Item 1. Financial Statements.

 

China Agri-Business, Inc.

Consolidated Balance Sheets

 

 

		September 30,			December 31,
		2008			2007
		(Unaudited)			(Audited)
Assets
Current Assets
Cash and cash equivalents		$	8,169,272		$	5,984,448
Accounts receivable, net of allowance for doubtful
accounts of $7,344 and $23,991, respectively			43,730			65,118
Inventory			69,881			60,582
Other receivables			7,364			6,855
Prepaid expenses			4,228			5,735
Total Current Assets			8,294,475			6,122,738
Property, plant and equipment, net			244,155			276,000
Investment in Tienwe Technology			883,680			822,540
Deferred financing costs, net of accumulated amortization of $475 and $0, respectively			149,965			-
Intangible assets, net			64,728			73,554
Total Assets		$	9,637,003		$	7,294,832
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued liabilities		$	243,117		$	166,200
Customer deposits and deferred income			—			—
Total Current Liabilities			243,117			166,200
Long Term Liabilities
Convertible notes, net			300,913			—
Total Liabilities			300,913			—
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 shares, respectively			12,959			12,959
Additional paid-in capital			4,369,786			4,150,636
Retained earnings			3,491,644			2,308,873
Accumulated other comprehensive income			1,218,584			656,164
Total stockholders' equity			9,092,973			7,128,632
Total Liabilities and Stockholders' Equity		$	9,637,003		$	7,294,832

 

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

 

F-1

---

 

China Agri -Business, Inc.

Consolidated Statements of Operations

  

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2008			2007			2008			2007
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Sales of products		$	612,301		$	781,103		$	2,134,491		$	2,190,006
Cost of goods sold			154,222			238,254			612,799			695,147
Gross profit			458,079			542,849			1,521,692			1,494,859
Selling, general and administrative expenses			78,118			261,232			360,037			650,140
Income from operations			379,961			281,617			1,161,655			844,719
Interest and other income			10,217			4,844			21,734			10,919
Interest expense			(618	)		—			(618	)		—
Income before income taxes			389,560			286,461			1,182,771			855,638
Income taxes			—			—			—			—
Net income		$	389,560		$	286,461		$	1,182,771		$	855,638
Earnings per common share:
Basic		$	0.03		$	0.02		$	0.09		$	0.07
Diluted		$	0.03		$	0.02		$	0.09		$	0.07
Weighted average number of common shares
used to compute earnings per common share:
Basic			12,958,574			12,278,774			12,958,574			12,278,774
Diluted			12,980,313			12,578,774			12,965,900			12,578,774

 

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

 

F-2

---

 

China Agri -Business, Inc.

Consolidated Statements of Stockholders' Equity

 

														Accumulated
								Additional						Other
		Common Stock						Paid-in			Retained			Comprehensive
		Shares			Amount			Capital			Earnings			Income			Total
Balance, December 31, 2006			12,278,774		$	12,279		$	3,629,709			1,449,991		$	232,272		$	5,324,251
Sales of Units in public offering			379,800			380			379,420			—			—			379,800
Costs relating to the public offering			—			—			(158,193	)		—			—			(158,193	)
Conversion of Series A preferred stock			300,000			300			99,700			—			—			100,000
Deemed dividend relating to beneficial conversion feature of Series A preferred stock			—			—			200,000			(200,000	)		—			—
Net income for the year ended December 31, 2007			—			—			—			1,058,882			—			1,058,882
Foreign currency translation adjustment			—			—			—			—			423,892			423,892
Balance, December 31, 2007			12,958,574			12,959			4,150,636			2,308,873			656,164			7,128,632
Unaudited:
Relative fair value of warrants and beneficial conversion feature			—			—			219,150			—			—			219,150
Net income for the nine months ended September 30, 2008			—			—			—			1,182,771			—			1,182,771
Foreign currency translation adjustment			—			—			—			—			562,420			562,420
Balance, September 30, 2008			12,958,574		$	12,959		$	4,369,786			3,491,644		$	1,218,584		$	9,092,973

 

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

 

F-3

---

 

China Agri-Business, Inc.

Consolidated Statements of Cash Flows

 

		Nine Months Ended
		September 30,
		2008			2007
		(Unaudited)			(Unaudited)
Operating activities
Net income		$	1,182,771		$	855,638
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Bad debt expense			13,318			—
Depreciation of property, plant and equipment			37,029			32,503
Amortization of intangible assets and deferred financing costs			15,032			1,764
Changes in operating assets and liabilities:
Accounts receivable			8,070			(34,103	)
Other receivables			(509	)		4,560
Inventory			(9,299	)		7,194
Prepaid expenses			1,507			(31,760	)
Accounts payable and accrued liabilities			76,917			162,786
Net cash provided by operating activities			1,324,836			998,582
Investing activities
Loans receivable collections			—			296,629
Property, plant and equipment additions			(4,742	)		(27,685	)
Net cash provided by (used in) investing activities			(4,742	)		268,944
Financing actitivies
Proceeds from convertible notes			483,680			—
Financing costs			(114,200	)		(51,919	)
Net cash provided by (used in) financing actitives			369,480			(51,919	)
Effect of exchange rate changes on cash and cash equivalents			495,250			214,182
Increase in cash and cash equivalents			2,184,824			1,429,789
Cash and cash equivalents, beginning of period			5,984,448			3,785,535
Cash and cash equivalents, end of period		$	8,169,272		$	5,215,324
Supplemental Disclosures of Cash Flow Informtion:
Non Cash Financing Activities:
Relative fair value of warrants and beneficial conversion feature		$	219,150		$	—

 

  

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

 

 

F-4

---

 

CHINA AGRI-BUSINESS, INC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS

China Agri-Business, Inc. (“China Agri”) was incorporated in the State of Maryland on December 7, 2005. On October 31, 2006, China Agri effectuated a 2.032 to 1 forward stock split. All share and per share amounts have been retroactively adjusted to reflect the stock split.

On March 24, 2006, China Agri formed Mei Xin Agri Technology (Shaanxi) Co., Ltd. (“Meixin”). Meixin is a wholly-owned subsidiary of China Agri and a limited liability company organized under the laws of PRC. Pursuant to measures passed by the stockholders of Shaanxi Xin Sheng Centennial Agriculture and Technology Co., Ltd. (“Xinsheng”), a corporation formed under the laws of the PRC on April 22, 2002, on April 10, 2006, a Management Entrustment Agreement dated April 18, 2006 between Meixin and Xinsheng, and a Stock Purchase Agreement dated April 22, 2006 between China Agri and Xinsheng (collectively, the “Transaction”), Meixin acquired management control of Xinsheng, in the same manner as if it were a wholly owned subsidiary under PRC law, and China Agri issued 10,950,897 shares of China Agri common stock, representing approximately 89% of the 12,278,774 shares of China Agri common stock outstanding after the Transaction, to a trustee of a trust for the benefit of the Xinsheng stockholders. The Transaction was accounted for as a “reverse merger”, since the stockholders of Xinsheng owned a majority of China Agri’s common stock immediately following the Transaction. Xinsheng was deemed to be the acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations that are reflected in the financial statements prior to the Transaction are those of Xinsheng and are recorded at the historical cost basis of Xinsheng, and the consolidated financial statements after completion of the Transaction include the assets and liabilities of China Agri, Meixin, and Xinsheng (collectively, the “Company”), historical operations of Xinsheng, and operations of China Agri and Meixin from the date of the Transaction.

Xinsheng’s primary activities are the manufacture, marketing and sale of organic and environmentally friendly “Green” agricultural enhancement products in China.

NOTE 2 - INTERIM FINANCIAL STATEMENTS

The unaudited financial statements as of September 30, 2008 and for the periods of three months and nine months ended September 30, 2008 and 2007 have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. In the opinion of management, the unaudited financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position as of September 30, 2008 and the results of operations and cash flows for the periods ended September 30, 2008 and 2007. 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 month period and nine month period ended September 30, 2008 is not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending December 31, 2008. The balance sheet at December 31, 2007 has been derived from the audited financial statements at that date.

F-5

---

NOTE 2 - INTERIM FINANCIAL STATEMENTS (Continued)

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 financial statements should be read in conjunction with our audited financial statements and notes thereto for the year ended December 31, 2007 included in our Form 10 -KSB filed March 28, 2008.

 

NOTE 3 - INVENTORY

 

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consist of:

		September 30,			December 31,
		2008			2007
		(Unaudited)
Building		$	19,794		$	18,425
Transportation equipment			227,560			271,081
Manufacturing equipment and machinery			132,266			123,798
Office and computer equipment			17,535			16,448
			397,155			429,752
Less accumulated depreciation			153,000			153,752
Property, plant and equipment, net		$	244,155		$	276,000

Depreciation expense was $11,174 and $11,352 for the three months ended September 30, 2008 and 2007, and $37,029 and $32,503 for the nine months ended September 30, 2008 and 2007, respectively.

F-6

---

 

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 ($874,800 and $883,680 translated at the September 30, 2008 and December 31, 2007 exchange rate, respectively). The investment is carried at cost. Tienwe shares are not quoted or traded on any securities exchange or in any recognized over-the-counter market; accordingly, it is not practicable to estimate the fair value of the investment. Tienwe sells aerospace products to military industry customers.

 

NOTE 6 - DEFERRED FINANCING COSTS

Deferred financing costs, which are being amortized as interest expense over the two year term of the convertible notes payable due September 29, 2010, consist of:

		September 30, 2008			December 31, 2007
		(Unaudited)
Placement Agent commissions		$	40,000		$	—
Placement Agent expense allowance			25,000			—
Fair value of Placement Agent warrants			19,920			—
Legal and other fees			65,520			—
Total			150,440			—
Less: accumulated amortization			(475	)		—
Balance at September 30, 2008		$	149,965		$	—

NOTE 7 - INTANGIBLE ASSETS, NET

Intangible assets, net consist of:

		September 30,			December 31,
		2008			2007
		(Unaudited)
Product rights		$	90,577		$	84,310
Patent			14,728			13,709
Trademark			2,200			1,555
Total			107,505			99,574
Less accumulated amortization			42,777			26,020
Intangible assets, net		$	64,728		$	73,554

F-7

---

 

NOTE 7 - INTANGIBLE ASSETS, NET (Continued)

The product rights were acquired by Xinsheng in December 2006 from an unrelated third party and relate to six registered fertilizer products.

The patent was acquired by Xinsheng in 2002 from three related parties (one of the parties was an officer, director and significant stockholder of the Company at the time of the exchange) in exchange for a total of 16.67% of the issued and outstanding shares of Xinsheng common stock. The patent (and contributed capital) at the date of the exchange on April 22, 2002 has been reflected at the transferors’ cost. The patent is for Zero-tillage Fertilizing Equipment (PRC Patent Number 330398), which is a type of seeding machine, the use of which reduces soil erosion.

Estimated amortization expense for each of the Company’s succeeding years ending September 30, 2009, 2010, 2011, 2012 and 2013 is $19,808, $19,808, $19,808, $4,992 and $53, respectively.

NOTE 8 - CONVERTIBLE NOTES PAYABLE, NET

Convertible notes payable, net consist of:

		September 30,			December 31,
		2008			2007
		(Unaudited)
Convertible notes - face amount		$	500,000		$	—
Less:
Debt discount attributable to the relative fair value of warrants			(149,615	)		—
Debt discount attributable to the intrinsic value of the beneficial conversion feature			(49,615	)		—
Less accumulated amortization of debt discounts			143			—
Convertible notes payable, net		$	300,913		$	—

 

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 an aggregate of 500,000 shares of common stock to two accredited investors. The Company received net proceeds of $431,500 after the deduction of a placement agent commission of $40,000, a placement agent expense allowance of $25,000 and an escrow agent fee of $3,500.

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.

 

F-8

---

 

NOTE 8 - CONVERTIBLE NOTES PAYABLE, NET (Continued)

The C warrants have a term of three years and an exercise price of $1.50 per share. In addition, upon exercise of the C warrant, each C warrant holder shall be issued a series D warrant. The D warrants shall have a term of three years and an exercise price of $2.00 per share. The exercise price of the Warrants is subject to adjustment upon the occurrence of stock splits, combinations, dividends and subsequent offerings.

Subject to effectiveness of the registration statement, the Company shall have the right to prepay the Notes at 110% of the outstanding principal amount any time prior to the maturity date and upon 30 days prior written notice to the holders. The Company may call for the termination of any unexercised portion of the C warrants upon consummation of a subsequent offering by the Company of not less than $7,500,000 in gross proceeds and upon 30 days written notice to the holders.

In connection with the transaction, the Company agreed to prepare and file a registration statement with the Securities and Exchange Commission within 60 days following the final closing date. In addition, the Company agreed to use its good faith efforts to cause the Registration Statement to be declared effective by the Commission within 90 calendar days from the filing date, or within 120 calendar days from the filing date if the Registration Statement is reviewed by the Commission. If the Company fails to file such registration statement within 60 days, or if the registration statement is not declared effective within 90 (or 120) days from the filing date, the Company must pay monthly liquidated damages in cash equal to 2% of the purchase price, subject to a maximum of 24%.

In accordance with the Accounting Principal Board (“APB”) Opinion No.14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants” and the Emerging Issues Task Force (“EITF”) Issue No. 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments”, the Company recorded the $149,615 relative fair value of the warrants ($78,136 for the Series C warrants; $71,479 for the Series D warrants) and the $49,615 intrinsic value of the beneficial conversion feature as additional paid in capital.

The $149,615 fair value of the Series C and Series D warrants was calculated using a Black-Scholes option pricing model and the following assumptions: risk-free interest rate of 2.26%; expected stock price volatility of 130.69%; stock price of $0.40 per share; exercise price of $1.50 per share for C warrants and $2.00 per share for D warrants; and term of 3 years.

In connection with the first closing, the placement agent received warrants to purchase 80,000 shares of the Company’s common stock at an exercise price of $1.00 per share for a term of three years. The $19,920 fair value of these warrants (calculated using the same assumptions described above except for the exercise price) was charged to deferred financing costs and added to additional paid in capital.

F-9

---

 

NOTE 9 - REDEEMABLE SERIES A PREFERRED STOCK

On May 31, 2006, China Agri sold 10,000 Units of securities to an investor at a price of $10.00 per Unit, or $100,000 total. Each Unit was comprised of one share of Series A preferred stock and one warrant to purchase one share of Common Stock at $1.50 per share exercisable through May 31, 2009. Each share of Series A preferred stock was not entitled to any voting rights, except that the consent of the holders of at least 51% of the outstanding shares of Series A preferred stock were necessary to permit the authorization or issuance or any increase in the authorized or issued amount of any class or series of capital stock ranking equal to or senior to the Series A preferred stock.

Each share of Series A Stock was automatically convertible into shares of Common Stock at a conversion price of one-third of the price per share of the Common Stock paid for by the purchasers of Common Stock in a Public Offering pursuant to a registration statement under the Securities Act of 1933, as amended (the “Act”). Upon completion of the sale of Common Stock for $1.00 per share pursuant to the public offering which closed October 11, 2007, each outstanding share of Series A Stock automatically converted into 30 shares of Common Stock (300,000 shares of Common Stock total). The Company recorded as a dividend and as an increase in additional paid-in capital, the intrinsic value of the beneficial conversion feature (the “BCF”). The intrinsic value of the BCF was the difference between the $300,000 fair value of the common stock issued upon conversion and the $100,000 proceeds received, or $200,000.

NOTE 10 - COMMON STOCK

On October 11, 2007, upon the completion of the public offering, China Agri sold 379,800 units at a price of $1.00 per unit to the public investors. Each Unit consisted of one share of Common Stock, one warrant to purchase one share of Common Stock at $1.50 per share exercisable for three years from the date of issuance, and one warrant to purchase one share of Common Stock at $2.00 per share exercisable for three years from the date of issuance only if the $1.50 Unit Warrant was exercised.

NOTE 11 - WARRANTS

The Company has issued warrants (exercisable into shares of common stock) to investors and the Underwriter as part of its sale of Series A preferred stock, its public offering, and its private placement of convertible notes. Changes in the warrants outstanding are as follows:

 

F-10

---

 

NOTE 11 - WARRANTS (Continued)

		Nine Months Ended September 30, 2008			Year Ended December 31, 2007
		(Unaudited)
Outstanding at beginning of period			807,580			10,000
Warrants issued			1,080,000			797,580
Warrants exercised			—			—
Warrants expired			—			—
Outstanding at end of period			1,887,580			807,580
Exercisable at end of period			1,887,580			807,580

 

Warrants outstanding at September 30, 2008 consist of:

Date Issued		Expiration Date			Number of Warrants			Weighted Average Exercise Price
May 31, 2006			May 31, 2009			10,000		$	1.50
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, 2010			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
September 29, 2008(2)			--			500,000			2.00
Total (Unaudited)						1,887,580		$	1.70

(1)	Represents series C warrants.

(2)	Represents series D warrants issuable on a one to one basis upon exercise of the series C warrants. The series D warrants will have a term of three years.

 

NOTE 12 - RESTRICTED NET ASSETS

Relevant PRC statutory laws and regulations permit payments of dividends by 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 Xinsheng 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 $4,367,000 and $4,105,000 at September 30, 2008 and December 31, 2007, respectively.

 

F-11

---

 

NOTE 13 - INCOME TAXES

Xinsheng is subject to a PRC 25% standard enterprise income tax. However, due to its agricultural industry status, the National Tax Bureau in Xi’an High-Tech Development Zone granted Xinsheng three annual exemptions from this tax. The first exemption was granted for the year ended August 31, 2006, the second exemption was granted and adjusted to the year ended December 31, 2007, and the third exemption was granted for the year ending December 31, 2008.

At September 30, 2008 and December 31, 2007, the Company had an unrecognized deferred United States income tax liability relating to undistributed earnings of Xinsheng. These earnings are considered to be permanently invested in operations outside the United States. Generally, such earnings become subject to United States income tax upon the remittance of dividends and under certain other circumstances. Determination of the amount of the unrecognized deferred United States income tax liability with respect to such earnings is not practicable.

The Company did not have any significant temporary differences relating to deferred tax liabilities as of September 30, 2008 and December 31, 2007.

The provision for income taxes differs from the amount computed by applying the statutory United States federal income tax rate to income (loss) before income taxes. Reconciliations follow:

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2008			2007			2008			2007
		(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Expected tax at 35%		$	136,346		$	100,261		$	413,970		$	299,473
Tax effect of unutilized losses of China Agri and Meixin			(1,336	)		—			15,158			—
Effect of PRC income tax exemption granted to Xinsheng			(96,465	)		(94,531	)		(306,549	)		(282,360	)
Permanent difference relating to Xinsheng's earnings
to be permanently invested in operations outside the United States			(38,545	)		(5,730	)		(122,579	)		(17,113	)
Actual provision for income taxes		$	—		$	—		$	—		$	—

 

NOTE 14 - SEGMENT INFORMATION

The Company operates in one industry segment - the manufacturing and sale of agricultural enhancement products. Substantially all of the Company’s identifiable assets at September 30, 2008 and December 31, 2007 were located in the PRC. Net sales for the periods presented were all derived from PRC customers.

F-12

---

 

NOTE 15 - COMMITMENTS AND CONTINGENCIES

Lease Agreements

Xinsheng leases its office space (approximately 7300 square feet) at an annual rent of 366,390 RMB ($53,962 translated at the September 30, 2008 exchange rate) under a lease with a three year term expiring March 31, 2011.

Xinsheng leases its operating space (approximately 2600 square feet) at an annual rent of 38,500 RMB ($5,670 translated at the September 30, 2008 exchange rate) under a lease expiring March 31, 2010.

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

For the three months ended September 30, 2008 and 2007, and for the nine months ended September 30, 2008 and 2007, rental and related expenses for all operating leases amounted to $18,772, $10,191, $51,139 and $40,540, respectively.

At September 30, 2008, future minimum rental commitments under all non-cancelable operating leases are:

Year ending September 30,		Minimum Rent
		(Unaudited)
2009		$	59,633
2010			59,633
2011			14,908
Total		$	134,174

 

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.

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 

 

4

---

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 September 30, 2008 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

b. Changes in Internal 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 September 30, 2008 that have materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

 

5

---

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.

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

On September 29, 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. A description of this transaction is set forth above in Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 3. Defaults Upon Senior Securities.

None.

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

 

None.

Item 5. Other Information.

 

Item 6. Exhibits.  

EXHIBIT INDEX

 

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

 

6

---

SIGNATURES

In accordance with 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 November 14, 2008.

	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)

7

---