Edgar Filing: BODISEN BIOTECH, INC

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Cautionary Note Regarding Forward-Looking Statements

We make certain forward-looking statements in this report. Statements concerning our future operations, prospects, strategies, financial condition, future economic performance (including growth and earnings), demand for our services, and other statements of our plans, beliefs, or expectations, including the statements contained under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” as well as captions elsewhere in this document, are forward-looking statements. In some cases these statements are identifiable through the use of words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can”, “could,” “may,” “should,” “will,” “would,” and similar expressions. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The forward-looking statements we make are not guarantees of future performance and are subject to various assumptions, risks, and other factors that could cause actual results to differ materially from those suggested by these forward-looking statements. Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Indeed, it is likely that some of our assumptions will prove to be incorrect. Our actual results and financial position will vary from those projected or implied in the forward-looking statements and the variances may be material. You are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties, together with the other risks described from time to time in reports and documents that we file with the SEC should be considered in evaluating forward-looking statements.

The nature of our business makes predicting the future trends of our revenue, expenses, and net income difficult. Thus, our ability to predict results or the actual effect of our future plans or strategies is inherently uncertain. The risks and uncertainties involved in our business could affect the matters referred to in any forward-looking statements and it is possible that our actual results may differ materially from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the forward-looking statements include, without limitation, the following:

the effect of political, economic, and market conditions and geopolitical events;

legislative and regulatory changes that affect our business;

the availability of funds and working capital;

the actions and initiatives of current and potential competitors;

investor sentiment; and

our reputation.

We do not undertake any responsibility to publicly release any revisions to these forward-looking statements to take into account events or circumstances that occur after the date of this report. Additionally, we do not undertake any responsibility to update you on the occurrence of any unanticipated events which may cause actual results to differ from those expressed or implied by any forward-looking statements.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto as filed with the SEC and other financial information contained elsewhere in this Report.

Except as otherwise indicated by the context, references in this Form 10-Q to “we,” “us,” “our,” “the Registrant”, “our Company,” or “the Company” are Bodisen Biotech, Inc., a Delaware corporation and its consolidated subsidiaries, including Yang Ling Bodisen Biology Science and Technology Development Company Limited, (“Yang Ling”), our operating subsidiary. Unless the context otherwise requires, all references to (i) “PRC” and “China” are to the People’s Republic of China; (ii) “U.S. dollar,” “$” and “US$” are to United States dollars; (iii) “RMB” are to Yuan Renminbi of China; (iv) “Securities Act” are to the Securities Act of 1933, as amended; and (v) “Exchange Act” are to the Securities Exchange Act of 1934, as amended.

Critical Accounting Policies and Estimates

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

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

Accounts receivable

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

Inventories

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

Intangible assets

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

Recent Accounting Pronouncements

In October 2009, the FASB issued Accounting Standards Update 2009-15 ("ASU 2009-15") regarding accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing. This ASU requires that at the date of issuance of the shares in a share-lending arrangement entered into in contemplation of a convertible debt offering or other financing, the shares issued shall be measured at fair value and be recognized as an issuance cost, with an offset to additional paid-in capital. Further, loaned shares are excluded from basic and diluted earnings per share unless default of the share-lending arrangement occurs, at which time the loaned shares would be included in the basic and diluted earnings-per-share calculation. This ASU is effective for fiscal years beginning on or after December 15, 2009, and interim periods within those fiscal years for arrangements outstanding as of the beginning of those fiscal years. The adoption of this ASU did not have a significant impact on the Company’s consolidated financial statements.

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

On February 25, 2010, the FASB issued ASU 2010-09 Subsequent Events Topic 855 “Amendments to Certain Recognition and Disclosure Requirements,” effective immediately. The amendments in the ASU remove the requirement for an SEC filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. The FASB believes these amendments remove potential conflicts with the SEC’s literature. The adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

On March 5, 2010, the FASB issued ASU No. 2010-11 Derivatives and Hedging Topic 815 “Scope Exception Related to Embedded Credit Derivatives.” This ASU clarifies the guidance within the derivative literature that exempts certain credit related features from analysis as potential embedded derivatives requiring separate accounting. The ASU specifies that an embedded credit derivative feature related to the transfer of credit risk that is only in the form of subordination of one financial instrument to another is not subject to bifurcation from a host contract under ASC 815-15-25, Derivatives and Hedging — Embedded Derivatives — Recognition. All other embedded credit derivative features should be analyzed to determine whether their economic characteristics and risks are “clearly and closely related” to the economic characteristics and risks of the host contract and whether bifurcation is required. The ASU is effective for the Company on July 1, 2010. Early adoption is permitted. The adoption of this ASU will not have a material impact on the Company’s consolidated financial statements.

In April 2010, the FASB codified the consensus reached in Emerging Issues Task Force Issue No. 08-09, “Milestone Method of Revenue Recognition.” FASB ASU No. 2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research and development transactions. FASB ASU No. 2010 – 17 is effective for fiscal years beginning on or after June 15, 2010, and is effective on a prospective basis for milestones achieved after the adoption date. The Company does not expect this ASU will have a material impact on its financial position or results of operations when it adopts this update on January 1, 2011.

Results of Operations

Three Months Ended June 30, 2010 as Compared to Three Months Ended June 30, 2009

Revenue. We generated revenue of $2,902,929 for the three months ended June 30, 2010, an increase of $1,832,436 or 171%, compared to $1,070,493 for the three months ended June 30, 2009. The increase in revenue is primarily attributable to the overall recovery of the economic environment and the launch of new products during the quarter.

Gross Profit. We achieved a gross profit of $1,048,213 for the three months ended June 30, 2010, an increase of $871,151 or 492%, compared to $177,062 for the three months ended June 30, 2009. Gross margin (gross profit as a percentage of revenues), was 36% for the three months ended June 30, 2010, compared to 17% for the three months ended June 30, 2009. The increase in the gross margin percentage was primarily attributable to the higher profit margins which are earned on the new products.

Aggregated selling expenses accounted for $204,772 of our operating expenses for the three months ended June 30, 2010, an increase of $189,900 or 1,277%, compared to $14,872 for the three months ended June 30, 2009. The increase in our aggregated selling expenses is primarily attributable to an increase in marketing promotion and advertising programs.

General and administrative expenses accounted for $1,097,655 of our operating expenses for the three months ended June 30, 2010, an increase of $2,108,553 or 209%, compared to income of $1,010,898 for the three months ended June 30, 2009. The increase in general and administrative expenses is primarily attributable to a decrease in bad debt recoveries in 2010 compared to 2009. During the three months ended June 30, 2009 the Company recorded a bad debt recovery of $888,737 compared to a charge to bad debt of $562,525 for the three months ended June 30, 2010.

Non Operating Income and Expenses. We had total non-operating expenses of $34,972 for the three months ended June 30, 2010, a decrease of $383,164 compared to expense of $418,136 for the three months ended June 30, 2009. Other income (expense) was $(19,227) for the three months ended June 30, 2010 compared to $(484,081) for the three months ended June 30, 2009. Also included in non-operating income (expense) for the three months ended June 30, 2009 is a loss $81,363 related to a loss on the sale of investment and a gain of $147,259 related to equity income of an investment that we account for under the equity method. During the three months ended June 30, 2010, we did not incur any gains or losses related to the sale on investment or equity income in investment.

Six Months Ended June 30, 2010 as Compared to Six Months Ended June 30, 2009

Revenue. We generated revenue of $3,934,238 for the six months ended June 30, 2010, an increase of $1,328,710 or 51%, compared to $2,605,528 for the six months ended June 30, 2009. The increase in revenue is primarily attributable to the overall recovery of the economic environment and the launch of new products in May 2010.

Gross Profit. We achieved a gross profit of $1,269,639 for the six months ended June 30, 2010, an increase of $880,826 or 227%, compared to $388,813 for the six months ended June 30, 2009. Gross margin (gross profit as a percentage of revenues), was 32% for the six months ended June 30, 2010, compared to 15% for the six months ended June 30, 2009. The increase in the gross margin percentage was primarily attributable to the higher profit margins which are earned on the new products.

Aggregated selling expenses accounted for $346,186 of our operating expenses for the six months ended June 30, 2010, an increase of $319,068 or 1,177%, compared to $27,118 for the six months ended June 30, 2009. The increase in our aggregated selling expenses is primarily attributable to an increase in marketing promotion and advertising programs.

General and administrative expenses accounted for $1,518,737 of our operating expenses for the six months ended June 30, 2010, an increase of $2,377,153 or 277%, compared to income of $858,416 for the six months ended June 30, 2009. The increase in general and administrative expenses is primarily attributable to a decrease in bad debt recoveries in 2010 compared to 2009. During the six months ended June 30, 2009 the Company recorded a bad debt recovery of $1,372,251 compared to a charge to bad debts of $531,020 for the six months ended June 30, 2010.

Non Operating Income and Expenses. We had total non-operating expense of $33,078 for the six months ended June 30, 2010, a decrease of $127,252 compared to income of $94,174 for the six months ended June 30, 2009. Other income (expense) was $(19,841) for the six months ended June 30, 2010 compared to $(1,284) for the six months ended June 30, 2009. Also included in non-operating income (expense) for the six months ended June 30, 2009 is a loss of $211,610 related to a loss on the sale of investment and a gain of $306,902 related to equity income of an investment that we account for under the equity method. During the six months ended June 30, 2010, we did not incur any gains or losses related to the sale on investment or equity income in investment.

Liquidity and Capital Resources

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

On March 19, 2010, we obtained a bank loan for 10,000,000 RMB (approximately $1,437,000). The loan has an 8.1% annual interest rate, matures on March 19, 2010 and is secured by our land and production facility.

As of June 30, 2010, we had $4, 869,341 of cash and cash equivalents compared to $4,824,135 as of December 31, 2009.

Cash Flows

Operating. We used $1,461,401 of cash for operating activities for the six months ended June 30, 2010 compared to $721,762 for the six months ended June 30, 2009.

Investing. Our investing activities used $3,268 of cash for the six months ended June 30, 2010, compared to $720,371 of cash provided by investing activities for the six months ended June 30, 2009. The decrease is primarily attributable to the proceeds from the sale of investment in 2009 of $735,656 for which there were no sales in 2010.

Financing. Our financing activities provided $1,466,900 of cash from a long term bank financing for the six months ended June 30, 2010 compared to no cash provided by financing activities for the six months ended June 30, 2009.

Contractual Commitments

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

Off-Balance Sheet Arrangements

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

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not Applicable.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of our Disclosure Controls

As of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have evaluated the effectiveness of our “disclosure controls and procedures” (“Disclosure Controls”). Disclosure Controls, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including our Chief Executive Officer, Bo Chen, and our Chief Financial Officer, Junyan Tong, as appropriate to allow timely decisions regarding required disclosure. Our management does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based on that evaluation, Messrs. Bo and Tong concluded that because of the material weakness in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of June 30, 2010.

Management’s Report on Internal Control over Financial Reporting

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

Notwithstanding the aforementioned controls implemented in December 2006, during management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2009, management identified deficiencies related to (i) the U.S. GAAP expertise of our internal accounting staff, (ii) a lack of segregation of duties within accounting functions, (iii) our internal risk assessment functions, and (iv) our communication functions. Management believes that these deficiencies amount to a material weakness that render our internal controls over financial reporting ineffective as of June 30, 2010.

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

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

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

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

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

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

As of the six months ended June 30, 2010, we are working to strengthen efforts to establish an effective communication system with clear procedures that will enable us to collect, process and deliver information related to internal controls in a timely fashion. Due to our limited staff, our Chief Financial Officer, Mr. Tong, will initially be primarily responsible for collecting and delivering such information among the different levels of Company management.

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

Notwithstanding the conclusion that our internal control over financial reporting was not effective as of the end of the period covered by this report, the Chief Executive Officer and the Chief Financial Officer believe that the financial statements and other information contained in this annual report present fairly, in all material respects, our business, financial condition and results of operations. Nothing has come to the attention of management that causes them to believe that any material inaccuracies or errors exist in our financial statements as of June 30, 2010. The reportable conditions and other areas of our internal control over financial reporting identified by us as needing improvement have not resulted in a material restatement of our financial statements. Nor are we aware of any instance where such reportable conditions or other identified areas of weakness have resulted in a material misstatement of omission in any report we have filed with or submitted to the Commission.

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

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting during our second quarter of 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

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

ITEM 1A.

RISK FACTORS.

Not Applicable.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4.

(REMOVED AND RESERVED)

ITEM 5.

OTHER INFORMATION.

Not applicable.

ITEM 6.

EXHIBITS.

Copies of the following documents are included as exhibits to this report pursuant to Item 601 of Regulation S-K.

Exhibit No.	Exhibit Description

31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated under the Securities and Exchange Act of 1934, as amended.

32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	BODISEN BIOTECH, INC.

Dated: August 16, 2010	/s/Bo Chen
	Bo Chen
	Chairman, Chief Executive Officer and President
	(principal executive officer)

Dated: August 16, 2010	/s/Junyan Tong
	Junyan Tong
	Chief Financial Officer
	(principal financial officer and accounting officer )

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

Room 2001, FanMei Building
No. 1 Naguan Zhengjie
Xi’an, Shaanxi
People’s Republic of China		710068

(Address of Principal Executive Offices)		(Zip Code)


Large accelerated filer. ¨	Accelerated filer. ¨
Non-accelerated filer. ¨(Do not check if a smaller reporting company)	Smaller reporting company. x

		Page
	PART I
Item 1.	Financial Statements	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4	Controls and Procedures	18
	PART II
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	(Removed and Reserved)	21
Item 5.	Other Information	21
Item 6.	Exhibits	21
SIGNATURES		22

	June 30,			December 31,
	2010			2009
	(unaudited)
ASSETS

CURRENT ASSETS:
Cash & cash equivalents	$	4,869,341		$	4,824,135
Accounts receivable and other receivable, net of allowance for doubtful accounts of $3,296,095 and $2,751,613		3,836,753			1,791,042
Other receivables		38,978			26,298
Inventory, net		2,500,048			991,140
Advances to suppliers		1,058,441			541,754
Prepaid expense and other current assets		746,426			966,942

Total current assets		13,049,987			9,141,311

PROPERTY AND EQUIPMENT, net		11,495,948			11,837,406

CONSTRUCTION IN PROGRESS		10,465,269			10,422,641

MARKETABLE SECURITY, AVAILABLE-FOR-SALE		9,285,514			8,175,290

INTANGIBLE ASSETS, net		4,783,824			4,873,904

TOTAL ASSETS	$	49,080,542		$	44,450,552

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable	$	2,545,145		$	71,504
Accrued expenses		195,042			161,673

Total current liabilities		2,740,187			233,177

Long-term note payable		1,473,000			-

TOTAL LIABILITIES		4,213,187			233,177

STOCKHOLDERS' EQUITY:
Preferred stock, $0.0001 per share; authorized 5,000,000 shares; nil issued and outstanding
Common stock, $0.0001 per share; authorized 30,000,000 shares; issued and outstanding 18,710,250 and 18,710,250		1,871			1,871
Additional paid-in capital		33,945,822			33,945,822
Other comprehensive income		14,751,649			13,473,307
Statutory reserve		4,314,488			4,314,488
Retained Earnings		(8,146,475	)		(7,518,113	)
Total stockholders' equity		44,867,355			44,217,375

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	49,080,542		$	44,450,552

	Three Months Ended June 30,						Six Months Ended June 30,
	2010			2009			2010			2009
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

Net revenue	$	2,902,929		$	1,070,493		$	3,934,238		$	2,605,528

Cost of revenue		1,854,716			893,431			2,664,599			2,216,715

Gross profit		1,048,213			177,062			1,269,639			388,813

Operating expenses
Selling expenses		204,772			14,872			346,186			27,118
General and administrative expenses		1,097,655			(1,010,898	)		1,518,737			(858,416	)
Writedown of assets		-			92,340			-			104,254
Total operating expenses		1,302,427			(903,686	)		1,864,923			(727,044	)

Loss from operations		(254,214	)		1,080,748			(595,284	)		1,115,857

Non-operating income (expense):
Other income (expense)		(19,227	)		(484,081	)		(19,841	)		(1,284	)
Interest income		4,718			122			7,886			314
Interest expense		(20,463	)		(73	)		(21,123	)		(148	)
Loss on the sale of investment		-			(81,363	)		-			(211,610	)
Equity income in investment		-			147,259			-			306,902
Total non-operating income (expense)		(34,972	)		(418,136	)		(33,078	)		94,174

Income (loss) before provision for income taxes		(289,186	)		662,612			(628,362	)		1,210,031

Provision (benefit) for income taxes		-			-			-			-

Net income (loss)		(289,186	)		662,612			(628,362	)		1,210,031

Other comprehensive income
Foreign currency translation gain		168,197			(558	)		168,118			(54,908	)
Unrealized gain on marketable equity security		2,240,634			5,613,449			1,110,224			4,891,130

Comprehensive income (loss)	$	2,119,645		$	6,275,503		$	649,980		$	6,046,253

Weighted average shares outstanding :
Basic		18,710,250			18,710,250			18,710,250			18,710,250
Diluted		18,710,250			18,710,250			18,710,250			18,710,250

Earnings per share:
Basic	$	(0.02	)	$	0.04		$	(0.03	)	$	0.06
Diluted	$	(0.02	)	$	0.04		$	(0.03	)	$	0.06

Operating equipment	10 years
Vehicles	8 years
Office equipment	5 years
Buildings	30 years

Description	Level 1		Level 2		Level 3
Assets:
Marketable securities	$	9 ,285,514	$	-	$	-


			Weighted			Aggregate
	Options		Average			Intrinsic
	Outstanding		Exercise Price			Value
Outstanding at December 31, 2009		426,000	$	1.07
Granted		-
Canceled		-
Exercised		-
Outstanding at June 30, 2010 (unaudited)		426,000	$	1.07
Exercisable at June 30, 2010 (unaudited)		426,000	$	1.07	$	-

	Six Months Ended June 30,
	2010			2009
	(unaudited)			(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(628,362	)	$	1,210,031
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		501,084			296,110
Loss on disposal of fixed asset		-			104,254
Loss on the sale of investment		-			211,610
Allowance (recovery) of bad debts		531,020			(1,372,251	)
Equity income in investment		-			(306,902	)
(Increase) / decrease in assets:
Accounts receivable		(2,560,964	)		(1,157,526	)
Other receivables		(12,520	)		(32,201	)
Inventory		(1,498,623	)		1,097,828
Advances to suppliers		(512,340	)		(399,168	)
Prepaid expense		223,541			62,424
Increase / (decrease) in current liabilities:
Accounts payable		2,463,148			(415,572	)
Accrued expenses		32,615			(20,399	)

Net cash used in operating activities		(1,461,401	)		(721,762	)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(3,268	)		-
Additions to construction in progress		-			(15,285	)
Proceeds from sale of investment		-			735,656

Net cash provided by (used in) investing activities		(3,268	)		720,371

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of long-term debt		1,466,900			-

Net cash provided by (used in) investing activities		1,466,900			-

Effect of exchange rate changes on cash and cash equivalents		42,975			(5,213	)

NET INCREASE IN CASH & CASH EQUIVALENTS		45,206			(6,604	)

	June 30,		December 31,
	2010		2009
Raw materials	$	1,310,251	$	355,714
Packaging		21,164		59,729
Finished goods		1,168,633		652,202
		2,500,048		1,067,645
Less obsolescence reserve		-		(76,505	)
Inventory, net	$	2,500,048	$	991,140

	June 30,			December 31,
	2010			2009
Rights to use land	$	5,020,173		$	4,999,725
Fertilizers proprietary technology rights		1,178,400			1,173,600
		6,198,573			6,173,325
Less accumulated amortization		(1,414,749	)		(1,299,421	)
Intangibles, net	$	4,783,824		$	4,873,904