UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM 10-K





R
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the fiscal year ended December 31, 2008£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the transition period from __________ to
  __________


Commission
File Number: 333-140118





China
Agri-Business, Inc.


(Name
of small business issuer as specified in its charter)


Maryland
              
              20-3912942(State
      or other jurisdiction of
                incorporation
      or organization)
              
              (I.R.S.
      Employer
                Identification
      No.)In
      the United States: 11 East 86th Street, New York, New York
      10028
                In
      the People’s Republic of China: Finance Plaza, 9th
      Floor, Hi-Tech Road No. 42, Hi-Tech Industrial Development Zone, Xi-An,
      China 710068(Address of
      principal executive
offices)




(212)
348-5600


(Registrant’s
telephone number, including area code)




Securities
registered pursuant to Section 12(b) of the Act:


None.




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


None.





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 þ




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes o     No þ




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




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.  þ




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


Large accelerated filer o
                  
                  Accelerated filer o
                  Non-accelerated filer o
                  Smaller reporting company þ(Do not check if a smaller reporting company)




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




As of
June 30, 2008, the aggregate market value of the registrant’s voting and
non-voting common equity held by non-affiliates of the registrant was
$972,301.50 based on the closing price of the registrant’s common shares of U.S.
$0.50, as reported on the OTC Bulletin Board on that date. Shares of the
registrant’s common shares held by each officer and director and each
shareholder who owns 10% or more of the outstanding common shares of the
registrant have been excluded in that they may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.




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




Class
              
              Outstanding atMarch 26,
2009Common
      Stock, $0.001 par value
              
              12,958,574
      shares




Documents incorporated by reference:
None.








TABLE
OF CONTENTS





PagePART
      IItem 1.
                Business.
                3Item
      1A
                Risk
      Factors.
                7Item 2.
                Properties.
                12Item 3.
                Legal
      Proceedings.
                13Item 4.
                Submission
      of Matters to a Vote of Security Holders.
                13PART IIItem 5.
                Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
                13Item
      6
                Selected
      Financial Data.
                14Item 7.
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation.
                14Item 8.
                Financial
      Statements and Supplementary Data.
                F-1Item 9.
                Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.
                19Item
      9A.
                Controls
      and Procedures.
                19Item
      9B.
                Other
      Information.
                19PART IIIItem 10.
                Directors,
      Executive Officers, and Corporate Governance.
                19Item 11.
                Executive
      Compensation.
                21Item 12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.
                22Item 13.
                Certain
      Relationships and Related Transactions, and Director
      Independence.
                23Item 14.
                Principal
      Accountant Fees and Services.
                23PART
      IVItem 15.
                Exhibits,
      Financial Statements Schedules.





References





Unless
otherwise noted, all currency figures in this Annual Report are in U.S. dollars.
References to "yuan" or "RMB" are to the Chinese yuan, which is also known as
the renminbi. According to the currency exchange website www.xe.com, on January
16, 2009, $1.00 was equivalent to approximately 6.84 yuan.





References
in this Annual Report to the “PRC” or “China” are to the People’s Republic of
China.





In this
Annual Report, unless otherwise specified, the words “Company,” “China Agri”
“we,” “us,” and “our,” refer collectively to China Agri-Business, Inc., Mei Xin
Agri Technology (Shaanxi) Co., Ltd., and Shaanxi Xin Sheng Centennial
Agricultural and Technology Co., Ltd., our operating company in the People’s
Republic of China.





Cautionary
Statement Concerning Forward-Looking Statements





This
Annual Report and the documents we incorporate by reference in this Annual
Report contain forward-looking statements, within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. Any statement that is not a statement of
historical fact may be deemed a forward-looking statement. For example,
statements containing the words “believes,” “anticipates,” “estimates,” “plans,”
“expects,” “intends,” “may,” “projects,” “will,” “would” and similar expressions
may be forward-looking statements. We may not actually achieve the plans,
intentions or expectations disclosed in our forward-looking statements and you
should not place undue reliance on our forward-looking statements. There are a
number of important factors that could cause our actual results to differ
materially from those indicated by these forward-looking statements, including
the factors referred to above under the caption “Risk Factors.” These important
factors include the factors that we identify in the documents we incorporate by
reference in this Annual Report. You should read these factors and the other
cautionary statements made in this Annual Report and in the documents we
incorporate by reference as being applicable to all related forward-looking
statements wherever they appear in this Annual Report and in any documents
incorporated by reference. We do not assume any obligation to update any
forward-looking statements made by us.


2





PART I





Item 1.Business.





Company
History





China
Agri-Business, Inc. was incorporated in the State of Maryland on December 7,
2005. On March 24, 2006, China Agri formed Mei Xin Agri Technology (Shaanxi)
Co., Ltd. (“Meixin”) in Xi'an city, the PRC. Meixin is a wholly-owned subsidiary
of China Agri and a limited liability company organized under the laws of the
PRC.





Meixin
acts as a management company for Shaanxi Xin Sheng Centennial Agricultural and
Technology Co., Ltd. (“Xinsheng”). Meixin controls all aspects of Xinsheng's
business and management, and is entitled to all proceeds of Xingsheng's business
and obligated to fund its operations. In summary, China Agri does not own any
equity rights in Xinsheng. However, through Meixin, we are entitled to receive
all of the profits of, and are obligated to pay all of the debts of,
Xinsheng.





Xinsheng
was founded on April 22, 2002 as a joint stock limited liability company formed
under the laws of the PRC. Meixin’s control over Xinsheng was established in the
following manner, and in accordance with PRC laws:





On April
18, 2006, Meixin entered into a management entrustment agreement (the
“Management Agreement”) with Xinsheng. Under the Management Agreement, Xinsheng
and its shareholders entrusted to Meixin its management rights, the rights and
powers of its shareholders and board of directors, and the right to receive all
of Xinsheng's profits in exchange for Meixin’s assumption of the obligation to
fund all operating losses of Xinsheng.





On April
22, 2006, following a Xinsheng shareholder meeting at which an attorney-in-fact
was appointed to represent the Xinsheng shareholders, China Agri entered into a
stock purchase agreement with the attorney-in-fact (the “Stock Purchase
Agreement”). Pursuant to the Stock Purchase Agreement, China Agri issued an
aggregate of 5,389,221 shares (10,950,897 shares after a 2.032-for-1 forward
split in October 2006) of common stock to the Xinsheng shareholders in
consideration of the execution of the Management Agreement between Xinsheng and
Meixin. Pursuant to the Stock Purchase Agreement and a voting trust and escrow
agreement (the “Voting Trust and Escrow Agreement”) entered into by the parties
in connection with the Stock Purchase Agreement, these shares were issued in the
name of a trustee for the Xinsheng shareholders, which trustee also acts as the
escrow and selling agent for the Xinsheng shareholders for the sale of the
shares. The trustee is entitled to exercise all rights and powers to vote the
shares on behalf of the Xinsheng shareholders. If a shareholder wishes to sell
the shares held by the trustee, the trustee would sell the shares and remit the
proceeds to the shareholder.





The entry
into the Management Agreement, the Stock Purchase Agreement and the Voting Trust
and Escrow Agreement, and the appointment of the attorney-in-fact, were approved
by the Xinsheng shareholders at a meeting held on April 10, 2006, in accordance
with PRC Company Law.




The
following diagram sets forth the current corporate structure of the
Company:
 
 
 China
      Agri-Business, Inc.|
                |
                100%
      ownership
                |
                |Mei
      Xin Agri Technology
                (Shaanxi)
      Co., Ltd.
              ---------------------------------------------------
                Contractual
      Relationship
                (Management
      Entrustment Agreement)
              Shaanxi
      Xin Sheng Centennial Agricultural and Technology Co.,
  Ltd.


At
present, neither China Agri-Business nor Meixin have any existing or planned
business activities other than acting as a holding company and management
company, respectively, for Xinsheng, and raising capital for its operations.
However, these plans are subject to change in the future.





Overview
of Business





Xinsheng
began producing agricultural application products in 2004. Our business is
concentrated in the growing “Green Food” market in the PRC. Xinsheng
manufactures and sells non-toxic fertilizer, bactericide and fungicide products
used for farming in the PRC. Crops grown with our products are eligible to
qualify for the “AA Green Food” rating administered by the China Green Food
Development Center, an agency under the jurisdiction of the Ministry of
Agriculture of the PRC (However, our products themselves do not bear the “AA
green food” designation).





The
executive offices of China Agri-Business in the United States are located at 11
East 86th Street, New York, New York 10028. China Agri’s telephone number in the
United States is (212) 348-5600. Xinsheng is located outside of the city of
Xi-an in the Shaanxi Province of the PRC. Xinsheng’s address is Finance Plaza,
9th Floor, Hi-Tech Road No. 42, Hi-Tech Industrial Development Zone, Xi-An,
China 710068. Xinsheng’s telephone number is
011-86-29-88222938.


3


Our
Organic Biochemical Agricultural Application Products





We
manufacture and market the following organic biochemical agricultural
application products. Our products are designed to be environmentally friendly,
as explained in further detail below. Within the following five product
categories, we produce more than 50 different agricultural application
products.





Product Brand Name
                          
                          Description and Functionality
                          
                          Plant Suitability
                          
                          Price*Xinsheng
      Luyuan
                          
                          A
      line of fertilizer product whose primary function is to increase
      agricultural production.
                          
                          Wheat,
      Rice, Maize, Tobacco,  Cotton, Melons and various other fruits
      and vegetables.
                          
                          $     61.56/BoxXinsheng
      Lufeng
                          
                          A
      line of organic soil amendment products whose primary function is as a
      bactericide.
                          
                          Tomatoes
      and Apples.
                          
                          $     38.69/BoxXinsheng
      Huang-jin-gai
                          
                          A
      line of amino acid fertilizer products designed to help crops absorb
      calcium and to improve their overall quality.
                          
                          Tomatoes
      and Apples.
                          
                          $     32.25/BoxXinsheng
      Jia-tian-xia
                          
                          A
      line of humic acid fertilizer products designed improve the overall
      quality of crops
                          
                          Maize,
      Cotton, Apples, Tomatos, Watermelon, and various other fruits and
      melons.
                          
                          $     32.25/BoxXinsheng
      Bai-le
                          
                          A
      line of amino acid fertilizer products designed to provide supplementary
      micro-nutrients to crops and to help crops grow with balanced
      nutrition.
                          
                          Maize,
      Cotton,  Apples, Tomatos, Watermelon, and various other fruits
      & melons.
                          
                          $     26.38/Box


* Based
on the currency exchange rate in effect as of December 31, 2008. A standard box
contains various bottles and bags of the product. The price per box may vary
depending on the contents of the box.





Our
agricultural application products are made of a chemical polymer combined with
active potassium, organic nitrogen and 20 other ingredients, including chitosan.
The key raw material for our products is chitosan, which consists primarily of
polysaccharides extracted from the shells of crustaceans, such as crabs and
shrimp, and mixed with active calcium. Because each of our products are designed
to minimize harm to the environment, use of our products contributes to the
production of healthy and environmentally friendly crops.





Studies
performed by our research and development personnel indicate that nitrogen,
phosphorus, potassium and other potentially environmentally harmful nutrients in
traditional chemical fertilizers tend to become soluble in the presence of
water, which can lead to potentially harmful runoff when it rains. Our products,
which contain chitosan, are designed to release nutrients into the soil at a
slower rate, making them less likely to be leached from the soil by rainwater.
The retention of these nutrients improves the effects of both
naturally-occurring and applied nutrients and fertilizers. Our chitosan based
products are also designed to build soil structure, which allows more air to
reach plant roots and increases the soil's ability to retain water, resulting in
healthier crops. Our products also use chitosan to provide nutrients used by
soil microorganisms, which in turn make mineral nutrients available to
plants.





Our
agricultural application products are produced and sold in two types of
packaging: (i) polyethylene bottles that are 12 centimeters in height and 5.8
centimeters in diameter and have a net weight of 200 grams and (ii) bags that
are 11 centimeters in length and 8.4 centimeters in width and have a net weight
of 20 grams.





The raw
materials used in the production of our products are generally available from
local suppliers and accordingly we do not have any long term supply
contracts.





The
principal advantages of our agricultural application products include their
quality and their potential to reduce famers’ costs. In addition, our
proprietary blending methods allow our products to mix readily with water so
that they can be sprayed onto crops. This permits our products to be applied
consistently over large areas. Higher yields mean that farmers can plant less
and therefore decrease their costs. We believe our products can ultimately
increasing plant growth by up to 20%. These estimates are based on our own
testing and on field trial reports issued by the following three independent
land and fertilizer working stations in China, for the years of 2005 and 2004
(collectively the “Field Trial Reports”): Shaanxi Chunhua County Land and
Fertilizer Working Station, Shaanxi Province Land and Fertilizer Working Station
and Shaanxi Province Yangling Zone Land and Fertilizer Working
Station.





In
addition, we offer agricultural application products that contain, in addition
to growth-promoting compounds, both bactericides and pesticides. These products
are cost effective because they eliminate the need to
purchase  separate pesticides and bactericides.


4


Manufacturing
Capacity





As of
December 31, 2008, Xinsheng’s manufacturing capacity is approximately 540 tons
per year. Xinsheng has the ability to increase its manufacturing capacity to
approximately 700 tons per year through the use of the facilities of third party
contract manufacturers. Xinsheng’s manufacturing output is primarily order
driven. Accordingly, Xinsheng uses the facilities contract manufacturers on an
as needed basis, when orders exceed capacity. Xinsheng’s employees are present
to oversee the manufacturing process when facilities of contract manufacturers
are used.





The
PRC’s “Green Food” Industry





By the
late 1980s, in an effort to produce more food, the PRC had reached a point where
its farmers were relying heavily on the use of fertilizers and pesticides. This
reliance on fertilizers and pesticides, including the use of environmentally
harmful fertilizers and pesticides, led to the sale of products with dangerous
and high concentrations of harmful chemicals, resulting in several publicized
incidents of food-caused illness. In addition to creating a dangerous situation
for domestic consumers, it also created problems for the PRC's food exporters
which, in many cases, were barred from exporting to countries with minimum
acceptable standards for pesticide and chemical use.





In 1990,
the PRC Ministry of Agriculture began to encourage the production of “Green
Food”, which is food that is deemed safe, free from pollutants and harmful
chemicals, and of good quality. In 1992, the PRC Ministry of Agriculture
established the China Green Food Development Center to oversee food quality and
the development and management of Green Food at the national and provincial
level in the PRC. In 1993, the Ministry of Agriculture established regulations
on the use of Green Food labeling. In 1994, the PRC government issued an “Agenda
in the 21st Century”, in which there was specific discussion with respect to the
development of a Green Food industry. In 1996, an identifying trademark for
Green Food was registered in the PRC and put into use.





According
to the China Green Food Development Center website, China’s Green Food industry
experienced a rapid growth period from 1997 to 2007. For example, from 2002 to
2007, certified Green Food products and Green Food production enterprises
increased at a rate of 21.8% and 30.8% per year, respectively. By the end of
October 2008, there were 17,647 Green Food products and 6,160 Green Food
production enterprises in China. Approximately 9.4 million hectares, or 7.2% of
the total farm land in China, is used in the production of Green
Food.





Seasonality





Our
business is seasonal and order driven. Accordingly we experience seasonal
fluctuations in our revenues and our operating costs.





Generally,
our sales peak occurs at the beginning of the planting season, which generally
occurs during the period from March though June. Our sales are typically the
lowest in the period from December through January and are relatively stable for
the rest of the year.





Adverse
weather conditions and other natural disasters may affect our customers’
planting activities and therefor reduce demand for our products. For example,
our business was negatively impacted during 2008 by the following events: (i)
severe winter weather conditions that existed in China during the end of January
and early February, (ii) the major earth quake on May 12, 2008 whose epicenter
was located in Sichuan province, and (iii) widespread flooding in the central
and southern parts of China in May and June, including the Hunan and Hubei
provinces.





Employees





Xinsheng
has approximately 120 employees, including 60 who are engaged in sales and
marketing activities. Approximately half of our employees are full-time
employees and the remaining half are part-time or seasonal
employees.





Sales
and Marketing





We have
traditionally sold our products through wholesale and retail distributors. In
order to market our products, we advertise in newspapers, including national
publications. We have also utilized a limited amount of television advertising,
and distributed brochures, company profiles and promotional videos to farmers.
We also offer free field trials to potential customers for the purpose of
comparing plantings that have applied our products to plantings that have not.
We believe that potential customers are more inclined to purchase our products
after seeing the comparison results. We have a marketing team comprised of
approximately 60 people who demonstrate to our dealers and our direct customers
the correct methods of using our products, and who help address issues that
arise for our dealers and customers in using our products and collect feedback
from them.





As of
December 31, 2008, we have established relationships with approximately 98
wholesale distributors. Our products are sold in approximately 400 stores
located in 12 provinces in the PRC.





During
2008 we launched a new sales and marketing initiative “New
Agriculture-Generator” designed to expand our distribution network directly in
the rural areas of China.  The purpose of the campaign is to establish
a closer relationship with farmers through agricultural cooperatives located
throughout the rural areas of China. One component of this initiative is called
the “Super Chain Sales Partner Program”, whereby the Company agrees to provide a
$3,000 advance payment to participating retailers in exchange for their
commitment to purchase and sell approximately $14,000 worth of the Company’s
products per year. Each participating retailer must also agree not to sell any
competing products.


5


Another
component of this initiative is to establish, in conjunction with participating
retailers, a membership system that would enable the Company to measure and
monitor the use of its products by farmers and to improve the Company’s efforts
to provide training and other support services to farmers.





As of
January 31, 2009, approximately 41 retailers in Shaanxi province and
approximately 28 retailers in Hunan province have participated in the “Super
Chain Sales Partner Program”. However, there is no assurance that our “New
Agriculture-Generator” campaign will be successful in the next twelve
months.





Government
Regulation





Fertilizer
Registration Certificates





In the
PRC, producers of fertilizer and related products must obtain a government
approval known as a fertilizer registration certificate. Accordingly, we have
obtained registration certificates from the PRC’s Ministry of Agriculture for
each of our primary products. The certificates authorize us to manufacture and
distribute our agricultural application products throughout the PRC. The term of
a fertilizer registration certificate is one (1) year, subject to annual
renewal. There is no assurance that the certificates will be
renewed.





Registration
                                  No.
                                
                                Trademark/Product
      Name
                                
                                Expiration
                                  DateNo.
      (2004) 1485
                                
                                Xinsheng
      Luyuan
                                
                                September
      2009No.
      (2004) 1542
                                
                                Xinsheng
      Lufeng
                                
                                October
      2009No.
      (2007) 2968
                                
                                Xinsheng
      Huang-jin-gai
                                
                                December
      2009No.
      (2007) 2969
                                
                                Xinsheng
      Bai-le
                                
                                December
      2009No.
      (2007) 2970
                                
                                Xinsheng
      Jia-tian-xia
                                
                                December
      2009





China
Green Food Development Center “Green Food” Certification





Crops
grown with the use of our products may qualify for the “AA green food”
designation in the PRC (However, our products themselves do not bear the “AA
green food” designation). The green food rating system, which consist of an “A”
rating and a more stringent “AA” rating, is overseen by the China Green Food
Development Center, an agency under the jurisdiction of the Ministry of
Agriculture of the PRC. The “AA” rating indicates that the crops contain minimal
chemical residue from fertilizers.





While we
believe that we maintain all requisite licenses and permits and are in
compliance with all applicable regulations, we may not be able to maintain all
requisite licenses and permits and remain in compliance with all applicable
regulations. Any failure to satisfy those and other regulatory requirements
could have a material adverse effect on our financial condition and results of
operations.





Competition





The
industry in which we operate is highly competitive. We compete largely on the
basis of the quality of our products, which we make by processing and combining
raw materials using unique, proprietary methods. Chitosan helps soil retain
nutrients and improves soil structure at the same time.





Our
proprietary blending methods allow us to include a higher chitosan content in
our products relative to our competitors. Our products contain approximately 5%
chitosan. The Company believes competing products contain between 0.5% and 3%
chitosan. Higher chitosan content translates into increased cost of production
and quality, and accordingly our products are priced approximately 10% to
15% higher than those of our competitors.





We
consider the following companies to be among our primary
competitors:




Company
      Name
                        
                        Location
      within PRCWeifang
      Xinde Bio-tech Co., Ltd.
                        
                        Shandong
      ProvinceShaanxi
      Haide'er Bio-tech Co., Ltd.
                        
                        Shaanxi
      ProvinceWeifang
      Hengsheng Bio-tech Co., Ltd.
                        
                        Shandong
      ProvinceZhejiang
      Lanhai Bio-engineering Co., Ltd.
                        
                        Zhejiang
      ProvinceAiwo
      Beijing Agricultural Technology Co., Ltd.
                        
                        Beijing
      CityChina
      Green Agriculture, Inc.
                        
                        Shaanxi
      ProvinceShandong
      Dongyan Kefeng Bio-tech Co., Ltd.
                        
                        Shangdong
      ProvinceShandong
      Tianda Bio-tech Co., Ltd.
                        
                        Shangdong
      ProvinceGuangxi
      Beihai Guofa Bio-tech Co., Ltd.
                        
                        Guangxi
      Province


6


Intellectual
Property





Trademarks





We own
the rights to the following registered trademarks in the PRC, which we use in
our business and which appear on our product packaging. We do not own the rights
to any registered trademarks in the United States.





Trademark
              
              Registration
      Number
              
              Expiration
      DateXinsheng
      Shi ji
              
              3412688
              
              July
      2014Xinsheng
      Luyuan
              
              4734942
              
              September
      2015Xinsheng
      Lufeng
              
              4734940
              
              September
      2015Xinsheng
      Huang-jin-gai
              
              6213163
              
              August
      2022Xinsheng
      Bai-le
              
              6212924
              
              August
      2022Xinsheng
      Jia-tian-xia
              
              6213164
              
              August
      2022New
      Agriculture - Generator
              
              6952690
              
              September
      2023





Patents





We own
the rights to one patent  in the PRC for "Zero-tillage Fertilizing
Equipment" (PRC Patent Number: 330398), which is a type of seeding machine, the
use of which prevents soil erosion. We do not currently use this patent or the
Zero-tillage Fertilizing Equipment in our business. We have not yet determined
whether and when this patent may be utilized in our business. We do not own the
rights to any patents in the United States.





Research
and Development





We have a
research and development team consisting of six full time employees and five
consultants. This team is responsible for formulating our organic biochemical
agricultural application products and developing new products.





We have
spent approximately $8,947 and $6,393 on research and development for the years
ended December 31, 2007 and 2008, respectively.





Item
1A. Risk Factors.





An
investment in our common stock involves significant risks. Investors should
carefully consider the following known material  risks and all other
information set forth herein before deciding to invest in shares of our common
stock. If any of the events or developments described below occurs, our
business, financial condition and results of operations may suffer. In that
case, the value of our common stock may decline and investors could lose all or
part of their investment.





Our
business operations are conducted entirely in the PRC. Because China’s economy
and its laws, regulations and policies are different from those typically found
in the west and are continually changing, we face certain risks, including but
not limited to those summarized below.





RISKS
RELATED TO OUR BUSINESS:





We
Have A Limited Operating History And We Operate In A Highly-Competitive Industry
And Our Failure To Compete Effectively May Adversely Affect Our Ability To
Generate Revenue.





Xinsheng,
our operating company in the PRC, commenced operations in 2004. Accordingly, we
are subject to the risks and challenges inherent in the establishment of a new
business enterprise. Unanticipated problems, expenses, and delays are frequently
encountered in establishing a new business and marketing and developing
products. These include, but are not limited to, competition, the need to
develop customers and market expertise, market conditions, sales, marketing and
governmental regulation.





We are
principally engaged in the manufacture and marketing of organic biochemical
agricultural application products and we face competition from numerous other
companies. Many of our competitors have greater financial resources, a longer
operating history, and a larger customer base, than we do. We may be
unsuccessful in our attempts to compete, which would have a material adverse
impact on our business and financial condition.


7


We Rely On A Contractual Arrangement
With Xinsheng For Our Operations In China, Which May Not Be As Effective In
Providing Control Over Xinsheng As Direct Ownership.





We have
no equity control over Xinsheng. We operate our business in China through a
contractual agreement called a Management Entrustment Agreement between Xinsheng
and our subsidiary in China, Meixin. All of our business in China is conducted
through, and all of our revenues are generated by, Xinsheng.





The
Management Entrustment Agreement terminates upon the earlier of: (i) the
termination date of Xinsheng’s business, (ii) mutual agreement by Xinsheng and
Meixin to terminate the Agreement, or (iii) Meixin acquiring a greater than 51%
equity interest in Xinsheng’s shares.





If the
Management Entrustment Agreement is terminated, our ability to conduct our
business would be compromised. In addition, if Xinsheng fails to perform under
the Management Entrustment Agreement, we may have to rely on legal remedies
under Chinese law, which we cannot be sure would be available.





Due to
uncertainties regarding the interpretation of PRC laws, we cannot be sure that
the PRC government would view our arrangements with Xinsheng to be in compliance
with PRC law.If
we are determined not to be in compliance, the PRC government could levy fines,
revoke our business and operating licenses, require us to discontinue or
restrict our operations, restrict our right to collect revenues, require us to
restructure our business, corporate structure or operations, or impose
additional conditions or requirements, or take other regulatory or enforcement
actions against us that could be harmful to our business.





We
May Not Be Able To Effectively Control And Manage Our Planned
Growth.





We have
limited operational, administrative and financial resources, which may be
inadequate to sustain the growth we want to achieve. If our business and markets
grow and develop, it will be necessary for us to finance and manage expansion
accordingly. In addition, we may face challenges in managing our expanding
product offerings and in integrating any businesses we acquire with our own.
Such growth would place increased demands on our existing management, employees
and facilities. Our failure to meet these demands could interrupt or adversely
affect our operations and cause production backlogs, longer product development
time frames and administrative inefficiencies.





Our
Business Is Dependent Upon Our Brand Recognition And Trademarks.





Our
trademarked brands have gained recognition in the PRC. However, the protection
of intellectual property rights in the PRC may not be as effective as those in
the U.S. or other countries. The unauthorized use of our brands could harm our
business and competitive position. We cannot guarantee that counterfeiting or
imitation of our products will not occur in the future or that we will be able
to detect it and resolve it effectively. Any related litigation could be time
consuming, costly, and unsuccessful.





We also
cannot guarantee that our products will not infringe patents, copyrights or
other intellectual property rights held by third parties. Third parties may
initiate litigation against us alleging infringement of their proprietary
rights. In the event of a successful claim of infringement and our failure or
inability to develop non-infringing products or license the infringed or similar
technology on a timely basis, our business could be harmed. In addition, even if
we are able to license the infringed or similar technology, license fees could
be substantial and may adversely affect our results of operations.





We
Do Not Own Any Patents Related To Our Products.





We do not
own any patents related to our products because applying for patent protection
would reveal our proprietary methods and techniques. Accordingly, we may face
severe pricing pressure from copycat products if our competitors are able to
copy and implement our proprietary methods and techniques.





We
May Not Be Able To Hire And Retain Qualified Personnel.





Competition
for senior management and other key employees is intense, and the pool of
qualified candidates is limited. We may not be able to retain the services of
our senior executives or key employees, which could materially and adversely
affect our future growth.




We Do Not Presently Maintain Fire,
Theft, Product Liability Or Any Other Property Insurance, Which Leaves Us
With Exposure In The Event Of Loss Or Damage To Our Properties Or Claims Filed
Against Us.





We do not
maintain fire, theft, product liability or other insurance of any kind. We bear
the economic risk with respect to loss of or damage or destruction to our
property and to the interruption of our business as well as liability to third
parties for damage or destruction to them or their property that may be caused
by our personnel or products. Such liability could be substantial and the
occurrence of such loss or liability may have a material adverse effect on our
business, financial condition and prospects. While product liability lawsuits in
the PRC are rare, and we have never experienced significant failure of our
products, there can be no assurance that we would not face liability in the
event of the failure of any of our products.


8


RISK
RELATED TO DOING BUSINESS IN THE PRC:





Our
Success Depends Upon The Development Of The PRC's Agricultural
Industry.





The PRC
is currently the world's most populous country and one of the largest producers
and consumers of agricultural products. Despite the Chinese government's
emphasis on agricultural self-sufficiency, inadequate port facilities and lack
of warehousing and cold storage facilities may impede the growth of the domestic
agricultural trade. We rely on local farmers in the PRC to purchase our
products, which are generally purchased under a cash-on-delivery basis or on
credit. Accordingly, any difficulties farmers in the PRC experience in selling
their produce could reduce the demand for our products and hinder the ability of
the farmers to pay us on a timely basis.





Changes
In The Policies Of The PRC Government Could Have An Adverse Effect On Our
Business.





Policies
of the PRC government can have significant effects on the economic conditions of
the PRC. Although the PRC government has been pursuing economic reform policies
and transitioning to a market-oriented economy, there is no assurance that the
government will continue to pursue such policies or that such policies may not
be significantly altered, especially in the event of a change in leadership,
social or political disruption, or other circumstances affecting the PRC's
political, economic and social conditions. Our business could be adversely
affected by changes in PRC government policies, including but not limited to
changes in policies relating to taxation, currency conversion, imports and
exports, and ownership of private enterprises.





PRC
Laws And Regulations Governing Our Current Business Operations Are Sometimes
Vague And Subject to Interpretation, And Any Changes In PRC Laws And Regulations
May Have A Material And Adverse Effect On Our Business.





There are
substantial uncertainties regarding the interpretation, application and
enforcement of PRC laws and regulations, including but not limited to the laws
and regulations governing our business. These laws and regulations are sometimes
vague and are subject to future changes, and their official interpretation and
enforcement by the PRC government may involve substantial uncertainty. New laws
and regulations that affect existing and proposed future businesses may also be
applied retroactively. We cannot predict with certainty what effect existing or
new PRC laws or regulations may have on our business.





Demand
For Our Products May Decrease If The PRC Government Changes The Requirements For
The “Green Food” Rating.





Crops
that are grown using our products may be considered as “all-natural,” “organic,”
or “green”, and accordingly may qualify for the “AA Green Food” rating, which is
administered by the Green Food Development Center of the PRC Ministry of
Agriculture. Should the PRC government change the current Green Food rating
standards, crops grown with our products may not qualify for the Green Food
rating, which would adversely affect our business.





We
Are Required To Obtain Fertilizer Registration Certificates For Our Products
From The PRC Government That Are Subject To Annual Renewal.





In the
PRC, manufacturers of fertilizers and related products must obtain a government
approval known as a fertilizer registration certificate. Since 2004, we have
obtained temporary registration certificates from the PRC’s Ministry of
Agriculture for each of our primary products which authorize us to manufacture
and distribute our agricultural application products throughout the PRC. Each
temporary certificate is reviewed by the PRC’s Ministry of Agriculture on an
annual basis, until such time as we are eligible to receive permanent
certificates. There is no assurance that the temporary certificates will be
renewed or that we will become eligible for permanent certificates.





Xinsheng’s
Tax Exemption in the PRC is Subject to Annual Renewal And May Not Be Granted In
The Future.





Xinsheng
is subject to a 25% standard enterprise income tax in the PRC. However, due to
Xinsheng’s agricultural related activities, the National Tax Bureau in Xi’an
High-Tech Development Zone has granted Xinsheng annual exemptions from this tax
for the years ending December 31, 2007 and 2008. We have applied for a tax
exemption for 2009 and we expect that this application will be
approved.





However,
there is no assurance that we will continue to receive the tax exemption in
future years. Without the tax exemption, our financial results would be
materially and adversely affected. For purposes of comparison, had we been
subject to the 25% tax, our operating cash flow and net income for the years
ended December 31, 2008 and 2007 would each have been reduced by approximately
$387,600 and $349,400, respectively.


9


Our
Business Is Subject To Severe Weather Conditions, Disease, And Other Natural
Catastrophes In China.





Our
products are used for agricultural purposes, and accordingly our business is
exposed to the risk of severe weather conditions, disease, and other natural
catastrophes in the PRC. Natural catastrophes may include hail storms, floods,
droughts, windstorms, earthquakes, fires, insect infestations, disease and other
events, each of which tends to be unpredictable.





Cold
weather and other unusual weather conditions, particularly during or prior to
the spring plowing season, can significantly affect the purchasing decisions of
the Company’s customers, and can have a material adverse effect on our financial
results, as we experienced during 2008.





The
Recent Economic Downturn May Materially And Adversely Affect Our
Business.





The
Chinese economy has experienced a slowing growth rate due to a number of
factors, including but not limited to instability in the global financial
markets, the appreciation of the RMB, and economic and monetary policies adopted
by the Chinese government aimed at preventing overheating of the Chinese economy
and inflation.





We cannot
predict how long the downturn will last, the timing of any subsequent recovery,
or how much of an impact the downturn will have on our business and demand for
our products. To the extent that the downturn reduces spending on produce with
the “Green Food” designation, which tends to more expensive than products
without the designation, demand for our products could be affected.





The
economic downturn and financial market instability have generally made the
business climate more volatile and more costly. One result of the
deterioration in the global equity and credit markets is that obtaining any
additional debt or equity financing has become more difficult, more costly, and
more potentially dilutive to our existing investors. Failure to secure any
necessary financing in a timely manner and on favorable terms could have a
material adverse effect on our growth strategy and require us to delay or
abandon our expansion plans.





Inflation
In The PRC Could Negatively Affect Our Profitability And Growth.





A
resumption of the rapid economic growth experienced in the PRC prior to the
global economic downturn can lead to growth in the money supply and rising
inflation. In reaction to inflationary pressures, the PRC government has imposed
controls in the past on bank credits, limits on loans for fixed assets,
restrictions on state bank lending, and restrictions on funds flowing into the
PRC. Such policies can potentially lead to a slowing of economic growth. In
addition, in October 2004, the People's Bank of China, the PRC's central bank,
raised interest rates for the first time in nearly a decade and indicated in a
statement that the measure was prompted by inflationary concerns in the domestic
economy. Future rises in interest rates by the central bank would likely slow
economic activity in China which could, in turn, materially increase our costs
and also reduce demand for our products.





PRC
Governmental Control Of Currency Conversion May Affect Our Business And
Financial Results.





The PRC
government imposes controls on the convertibility of Renminbi (RMB) into foreign
currencies and, in certain cases, the remittance of currency out of the PRC. We
receive substantially all of our revenues in RMB, which is currently not a
freely convertible currency. Shortages in the availability of foreign currency
may restrict our ability to remit sufficient foreign currency to pay dividends,
or otherwise satisfy foreign currency denominated obligations. Under existing
PRC foreign exchange regulations, payments of current account items, including
profit distributions, interest payments and certain expenditures can be made in
foreign currencies without prior approval from the PRC State Administration of
Foreign Exchange (SAFE) by complying with certain procedural requirements.
However, approval from appropriate governmental authorities is required where
RMB is to be converted into foreign currency and remitted out of China to pay
expenses, and for return of capital.





The PRC
government may also at its discretion restrict access in the future to foreign
currencies for current account transactions. If the foreign exchange control
system prevents us from obtaining sufficient foreign currency to satisfy our
currency demands, we may not be able to pay certain expenses as they come
due.





The
Fluctuation Of The RMB Against The U.S. Dollar May Affect Our Operating Results
And Financial Condition.





The value
of the RMB against the U.S. Dollar and other currencies fluctuates and is
affected by, among other things, changes in the PRC's political and economic
conditions. As we rely entirely on revenues earned in the PRC, any significant
revaluation of the RMB may materially and adversely affect our cash flows,
revenues and financial condition. For example, to the extent that we need to
convert U.S. Dollars we receive from an offering of our securities into RMB,
appreciation of the RMB against the U.S. Dollar would reduce the amount of RMB
we receive upon conversion. Conversely, if we need to convert RMB into U.S.
Dollars and the U.S. Dollar appreciates against the RMB, the U.S. Dollar
equivalent of the RMB we convert would be reduced. In addition, the depreciation
of significant U.S. Dollar denominated assets could result in a charge to our
income statement and a reduction in the value of these assets.


10


In July,
2005, the PRC government changed its policy of pegging the value of the RMB to
the U.S. Dollar. Under the new policy, the RMB is permitted to fluctuate against
a basket of certain foreign currencies. While the international reaction to the
RMB revaluation has generally been positive, there remains significant
international pressure on the PRC government to adopt an even more flexible
currency policy, which could result in a further and more significant
fluctuation of the value of the RMB against the U.S. Dollar.





Because
Our Principal Assets Are Located Outside Of The U.S. And Most Of Our Directors
And Officers Reside Outside Of The U.S., It May Be Difficult To Pursue Legal
Action Against The Company And Its Directors And Officers.





Our
operating subsidiary is located in the PRC and substantially all of its assets
are located in the PRC. In addition, most of our directors and officers reside
in the PRC. It may therefore be difficult for investors in the U.S. to enforce
their legal rights based on the civil liability provisions of the U.S. Federal
securities laws against us in the courts of either the U.S. or the PRC and, even
if civil judgments are obtained in U.S. courts, to enforce such judgments in PRC
courts. Further, it is unclear if extradition treaties now in effect between the
U.S. and the PRC would permit effective enforcement against us or our officers
and directors of criminal penalties under U.S. laws or otherwise.





Lack Of Bank Deposit Insurance In The
PRC Puts Our Cash Reserves At Risk Of Loss.





We
maintain bank accounts in China whose balances are not insured and are not
protected by FDIC insurance or other insurance. As of December 31, 2008, we held
the equivalent of approximately $8,311,182 in US dollars in bank accounts in
China. If a Chinese bank holding our funds were to experience insolvency or
closure, it may not permit us to withdraw our funds which would result in a loss
of such funds and a reduction of our net assets.





RISKS
RELATED TO OUR COMMON STOCK:





The
Trading Market For Our Common Stock is Relatively Illiquid And The Market Price
Of Our Common Stock Has Been And Will Likely Continue To Be
Volatile.





There is
relatively low trading volume in our common stock, and the price of our common
stock has and is likely to continue to fluctuate significantly. These
circumstances may make it difficult for shareholders to sell shares of our
common stock when desired or at attractive prices. During 2008, the trading
price of our common stock as quoted on the OTC Bulletin Board ranged from a low
of $0.10 per share to a high of $1.50 per share. Thus far during 2009, the
trading price of our common stock ranged from a low of $0.10 per share to a high
of $0.25 per share.





The price
for our common stock may fluctuate in response to a number of events and
factors, including but not limited to: quarterly variations in our operating
results; announcements of technological innovations or new products by us or our
competitors; the operating and stock price performance of other companies that
investors may deem comparable to us, including companies with business
activities in the PRC; news reports relating to trends in our markets or general
economic conditions. Additionally, volatility or a lack of positive performance
in our stock price may adversely affect our ability to retain key
employees.


11


In
addition, there is no guarantee that our common stock will remain quoted on the
OTC Bulletin Board. If our common stock does not remain quoted on the OTC
Bulletin Board, it would become even more difficult to sell when desired or at
attractive prices.





The
Number Of Shares Of Common Stock Available For Resale And Issuable Upon
Conversion Or Exercise Of Our Notes And Warrants May Adversely Affect The Price
Of Our Common Stock.





On April
22, 2006, we issued 5,389,221 shares of our common stock (approximately
10,950,897 shares after giving effect to our forward stock split on October 31,
2006) as consideration for the Management Agreement with Xinsheng. Of this
amount, 9,099,749 shares are presently held in a trust and can be released from
the trust and are eligible for resale pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended.




As
indicated in Note 11 to the Consolidated Financial Statements included herein,
we have 1,887,580 common stock purchase warrants outstanding with exercise
prices ranging from $1.00 to $2.00. The shares of our common stock issuable upon
exercise of the warrants may be sold under Rule 144 beginning six months after
exercise. In addition, we have convertible notes outstanding in an aggregate
principal amount of $500,000, which are convertible into up to 1,000,000 shares
of common stock at a conversion price of $0.50 per share. The shares of our
common stock issuable upon conversion of the notes may be sold under Rule 144
upon conversion.





The
exercise of the warrants by the warrant holders and the conversion of the notes
by the note holders would have a dilutive effect on our existing shareholders.
In addition, the number of shares of common stock available for resale by the
Xinsheng shareholders, as well as the number of shares issuable upon conversion
of our outstanding notes or exercise of our outstanding warrants may adversely
affect the price of our common stock and may make it more difficult for us to
raise additional capital on favorable terms.





We
Are Authorized To Issue 4,900,000 Shares Of An "Undesignated" Class Of Stock
Which May Adversely Affect The Voting Power Or Other Rights Of The Holders Of
Common Stock.





Our
certificate of incorporation authorizes our board of directors to designate and
issue one or more series of preferred stock, having rights and preferences as
the board may determine in accordance with Maryland law. Our board of directors
is empowered, without stockholder approval, to issue such preferred stock with
rights that could adversely affect the voting power or other rights of the
holders of our common stock. In addition, the undesignated stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control. As of this date, no shares of the undesignated
stock are outstanding and no designation has been made as to any characteristics
these shares may have in the future.





We
Are Not Likely To Pay Cash Dividends In The Foreseeable Future.





We
currently intend to retain any future earnings for use in the operation and
expansion of our business. We do not expect to pay any cash dividends in the
foreseeable future but will review this policy as circumstances dictate. Should
we decide in the future to do so, as a U.S. based holding company, our ability
to pay dividends and meet other obligations depends upon the receipt of
dividends or other payments from our operating subsidiary. In addition, our
operating subsidiary is subject to restrictions under PRC law on its ability to
make distributions to us, including restrictions on the conversion of local
currency into U.S. Dollars or other hard currency and other regulatory
restrictions.





Item
2. Properties.





There is
no private land ownership in PRC. Land in the PRC is owned by the government and
cannot be sold to any individual or entity. Instead, the government grants or
allocates landholders a “land use right,” which is sometimes referred to
informally as land ownership. Land use rights are granted for specific purposes
and for limited periods. Each period may be renewed at the expiration of the
initial and any subsequent terms. Granted land use rights are transferable and
may be used as security for borrowings and other obligations. Generally
speaking, there are four primary ways of obtaining land use rights in the
PRC:





• Grant
of the right to use land;


•
Assignment of the right to use land;


• Lease
of the right to use land; and


•
Allocated land use rights.





Xinsheng
does not own any land use rights. However, Xinsheng owns its manufacturing
facility and office equipment, valued at approximately RMB 1,154,680
(approximately $169,241 based on the exchange rate in effect as of December 31,
2008) and vehicles, valued at RMB 1,522,087 (approximately
$223,092).


12





Xinsheng
leases its office space (approximately 7,300 square feet) at the Finance Plaza
9th Floor, Hi-tech Road No. 42, Hi-tech Industrial Development Zone in Xi'an,
Shaan Xi Province, for an annual rent of RMB 366,390 (approximately $53,7000)
from Shaanxi Heng Xing Property Management Co., Ltd. The term of the lease is
three years and expires on March 31, 2011.


Xinsheng
leases its operating and testing space (approximately 2,600 square feet),
located at the Xi'an Vegetable Research Institute, 2 Ouyan Road, Xian, Shaanxi,
China, for an annual rent of RMB 38,500 (approximately $5,640). The lease
expires on March 31, 2010.





Xinsheng
leases its manufacturing space (approximately 22,600 square feet), located at
Sanyuan Cotton Company, 16 Shihua Road, Chemistry District, Sanyuan County,
Shaanxi Province, for an annual rent of RMB 90,000 (approximately $13,190). The
lease expires on December 21, 2010.





China
Agri’s executive offices in the United States are located at 11 East 86th
Street, New York, New York 10028. Michael Segal, one of our directors, allows us
to use the space rent free.





We
believe that our facilities are suitable for our current operations. However,
our expansion plans contemplate the need for additional space as we increase
production.





Item
3. Legal Proceedings.





There are
no material pending legal proceedings to which we are a party or to which any of
our property is subject and to the best of our knowledge, no such actions
against us are contemplated or threatened.





Item
4. Submission of Matters to a Vote of Security Holders.





There
were no matters submitted to a vote of security holders in the fourth quarter of
2008.





PART
II





Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.





Our
common stock began quoting on the OTC Bulletin Board (“OTCBB”) on October 17,
2007 under the symbol CHBU.OB. The price range per share of common stock
presented below represents the highest and lowest intra-day prices for the
Company's common stock as quoted on the OTCBB. Such over-the-counter market
quotations may reflect inter-dealer prices, without markup, markdown or
commissions and may not necessarily represent actual transactions. Our common
stock is traded relatively infrequently and accordingly the market for our
common stock may not be indicative of a liquid trading market. The closing price
of our common stock as quoted on the OTCBB on March 26, 2009 was
$0.20.





High Sales
                      Price
                    
                    
                    Low Sales
                      PriceYear
      Ended December 31, 2009:1st
      Quarter (through March 26, 2009)
                    
                    $
                    0.25
                    
                    
                    $
                    0.10Year
      Ended December 31, 2008:4th
      Quarter
                    
                    $
                    0.55
                    
                    
                    $
                    0.103rd
      Quarter
                    
                    $
                    0.51
                    
                    
                    $
                    0.252nd
      Quarter
                    
                    $
                    1.50
                    
                    
                    $
                    0.421st
      Quarter
                    
                    $
                    1.00
                    
                    
                    $
                    0.40Year
      Ended December 31, 2007:4th
      Quarter (from October 17, 2007 to December 31, 2007)
                    
                    $
                    2.00
                    
                    
                    $
                    0.62





Number
of Shareholders





As of
March 26, 2009, there were 12,958,574 shares of our common stock issued and
outstanding and 7 active holders of record of our common stock. The number
of active record holders was determined from the records of our transfer agent
and does not include beneficial owners of common stock whose shares are held in
the names of the Xinsheng trustees, security brokers, dealers, and registered
clearing agencies.





The
Xinsheng trustees act as
trustees on behalf of approximately 2,340 shareholders in the PRC, butare considered by our
transfer agentto be one shareholder of record.In addition,all of our common shares
held by brokerage firms, banks and other financial institutions in the United
States and Canada as nominees for beneficial owners are considered to be held of
record by Cede & Co. in respect of brokerage firms, banks and other
financial institutions in the United States. Cede & Co. is also
considered to be one shareholder of record.


13


The
Company's transfer agent is Securities Transfer Corporation, 2591 Dallas
Parkway, Suite 102, Frisco, TX 75034, telephone number: (469)
633-0101.





Dividends





We have
not declared or paid any cash dividends on our common stock. We currently intend
to retain all earnings, if any, for use in our business operations and we do not
anticipate declaring any dividends in the foreseeable future.





The
payment of dividends is contingent on the ability of our PRC based operating
subsidiary to obtain approval to send monies out of the PRC. The PRC's national
currency, called the Yuan or Renminbi, is not a freely convertible currency. The
PRC government imposes controls on the convertibility of renminbi into foreign
currencies and, in certain cases, the remittance of currency out of the
PRC.





Equity Compensation Plan Information





We do not
have any stock option, bonus, profit sharing, pension or similar plan. However,
we may adopt such a plan in the future to attract and retain members of
management, directors or key employees.





Penny
Stock Regulations





The SEC
has adopted regulations which generally define “penny stock” to be an equity
security that has a market price of less than $5.00 per share. Our common stock
falls within the definition of penny stock and accordingly is subject to rules
that impose additional sales practice requirements on broker-dealers who sell
such securities.





Before a
broker-dealer can sell a penny stock, SEC rules require the firm to first
approve the customer for the transaction and receive from the customer a written
agreement to the transaction. The firm must furnish the customer a document
describing the risks of investing in penny stocks. The firm must tell the
customer the current market quotation, if any, for the penny stock and the
compensation the firm and its broker will receive for the trade. Finally, the
firm must send monthly account statements showing the market value of each penny
stock held in the customer’s account.





Consequently,
the "penny stock" rules may restrict the ability of broker-dealers to sell our
common stock and may affect the ability of investors to sell their common stock
in the secondary market.





Item
6. Selected Financial Data.





Not
applicable.





Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operation.





The
following discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto included elsewhere in this Form 10-K. All
information presented herein is based on the Company’s fiscal calendar. Unless
otherwise stated, references in this report to particular years or quarters
refer to the Company’s fiscal years ended in December and the associated
quarters of those fiscal years. The Company assumes no obligation to revise or
update any forward-looking statements for any reason, except as required by
law.





Year
Ended December 31, 2008 as compared to Year Ended December 31, 2007





Comparison of Gross Profit
for the Years Ended December
31, 2008 and 2007





2008
                  
                  
                  2007Sales
                  
                  $
                  2,922,385
                  
                  
                  $
                  3,037,414Cost
      of Goods Sold
                  
                  
                  817,472
                  
                  
                  
                  964,961Gross
      Profit
                  
                  $
                  2,104,913
                  
                  
                  $
                  2,072,453Gross
      Profit Margin
                  
                  
                  72.03
                  %
                  
                  
                  68.23
                  %


14


Sales





Revenue
for the year ended December 31, 2008 totaled $2,922,385, a decrease of $115,029,
or 3.8% as compared to sales of $3,037,414 for the year ended December 31, 2007.
Our revenues in 2008 were adversely affected by the following natural and
weather related disasters that occurred in China in 2008: (i) severe winter
weather conditions during the end of January and early February, (ii) the major
earth quake on May 12, 2008 whose epicenter was located in Sichuan province, and
(iii) widespread flooding in the central and southern regions in May and June,
including the Hunan and Hubei provinces. Our sales in the affected areas
declined significantly, and in some instance were non existent. We expect lower
sales in the disaster areas to continue at least through the first quarter of
2009, and possibly beyond.





In 2008,
approximately 45% of our sales were in Shaanxi province, 10% of our sales were
in Hunan province, and 8% of our sales were in Hebei province. Our products are
also sold in the following provinces in the PRC: Sichuan, Anhui, Jiangsu, Henan,
Shanxi, Jiangxi and Shandong.





During
the fourth quarter of 2008, we launched sales and marketing initiative called
“New Agriculture-Generator”, which is designed to expand our distribution
network in the PRC (a description of this initiative is set forth in Item 1.
Business, above)





In
addition, we continue to seek opportunities to produce fertilizer products for
third parties in order to fully utilize our manufacturing facilities and as a
means of generating additional revenue. However, we have not  yet
produced any products for third parties.





Gross
Profit and Gross Profit Margin





Gross
profit for the year ended December 31, 2008 was $2,104,913, an increase of
$32,460, or 1.6%, as compared to gross profit of $2,072,453 for the year ended
December 31, 2007.





Gross
profit margin rate for the year ended December 31, 2008 was 72.03%, an increase
of 3.80 percentage points as compared to the 68.23% for the year ended December
31, 2007.  The improvement in gross margin is primarily attributable
to a 5-10% increase in the prices of our products implemented during the second
quarter of 2008.





Comparison of Net Income for
the Years Ended December 31, 2008 and 2007





2008
                    
                    
                    2007Gross
      Profit
                    
                    $
                    2,104,913
                    
                    
                    $
                    2,072,453Selling
      and marketing
                    
                    
                    316,272
                    
                    
                    
                    146,178Professional
      fees
                    
                    
                    174,869
                    
                    
                    
                    473,809Depreciation
      and amortization expenses
                    
                    
                    60,947
                    
                    
                    
                    61,793Other
      general and administrative
                    
                    
                    177,190
                    
                    
                    
                    347,450Total
      general and administrative
                    
                    
                    729,278
                    
                    
                    
                    1,029,230Income
      from operations
                    
                    
                    1,375,635
                    
                    
                    
                    1,043,223Interest
      expense
                    
                    
                    (58,403
                    )
                    
                    
                    -Interest
      income
                    
                    
                    28,107
                    
                    
                    
                    15,659Net
      Income
                    
                    $
                    1,345,339
                    
                    
                    $
                    1,058,882





Selling
and Marketing Expenses





Selling
and marketing expenses were $316,272 for the year ended December 31, 2008, an
increase of $170,094, or 116%, as compared to $146,178 for the year ended
December 31, 2007. The increase in selling and marketing expenses is primarily
attributable to the launch of our “New Agriculture-Generator” sales and
marketing initiative “Super Chain Sales Partner Program” during the fourth
quarter of 2008 (A description of this initiative is set forth in Item 1.
Business, above). Approximately $190,000 in expenses were incurred in connection
with this initiative during the fourth quarter.


15


Professional
Fees





Professional
fees totaled $174,869 for the year ended December 31, 2008, a decrease of
$298,940, or 63%, as compared to professional fees of $473,809 for the year
ended December 31, 2007. The disparity in professional fees in 2007 as compared
to 2008 is attributable to fees incurred in connection with our initial public
offering in October 2007.





Other
General and Administrative Expense





Other
general and administrative expense generally consists of wages and related
benefits, rent and utility expenses, office expenses, travel and miscellaneous
expenses. The other general and administrative expense was $177,190 for the year
ended December 31, 2008, a decrease of $170,260, or 49%, as compared to $347,450
for the year ended December 31, 2007.  Higher other general and
administrative expenses in 2007 were primarily attributable to the Company’s
initial public offering in October 2007. The disparity in other general and
administrative expense in 2007 as compared to 2008 is also attributable to
expenses incurred in connection with our initial public offering in October
2007.





Interest
expense





Interest
expense increased by $58,403, which represents amortization of deferred
financing costs of $28,403, amortization of fair value of warrants of $19,713,
amortization of beneficial conversion feature of $6,537 and accrued loan
interest of $3,750. These expenses relate to the convertible notes issued in
September 2008.





Net
income





Net
income for the year ended December 31, 2008 was $1,345,339, an increase of
27.1%, or $286,457, as compared to net income of $1,058,882 for the year ended
December 31, 2007. Consequently, net income as a percentage of sales increase to
46% for the year ended December 31, 2008 from 34.9% for the year ended December
31, 2007. The increase in net income is primarily attributable to higher gross
profits, lower professional fees, and lower general and administrative expenses
in 2008 relative to 2007.





Liquidity
and Capital Resources





As of
December 31, 2008, 85% of the Company’s assets consist of cash and cash
equivalents, as compared to 82% as of December 31, 2007. As of December 31,
2008, our cash and cash equivalents amounted to $8,312,636, an increase of
$2,328,188 as compared to $5,984,448 as of December 31, 2007.





Net cash
provided by operating activities was $1,549,516 and $1,334,019 for the years
ended December 31, 2008 and 2007, respectively.





Net cash
provided by financing activities was $312,638 in 2008. This amount reflects
gross proceeds of $500,000 from a private placement of convertible notes and
warrants (as described in more detail below), less financing costs of
$187,362.  Net cash provided by financing activities was $221,607 in
2007. This amount reflects gross proceeds of $379,800 from the public offering
in October 2007, less related costs of $158,193.





Foreign
currency translation





Xinsheng’s
functional currency is the Chinese Yuan, or Renminbi (“RMB”). The appreciation
of the RMB against the U.S. dollar has had a positive effect on our cash
position.





For the
years ended December 31, 2008 and 2007, the positive effect of foreign exchange
rates on our cash position was approximately $471,000 and $375,000,
respectively.





However,
this positive effect of the RMB exchange rate may not continue in the
future.





Tax-exempt
status in the PRC





Xinsheng
is subject to a 25% standard enterprise income tax in the PRC. However, due to
Xinsheng’s agricultural activities, the National Tax Bureau in Xi’an High-Tech
Development Zone has granted Xinsheng annual exemptions from this tax for the
years ending December 31, 2007 and 2008. We have applied for a tax exemption for
2009 and we expect that this application will be approved.





For
purposes of comparison, had we been subject to the 25% tax, our operating cash
flow and net income for the years ended December 31, 2008 and 2007 would each
have been reduced by approximately $387,600 and $349,400,
respectively.


16


Private
Placement of Convertible Notes and Warrants





During
the third quarter, we completed the sale of 3% unsecured convertible notes in an
aggregate principal amount of $500,000 and series C warrants to purchase an
aggregate of 500,000 shares of common stock to two accredited investors. We
received net proceeds of $431,500, which the Company plans to use to pursue the
expansion of its manufacturing and distribution operations and for general
working capital purposes.





The notes
mature two years from the date of issuance and bear interest at the rate of 3%
per annum. The interest is payable annually in cash or, subject to approval of
the holder, in shares of common stock,. Any interest which is not paid when due
shall bear interest at the rate of fifteen percent (15%) per annum. Any
principal which is not paid when due shall bear interest at the rate of eight
percent (8%) per annum. The notes are convertible at the option of the holder
into common stock at a conversion price of $0.50 per share. Accordingly, any
conversions of the notes by the note holders would reduce the outstanding
principal amount of the notes, which in turn would reduce interest payable on
the notes. However, the is affected by the Company’s stock price relative to the
conversion price. The likelihood of conversion is greater if our stock price is
at or above the conversion price. The conversion price is subject to adjustment
upon the occurrence of stock splits, combinations, dividends, and subsequent
offerings, as set forth in the notes.





Subject
to effectiveness of the registration statement, the Company shall have the right
to prepay the notes at 110% of the outstanding principal amount any time prior
to the maturity date, and upon thirty (30) days prior written notice to the
holders.





The
series C warrants have a term of three years. In addition, upon exercise of a
series C warrant, each holder shall be issued a series D warrant. The series D
Warrants shall have a term of three years and an exercise price of $2.00 per
share. The exercise price of the warrants is subject to adjustment upon the
occurrence of stock splits, combinations, dividends, and subsequent offerings,
as set forth in the Warrants. China Agri would receive cash proceeds from the
exercise of the Series C warrants, as well as from the exercise of the warrants
issued to the placement agent. However, as with the notes, the likelihood of
exercise by the warrant holders depends upon the Company’s stock price relative
to the exercise price. The likelihood of exercise is greater if the stock price
is at or above the exercise price.





The
Company may call for the termination of any unexercised portion of the series C
warrants upon consummation of a subsequent offering by the Company of not less
than $7.5 million in gross proceeds, and upon thirty (30) days written notice to
the holders.





In
connection with the private placement we entered into registration rights
agreements with the investors pursuant to which we have agreed to prepare and
file a registration statement with the Securities and Exchange Commission not
later than 60 calendar days after the final closing. In addition, the Company
has agreed to use its good faith efforts to cause the Registration Statement to
be declared effective by the Commission within 120 calendar days from the filing
date. The registration statement shall seek to register for resale, in the
amounts set forth in the Registration Rights Agreement: (i) the warrant shares
issuable upon exercise of the Warrants, and (ii) the conversion shares issuable
upon conversion of the Notes.





In the
event that our obligations under the registration rights agreements are not met,
we are subject to liquidated damages payments in an amount equal to two percent
(2%) of the initial principal amount of the notes per month, subject to a
maximum of twenty four percent (24%). If we are required to pay liquidated
damages, our net income would be reduced by the amount of the liquidated
damages.





In
connection with the private placement, the placement agent received a cash
commission of $40,000 and an expense allowance of $25,000. In addition, the
placement agent is entitled to receive warrants to purchase 80,000 shares of
common stock at an exercise price of $1.00 per share for a term of three
years.





The
Company believes that this private placement was exempt from registration under
the Securities Act of 1933, as amended, pursuant to Section 4(2) of the Act
and/or Regulation D promulgated thereunder.





Sources
of Liquidity





We
presently do not have any available credit, bank financing or other external
sources of liquidity. We believe that our existing cash resources will be
sufficient to meet our existing operating requirements for the foreseeable
future. However, we are seeking opportunities to expand our manufacturing and
distribution capabilities in the PRC that may require an investment beyond our
existing cash resources. Accordingly, we are seeking additional funding through
additional equity and/or debt financings. However, there can be no assurance
that that any additional financing will become available to us, and if
available, on terms acceptable to us.





The
conversion of our outstanding notes and exercise of our outstanding warrants
into shares of common stock would have a dilutive effect on our common stock,
which would in turn reduce our ability to raise additional funds on favorable
terms. In addition, the subsequent sale on the open market of any shares of
common stock issued upon conversion of our outstanding notes and exercise of our
outstanding warrants could impact our stock price which would in turn reduce our
ability to raise additional funds on favorable terms.


17


Any
financing, if available, may involve restrictive covenants that may impact our
ability to conduct our business or raise additional funds on acceptable terms.
If we are unable to raise additional capital when required or on acceptable
terms, we may have to delay, scale back or discontinue our expansion
plans.





Critical
Accounting Policies and Estimates





Financial
Reporting Release No. 60, Cautionary Advice Regarding
Disclosure About Critical Accounting Policies, published by the SEC,
recommends that all companies include a discussion of critical accounting
policies used in the preparation of their financial statements. Policies
determined to be critical are those policies that have the most significant
impact on our consolidated financial statements and require management to use a
relatively greater degree of judgment and estimates. Actual results may differ
from those estimates.





We
believe that given current facts and circumstances, it is unlikely that applying
any other reasonable judgments or estimate methodologies would cause a material
effect on our consolidated results of operations, financial position or
liquidity for the periods presented in this report.





General





The
Company’s Consolidated Financial Statements are prepared in accordance with U.S.
Generally Accepted Accounting Principles, which require management to make
estimates, judgments and assumptions that affect the reported amounts of assets,
liabilities, net revenue and expenses, and the disclosure of contingent assets
and liabilities. Management bases its estimates on historical experience and on
various other assumptions that it believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Management believes that the accounting estimates employed and
the resulting balances are reasonable; however, actual results may differ from
these estimates under different assumptions or conditions.





Revenue
Recognition





For
revenue from product sales, the Company recognizes revenue in accordance with
Staff Accounting Bulletin No. 104, Revenue Recognition (“SAB No.
104”), which superseded Staff Accounting Bulletin No. 101, Revenue Recognition in Financial
Statements. SAB No. 104 requires that four basic criteria must be met
before revenue can be recognized: (1) persuasive evidence of an arrangement
exists, (2) delivery has occurred; (3) the selling price is fixed and
determinable; and (4) collectability is reasonably assured. Determination of
criteria (3) and (4) are based on management’s judgment regarding the fixed
nature of the selling prices of the products delivered and the collectability of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded.





Allowance
for Doubtful Accounts





The
Company’s receivables primarily consist of accounts receivable from its
customers. Accounts receivable are recorded at invoiced amount and generally do
not bear interest. The Company performs ongoing credit evaluations of its
customers’ financial condition, but generally does not require collateral to
support customer receivables.  The credit risk is controlled through
credit approvals, limits and monitoring procedures.  The Company
establishes an allowance for doubtful accounts based upon historical experience,
management’s evaluation of the outstanding accounts, age of receivables and
other factors. As of December 31, 2008, 48% of the Company’s trade receivables
were current, and the remaining 52% of trade receivables were aged between 31 to
60 days. By comparison, as of December 31, 2007, 25% of the Company’s trade
receivables were current, 35% of trade receivables were aged between 31 to 90
days, and the remaining 40% of trade receivables were aged between 91 to 360
days.





Long-Lived
Assets





The
Company has adopted Statement of Financial Accounting Standards No. 144 (“SFAS
No. 144”). SFAS No. 144 requires that long-lived assets and certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Events relating to recoverability may include
significant unfavorable changes in business conditions, recurring losses, or a
forecasted inability to achieve break-even operating results over an extended
period. The Company evaluates the recoverability of long-lived assets based upon
forecasted discounted cash flows. Should impairment in value be indicated, the
carrying value of long-lived assets will be adjusted, based on estimates of
future discounted cash flows resulting from the use and ultimate disposition of
the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less costs to
sell.


18


Item
8. Financial Statements and Supplementary Data.




CHINA
AGRI-BUSINESS, INC. AND SUBSIDIARIES
 
 INDEX
TO FINANCIAL STATEMENTS
 
 PageReport
      of Independent Registered Public Accounting Firm
                  
                  F-1Consolidated
      Balance Sheets as of December 31, 2008 and 2007
                  
                  F-2Consolidated
      Statements of Operations for the Years ended December 31, 2008 and
      2007
                  
                  F-3Consolidated
      Statements of Stockholders’ Equity for the Years ended December 31, 2008
      and 2007
                  
                  F-4Consolidated
      Statements of Cash Flows for the Years ended December 31, 2008 and
      2007
                  
                  F-5Notes
      to Consolidated Financial Statements
                  
                  F-6
      - F-17
   
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors and Stockholders of
 China
Agri-Business, Inc.
 
 I have
audited the accompanying consolidated balance sheets of China Agri-Business,
Inc. and subsidiaries (the “Company”) as of December 31, 2008 and 2007 and the
related consolidated statements of operations, stockholders’ equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company’s management.  My responsibility is to
express an opinion on these financial statements based on my
audits.
 
 I
conducted my audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the 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 financial statement presentation.  I believe
that my audits provide a reasonable basis for my opinion.
 
 In my
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of China Agri-Business, Inc.
and subsidiaries as of December 31, 2008 and 2007 and the results of their
operations and cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.
   /s/
      Michael
      T. Studer, CPA, P.C.Michael
      T. Studer, CPA, P.C.
  Freeport,
New York
 March 31,
2009
 F-1
  China
Agri-Business, Inc.
 Consolidated
Balance Sheets
 As
of December 31,
 
 2008
                                        
                                        
                                        2007AssetsCurrent
      AssetsCash
      and cash equivalents
                                        
                                        $
                                        8,312,636
                                        
                                        
                                        $
                                        5,984,448Accounts
      receivable, net of allowance for doubtful accounts of $6,524
      and  $23,991, respectively
                                        
                                        
                                        45,165
                                        
                                        
                                        
                                        65,118Inventory
                                        
                                        
                                        47,113
                                        
                                        
                                        
                                        60,582Other
      receivables
                                        
                                        
                                        7,329
                                        
                                        
                                        
                                        6,855Prepaid
      expenses
                                        
                                        
                                        22,345
                                        
                                        
                                        
                                        5,735Total Current
      Assets
                                        
                                        
                                        8,434,588
                                        
                                        
                                        
                                        6,122,738Property,
      plant and equipment, net
                                        
                                        
                                        231,278
                                        
                                        
                                        
                                        276,000Investment
      in Tienwe Technology
                                        
                                        
                                        879,420
                                        
                                        
                                        
                                        822,540Deferred
      financing costs, net of accumulated amortization of $28,403 and $0,
      respectively
                                        
                                        
                                        178,879
                                        
                                        
                                        
                                        -Intangible
      assets, net
                                        
                                        
                                        59,495
                                        
                                        
                                        
                                        73,554Total
      Assets
                                        
                                        $
                                        9,783,660
                                        
                                        
                                        $
                                        7,294,832Liabilities
      and Stockholders' EquityCurrent
      LiabilitiesAccounts
      payable and accrued liabilities
                                        
                                        $
                                        234,007
                                        
                                        
                                        $
                                        166,200Total Current Liabilities
                                        
                                        
                                        234,007
                                        
                                        
                                        
                                        166,200Long
      Term LiabilitiesConvertible
      notes, net
                                        
                                        
                                        327,020
                                        
                                        
                                        
                                        -Total Liabilities
                                        
                                        
                                        561,027
                                        
                                        
                                        
                                        166,200Stockholders'
      EquityUndesignated
      preferred stock, par value $.001 per share; authorized 4,900,000 shares;
      none issued
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Common
      stock, par value $.001 per share; authorized 100,000,000 shares, issued
      and outstanding 12,958,574 and 12,958,574 shares,
    respectively
                                        
                                        
                                        12,959
                                        
                                        
                                        
                                        12,959Additional
      paid-in capital
                                        
                                        
                                        4,369,786
                                        
                                        
                                        
                                        4,150,636Retained
      earnings
                                        
                                        
                                        3,654,212
                                        
                                        
                                        
                                        2,308,873Accumulated
      other comprehensive income
                                        
                                        
                                        1,185,676
                                        
                                        
                                        
                                        656,164Total stockholders' equity
                                        
                                        
                                        9,222,633
                                        
                                        
                                        
                                        7,128,632Total Liabilities and
      Stockholders' Equity
                                        
                                        $
                                        9,783,660
                                        
                                        
                                        $
                                        7,294,832
 
 The
accompanying notes are an integral part of these financial
statements.
 
 F-2
  China
Agri -Business, Inc.
 Consolidated
Statements of Operations
 For
the Years Ended December 31, 2008 and 2007
 
 2008
                                            
                                            
                                            2007Sales
      of products
                                            
                                            $
                                            2,922,385
                                            
                                            
                                            $
                                            3,037,414Cost
      of goods sold
                                            
                                            
                                            817,472
                                            
                                            
                                            
                                            964,961Gross
      profit
                                            
                                            
                                            2,104,913
                                            
                                            
                                            
                                            2,072,453Selling,
      general and administrative expenses
                                            
                                            
                                            729,278
                                            
                                            
                                            
                                            1,029,230Income
      from operations
                                            
                                            
                                            1,375,635
                                            
                                            
                                            
                                            1,043,223Interest
      and other income
                                            
                                            
                                            28,107
                                            
                                            
                                            
                                            15,659Interest
      expense
                                            
                                            
                                            (58,403
                                            )
                                            
                                            
                                            -Income
      before income taxes
                                            
                                            
                                            1,345,339
                                            
                                            
                                            
                                            1,058,882Income
      taxes
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Net
      income
                                            
                                            
                                            1,345,339
                                            
                                            
                                            
                                            1,058,882Deemed
      dividend relating to beneficial conversion feature of Series A preferred
      stock
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (200,000
                                            )Net
      income attributable to common stockholders
                                            
                                            $
                                            1,345,339
                                            
                                            
                                            $
                                            858,882Earnings
      per common share:Basic
                                            
                                            $
                                            0.10
                                            
                                            
                                            $
                                            0.07Diluted
                                            
                                            $
                                            0.10
                                            
                                            
                                            $
                                            0.07Weighted
      average number of common shares used to compute earnings per common
      share:Basic
                                            
                                            
                                            12,958,574
                                            
                                            
                                            
                                            12,431,496Diluted
                                            
                                            
                                            13,216,108
                                            
                                            
                                            
                                            12,664,099
 
 The
accompanying notes are an integral part of these financial
statements.
  F-3
 
 China
Agri -Business, Inc.
 Consolidated
Statements of Stockholders' Equity
 For
the Years Ended December 31, 2008 and 2007
 
 Common
      Stock
                            Shares
                          
                          
                          Common
      Stock
                            Amount
                          
                          
                          Additional
      Paid-in
                            Capital
                          
                          
                          Retained
                            Earnings
                          
                          
                          Accumulated
                            Other
                            Comprehensive
                            Income
                          
                          
                          TotalBalance,
      December 31, 2006
                          
                          
                          12,278,774
                          
                          
                          $
                          12,279
                          
                          
                          $
                          3,629,709
                          
                          
                          
                          1,449,991
                          
                          
                          $
                          232,272
                          
                          
                          $
                          5,324,251Sales
      of Units in public offering
                          
                          
                          379,800
                          
                          
                          
                          380
                          
                          
                          
                          379,420
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          379,800Costs
      relating to the public offering
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (158,193
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (158,193
                          )Conversion
      of Series A preferred stock
                          
                          
                          300,000
                          
                          
                          
                          300
                          
                          
                          
                          99,700
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          100,000Deemed
      dividend relating to beneficial conversion feature of  Series A
      preferred stock
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          200,000
                          
                          
                          
                          (200,000
                          )
                          
                          
                          -
                          
                          
                          
                          -Net
      income for the year ended December 31, 2007
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,058,882
                          
                          
                          
                          -
                          
                          
                          
                          1,058,882Foreign
      currency translation adjustment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          423,892
                          
                          
                          
                          423,892Balance,
      December 31, 2007
                          
                          
                          12,958,574
                          
                          
                          
                          12,959
                          
                          
                          
                          4,150,636
                          
                          
                          
                          2,308,873
                          
                          
                          
                          656,164
                          
                          
                          
                          7,128,632Relative
      fair value of warrants and beneficial conversion feature included in sale
      of convertible notes
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          199,230
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          199,230Fair
      value of Placement Agent warrants
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          19,920
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          19,920Net
      income for the year ended December 31, 2008
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,345,339
                          
                          
                          
                          -
                          
                          
                          
                          1,345,339Foreign
      currency translation adjustment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          529,512
                          
                          
                          
                          529,512Balance,
      December 31, 2008
                          
                          
                          12,958,574
                          
                          
                          $
                          12,959
                          
                          
                          $
                          4,369,786
                          
                          
                          
                          3,654,212
                          
                          
                          $
                          1,185,676
                          
                          
                          $
                          9,222,633
 
 The
accompanying notes are an integral part of these financial
statements.
  F-4
  China
Agri -Business, Inc.
 Consolidated
Statements of Cash Flows
 For
the Years Ended December 31, 2008 and 2007
 
 2008
                                          
                                          
                                          2007Operating
      activitiesNet
      income
                                          
                                          $
                                          1,345,339
                                          
                                          
                                          $
                                          1,058,882Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Bad
      debt expense
                                          
                                          
                                          (18,785
                                          )
                                          
                                          
                                          -Depreciation
      of property, plant and equipment
                                          
                                          
                                          47,374
                                          
                                          
                                          
                                          44,157Amortization
      of intangible assets and deferred financing costs
                                          
                                          
                                          47,726
                                          
                                          
                                          
                                          17,636Amortization
      of debt discount and fair value of warrants
                                          
                                          
                                          26,250
                                          
                                          
                                          
                                          -Changes
      in operating assets and liabilities:Decrease
      in accounts receivable
                                          
                                          
                                          37,420
                                          
                                          
                                          
                                          38,726(Increase)/decrease
      in other receivable
                                          
                                          
                                          (474
                                          )
                                          
                                          
                                          11,621Decrease
      in inventory
                                          
                                          
                                          13,469
                                          
                                          
                                          
                                          31,671(Increase)/decrease
      in prepaid expenses
                                          
                                          
                                          (16,610
                                          )
                                          
                                          
                                          16,402Increase
      in accounts payable and accrued liabilities
                                          
                                          
                                          67,807
                                          
                                          
                                          
                                          114,924Net
      cash provided by operating activities
                                          
                                          
                                          1,549,516
                                          
                                          
                                          
                                          1,334,019Investing
      activitiesLoans
      receivable collections
                                          
                                          
                                          -
                                          
                                          
                                          
                                          301,447Property,
      plant and equipment additions
                                          
                                          
                                          (5,300
                                          )
                                          
                                          
                                          (32,902
                                          )Net
      cash (ussed in) provided by investing activities
                                          
                                          
                                          (5,300
                                          )
                                          
                                          
                                          268,545Financing
      activitiesProceeds
      from public offering
                                          
                                          
                                          -
                                          
                                          
                                          
                                          379,800Costs
      relating to public offering
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (158,193
                                          )Proceeds
      from convertible notes
                                          
                                          
                                          500,000
                                          
                                          
                                          
                                          -Costs
      relating to sale of convertible notes
                                          
                                          
                                          (187,362
                                          )
                                          
                                          
                                          -Net
      cash provided by financing activities
                                          
                                          
                                          312,638
                                          
                                          
                                          
                                          221,607Effect of exchange rate changes
      on cash and cash equivalents
                                          
                                          
                                          471,334
                                          
                                          
                                          
                                          374,742Increase
      in cash and cash equivalents
                                          
                                          
                                          2,328,188
                                          
                                          
                                          
                                          2,198,913Cash and cash equivalents,
      beginning of period
                                          
                                          
                                          5,984,448
                                          
                                          
                                          
                                          3,785,535Cash and cash equivalents, end
      of period
                                          
                                          $
                                          8,312,636
                                          
                                          
                                          $
                                          5,984,448Supplemental Disclosures of Cash Flow
      Informtion:Non
      Cash Financing Activities:Relative
      fair value of warrants and beneficial conversion feature recorded as debt
      discount and additional paid in capital
                                          
                                          $
                                          199,230
                                          
                                          
                                          $
                                          -Fair
      value of Placement Agent warrants recorded as deferred financing costs and
      additional paid in capital
                                          
                                          $
                                          19,920
                                          
                                          
                                          $
                                          -
 
 The
accompanying notes are an integral part of these financial
statements.
  F-5
  CHINA AGRI-BUSINESS,
INC
 NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
 
 NOTE 1 –
ORGANIZATION AND
NATURE OF BUSINESS
 
 China
Agri-Business, Inc. (“China Agri”) was incorporated in the State of Maryland on
December 7, 2005.  On October 31, 2006, China Agri effectuated a 2.032
to 1 forward stock split.  All share and per share amounts have been
retroactively adjusted to reflect the stock split.
 
 On March
24, 2006, China Agri formed Mei Xin Agri Technology (Shaanxi) Co., Ltd.
(“Meixin”).  Meixin is a wholly-owned subsidiary of China Agri and a
limited liability company organized under the laws of PRC.  Pursuant
to measures passed by the stockholders of Shaanxi Xin Sheng Centennial
Agriculture and Technology Co., Ltd. (“Xinsheng”), a corporation formed under
the laws of the PRC on April 22, 2002, on April 10, 2006, a Management
Entrustment Agreement dated April 18, 2006 between Meixin and Xinsheng, and a
Stock Purchase Agreement dated April 22, 2006 between China Agri and Xinsheng
(collectively, the “Transaction”), Meixin acquired management control ofXinsheng,
in the same manner as if it were a wholly owned subsidiary under PRC law, and
China Agri issued 10,950,897 shares of China Agri common stock, representing
approximately 89% of the 12,278,774 shares of China Agri common stock
outstanding after the Transaction, to a trustee of a trust for the benefit of
the Xinsheng stockholders.  The Transaction was accounted for as a
“reverse merger”, since the stockholders of Xinsheng owned a majority of China
Agri’s common stock immediately following the Transaction.  Xinsheng
was deemed to be the acquirer in the reverse merger.  Consequently,
the assets and liabilities and the historical operations that are reflected in
the financial statements prior to the Transaction are those of Xinsheng and are
recorded at the historical cost basis of Xinsheng, and the consolidated
financial statements after completion of the Transaction include the assets and
liabilities of China Agri, Meixin, and Xinsheng (collectively, the “Company”),
historical operations of Xinsheng, and operations of China Agri and Meixin from
the date of the Transaction.
 
 China
Agri-Business, Inc., through its operating company in China, manufactures and
sells non-toxic fertilizer, bactericide and fungicide products used for farming
in the People’s Republic of China (the “PRC”). Crops grown with our products are
eligible to qualify for the “AA Green Food” rating administered by the China
Green Food Development Center, an agency under the jurisdiction of the Ministry
of Agriculture of the PRC.
 
 NOTE 2 –
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
 
 Basis of
presentation
 
 The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States (“US
GAAP”).
 
 Principles of
Consolidation
 
 The
consolidated financial statements of 2008 and 2007 include the financial
statements of China Agri, Meixin and Xinsheng.  All intercompany
balances and transactions have been eliminated in
consolidation.
  F-
6
  NOTE 2 –
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
 
 Use of
Estimates
 
 The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenues and
expenses during the reporting periods.  Actual results could differ
from those estimates.
 
 Fair Value of Financial
Instruments
 
 The
Company’s financial instruments consist of cash and cash equivalents, accounts
receivable, net, other receivables, accounts payable and accrued liabilities,
and convertible notes, net.  The fair value of these financial
instruments approximate their carrying amounts reported in the consolidated
balance sheets due to the short term maturity of these instruments or by
comparison to other instruments with similar terms.
 
 Foreign Currency
Translation
 
 The
functional currency of China Agri  is the United States
dollar.  The functional currency of Xinsheng and Meixin is the
RMB.  The reporting currency of the Company is the United States
dollar.
 
 The
assets and liabilities of Xinsheng and Meixin are translated into United States
dollars at period-end exchange rates ($0.14657 and $0.13709 at December 31, 2008
and 2007, respectively).  The revenues and expenses are translated
into United States dollars at average exchange rates for the period ($0.14396
and $0.13148 for the years ended December 31, 2008 and 2007,
respectively).  Resulting translation adjustments are recorded as a
component of accumulated other comprehensive income within stockholders’
equity.
  F-
7
  NOTE 2 –
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
 
 Foreign Currency Translation(Continued)
 
 Transaction
gains or losses arising from exchange rate fluctuation on transactions
denominated in a currency other than the functional currency are included in the
consolidated results of operations.  There is no material foreign
currency transaction gain or loss for the years ended December 31, 2008 and
2007.
 
 Cash and Cash
Equivalents
 
 Cash and
cash equivalents consist of cash on hand, cash on deposit with banks, and highly
liquid debt investments with a maturity of three months or less when
purchased.
 
 Inventory
 
 Inventory
is stated at the lower of cost (first-in, first-out method) or
market.
 
 Property, Plant and
Equipment, Net
 
 Property,
plant and equipment is stated at cost less accumulated
depreciation.  Depreciation is calculated on a straight-line basis
over the estimated useful lives of the respective assets.
 
 Intangible and Other
Long-Lived Assets, Net
 
 Intangible
and other long-lived assets are stated at cost, less accumulated amortization
and impairments.  The intangible assets are being amortized over their
expected useful economic lives ranging from 5 to 10 years.
 
 The
Company reviews its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may no longer be
recoverable.  When these events occur, the Company measures impairment
by comparing the carrying value of the long-lived assets to the estimated
undiscounted future cash flows expected to result from the use of the assets and
their eventual disposition.  If the sum of the expected undiscounted
cash flow is less than the carrying amount of the assets, the Company would
recognize an impairment loss based on the fair value of the assets.
 
 Revenue
Recognition
 
 Sales of
products are recorded when title passes to the customer, which is generally at
time of shipment.  The Company performs ongoing credit evaluations of
its customers’ financial condition, but generally does not require collateral to
support customer receivables.  The credit risk is controlled through
credit approvals, limits and monitoring procedures.  The Company
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other
factors.  Accounts receivable are charged against the allowance for
doubtful accounts once all collection efforts have been
exhausted.  The Company does not routinely permit customers to return
product.
 
 Freight
and other transportation costs are included in cost of goods
sold.
  F-
8
  NOTE 2 –
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
 
 Stock-Based
Compensation
 
 Stock-based
compensation is accounted for at fair value in accordance with SFAS No. 123(R)
“Accounting for Stock-Based Compensation”.  No stock options have been
granted and none are outstanding.
 
 Advertising
 
 Advertising
costs are expensed as incurred. For the years ended December 31, 2008 and 2007,
advertising expenses were $11,946 and $21,236, respectively.
 
 Income
Taxes
 
 Deferred
income taxes are recognized for temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements,
net of operating loss carry forwards and credits, by applying enacted statutory
tax rates applicable to future years.  Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is not more
likely than not that some portion or all of the deferred tax assets will be
realized.  Current income taxes are provided for in accordance with
the laws of the relevant taxing authorities.
 
 Earnings (Loss) Per Common
Share
 
 Basic
earnings (loss) per common share are computed on the basis of the weighted
average number of common shares outstanding during the period.
 
 Diluted
earnings (loss) per share are computed on the basis of the weighted average
number of common shares and dilutive securities (such as convertible preferred
stock and convertible notes) outstanding.  Dilutive securities having
an anti-dilutive effect on diluted earnings (loss) per share are excluded from
the calculation.
 
 A
reconciliation of the weighted average number of common shares used to compute
basic and diluted earnings per share for the years ended December 31, 2008 and
2007 follows:
 2008
                            
                            
                            2007Weighted
      average number of common shares outstanding (used to compute basic
      EPS)
                            
                            
                            12,958,574
                            
                            
                            
                            12,431,496Assumed
      conversion of redeemable Series A preferred stock - See Note
      9
                            
                            
                            -
                            
                            
                            
                            232,603Convertible
      notes - See Note 8
                            
                            
                            257,534
                            
                            
                            
                            -Weighted
      average number of common shares and dilutive common stock equivalents
      outstanding (used to compute diluted EPS)
                            
                            
                            13,216,108
                            
                            
                            
                            12,664,099
  F-
9
  NOTE 2 –
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
 
 Recently Issued Accounting
Pronouncements
 
 Certain
accounting pronouncements have been issued by the FASB and other standard
setting organizations which are not yet effective and have not yet been adopted
by the Company. The impact on the Company’s financial position and results of
operations from adoption of these standards is not expected to be
material.
 
 Reclassifications
 
 Certain
prior period amounts have been reclassified to conform to the current period
presentation.
 
 NOTE 3 –
INVENTORY
 
 Inventory
      consists of:
                              
                              December
      31,
                              
                              
                              December
      31,2008
                              
                              
                              2007Raw
      materials
                              
                              $
                              39,125
                              
                              
                              $
                              52,953Finished
      goods
                              
                              
                              4,536
                              
                              
                              
                              5,342Other
                              
                              
                              3,452
                              
                              
                              
                              2,287Total
      inventory
                              
                              $
                              47,113
                              
                              
                              $
                              60,582
  F-
10
  NOTE 4 –
PROPERTY, PLANT AND
EQUIPMENT, NET
 
 Property,
plant and equipment, net, consist of:
  December
      31,
                                
                                
                                December
      31,2008
                                
                                
                                2007Building
                                
                                $
                                19,699
                                
                                
                                $
                                18,425Transportation
      equipment
                                
                                
                                223,092
                                
                                
                                
                                271,081Manufacturing
      equipment and machinery
                                
                                
                                146,034
                                
                                
                                
                                123,798Office
      and computer equipment
                                
                                
                                3,508
                                
                                
                                
                                16,448392,333
                                
                                
                                
                                429,752Less
      accumulated depreciation
                                
                                
                                161,055
                                
                                
                                
                                153,752Property,
      plant and equipment, net
                                
                                $
                                231,278
                                
                                
                                $
                                276,000
 
 Depreciation
expense was $47,374 and $44,157 for the year ended December 30, 2008 and 2007,
respectively.
 
 NOTE 5 –
INVESTMENT IN TIENWE
TECHNOLOGY INC
 
 On July
29, 2005, Xinsheng acquired a 13.95% equity interest in Tienwe Technology Inc.
(“Tienwe”), a PRC company, for 6,000,000 RMB ($879,420 and $822,540 translated
at the December 31, 2008 and December 31, 2007 exchange rate, respectively). The
investment is carried at cost. Tienwe shares are not quoted or traded on any
securities exchange or in any recognized over-the-counter market; accordingly,
it is not practicable to estimate the fair value of the investment. Tienwe sells
aerospace products to military industry customers.
 
 NOTE 6 –
DEFERRED FINANCING
COSTS
 
 Deferred
financing costs, which are being amortized as interest expense over the two year
term of the convertible notes payable due September 29, 2010, consist
of:
 
 December
      31,
                                      
                                      
                                      December
      31,2008
                                      
                                      
                                      2007Placement
      Agent commissions
                                      
                                      $
                                      40,000
                                      
                                      
                                      $
                                      -Placement
      Agent expense allowance
                                      
                                      
                                      25,000
                                      
                                      
                                      
                                      -Fair
      value of Placement Agent warrants
                                      
                                      
                                      19,920
                                      
                                      
                                      
                                      -Legal
      and other fees
                                      
                                      
                                      122,362
                                      
                                      
                                      
                                      -Total
                                      
                                      
                                      207,282
                                      
                                      
                                      
                                      -Less:
      accumulated amortization
                                      
                                      
                                      (28,403
                                      )
                                      
                                      
                                      -Balance
      at December 31, 2008
                                      
                                      $
                                      178,879
                                      
                                      
                                      $
                                      -
  F-
11
 
 NOTE 7 –
INTANGIBLE ASSETS,
NET
 
 Intangible
assets, net, consist of:
  December
      31,
                                        
                                        
                                        December
      31,2008
                                        
                                        
                                        2007Product
      rights
                                        
                                        $
                                        90,141
                                        
                                        
                                        $
                                        84,310Patent
                                        
                                        
                                        14,657
                                        
                                        
                                        
                                        13,709Trademark
                                        
                                        
                                        2,190
                                        
                                        
                                        
                                        1,555Total
                                        
                                        
                                        106,988
                                        
                                        
                                        
                                        99,574Less
      accumulated amortization
                                        
                                        
                                        47,493
                                        
                                        
                                        
                                        26,020Intangible
      assets, net
                                        
                                        $
                                        59,495
                                        
                                        
                                        $
                                        73,554
 
 The
product rights were acquired by Xinsheng in December 2006 from an unrelated
third party and relate to six registered fertilizer products.
 
 The
patent was acquired by Xinsheng in 2002 from three related parties (one of the
parties was an officer, director and significant stockholder of the Company at
the time of the exchange) in exchange for a total of 16.67% of the issued and
outstanding shares of Xinsheng common stock. The patent (and contributed
capital) at the date of the exchange on April 22, 2002 has been reflected at the
transferors’ cost. The patent is for Zero-tillage Fertilizing Equipment (PRC
Patent Number 330398), which is a type of seeding machine, the use of which
reduces soil erosion.
 
 Estimated
amortization expense for each of the Company’s succeeding years ending December
31, 2009, 2010, 2011, 2012 and 2013 is $19,713, $19,713, $19,713, $53 and $53,
respectively.
 
 NOTE 8 –
CONVERTIBLE NOTES
PAYABLE, NET
 
 Convertible
notes payable, net, consist of:
  December
      31,
                              2008
                            
                            
                            December
      31,
                              2007Convertible
      notes - face amount
                            
                            $
                            500,000
                            
                            
                            $
                            -Less:Debt
      discount attributable to the relative fair value of
      warrants
                            
                            
                            (149,615
                            )
                            
                            
                            -Debt
      discount attributable to the intrinsic value of the beneficial
      conversion feature
                            
                            
                            (49,615
                            )
                            
                            
                            -Less
      accumulated amortization of debt discounts
                            
                            
                            26,250
                            
                            
                            
                            -Convertible
      notes payable, net
                            
                            $
                            327,020
                            
                            
                            $
                            -
 
 On
September 29, 2008, the Company completed the first closing of a private
placement consisting of 3% unsecured convertible notes with a conversion price
of $0.50 and Series C warrants with an exercise price of $1.50. In connection
with the closing, the Company entered into subscription agreements with two
accredited investors for the sale of Notes in an aggregate principal amount of
$500,000 and Series C warrants to purchase an aggregate of 500,000 shares of the
Company’s common stock. The Company received net proceeds of $431,500 after the
deduction of Placement Agent commissions of $40,000, Placement Agent expense
allowance of $25,000 and an escrow agent fee of $3,500.
  F-
12
 
 NOTE 8 –
CONVERTIBLE NOTES
PAYABLE, NET (Continued)
 
 The Notes
mature two years from the date of issuance and bear interest at the rate of 3%
per annum, payable annually in cash or in shares of common stock, subject to
approval of the holder. Overdue interest shall bear interest at the rate of 15%
per annum. Overdue principal shall bear interest at the rate of 8% per annum.
The Notes are convertible at the option of the holder into the common stock of
the Company at an initial conversion price of $0.50 per share. The conversion
price is subject to adjustment upon the occurrence of stock splits,
combinations, dividends and subsequent offerings.
 
 The
Series C warrants have a term of three years and an exercise price of $1.50 per
share. In addition, upon exercise of the Series C warrant, each Series C warrant
holder shall be issued a Series D warrant. The Series D warrants shall have a
term of three years and an exercise price of $2.00 per share. The exercise price
of the Warrants is subject to adjustment upon the occurrence of stock splits,
combinations, dividends and subsequent offerings.
 
 Subject
to effectiveness of the registration statement, the Company shall have the right
to prepay the Notes at 110% of the outstanding principal amount any time prior
to the maturity date and upon 30 days prior written notice to the holders. The
Company may call for the termination of any unexercised portion of the C
warrants upon consummation of a subsequent offering by the Company of not less
than $7,500,000 in gross proceeds and upon 30 days written notice to the
holders.
 
 In
connection with the transaction, the Company agreed to prepare and file a
registration statement with the Securities and Exchange Commission (the “SEC”)
within 60 days following the final closing date (which was January 8, 2009). In
addition, the Company agreed to use its good faith efforts to cause the
Registration Statement to be declared effective by the Commission within 90
calendar days from the filing date, or within 120 days from the filing date if
the Registration Statement is reviewed by the Commission. If the Company fails
to file such registration statement within 60 days, or if the registration
statement is not declared effective within 91 (or 120) days from the filing
date, the Company is to pay monthly liquidated damages in cash equal to 2% of
the purchase price, subject to a maximum of 24%. On February 13, 2009, the
Company filed a registration Statement on Form S-1 to register the shares
underlying the convertible notes and warrants. On March 12, 2009, the SEC sent a
comment letter to the Company.
 
 In
accordance with the Accounting Principal Board (“APB”) Opinion No.14,
“Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants”
and the Emerging Issues Task Force (“EITF”) Issue No. 00-27, “Application of
Issue No. 98-5 to Certain Convertible Instruments”, the Company recorded the
$149,615 relative fair value of the warrants ($78,136 for the Series C warrants;
$71,479 for the Series D warrants) and the $49,615 intrinsic value of the
beneficial conversion feature as additional paid in capital.
 
 The
$149,615 fair value of the Series C and Series D warrants was calculated using a
Black-Scholes option pricing model and the following assumptions: risk-free
interest rate of 2.26%; expected stock price volatility of 130.69%; stock price
of $0.40 per share; exercise price of $1.50 per share for the C warrants and
$2.00 per share for the D warrants; and term of 3 years.
 
 In
connection with the first closing, the placement agent received warrants to
purchase 80,000 shares of the Company’s common stock at an exercise price of
$1.00 per share for a term of three years. The $19,920 fair value of these
warrants (calculated using the same assumptions described above except for the
exercise price) was charged to deferred financing costs and added to additional
paid in capital.
  F-
13
 
 NOTE 9 –
REDEEMABLE SERIES A
PREFERRED STOCK
 
 On May
31, 2006, China Agri sold 10,000 Units of securities to an investor at a price
of $10.00 per Unit, or $100,000 total.  Each Unit was comprised of one
share of Series A preferred stock and one warrant to purchase one share of
Common Stock at $1.50 per share exercisable through May 31,
2009.  Each share of Series A preferred stock was not entitled to any
voting rights, except that the consent of the holders of at least 51% of the
outstanding shares of Series A preferred stock were necessary to permit the
authorization or issuance or any increase in the authorized or issued amount of
any class or series of capital stock ranking equal to or senior to the Series A
preferred stock.
 
 Each
share of Series A Stock was automatically convertible into shares of Common
Stock at a conversion price of one-third of the price per share of the Common
Stock paid for by the purchasers of Common Stock in a Public Offering pursuant
to a registration statement under the Securities Act of 1933, as amended (the
“Act”). Upon completion of the sale of Common Stock for $1.00 per share pursuant
to the public offering which closed October 11, 2007, each outstanding share of
Series A Stock automatically converted into 30 shares of Common Stock (300,000
shares of Common Stock total). The Company recorded as a dividend and as an
increase in additional paid-in capital, the intrinsic value of the beneficial
conversion feature (the “BCF”). The intrinsic value of the BCF was the
difference between the $300,000 fair value of the common stock issued upon
conversion and the $100,000 proceeds received, or $200,000.
 
 NOTE 10 –
COMMON
STOCK
 
 On
October 11, 2007, upon the completion of the public offering, China Agri sold
379,800 units at a price of $1.00 per unit to the public investors. Each Unit
consisted of one share of Common Stock, one warrant to purchase one share of
Common Stock at $1.50 per share exercisable for three years from the date of
issuance, and one warrant to purchase one share of Common Stock at $2.00 per
share exercisable for three years from the date of issuance only if the $1.50
Unit Warrant was exercised.
 
 NOTE 11 -
WARRANTS
 
 The
Company has issued warrants (exercisable into shares of common stock) to
investors, the Underwriter, and the Placement Agent as part of its sale of
Series A preferred stock, its public offering, and its private placement of
convertible notes. Changes in the warrants outstanding are as
follows:
 
 Year
      Ended
                      December
      31, 2008
                    
                    
                    Year
      Ended
                      December
      31, 2007Outstanding
      at beginning of period
                    
                    
                    807,580
                    
                    
                    
                    10,000Warrants
      issued
                    
                    
                    1,080,000
                    
                    
                    
                    797,580Warrants
      exercised
                    
                    
                    -
                    
                    
                    
                    -Warrants
      expired
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      at end of period
                    
                    
                    1,887,580
                    
                    
                    
                    807,580Exercisable
      at end of period
                    
                    
                    1,887,580
                    
                    
                    
                    807,580
  F-
14
  NOTE 11 –
WARRANTS
(Continued)
 
 Warrants
outstanding at December 31, 2008 consist of:
 
 Date
      Issued
                        
                        Expiration
      Date
                        
                        
                        Number
      of
                          Warrants
                        
                        
                        Weighted
      Average
                          Exercise
      PriceMay
      31, 2006
                        
                        May
      31, 2009
                        
                        
                        
                        10,000
                        
                        
                        $
                        1.50October
      11, 2007
                        
                        October
      10, 2010
                        
                        
                        
                        379,800
                        
                        
                        
                        1.50October
      11, 2007
                        
                        October
      10, 2010
                        
                        
                        
                        379,800
                        
                        
                        
                        2.00October
      11, 2007
                        
                        October
      10, 2012
                        
                        
                        
                        37,980
                        
                        
                        
                        1.00September
      29, 2008
                        
                        September
      29, 2011
                        
                        
                        
                        80,000
                        
                        
                        
                        1.00September
      29, 2008 (1)
                        
                        September
      29, 2011
                        
                        
                        
                        500,000
                        
                        
                        
                        1.50September
      29, 2008 (2)
                        
                        -
                        
                        
                        
                        500,000
                        
                        
                        
                        2.00Total
                        
                        
                        
                        
                        
                        
                        1,887,580
                        
                        
                        $
                        1.70
 
 (1)
Represents Series C warrants
 (2)
Represents Series D warrants issuable upon exercise of the Series C
warrants.
 The
Series D warrants are exercisable for a period of three years from the date of
exercise of the Series C warrants.
 
 NOTE 12 –
RESTRICTED NET
ASSETS
 
 Relevant
PRC statutory laws and regulations permit payments of dividends by Meixin and
Xinsheng only out of its retained earnings, if any, as determined in accordance
with PRC accounting standards and regulations.  In addition, PRC laws
and regulations require that annual appropriations of 10% of after-tax income
should be set aside prior to payments of dividends as a reserve
fund.  As a result of these PRC laws and regulations, the Company is
restricted in its ability to transfer a portion of its net assets in the form of
dividends, loans or advances, which restricted portion amounted to approximately
$5,104,000 and $4,105,000 at December 31, 2008 and December 31, 2007,
respectively.
 
 NOTE 13 –
INCOME
TAXES
 
 Xinsheng
is subject to a PRC 25% standard enterprise income tax.  However, due
to its agricultural industry status, the National Tax Bureau in Xi’an High-Tech
Development Zone has granted Xinsheng exemptions from this tax since 2006. The
Company has to apply for exemption status on an annual basis. The tax authority
has approved the Company’s application for the exemption from income tax for the
year 2008.
 
 At
December 31, 2008 and December 31, 2007, the Company had an unrecognized
deferred United States income tax liability relating to undistributed earnings
of Xinsheng.  These earnings are considered to be permanently invested
in operations outside the United States.  Generally, such earnings
become subject to United States income tax upon the remittance of dividends and
under certain other circumstances.  Determination of the amount of the
unrecognized deferred United States income tax liability with respect to such
earnings is not practicable.
  F-
15
 
 NOTE 13 –
INCOME TAXES(Continued)
 
 The
Company did not have any significant temporary differences relating to deferred
tax liabilities as of December 31, 2008 and December 31, 2007.
 
 The
provisions for income taxes differ from the amounts computed by applying the
statutory United States federal income tax rate to income (loss) before income
taxes.  Reconciliations follow:
 
 Years
      Ended December 31,2008
                          
                          
                          2007Expected
      tax at 35%
                          
                          $
                          470,869
                          
                          
                          $
                          383,724Tax
      effect of unutilized losses of China Agri and Meixin
                          
                          
                          71,807
                          
                          
                          
                          135,664Effect
      of PRC income tax exemption granted to Xinsheng
                          
                          
                          (387,626
                          )
                          
                          
                          (349,431
                          )Permanent
      difference relating to Xinsheng's earnings to bepermanently
      invested in operations outside the United States
                          
                          
                          (155,050
                          )
                          
                          
                          (169,957
                          )Actual
      provision for income taxes
                          
                          $
                          -
                          
                          
                          $
                          -
 
 NOTE 14 –
SEGMENT
INFORMATION
 
 The
Company operates in one industry segment – the manufacturing and sale of
agricultural enhancement products.  Substantially all of the Company’s
identifiable assets at December 31, 2008 and 2007 were located in the
PRC.  Net sales for the periods presented were all derived from PRC
customers.
 
 NOTE 15 –
COMMITMENTS AND
CONTINGENCIES
 
 Lease
Agreements
 
 Xinsheng
leases its office space (approximately 7300 square feet) at an annual rent of
366,390 RMB ($53,700 translated at the December 31, 2008 exchange rate) under a
lease with a three year term expiring March 31, 2011.
 
 Xinsheng
leases its operating and testing space (approximately 2600 square feet) at an
annual rent of 38,500 RMB ($5,640 translated at the December 31, 2008 exchange
rate) under a lease expiring March 31, 2010.
 
 Xinsheng
leases its manufacturing space (approximately 22,600 square feet at an annual
rent of 90,000 RMB ($13,190 translated at December 31, 2008 exchange rate) under
a lease expiring December 21, 2010.
 
 China
Agri utilizes office space provided by one of its directors at no
cost.
  F-
16
 
 NOTE 15 –
COMMITMENTS AND
CONTINGENCIES (Continued)
 
 Lease Agreements
(Continued)
 
 For the
year ended December 31, 2008 and 2007, rental and related expenses for all
operating leases amounted to $68,091 and $65,382, respectively.
 
 At
December 31, 2008, future minimum rental commitments under all non-cancellable
operating leases are:
  Year
      ending
                      December
      31,
                    
                    Minimum
                      Rent2009
                    
                    $
                    72,5302010
                    
                    
                    68,3002011
                    
                    
                    13,425Total
                    
                    $
                    154,255
 
 PRC
Risks
 
 Substantially
all of the Company’s business operations are conducted in the PRC and governed
by PRC laws and regulations.  Meixin and Xinsheng are generally
subject to laws and regulations applicable to foreign investments and
foreign-owned enterprises.  Because these laws and regulations are
relatively new, the interpretation and enforcement of these laws and regulations
involve uncertainties.
 
 The PRC
government imposes controls on the convertibility of RMB into foreign currencies
and, in certain cases, the remittance of currency out of the PRC.  The
Company receives substantially all of its revenues in RMB, which is currently
not a freely convertible currency.  Under existing PRC foreign
exchange regulations, payment of current account items, including profit
distributions, interest payments and expenditures from the transaction, can be
made in foreign currencies without prior approval from the PRC State
Administration of Foreign Exchange by complying with certain procedural
requirements.  However, approval from appropriate governmental
authorities is required where RMB is to be converted into foreign currency and
remitted out of the PRC to pay capital expenses, such as the repayment of bank
loans denominated in foreign currencies.  The PRC government may also
at its discretion restrict access in the future to foreign currencies for
current account transactions.
 
 NOTE 16 -
Concentration of
Credit Risk
 
 The
Company maintains cash balances in various banks in China. Currently, no deposit
insurance system has been set up in China. Therefore, the Company will bear a
risk if any of these banks become insolvent. As of December 31, 2008, the
Company’s uninsured cash balances were approximately
$8,300,000.
  F-
17




Item
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.





Not
applicable.





Item
9A. Controls and Procedures.





a.
Evaluation of Disclosure Controls and Procedures





Based on
an evaluation under the supervision and with the participation of the Company's
management, the Company's principal executive officer and principal financial
officer have concluded that the Company's disclosure controls and procedures as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended ("Exchange Act") were effective as of December 31, 2008 to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Exchange Act is (i) recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission rules and forms and (ii) accumulated and communicated
to the Company's management, including its principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.





b.
Changes in Internal Controls over Financial Reporting





The
Company’s chief executive officer and the Company’s chief financial
officer  have concluded that there were no changes in the Company’s
internal controls over financial reporting during the quarter ended December 31,
2008 that have materially affected or are reasonably likely to materially affect
the Company’s internal controls over financial reporting.





c.
Management’s Report on Internal Control Over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Exchange Act Rule
13a-15(f). The Company’s internal control system was designed to provide
reasonable assurance to the Company’s management and board of directors
regarding the preparation and fair presentation of published financial
statements.





All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.





The
Company’s management, including the Company’s Chief Executive Officer and Chief
Financial Officer, assessed the effectiveness of the Company’s internal control
over financial reporting as of December 31, 2008 In making this assessment,
the Company’s management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control—Integrated Framework. Based on this assessment, management believes
that, as of December 31, 2008 the Company’s internal control over financial
reporting was effective based on those criteria.





Item
9B. Other Information.





We do not
have any information required to be disclosed in a report on Form 8-K during the
fourth quarter of 2008 that was not reported.





PART
III





Item
10. Directors, Executive Officers and Corporate Governance.





The
following are the officers and directors of China Agri-Business, Inc., Mei Xin
Agri Technology (Shaanxi) Co., Ltd., and Shaanxi Xin Sheng Centennial
Agricultural and Technology Co., Ltd.. Some of our officers and directors are
residents of the PRC and, therefore, it may be difficult for investors to effect
service of process within the U.S. upon them or to enforce judgments against
them obtained from the U.S. courts.





Directors
and Executive Officers of China Agri:




NAME
                      
                      POSITION
                      
                      AGELiping
      Deng
                      
                      Director,
      Chief Executive Officer and President
                      
                      37Limin
      Deng
                      
                      Chairman
      of Board of Directors
                      
                      46Xiaolong
      Zhou
                      
                      Chief
      Financial Officer
                      
                      56Michael
      Segal
                      
                      Director
                      
                      67


19





Directors
and Executive Officers of Meixin:




NAME
                      
                      POSITION
                      
                      AGELiping
      Deng
                      
                      Chairman
      of Board of Directors
                      
                      37Limin
      Deng
                      
                      Vice-Chairman
      of Board of Directors
                      
                      46Zhengfeng
      Guo
                      
                      Director
                      
                      39




Directors
and Executive Officers of Xinsheng:




NAME
                      
                      POSITION
                      
                      AGELiping
      Deng
                      
                      Director,
      and President
                      
                      37Limin
      Deng
                      
                      Chairman
      of Board of Directors
                      
                      46Hong
      Cai
                      
                      Director
      and Finance Manager
                      
                      42Yi
      Fu
                      
                      Director
      and Vice President
                      
                      36Mengzhou
      Li
                      
                      Director
                      
                      45




Mr. Liping Deng was appointed
as our Director, President and Chief Executive Officer on June 26, 2006. He has
been a Director and President of Xinsheng since 2002 and Chairman of Board of
Directors of Meixin since March 2006. Prior to joining us, Mr. Deng served as a
senior manager at Xianyang Tong Lida Electronic Communication Co., Ltd. from
1996 to 1998. Prior to that, Mr. Deng served as President of the Worker's Union
in Xianyang Pottery Factory from 1991 to 1995. Mr.Deng obtained a technical
secondary school degree from Xi'an Construction Company Pottery Technology
School. Mr. Liping Deng is the brother of Mr. Limin Deng.





Mr. Limin Deng was appointed
as our Director on June 26, 2006. He founded Xinsheng in 2002 and served as
Chairman of Xinsheng since that time. Mr. Deng is the Vice Chairman of the Board
of Directors of Meixin. Prior to joining us, he served as a security manager in
the Xi'An Electronic Technology University for six years. He founded Shaanxi
Xinsheng Weiye Technology Development Co., Ltd. in 2001, which has been
liquidated. He obtained a junior college degree in Economic Management from the
Continuous Education College of Xi'an Electronic Technology University. Mr.
Limin Deng is the brother of Mr. Liping Deng.





Mr. Xiaolong Zhou was
appointed as our Chief Financial Officer in April 1, 2007. He had been a senior
accountant in Liss Okou Goldstein Okun and Tancer CPA'S P.C. in Great Neck, New
York for the prior nine years. He is a certified public accountant, registered
in the state of New York, a member of American Institute of Certified Public
Accountants, and a member of New York State Society of Certified Public
Accountants. Mr. Zhou obtained an M.B.A. in accountancy degree from Baruch
College of CUNY and an M.A. in economics degree from City College of CUNY. He
obtained a B.A. in economics degree from Fudan University, Shanghai,
China.





Mr. Michael Segal was
appointed as our Director on June 8, 2006. Since 2001, Mr. Segal has been
President of Segal Cirone Services Inc., a financial consulting company that
advises institutions, banks and high net worth individuals. He currently is a
Principal, Options Compliance Principal and Branch Office Manager of Whitaker
Securities LLC, a member of the Financial Industry Regulatory Authority (FINRA)
since October 23, 2006. Prior to that, Mr. Segal served in the following
capacities: President of Alexander Westcott & Co., Inc., a licensed
broker-dealer, and Secretary of the board of directors of its parent company,
the Financial Commerce Network Inc., a publicly held company; President of
Lamborn Securities Inc. a licensed broker-dealer. He is also individually
registered as an Introducing Broker with the Commodity Futures Trading
Commission, a member of the National Futures Association, and a founding member
of the Managed Funds Association. Mr. Segal received a B.B.A. in marketing and
economics from the University of Miami, (Coral Gables) Florida. Mr. Segal sits
on the board of directors of the following privately held companies: China Power
Equipment Company Inc.; Jiali Pharmaceuticals Inc.; Asia Nutracueticals
Consulting Co. Ltd.; China America Holdings LLC; Kerry Pharmaceuticals Inc.;
Asia Carbon Black, Inc. Mr. Segal also sits on the board of directors of the
following publicly held company: BioStar Pharmaceuticals, Inc.





Mr. Zhengfeng Guo was
appointed as a director of Meixin in November 2007. Prior to that, he was
industry supervisor of Shaanxi Xinsheng Centennial Agriculture & Technology
Co., Ltd. in the PRC from 2001 to 2007. He obtained his bachelor degree in
marketing management from Shaanxi Finance & Economics college in the
PRC.





Mr. Yi Fuwas appointed as a
Director and Vice President of Xinsheng in 2008. Prior that, he served as sales
manager of Xinsheng. Mr. Fu graduated from Shaanxi Mechanical and Electrical
Industry College in 1995.





Mr. Mengzhou Li was appointed
as a Director of Xinsheng in 2009. Prior that, he was a Vice-Manager of Jiahui
Group. He obtained his dealer certificate of Shanghai Stock Exchanges in
2001.





According
to our By-laws, the term of our directors is from the date of their appointment
or election until the next annual meeting of shareholders or until his or her
successor shall have been elected and qualified. The terms for our principal
executive officers are one year, and they serve at the discretion of our board
of directors.


20


Family
Relationships





Mr. Limin
Deng and Mr. Liping Deng are brothers.





Audit
Committee





We have
not yet appointed an audit committee. At the present time, our board of
directors is collectively responsible for analyzing and evaluating our financial
statements and our internal controls and procedures for financial
reporting.





Compensation
Committee





We do not
presently have a compensation committee. Our board of directors currently acts
as our compensation committee.





Nominating
Committee





We do not
presently have a nominating committee. Our board of directors currently acts as
our nominating committee.





Director
Independence





Michael
Segal is an independent director as that term is defined in the Nasdaq Stock
Market, Inc. Marketplace Rules.





Our Board
of Directors does not presently have a majority of independent directors. In the
absence of a majority of independent directors, our executive officer, who is
also a principal stockholder and director, could establish policies and enter
into transactions without independent review and approval thereof. This could
present the potential for a conflict of interest between the Company and its
stockholders generally and the controlling officers, stockholders or
directors.





Code
of Ethics





We have
not yet adopted a Code of Business Conduct and Ethics that applies to our
directors and officers.




Involvement
in Certain Legal Proceedings.





None of
our officers or directors have, during the last five years: (i) been
convicted in or is currently subject to a pending a criminal proceeding;
(ii) been a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction and as a result of such proceeding was or is
subject to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to any federal or state securities
or banking laws including, without limitation, in any way limiting involvement
in any business activity, or finding any violation with respect to such law, nor
(iii) has any bankruptcy petition been filed by or against the business of
which such person was an executive officer or a general partner, whether at the
time of the bankruptcy of for the two years prior thereto.





Compliance
with Section 16(a) of the Exchange Act





Our
executive officers, directors and shareholders are not subject to the filing
requirements imposed by Section 16(a) of the Securities Exchange Act of
1934, as amended.





Item 11.  Executive
Compensation.





Summary
Compensation Table





The
following table sets forth all compensation awarded to, or earned by, our
Principal Executive Officer, and our two other most highly compensated executive
officersfor the years
indicated.





Name and  Principal
                                          Position
                                          (a)
                                        
                                        Year
                                          (b)
                                        
                                        Salary
                                          ($)
                                          (c)
                                        
                                        Bonus
                                          ($)
                                          (d)
                                        
                                        Stock
                                          Awards
                                          ($)
                                          (e)
                                        
                                        Option
                                          Awards
                                          ($)
                                          (f)
                                        
                                        Non-Equity
                                          Incentive
                                          Plan
                                          Compensation
                                          ($)
                                          (g)
                                        
                                        Change in
                                          Pension
                                          Value and
                                          Nonqualified
                                          Deferred
                                          Compensation
                                          Earnings
                                          ($)
                                          (h)
                                        
                                        All Other
                                          Compensation
                                          ($)
                                          (i)
                                        
                                        Total
                                          ($)
                                          (j)Liping
      Deng
                                          Chief
      Executive Officer (1)
                                        
                                        2008
                                        
                                        
                                        6,260
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        6,2602007
                                        
                                        
                                        5,260
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        5,260Xiaolong
      Zhou
                                          Chief
      Financial Officer (2)
                                        
                                        2008
                                        
                                        
                                        45,000
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        45,0002007
                                        
                                        
                                        33,750
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        —
                                        
                                        
                                        —
                                        
                                        33,750


21


Compensation
Discussion and Analysis





The goal
of our board of directors in determining compensation levels is to adequately
reward the efforts and achievements of our executive officers for the management
of the Company. The board believes that the compensation paid to its executive
officers is comparable to peer companies of comparable size in similar
locations.





We
entered into a preliminary employment agreement with Mr. Zhou on April 1, 2007,
which provides for annual compensation of $45,000. Mr. Zhou continues to be
compensated at this annual rate.





We do not
have written employment agreements with our other executive officers. In the
absence of such employment agreements, PRC labor laws provide for employment
related terms such as the term of employment, the provision of labor-related
insurance, termination for cause, termination on 30 days' notice and termination
without notice.





China
Agri-Business does not currently have a pension plan, stock option plan,
non-equity incentive plan or deferred compensation arrangement. We plan to
implement a more comprehensive compensation program, which takes into account
other elements of compensation, including but not limited to non-cash and other
equity-based compensation such as stock options.





Director
Compensation





The
compensation of our directors is determined on a case by case
basis.





Effective
January 1, 2008, Michael Segal is paid cash compensation at the rate of $1,500
per month, or $18,000 annually, for his services as director.





Our Chief
Executive Officer, Liping Deng, does not receive any additional compensation for
his services as director above and beyond his salary as an officer.





The
following table sets forth compensation paid to each named director during the
year end December 31, 2008.





DIRECTOR COMPENSATIONName
                          (a)
                        
                        Fees
                          Earned or
                          Paid in
                          Cash
                          ($)
                          (b)
                        
                        
                        Stock
                          Awards
                          ($)
                          (c)
                        
                        
                        Option
                          Awards
                          ($)
                          (d)
                        
                        
                        Non-Equity
                          Incentive
                          Plan
                          Compensation
                          ($)
                          (e)
                        
                        
                        Non-Qualified
                          Deferred
                          Compensation
                          Earnings
                          ($)
                          (f)
                        
                        
                        All
                          Other
                          Compensation
                          ($)
                          (g)
                        
                        Total
                          ($)
                          (j)Limin
      Deng
                        
                        
                        6,332
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        6,332Michael
      Segal
                        
                        
                        18,000
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        18,000





Item 12.  Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.





The
following table sets forth information regarding the beneficial ownership of our
common stock as of February 13, 2009 by:





·
              each
      person known by us to be the beneficial owner of more than 5% of our
      outstanding shares of common stock;·
              each
      of our officers and directors; and·
              all
      our officers and directors as a
group.




Based on
information available to us, all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them, unless otherwise indicated. Beneficial ownership is determined in
accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as
amended. In computing the number of shares beneficially owned by a person or a
group and the percentage ownership of that person or group, shares of our common
stock subject to options or warrants currently exercisable or exercisable within
60 days after the date of this prospectus are deemed outstanding, but are not
deemed outstanding for the purpose of computing the percentage of ownership of
any other person. Applicable percentage ownership is based upon
12,958,574 shares of common stock outstanding as of March 26,
2009.


22


Unless
otherwise indicated, the address of each individual named below is c/o China
Agri-Business, Inc., Finance Plaza, 9th Floor, Hi-tech Road No. 42, Hi-tech
Industrial Development Zone Xi'an, Shaanxi, CHINA 710068.





Name of Beneficial Owner
                      
                      Amount and
                        Nature of
                        Beneficial
                        Ownership
                      
                      
                      Percent of
                        ClassMichael
      Segal
                        11
      East 86th Street
                        New
      York, New York 10028
                      
                      
                      63,074
                      
                      
                      
                      0.5
                      %Liping
      Deng
                      
                      
                      1,851,148
                      
                      
                      
                      14.3
                      %Liming
      Deng
                      
                      
                      —
                      
                      
                      
                      —Xialong
      Zhou
                      
                      
                      —
                      
                      
                      
                      —All
      Directors and Executive Officers as a group (4 persons)
                      
                      
                      1,914,222
                      
                      
                      
                      14.8
                      %Trustees
      for Xinsheng Shareholders (2)
                      
                      
                      9,099,749
                      
                      
                      
                      70.2




Footnotes:





(1) The
trustees are: Zhihong Yang, Xiaoying Lin, Dongdong Ding, Fei Zhao and Junsheng
Meng. The trustees are individuals and are not affiliated with any bank or trust
company. The
trustees act as trustees on behalf of approximately 2,340 shareholders in the
PRC.





Item
13. Exhibits.





EXHIBIT
INDEX





Exhibit
      No.
                    Description31.1
                    Certification
      by Chief Executive Officer pursuant to Sarbanes Oxley Section
      302.*31.2
                    Certification
      by Chief Financial Officer pursuant to Sarbanes Oxley Section
      302.*32.1
                    Certification
      by Chief Executive Officer pursuant to 18 U.S.C. Section
      1350.*32.2
                    Certification
      by Chief Financial Officer pursuant to 18 U.S.C. Section
      1350.*





* Filed
herewith.





Item 14.Principal
Accountant Fees and Services.





The
following table sets forth the fees accrued or paid to the Company's independent
registered public accounting firm during fiscal years 2008 and 2007. The
Company’s financial statements for those years were audited by Michael T.
Studer, CPA, P.C..





Audit
and Non-Audit Fees





2008
                        
                        
                        2007Audit
      Fees (1)
                        
                        $
                        64,400
                        
                        
                        $
                        64,400Audit-Related
      Fees (2)
                        
                        
                        —
                        
                        
                        
                        —Tax
      Fees (3)
                        
                        
                        —
                        
                        
                        
                        —All
      Other Fees
                        
                        
                        —
                        
                        
                        
                        —Total
                        
                        $
                        64,400
                        
                        
                        $
                        64,400





(1) Audit
fees are fees for services provided in connection with the audits of the
Company's annual financial statements and quarterly reviews of interim quarterly
financial statements, as well as audit provided in connection with other
statutory and regulatory filings.





(2)
Audit-related fees are aggregate fees billed for assurance and related services
that are reasonably related to the performance of the audit or review of the
financial statements and are not otherwise reported as Audit fees.





(3) Tax
fees are aggregate fees billed for professional services rendered for tax
compliance, tax advice, and tax planning.


23


SIGNATURES





Pursuant to the requirements of
Section 13 or 15(d) of the Exchange Act, the registrant has duly caused
this Form 10-K Annual Report to be signed on its behalf by the undersigned
on March 31, 2009, thereunto duly authorized.





CHINA
      AGRI-BUSINESS, INC.By:
              /s/ Liping DengLiping
      DengPresident
      and Chief Executive Officer(Principal
      Executive Officer)By:
              /s/ Xiaolong ZhouXiaolong
      ZhouChief
      Financial Officer(Principal
      Accounting Officer)





In
accordance with the requirements of the Securities Exchange Act of 1934, this
Form 10-K Annual Report has been signed by the following persons in the
capacities and on the dates indicated.





Position
                
                DateBy:
                /s/ Liping Deng
                
                President,
      Chief Executive Officer, Director
                
                March
      31, 2009Liping
      DengBy:
                /s/ Xiaolong Zhou
                
                Chief
      Financial Officer
                
                March
      31, 2009Xiaolong
      ZhouBy:
                /s/ Limin Deng
                
                Director
                
                March
      31, 2009Limin
      DengBy:
                /s/ Michael Segal
                
                Director
                
                March
      31, 2009Michael
      Segal


24