation Earnings**
                  **($)**
                  **(h)**
                
                **All
                    Other**
                  **Compensation**
                  **($)**
                  **(i)**
                
                **Total**
                  **($)**
                  **(j)**Qiong
                    Wang,
                
                
                2006
                
                
                5,373
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                5,373former
                    Chief
                
                
                2005
                
                
                5,373
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                5,373Executive
                    Officer
                
                
                2004
                
                
                2,456
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                2,456Bo
                    Chen
                
                
                2006
                
                
                4,605
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                4,605President
                    and
                
                
                2005
                
                
                4,605
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                4,605current
                    Chief
                
                
                2004
                
                
                2,149
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                2,149Executive
                    OfficerYiliang
                    Lai
                
                
                2006
                
                
                3,070
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                3,070Chief
                    Financial
                
                
                2005
                
                
                2,303
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                2,303Officer
                
                
                2004
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/AChunsheng
                    Wang
                
                
                2006
                
                
                3,838
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                3,838Chief
                    Operating
                
                
                2005
                
                
                3,838
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                3,838Officer
                
                
                2004
                
                
                1,842
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                N/A
                
                
                1,842


(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 December 31, 2006. As of December 31, 2006, the exchange rate between
      the
      Renminbi and the U.S. dollar was 7.8175 Renminbi to every one U.S.
      dollar.




**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)**
            
            **Fees
                Earned or Paid in Cash**
              **($)**
              
              **(b)**
            
            **Stock
                Awards**
              **($)**
              
              **(c)**
            
            **Option
                Awards**
              **($)**
              
              **(d)**
            
            **Non-Equity
                Incentive**
              **Plan
                Compen-sation**
              **($)**
              
              **(e)**
            
            **Changes
                in Pension**
              **Value
                and Nonqualified Deferred Compen-sation Earnings**
              **($)**
              
              **(f)**
            
            **All
                Other**
              **Compensation**
              **($)**
              
              **(g)**
            
            **Total**
              **($)**
              
              **(h)**Patrick
                McManus
            
            
            24,000
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            24,000David
                Gatton
            
            
            24,000
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            24,000Linzhang
                Zhu
            
            
            2,000
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            N/A
            
            
            2,000




Messrs.
      McManus and Gatton each earned $24,000 in fees for their service as the
      Company’s U.S.-based directors in 2006; however, only $18,000 was actually paid
      to each director. The remaining $6,000 payment for each U.S.-based director
      has
      been deferred.




-73-




**Compensation
      Committee**





Our
      Board
      of Directors has a Compensation Committee ,
      which
      is composed of David Gatton (Chairman), Patrick McManus and Linzhang Zhu. Our
      Board
      of Directors has determined that David Gatton, Patrick McManus, and Linzhang
      Zhu, the members of this committee, meet the criteria for independence set
      forth
      in Rule 10A-3(b)(1) of the Securities Exchange Act of 1934, as amended. Our
      Board of Directors has also determined that these persons have 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.





The
      function of the Compensation Committee is to evaluate, recommend to the Board
      of
      Directors, and/or determine, the compensation levels of the Company’s
      executives, including the Chief Executive Officer; and the equity allocations
      relating to the Company’s equity programs.





**Compensation
      Committee Interlocks and Insider Participation**





No
      member
      of our Compensation Committee has at any time been an officer or employee of
      ours or any of our subsidiaries. No interlocking relationship exists between
      our
      Board of Directors or Compensation Committee and the Board of Directors or
      compensation committee of any other company, nor has any interlocking
      relationship existed in the past. The Compensation Committee met on 2 occasions
      during 2006.





**Compensation
      Committee Report**




We
      have
      reviewed and discussed the section titled “Compensation Discussion and Analysis”
with management, and based on such discussions, we recommended that the section
      titled “Compensation Discussion and Analysis” be included in the Bodisen
      Biotech, Inc. Annual Report on Form 10-K for the year ended December 31, 2006.





Respectfully
      submitted,





THE
      COMPENSATION COMMITTEE OF THE BOARD


OF
      BODISEN BIOTECH, INC.





David
      Gatton


*Chairman
      of the Compensation Committee*





Patrick
      McManus


*Member
      of the Compensation Committee*





Linzhang
      Zhu


*Member
      of the Compensation Committee*





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





**Security
      Ownership of Certain Beneficial Owners and Management**





The
      following table sets forth certain information, as of April 18, 2007 with
      respect to the beneficial ownership of the outstanding common stock by (i)
      any
      holder of more than five (5%) percent; (ii) each of our executive officers
      and
      directors; and (iii) our 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.




-74-




**Name
                of Beneficial Owner****(1)**
            
            **Number
                of Shares**
              **Beneficially
                Owned**
            
            **Percentage
                of Shares**
              **Beneficially
                Owned****(2)**Qiong
                Wang
            
            
            720,000
            
            
            3.9
            %Bo
                Chen
            
            
            690,000
            
            
            3.7
            %Patrick
                McManus(3)
            
            
            68,000
            
            
            *David
                Gatton(3)
            
            
            68,000
            
            
            *Chunsheng
                Wang
            
            
            0
            
            
            *Yiliang
                Lai
            
            
            0
            
            
            *Linzhang
                Zhu
            
            
            0
            
            
            *All
                officers and directors as a group (7 persons)
            
            
            1,546,000
            
            
            7.6
            %




*
            
            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 on18,310,250shares of common stock outstanding as of April 18, 2007, together
                with
                securities exercisable or convertible into shares of common stock
                within
                60 days of April 18, 2007 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 April 18, 2007 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.(3)
            
            Number
                of shares beneficially owned reflect stock options held by each Mr.
                McManus and Mr. Gatton.





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**





None.





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**





Kabani
      & Co. Inc., Certified Public Accountants, was our independent registered
      public accounting firm engaged to examine our consolidated financial statements
      for the fiscal year ended December 31, 2006, 2005 and 2004.




**Fees
      for the fiscal years ended December 31, 2006 and 2005**




*Audit
      Fees*




The
      aggregate fees billed for each of the fiscal years ended December 31, 2006
      and
      2005 for professional services rendered by the principal accountant for the
      audit of our annual financial statements and review of the financial statements
      included in our Form 10-QSB or services that are normally provided by the
      accountant in connection with statutory and regulatory filings or engagements
      for those fiscal years were approximately $137,500 and $86,500, respectively.




*Audit
      Related Fees*




The
      aggregate fees billed in the fiscal years ended December 31, 2006 and 2005
      for
      assurance and related services by the principal accountant that are reasonably
      related to the performance of the audit or review of our financial statements
      and are not reported under the paragraph captioned “Audit Fees” above are
      $32,500 and $15,000, respectively. The
      Audit
      Related Fees include fees for the auditors’ review of the registration
      statements on Form SB-2. “Audit Related Fees” include fees for the 404 audit and
      review of the internal controls.




-75-




*Tax
      Fees*




The
      aggregate fees billed in the fiscal years ended December 31, 2006 and 2005
      for
      professional services rendered by the principal accountant for tax compliance,
      tax advice and tax planning were approximately $0 and $0, respectively.




*All
      Other Fees*




The
      aggregate fees billed in the fiscal years ended December 31, 2006 and 2005
      for
      products and services provided by the principal accountant, other than the
      services reported above under other captions of this Item 14 are $0 and $0,
      respectively.




**Audit
      Committee Pre-Approval Policies and Procedures**




In
      accordance with the SEC’s auditor independence rules, the Audit Committee has
      established the following protocol by which it approves in advance any audit
      or
      permissible non-audit services to be provided to the Company by its independent
      auditor. Prior to the engagement of the independent auditor for any fiscal
      year’s audit, the Audit Committee discusses with management anticipated
      recurring audit, audit-related, tax and other services expected to be provided
      by the auditor during that fiscal year. The Audit Committee 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 the Audit Committee requires
      the independent auditor and management to report actual fees versus the budget
      periodically throughout the year. The Audit Committee 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
      the Audit Committee 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.




The
      Audit
      Committee 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 the Audit Committee on a case-by-case basis
      where such services are to be paid for the by the Company, and the Audit
      Committee 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, the Audit Committee 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.




-76-




**PART
      IV**





**ITEM
      15.****EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES**





**Exhibit**
              **Number**
            
            **Description
                of Exhibit**3.1
            
            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.21.1
            
            Schedule
                of Subsidiaries31.1
            
            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
                amended31.2
            
            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
                amended32.1
            
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002






-77-




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.By:
            /s/ Bo
              ChenBo
                ChenChief
                Executive Officer
              (Principal
                  Executive Officer)




By:
              /s/ Yiliang
                LaiYiliang
                    LaiChief
                    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 Chen
              Bo
                Chen
            
            Chairman,
                Chief Executive Officer and President
            
            April
                30, 2007/s/
                Yiliang Lai
              Yiliang
                Lai
            
            Chief
                Financial Officer
            
            April
                30, 2007/s/
                Wang Qiong
              Wang
                Qiong
            
            Director
            
            April
                30, 2007/s/
                Patrick McManus
              Patrick
                McManus
            
            Director
            
            April
                30, 2007/s/
                David Gatton
              David
                Gatton
            
            Director
            
            April
                30, 2007/s/Linzhang
                Zhu
              Linzhang
                Zhu
            
            Director
            
            April
                30, 2007




-78-