Edgar Filing: China Agri-Business, Inc.

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2009

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

For the transition period from ____ to _____

Commission file number 0-10560

CHINA AGRI-BUSINESS, INC.

(Exact name of registrant as specified in its charter)

Maryland	20-3912942
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

In the People’s Republic of China:

Finance Plaza, 9 th Floor, Hi-Tech Road No. 42, Hi-Tech Industrial Development Zone, Xi-An, China 710068

In the United States:

11 East 86th Street, New York, New York 10028

(Address of principal executive offices) (Zip cod)

In the United States: (212) 348-5600

In the People’s Republic of China : (86) 29-88222938

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

Indicate by check mark 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.

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 Exchange Act). Yes o No þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 12,958,574 shares as of August 11, 2009.

QUARTERLY REPORT ON FORM 10-Q

OF CHINA AGRI-BUSINESS, INC.

FOR THE PERIOD ENDED JUNE 30, 2009

TABLE OF CONTENTS

ITEM NO.		PAGE NO.


PART I – Financial Information
1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008		F-1
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008 (Unaudited)		F-2
Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2009 (Unaudited) and the year ended December 31, 2008		F-3
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (Unaudited)		F-4
Notes to Consolidated Financial Statements (Unaudited)		F-5
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1
3. Quantitative and Qualitative Disclosures about Market Risk		10
4. Controls and Procedures		11

PART II – Other Information
1. Legal Proceedings		12
1A. Risk Factors		12
2. Unregistered Sales of Equity Securities and Use of Proceeds		12
3. Defaults Upon Senior Securities		12
4. Submission of Matters to a Vote of Security Holders		12
5. Other Information		12
6. Exhibits		12
Signatures		13

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA AGRI-BUSINESS, INC. AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

		Page

Condensed Consolidated Balance Sheets as of June 30, 2009 (Unaudited) and December 31, 2008		F-1

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2009 and 2008 (Unaudited)		F-2

Condensed Consolidated Statements of Stockholders’ Equity for the six months ended June 30, 2009 (Unaudited) and the year ended December 31, 2008		F-3

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (Unaudited)		F-4

Notes to Condensed Consolidated Financial Statements (Unaudited)		F-5

China Agri-Business, Inc.

Condensed Consolidated Balance Sheets

	June 30 2009		December 31 2009
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	8,887,933	$	8,312,636
Accounts receivable, net of allowance for doubtful accounts of $5,895 and $6,524, respectively		37,249		45,165
Inventory		79,067		47,113
Other receivables		11,230		7,329
Prepaid expenses		16,490		22,345
Total Current Assets		9,031,969		8,434,588
Property, plant and equipment, net		116,491		231,278
Investment in Tienwe Technology		878,400		879,420
Deferred financing costs, net of accumulated amortization of $82,597 and $28,403, respectively		124,685		178,879
Intangible assets, net		15,995		59,495
Total Assets	$	10,167,540	$	9,783,660
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued liabilities	$	224,374	$	234,007
Total Current Liabilities		224,374		234,007
Long Term Liabilities
Convertible notes, net		377,715		327,020
Total Liabilities		602,089		561,027
Stockholders' Equity
Undesignated 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, respectively		12,959		12,959
Additional paid-in capital		4,369,786		4,369,786
Retained earnings		4,008,029		3,654,212
Accumulated other comprehensive income		1,174,677		1,185,676
Total stockholders' equity		9,565,451		9,222,633
Total Liabilities and Stockholders' Equity	$	10,167,540	$	9,783,660

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

F-1

China Agri -Business, Inc.

Condensed Consolidated Statements of Operations

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2009			2008		2009			2008
	(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)

Sales of products	$	703,875		$	1,182,746	$	1,173,447		$	1,522,190
Cost of goods sold		188,652			354,986		334,894			458,577
Gross profit		515,223			827,760		838,553			1,063,613

Selling, general and administrative expenses		218,794			157,485		383,145			281,919
Income from operations		296,429			670,275		455,408			781,694
Interest and other income		6,279			6,608		10,798			11,517
Interest expense		(55,807	)		-		(112,389	)		-
Income before income taxes		246,901			676,883		353,817			793,211
Income taxes		-			-		-			-
Net income	$	246,901		$	676,883	$	353,817		$	793,211

Earnings per common share:
Basic	$	0.02		$	0.05	$	0.03		$	0.06
Diluted	$	0.02		$	0.05	$	0.03		$	0.06

Weighted average number of common shares used to compute earnings per common share:
Basic		12,958,574			12,958,574		12,958,574			12,958,574
Diluted		13,958,574			12,958,574		13,958,574			12,958,574

Comprehensive Income:
Net income	$	246,901		$	676,883	$	353,817		$	793,211
Other comprehensive (loss) income		(11,032	)		292,565		(10,999	)		473,395
Comprehensive Income:	$	235,869		$	969,448	$	342,818		$	1,266,606

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

F-2

China Agri -Business, Inc.

Condensed Consolidated Statements of Stockholders' Equity

For the Six Months Ended June 30, 2009 (Unaudited) and the Year Ended December 31, 2008

	Common Stock Shares		Common Stock Amount		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income			Total
Balance, December 31, 2007		12,958,574	$	12,959	$	4,150,636		2,308,873	$	656,164		$	7,128,632
Relative fair value of warrants and beneficial conversion feature included in sale of convertible notes		-		-		199,230		-		-			199,230
Fair value of Placement Agent warrants		-		-		19,920		-		-			19,920
Net income for the year ended December 31, 2008		-		-		-		1,345,339		-			1,345,339
Foreign currency translation adjustment		-		-		-		-		529,512			529,512
Balance, December 31, 2008		12,958,574		12,959		4,369,786		3,654,212		1,185,676			9,222,633
Net income for the six months ended June 30, 2009 (Unaudited)		-		-		-		353,817		-			353,817
Foreign currency translation adjustment (Unaudited)		-		-		-		-		(10,999	)		(10,999	)
Balance, June 30, 2009 (Unaudited)		12,958,574	$	12,959	$	4,369,786	$	4,008,029	$	1,174,677		$	9,565,451

The accompanying notes are an integral part of these financial statements

F-3

China Agri -Business, Inc.

Condensed Consolidated Statements of Cash Flows

	Six Months Ended
	June 30,
	2009			2008
	(Unaudited)			(Unaudited)
Operating activities
Net income	$	353,817		$	793,211
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Bad debt expense		(560	)		(15,437	)
Depreciation of property, plant and equipment		20,558			25,855
Amortization of intangible assets and deferred financing costs		60,290			9,503
Amortization of debt discount and fair value of warrants		50,695			-
Changes in operating assets and liabilities:
Decrease / (increase) in accounts receivable		8,545			(4,723	)
Increase in other receivable		(3,901	)		(435	)
Increase in inventory		(31,954	)		(4,648	)
Decrease in prepaid expenses		5,855			1,841
(Decrease) / increase in accounts payable and accrued liabilities		(9,633	)		23,044
Deferred income		-			24,494
Net cash provided by operating activities		453,712			852,705
Investing activities
Proceeds from disposal of fixed assets and intangible assets		131,760			-
Property, plant and equipment additions		(608	)		(4,742	)
Net cash provided by / (used in) investing activities		131,152			(4,742	)
Financing activities
Net cash provided by financing activities		-			-
Effect of exchange rate changes on cash and cash equivalents		(9,567	)		406,197
Increase in cash and cash equivalents		575,297			1,254,160
Cash and cash equivalents, beginning of period		8,312,636			5,984,448
Cash and cash equivalents, end of period	$	8,887,933		$	7,238,608

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

F-4

CHINA AGRI-BUSINESS, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Organization

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.

China Agri is a holding company with no operations other than acting as a holding company for its wholly owned subsidiary, Mei Xin Agri Technology (Shaanxi) Co., Ltd. (“Meixin”), a limited liability company and a wholly-owned foreign enterprise (“WOFE”) organized under the laws of the PRC on March 24, 2006. Meixin acts as a management company for our operating business in the PRC, Shaanxi Xin Sheng Centennial Agricultural and Technology Co., Ltd. (“Xinsheng”), a corporation formed under the laws of the PRC on April 22, 2002, in accordance with the terms of a management entrustment agreement between Meixin and Xinsheng. Meixin controls Xinsheng's business and management, and is entitled to the proceeds of Xinsheng's business and is obligated to fund Xinsheng’s operations, including any losses. China Agri and Meixin do not own any equity rights in Xinsheng.

Pursuant to 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”), 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, 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.

Basis of presentation

The condensed consolidated financial statements (unaudited) have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”).

Principles of Consolidation

The condensed consolidated financial statements (unaudited) include the accounts of China Agri, Meixin and Xinsheng. All significant intercompany accounts and transactions have been eliminated in consolidation.

F-5

NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION (Continued)

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

NOTE 2 – INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements as of June 30, 2009 and for the three and six months ended June 30, 2009 and 2008 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with instructions to Form 10 - Q. In the opinion of management, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of June 30, 2009 and the results of operations and cash flows for the three and six months ended June 30, 2009 and 2008. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three and six month periods ended June 30, 2009 is not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending December 31, 2009. The balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements at that date.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2008 included in our Form 10 –K filed March 31, 2009.

NOTE 3 – INVENTORY

Inventory consists of:	June 30,		December 31,
	2009		2008
	(Unaudited)
Raw materials	$	49,499	$	39,125
Finished goods		21,562		4,536
Other		8,006		3,452

Total inventory	$	79,067	$	47,113

F-6

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net, consist of:

	June 30,		December 31,
	2009		2008
	(Unaudited)
Building	$	19,676	$	19,699
Transportation equipment		222,834		223,092
Machinery and electronic equipment		50,667		146,034
Office equipment		3,502		3,508
		296,679		392,333

Less accumulated depreciation		180,188		161,055
Property, plant and equipment, net	$	116,491	$	231,278

Depreciation expense was $20,558 and $47,374 for the six months ended June 30, 2009 and the year ended December 31, 2008, respectively. In the first quarter of 2009, the Company returned certain unused manufacturing equipment to the original vendor for $94,428, an amount equal to the net book value of the equipment.

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 ($878,400 and $879,420 translated at the June 30, 2009 and December 31, 2008 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:

	June 30, 2009			December 31, 2008
	(Unaudited)
Placement Agent commissions	$	40,000		$	40,000
Placement Agent expense allowance		25,000			25,000
Fair value of Placement Agent warrants		19,920			19,920
Legal and other fees		122,362			122,362
Total		207,282			207,282
Less: accumulated amortization		(82,597	)		(28,403	)
Deferred Financing Costs, end of period	$	124,685		$	178,879

F-7

NOTE 7 – INTANGIBLE ASSETS, NET

Intangible assets, net, consist of:

	June 30,		December 31,
	2009		2008
	(Unaudited)
Product rights	$	52,704	$	90,141
Patent		14,640		14,657
Trademark		2,187		2,190
Total		69,531		106,988
Less accumulated amortization		53,536		47,493
Intangible assets, net	$	15,995	$	59,495

The product rights were acquired by Xinsheng in December 2006 from an unrelated third party and relate to six registered fertilizer products. In the first quarter of 2009, the Company returned three of these products rights to the original vendor for $37,332, an amount equal to the net book value of the respective assets.

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 June 30, 2010, 2011, 2012, 2013 and 2014 is $12,224, $2,561, $868, $53 and $53, respectively.

NOTE 8 – CONVERTIBLE NOTES PAYABLE, NET

Convertible notes payable, net, consist of:

	June 30,			December 31,
		2,009		2008
	(Unaudited)
Convertible notes - face amount	$	500,000		$	500,000
Less:
Debt discount attributable to the relative fair value of warrants		(149,615	)		(149,615	)
Debt discount attributable to the intrinsic value of the beneficial conversion feature		(49,615	)		(49,615	)
Less accumulated amortization of debt discounts		76,945			26,250
Convertible notes payable, net	$	377,715		$	327,020

On September 29, 2008, the Company completed the sale of 3% unsecured convertible notes in an aggregate principal amount of $500,000, and Series C warrants to purchase 500,000 shares of common stock, to two accredited investors. 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-8

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 are exercisable into shares of common stock on a one to one basis at an an exercise price of $1.50 per share. Upon exercise of a Series C warrant, in addition to receiving shares of common stock, each Series C warrant holder shall be issued a Series D warrant to purchase additional shares of common stock in an amount equal to the number of Series C warrants exercised. The Series D warrants, if issued 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. No Series D warrants have been issued as of the date of this filing.

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. Upon termination of any unexercised Series C warrants, the warrant holders would not receive any Series D warrants, any shares underlying the Series C or Series D warrants, or any other securities.

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. In addition, if the registration statement is not declared effective within 120 days from the filing date, the Company is subject to monthly cash liquidated damages payments equal to 2% of the purchase price paid by each investor, 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 June 12, 2009, the investors by letter agreement extended the date the Form S-1 is required to become effective to July 31, 2009 before liquidated damages would be required to be paid. On August 12, 2009, the Company and the investors entered into a letter agreement extending the date the Form S-1 is required to become effective to September 30, 2009.

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. No Series D warrants have been issued as of the date of this filing.

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 private placement, 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-9

NOTE 9 – 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 10 - WARRANTS

The Company has issued warrants (exercisable into shares of common stock) to investors, the Underwriter as compensation in connection with the Company’s initial public offering, and the Placement Agent as part of compensation for its private placement of convertible notes. Changes in the warrants outstanding are as follows:

	June 30, 2009			Year Ended December 31, 2008
	(Unaudited)
Outstanding at beginning of period		1,387,580			807,580
Warrants issued		-			580,000
Warrants exercised		-			-
Warrants expired		(10,000	)		-
Outstanding at end of period		1,377,580			1,387,580

Exercisable at end of period		1,377,580			1,387,580

Warrants outstanding at June 30, 2009 consist of:

Date Issued	Expiration Date	Number of Warrants		Weighted Average Exercise Price
October 11, 2007	October 10, 2010		379,800		1.50
October 11, 2007	October 10, 2010		379,800		2.00
October 11, 2007	October 10, 2012		37,980		1.00
September 29, 2008	September 29, 2011		80,000		1.00
September 29, 2008 (1)	September 29, 2011		500,000		1.50
Total			1,377,580	$	1.60
(1) Represents Series C warrants

NOTE 11 – 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 $5,139,000 and $5,104,000 at June 30, 2009 and December 31, 2008, respectively.

F-10

NOTE 12 – 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.

At June 30, 2009 and December 31, 2008, 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.

The Company did not have any significant temporary differences relating to deferred tax liabilities as of June 30, 2009 and December 31, 2008.

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:

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Expected tax at 35%	$	86,415		$	236,909		$	123,836		$	277,624

Tax effect of unutilized losses of China Agri and Meixin		38,722			3,153			78,229			16,494

Effect of PRC income tax exemption granted to Xinsheng		(89,383	)		(171,473	)		(144,332	)		(210,084	)

Permanent difference relating to Xinsheng's earnings to be permanently invested in operations outside the United States		(35,754	)		(68,589	)		(57,733	)		(84,034	)
Actual provision for income taxes	$	-		$	-		$	-		$	-

NOTE 13 – 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 June 30, 2009 and December 31, 2008 were located in the PRC. Net sales for the periods presented were all derived from PRC customers.

F-11

NOTE 14 – COMMITMENTS AND CONTINGENCIES

Lease Agreements

Xinsheng leases its office space (approximately 7300 square feet) at an annual rent of 366,390 RMB ($53,640 translated at the June 30, 2009 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 ($5,636 translated at the June 30, 2009 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 ($13,176 translated at the June 30, 2009 exchange rate) under a lease expiring December 21, 2010.

China Agri utilizes office space provided by one of its directors at no cost.

For the three months ended June 30, 2009 and 2008, and for the six months ended June 30, 2009 and 2008, rental and related expenses for all operating leases amounted to $34,967, $16,471, $46,376 and $32,367, respectively.

At June 30, 2009, future minimum rental commitments under all non-cancellable operating leases are:

Twelve months ending June 30,	Minimum Rent
2010	$	71,043
2011		46,818
Total	$	117,861

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.

F-12

NOTE 15 – CONCENTRATION OF CREDIT RISK

The Company maintains cash balances in seven 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 June 30, 2009 and December 31, 2008, the Company’s uninsured cash balances were approximately $8,883,000 and $8,300,000, respectively.

NOTE 16 – SUBSEQUENT EVENTS

As discussed in Note 8, on June 12, 2009, the investors by letter agreement extended the date the Form S-1 is required to become effective to July 31, 2009 before liquidated damages would be required to be paid. On August 12, 2009, the Company and the investors entered into a letter agreement extending the date the Form S-1 is required to become effective to September 30, 2009.

The Company has evaluated subsequent events through August 14, 2009, the filing date of this Form 10-Q, and has determined that there were no other subsequent events to be recognized or disclosed in these financial statements.

F-13

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of our results of operations and should be read in conjunction with our financial statements and related notes contained in this Form 10-Q.

This Form 10-Q contains “forward-looking” statements that involve risks and uncertainties. You can identify these statements by the use of forward-looking words such as "may", "will", "expect", "anticipate", "estimate", "believe", "continue", or other similar words. You should read statements that contain these words carefully because they discuss our future expectations, contain projections of our future results of operations or financial condition or state other "forward-looking" information. We believe that it is important to communicate our future expectations to our investors. However, these forward-looking statements are not guarantees of future performance and actual results may differ materially from the expectations that are expressed, implied or forecasted in any such forward-looking statements. There may be events in the future that we are unable to accurately predict or control, including weather conditions and other natural disasters which may affect demand for our products, and the product–development and marketing efforts of our competitors. Examples of these events are more fully described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 under Part I. Item 1A. Risk Factors.

Unless required by law, the Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. However, readers should carefully review the reports and documents the Company files from time to time with the SEC, particularly its Quarterly Reports on Form 10-Q, Annual Report on Form 10-K , Current Reports on Form 8-K and all amendments to those reports.

References to the “PRC” or “China” are to the People’s Republic of China. Unless otherwise noted, all currency figures are in U.S. dollars. References to "yuan" or "RMB" are to the Chinese yuan, which is also known as the renminbi. 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 PRC).

Overview

China Agri-Business, Inc. was incorporated in the State of Maryland on December 7, 2005. On March 24, 2006, we formed a wholly-owned subsidiary under the laws of China, registered in the city of Xi’an, called Mei Xin Agri Technology (Shaanxi) Co., Ltd. (“Meixin”). On April 18, 2006, Meixin signed a Management Entrustment Agreement with Shaanxi Xin Sheng Centennial Agricultural and Technology Co., Ltd. (“Xinsheng”), a company organized under the laws of China. Under that agreement, Meixin acquired management control of Xinsheng. Consequently, Xinsheng is our operating company in China.

Meixin controls Xinsheng's business and management, is entitled to the proceeds of Xinsheng's business and is obligated to fund Xinsheng’s operations, including any losses. However, China Agri and Meixin do not own any equity rights in Xinsheng.

Xinsheng develops, manufactures and markets fertilizer, bactericide and fungicide products used for farming in China. These products are designed to be less harmful to the environment than traditional fertilizers, and to increase agricultural output and reduce costs. Our fertilizer products are made of a chemical polymer combined with active potassium, organic nitrogen and other ingredients, including polysaccharides extracted from the shells of crustaceans and mixed with active calcium.

Although we do not produce “Green Food” products, crops grown by farmers with the use of our products may qualify for the “AA green food” designation in the PRC. The green food rating system, which consists 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 crops grown using our products may qualify for the “AA green food” designation, our products themselves do not bear the “AA green food” designation. We do not incur additional costs in producing products that allow farmers crops to qualify for the “AA green food” designation.

Results of Operations

Three Months Ended June 30, 2009 as compared to Three Months Ended June 30, 2008

Comparison of Gross Profit for the Quarter Ended June 30, 2009 and 2008

	Three Months Ended June 30,
	2009			2008
Sales	$	703,875		$	1,182,746
Cost of Goods Sold		188,652			354,986

Gross Profit	$	515,223		$	827,760

Gross Profit Margin		73.20	%		69.99	%

Sales

Sales for the three months ended June 30, 2009 totaled $703,875, a decrease of $478,871, or 40% as compared to sales of $1,182,746 for the same quarter ended June 30, 2008. The year over year decrease in sales was attributable to the continued negative impact of severe weather conditions in China during 2008. The farmers in the disaster affected areas are reluctant to buy organic fertilizer due to poor income in 2008. We expect that our sales in the disasters affected areas will continue to be negatively impacted through the remainder of 2009.

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”. As of June 30, 2009, approximately 61 retailers in Shaanxi province and approximately 42 retailers in Hunan province have participated in the “Super Chain Sales Partner Program”. Total sales to these Super Chain Stores were approximately $128,385 during the three months ended June 30, 2009.

Cost of Goods Sold, Gross Profit and Gross Profit Margin

Cost of goods sold for the three months ended June 30, 2009 totaled $188,652, a decrease of $166,334, or 43% as compared to cost of goods sold of $354,986 for the same quarter ended June 30, 2008. The decrease in cost of goods sold was in line with the decrease in sales.

Gross profit for the three months ended June 30, 2009 was $515,223, a decrease of $312,537, or 38%, as compared to gross profit of $827,760 for the same quarter of 2008. The decrease in gross profit was also attributable to the decrease in sales.

Gross profit margin, which is measured as the ratio of gross profit to sales, was 73.20% for the three months ended June 30, 2009, an increase of 3.21 percentage points as compared to 69.99% for the quarter ended June 30, 2008. The increase in sales prices since April 2008 was the major contribution to the improvement of gross margin. In addition, we sold more products in the foreign provinces during the three months ended June 30, 2009 than during the three months ended March 31, 2009. The prices of products sold in foreign provinces are higher than the prices in our domestic province.

Comparison of Net Income for the Three Months Ended June 30, 2009 and 2008

	Three Months Ended June 30,
	2009			2008

Gross Profit	$	515,223		$	827,760

Selling and marketing		94,524			37,358
Professional fees		31,663			36,046
Depreciation and amortization expenses		11,878			16,357
Other general and administrative expenses		80,729			67,724
Total selling, general and administrative expenses		218,794			157,485

Income from operations		296,429			670,275
Interest expense		(55,807	)		-
Interest income		6,279			6,608
Net Income	$	246,901		$	676,883

Selling and Marketing Expenses

Selling and marketing expenses were $94,524 for the three months ended June 30, 2009, an increase of $57,166, or 153%, as compared to $37,358 for the three months ended June 30, 2008. The increase in selling and marketing expenses was primarily attributable to the implementation of our “Super Chain Sales Partner Program” sales and marketing initiative.

Other General and Administrative Expenses

Other general and administrative expenses generally consist of: wages and related benefits, rent and utility expenses, office expenses, bad debt expense, director fees, and travel and miscellaneous expenses. Other general and administrative expenses were $80,729 for the quarter ended June 30, 2009, an increase of $13,005, or 19%, as compared to $67,724 for the quarter ended June 30, 2008. Higher other general and administrative expenses in the second quarter of 2009 were primarily attributable to the increase of rental and utilities expenses and research and development expenses.

Interest expense

Interest expense increased by $55,807, which represents amortization of deferred financing costs of $26,820, amortization of fair value of warrants of $18,952, amortization of beneficial conversion feature of $6,285 and accrued loan interest of $3,750. These expenses relate to the convertible notes issued in September 2008.

Net income

Net income for the quarter ended June 30, 2009 was $246,901, a decrease of 64%, or $429,982, as compared to net income of $676,883 for the quarter ended June 30, 2008. The decrease in net income was primarily due to the decrease in sales, the increase in selling and marketing expenditures and the increase in non cash interest expense, as explained above.

Six Months Ended June 30, 2009 as compared to Six Months Ended June 30, 2008

Comparison of Gross Profit for the Six Months Ended June 30, 2009 and 2008

	Six Months Ended June 30,
	2009			2008
Sales	$	1,173,447		$	1,522,190
Cost of Goods Sold		334,894			458,577

Gross Profit	$	838,553		$	1,063,613

Gross Profit Margin		71.46	%		69.87	%

Sales

Sales for the six months ended June 30, 2009 totaled $1,173,447, a decrease of $348,743, or 23% as compared to sales of $1,522,190 for the six months ended June 30, 2008. The year over year decrease in sales was attributable to the continued negative impact of severe weather conditions in China during 2008. The farmers in the disaster affected areas are reluctant to buy organic fertilizer due to poor income in 2008. We expect that our sales in the disasters affected areas will continue to be negatively impacted through the remainder of 2009.

Cost of Goods Sold, Gross Profit and Gross Profit Margin

Cost of goods sold for the six months ended June 30, 2009 totaled $334,894, a decrease of $123,683, or 27% as compared to cost of goods sold of $458,577 for the six months ended June 30, 2008. The decrease in cost of goods sold was in line with the decrease in sales.

Gross profit for the six months ended June 30, 2009 was $838,553, a decrease of $225,060, or 21%, as compared to gross profit of $1,063,613 for the six months of 2008. The decrease in gross profit was also attributable to the decrease in sales.

Gross profit margin, which is measured as the ratio of gross profit to sales, was 71.46% for the six months ended June 30, 2009, an increase of 1.59 percentage points as compared to 69.87% for the six months ended June 30, 2008. The increase in sales prices since April 2008 was the major contribution to the improvement of gross margin.

Comparison of Net Income for the Six Months Ended June 30, 2009 and 2008

	Six Months Ended June 30,
	2009			2008

Gross Profit	$	838,553		$	1,063,613

Selling and marketing		150,924			81,571
Professional fees		60,663			65,046
Depreciation and amortization expenses		23,721			32,527
Other general and administrative expenses		147,837			102,775
Total selling, general and administrative expenses		383,145			281,919

Income from operations		455,408			781,694
Interest expense		(112,389	)		-
Interest income		10,798			11,517
Net Income	$	353,817		$	793,211

Selling and Marketing Expenses

Selling and marketing expenses were $150,924 for the six months ended June 30, 2009, an increase of $69,353, or 85%, as compared to $81,571 for the six months ended June 30, 2008. The increase in selling and marketing expenses was primarily attributable to the implementation of our “Super Chain Sales Partner Program” sales and marketing initiative.

Other General and Administrative Expenses

Other general and administrative expenses generally consist of: wages and related benefits, rent and utility expenses, office expenses, bad debt expense, director fees, and travel and miscellaneous expenses. Other general and administrative expenses were $147,837 for the six months ended June 30, 2009, an increase of $45,062, or 44%, as compared to $102,775 for the six months ended June 30, 2008. Higher other general and administrative expenses in the six months ended June 30, 2009 were primarily attributable to the increase of rental and utilities expenses and research and development expenses.

Interest expense

Interest expense increased by $112,389, which represented amortization of deferred financing costs of $54,194, amortization of fair value of warrants of $38,070, amortization of beneficial conversion feature of $12,625 and accrued loan interest of $7,500. These expenses were related to the convertible notes issued in September 2008.

Net income

Net income for the six months ended June 30, 2009 was $353,817, a decrease of 55%, or $439,394, as compared to net income of $793,211 for the six months ended June 30, 2008. The decrease in net income was primarily due to the decrease in sales, the increase in selling and marketing expenditures and the increase in non cash interest expense, as explained above.

Liquidity and Capital Resources

As of June 30, 2009, 87% of the Company’s assets consisted of cash and cash equivalents, as compared to 85% as of December 31, 2008. As of June 30, 2009, our cash and cash equivalents amounted to $8,887,933, an increase of $575,297 as compared to $8,312,636 as of December 31, 2008.

Net cash provided by operating activities was $453,712 and $852,705 for the six months ended June 30, 2009 and 2008, respectively.

Net cash provided by investing activities was $131,152 for the six months ended June 30, 2009. The Company received total proceeds of $131,760 from the disposal of unused equipment and product rights in the first quarter of 2009. Cash used in investing activities was $608 and $4,742 for the six months ended June 30, 2009 and 2008, respectively.

Foreign currency translation

Xinsheng’s functional currency is the Chinese Yuan, or Renminbi (“RMB”). The appreciation of the RMB against the U.S. dollar will have a positive effect on our cash position, and vice versa. For the six months ended June 30, 2009, the exchange rate had a negative impact of $9,567 on our cash flows. By comparison, for the six months ended June 30, 2008, the exchange rate had a positive impact of $406,197 on our cash flows.

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, 2008 and 2009.

For purposes of comparison, had we been subject to the 25% tax, our operating cash flow and net income for the six months ended June 30, 2009 and 2008 would each have been reduced by approximately $144,332 and $210,084, respectively.

Private Placement of Convertible Notes and Warrants

During the third quarter of 2008, 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 has used 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 likelihood of conversion by the note holders 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 and are exercisable into shares of common stock on a one to one basis at an exercise price of $1.50 per share. In addition to receiving shares of common stock, upon exercise of a series C warrant, each holder shall be issued a series D warrant to purchase additional shares of common stock in an amount equal to the number of series C warrants exercised. The series D warrants, if issued, 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. Upon termination of any unexercised Series C warrants, the warrant holders would not receive any series D warrants, any shares underlying the Series C or Series D warrants, or any other securities.

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. 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. On February 13, 2009, the Company filed a registration statement on From S-1. On June 12, 2009, the investors by letter agreement extended the date the Form S-1 is required to become effective to July 31, 2009 before liquidated damages would be required to be paid. On August 12, 2009, the Company and the investors entered into a letter agreement extending the date the Form S-1 is required to become effective to September 30, 2009.

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 received 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 expect that we will require additional funding through additional equity and/or debt financings. However, there can be no assurance 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.

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) collectibility 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 collectibility 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 June 30, 2009, 33% of the Company’s trade receivables were current, 60% of the Company’s trade receivables were aged between 31 to 60 days and the remaining 7% of trade receivables were aged between 61 to 90 days. By comparison, as of December 31, 2008, 48% of the Company’s trade receivables were current and 52% of trade receivables were aged between 31 to 60 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 to be reported at the lower of the carrying amount or the fair value less costs to sell.

Recent Accounting Pronouncements

In January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue No. EITF No. 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF No. 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interests and Beneficial Interests that Continue to be Held by a Transferor in Securitized Financial Assets” to achieve more consistent determination of whether an other-than-temporary impairment has occurred. The Company adopted FSP EITF No. 99-20-1 and it did not have a material impact on the unaudited condensed consolidated financial statements.

In April 2009, the Financial Accounting Standards Board (“FASB”) issued the following new accounting standards:

FSP FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly , provides guidelines for making fair value measurements more consistent with the principles presented in FASB Statement No. 157 (“SFAS 157”), Fair Value Measurements . FSP FAS 157-4 reaffirms what SFAS 157 states is the objective of fair value measurement, to reflect how much an asset would be sold for in an orderly transaction at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive.

FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, enhances consistency in financial reporting by increasing the frequency of fair value disclosures. This relates to fair value disclosures for any financial instruments that are not currently reflected on the consolidated balance sheet at fair value. FSP FAS 107-1 and APB 28-1 now require that fair value disclosures be made on a quarterly basis, providing qualitative and quantitative information about fair value estimates for all those financial instruments not measured on the balance sheet at fair value.

FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, provides additional guidance designed to create greater clarity and consistency in accounting for and presenting impairment losses on securities. This FSP is intended to bring greater consistency to the timing of impairment recognition and to provide greater clarity to investors about the credit and noncredit components of impaired debt securities that are not expected to be sold. This FSP also requires increased and timelier disclosures sought by investors regarding expected cash flows, credit losses, and an aging of securities with unrealized losses.

These standards were effective for periods ending after June 15, 2009. The adoption of these accounting standards had no material effect on our consolidated financial statements.

SFAS No. 165

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”. We adopted SFAS No. 165 for the Quarterly Report for the period ending June 30, 2009. SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, which are referred to as subsequent events. The statement clarifies existing guidance on subsequent events, including a requirement that a public entity should evaluate subsequent events through the issue date of the financial statements, the determination of when the effects of subsequent events should be recognized in the financial statement and disclosures regarding all subsequent events. SFAS No. 165 also requires a public entity to disclose the date through which an entity has evaluated subsequent events. We have evaluated subsequent events through the date of filing as disclosed in Note 16.

SFAS No. 166

In June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets, an Amendment of FASB Statement No. 140,” which eliminates the concept of a qualifying special purpose entity, changes the requirements for derecognizing financial assets and requires additional disclosures. SFAS No. 166 is effective for periods beginning after November 15, 2009. The Company is evaluating the impact of SFAS No. 166 on its consolidated financial statements.

SFAS No. 167

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R),” which changes how a reporting entity determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated and requires additional disclosures. SFAS No. 167 is effective for periods beginning after November 15, 2009. The Company is evaluating the impact of SFAS No. 167 on its consolidated financial statements.

SFAS No. 168

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles,” which establishes the FASB Accounting Standards Codification™ (the “Codification”) as the source of authoritative US GAAP recognized by the FASB to be applied to nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also included in the Codification as sources of authoritative US GAAP for SEC registrants. SFAS No. 168 and the Codification are effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this rule will not affect reported results of operations, financial condition or cash flows. The Company will implement SFAS No. 168 in its third quarter Form 10-Q by updating the previous FASB references to the Codification.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company’s present or future consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Item 4. 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 June 30, 2009 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 Control over Financial Reporting

There were no changes in the Company’s internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the quarter ended June 30, 2009 that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting

Control systems, no matter how well conceived and operated, are designed to provide a reasonable, but not an absolute, level of 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. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. The Company conducts periodic evaluation of its internal controls to enhance, where necessary, its procedures and controls.

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings.

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

Item 1A – Risk Factors.

The discussion of our business and operations should be read together with the risk factors contained in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008, which describes the various risks and uncertainties to which we are or may become subject to.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3 – Defaults Upon Senior Securities.

None.

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

None.

Item 5 – Other Information.

In connection with the Company’s sale of 3% unsecured convertible notes in an aggregate principal amount of $500,000 and Series C warrants to purchase 500,000 shares of common stock to two accredited investors, JAG Multi-Investments, LLC and Keith Guenther (the “Investors”), in September 2008, the Company agreed to prepare and file a registration statement with the Securities and Exchange Commission (the “SEC”) registering the resale by the Investors of the common stock underlying the convertible notes and warrants on a Form S-1, subject to certain limitations. The registration rights agreement provides for liquidated damages to be paid by the Company in the event the Form S-1 is not declared effective by the SEC by a certain date. On June 12, 2009, the Investors by letter agreement extended the date the Form S-1 is required to become effective to July 31, 2009. On August 12, 2009, the Company and the Investors entered into another letter agreement extending the date the Form S-1 is required to become effective to September 30, 2009. In this letter agreement, the Company and the Investors also clarified that any liquidated damages required to be paid under the registration rights agreement are required to be paid to the convertible noteholders.

Item 6 – Exhibits.

10.1 Letter agreement dated as of August 12, 2009 among China Agri-Business, JAG Multi-Investments, LLC and Keith Guenther.

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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on August 14, 2009.

CHINA AGRI-BUSINESS, INC.

/s/Liping Deng

Liping Deng

President, Chief Executive Officer, Director

(Principal Executive Officer)

/s/Xiaolong Zhou

Xiaolong Zhou

Chief Financial Officer (Principal

Accounting and Financial Officer)