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, 2011

¨ TRANSITION REPORT UNDER SECTION 13 OF 15(d) OF THE EXCHANGE ACT OF 1934

From the transition period from ___________ to ____________.

Commission File Number 333-140118

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:
Building 2, Unit 1, 15th Floor
Ling Xian Xin Cheng, 86 Gaoxin Road		In the United States:
Hi-Tech Industrial Development Zone		11 East 86th Street
Xian, Shannxi, China 710065		New York, New York 10028

(Address of principal executive offices) (Zip Code)

Issuer’s telephone number, including area code:

In the People’s Republic of China: (86) 029-68596556

In the United States: (212) 348-5600

N/A

(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 x No ¨

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 of this chapter) 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 definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

(Do not check if a smaller

reporting company)

Smaller reporting company x

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

As of August 15, 2011, there were 13,118,574 shares of common stock of the issuer outstanding.

TABLE OF CONTENTS

	PART I FINANCIAL STATEMENTS	4

Item 1	Financial Statements	4

Item 2	Management’s Discussion and Analysis or Plan of Operation	5

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14

Item 4.	Controls and Procedures	14

	PART II OTHER INFORMATION	15

Item 1	Legal Proceedings	15

Item 1A.	Risk Factors	15

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	15

Item 3	Default upon Senior Securities	15

Item 4	[Removed and Reserved]	15

Item 5	Other Information	15

Item 6	Exhibits	15

Signatures		17

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION

The discussion contained in this 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), contains “forward-looking statements” within the meaning of Section 21E of the Exchange Act that involve risks and uncertainties. The actual results of China Agri-Business, Inc. (including our subsidiaries and predecessors unless the context indicates otherwise, “we,” “us,” “our,” “China Agri,” or the “Company”) could differ significantly from those discussed herein. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “the Company believes,” “management believes” and similar language, including those set forth in the discussions under “Notes to Financial Statements” and “Management’s Discussion and Analysis or Plan of Operation” as well as those discussed elsewhere in this Form 10-Q. These forward-looking statements include statements of management’s plans and objectives for our future operations and statements of future economic performance, information regarding our expansion and possible results from expansion, our expected growth, our capital budget and future capital requirements, the availability of funds and our ability to meet future capital needs, the realization of our deferred tax assets, and the assumptions described in this report underlying such forward-looking statements. Actual results and developments could differ materially from those expressed in or implied by such statements due to a number of factors, including, without limitation, those described in the context of such forward-looking statements, our expansion and acquisition strategy, our ability to raise additional capital to finance our activities; the effectiveness, profitability, and the marketability of our products; the future trading of our common stock; our ability to operate as a public company; our ability to protect our proprietary information; general economic and business conditions; the volatility of our operating results and financial condition; our ability to attract or retain qualified senior management personnel and research and development staff; and other risks detailed from time to time in its filings with the SEC, or otherwise. We base our forward-looking statements on information currently available to us, and we assume no obligation to update them. Readers are cautioned not to place undue reliance on these forward-looking statements. Statements contained in this Form 10-Q that are not historical facts are forward-looking statements that are subject to the “safe harbor” created by the Private Securities Litigation Reform Act of 1995.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA AGRI-BUSINESS, INC. AND SUBSIDIARIES

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Page

Condensed Consolidated Balance Sheets as of June 30, 2011 (Unaudited) and December 31, 2010	F - 1

Condensed Consolidated Statements of Income and Comprehensive Income for the Three and Six Months ended June 30, 2011 and 2010 (Unaudited)	F - 2

Condensed Consolidated Statements of Stockholders’ Equity for the Six Months ended June 30, 2011 (Unaudited) and the Year ended December 31, 2010	F - 3

Condensed Consolidated Statements of Cash Flows for the Six Months ended June 30, 2011 and 2010 (Unaudited)	F - 4

Notes to Unaudited Condensed Consolidated Financial Statements	F - 5

China Agri-Business, Inc.

Condensed Consolidated Balance Sheets

	June 30,		December 31,
	2011		2010
	(Unaudited)
Assets
Current Assets
Cash and cash equivalents	$	16,398,823	$	13,153,741
Accounts receivable, net of allowance for doubtful accounts of $9,519 and $8,248, respectively		180,864		93,634
Inventory		67,843		91,596
Prepaid expenses		206,722		16,143
Total Current Assets		16,854,252		13,355,114
Property, plant and equipment, net of accumulated depreciation of $324,916 and $279,696, respectively		573,473		599,468
Investment in Tienwe Technology		928,320		909,120
Prepaid land lease costs		522,180		538,654
Intangible assets, net of accumulated amortization of $31,990 and $24,397, respectively		109,570		114,235
Total Assets	$	18,987,795	$	15,516,591
Liabilities and Stockholders' Equity
Current Liabilities
Current portion of long-term debt	$	10,223	$	9,405
Accounts payable and accrued liabilities		140,564		337,576
Due to chief executive officer - non-interest bearing, due on demand		501,215		501,215
Total Current Liabilities		652,002		848,196

Long Term Liabilities
Long-term debt		96,687		99,728
Total Long Term Liabilities		96,687		99,728

Total Liabilities		748,689		947,924

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 13,118,574 and 13,118,574 shares as of June 30, 2011 and December 31, 2010, respectively		13,119		13,119
Additional paid-in capital		4,806,429		4,610,052
Retained earnings		11,411,536		8,289,263
Accumulated other comprehensive income (foreign currency translation adjustments)		2,008,022		1,656,233
Total stockholders' equity		18,239,106		14,568,667

Total Liabilities and Stockholders' Equity	$	18,987,795	$	15,516,591

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

F-1

China Agri -Business, Inc.

Condensed Consolidated Statements of Income and Comprehensive Income

(Unaudited)

	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2011			2010			2011			2010

Sales of products	$	3,838,000		$	3,452,574		$	5,592,414		$	4,993,515
Cost of goods sold		1,185,054			2,244,930			1,747,525			3,110,048
Gross profit		2,652,946			1,207,644			3,844,889			1,883,467

Selling, general and administrative expenses		406,606			405,833			740,456			701,092
Income from operations		2,246,340			801,811			3,104,433			1,182,375
Interest and other income		11,748			5,715			21,402			12,194
Interest expense		(1,781	)		(54,305	)		(3,562	)		(109,540	)
Income before income taxes		2,256,307			753,221			3,122,273			1,085,029
Income taxes		-			-			-			-
Net income	$	2,256,307		$	753,221		$	3,122,273		$	1,085,029

Earnings per common share:
Basic	$	0.17		$	0.06		$	0.24		$	0.08
Diluted	$	0.17		$	0.05		$	0.24		$	0.08

Weighted average number of common shares used to compute earnings per common share:
Basic		13,118,574			12,958,574			13,118,574			12,958,574
Diluted		13,140,029			13,958,574			13,148,095			13,958,574

Comprehensive Income:
Net income	$	2,256,307		$	753,221		$	3,122,273		$	1,085,029
Other comprehensive income - foreign currency translation adjustment		228,359			76,365			351,789			75,709
Comprehensive Income	$	2,484,666		$	829,586		$	3,474,062		$	1,160,738

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

F-2

China Agri -Business, Inc.

Condensed Consolidated Statements of Stockholders' Equity

For the Six Months Ended June 30, 2011 (Unaudited) and the Year Ended December 31, 2010

	Common Stock Shares		Common Stock Amount		Additional Paid- in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
Balance, December 31, 2009		12,958,574	$	12,959	$	4,370,212	$	4,708,473	$	1,199,308	$	10,290,952
Exercise of Series C warrants into 160,000 shares at $1.50 per share		160,000		160		239,840		-		-		240,000
Net income for the year ended December 31, 2010		-		-		-		3,580,790		-		3,580,790
Foreign currency translation adjustment		-		-		-		-		456,925		456,925
Balance, December 31, 2010		13,118,574		13,119		4,610,052		8,289,263		1,656,233		14,568,667
Options issued for services		-		-		196,377		-		-		196,377
Net income for the six months ended June 30, 2011		-		-		-		3,122,273		-		3,122,273
Foreign currency translation adjustment		-		-		-		-		351,789		351,789
Balance, June 30, 2011 (Unaudited)		13,118,574	$	13,119	$	4,806,429	$	11,411,536	$	2,008,022	$	18,239,106

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

F-3

China Agri -Business, Inc.

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2011 and 2010

(Unaudited)

	2011			2010

Operating activities
Net income	$	3,122,273		$	1,085,029
Adjustments to reconcile net income to net cash provided by operating activities:
Increase (reduction) in allowance for doubtful accounts		1,271			(612	)
Depreciation of property, plant and equipment		38,967			30,744
Amortization of intangible assets and deferred financing costs		7,016			53,314
Amortization of debt discount and fair value of warrants		-			48,784
Amortization of prepaid land lease costs		27,605			-
Options issued for services		196,377			-
Changes in operating assets and liabilities:
Increase in accounts receivable		(88,501	)		(7,392	)
Decrease (increase) in inventory		23,753			(144,371	)
(Increase) decrease in prepaid expenses and other current assets		(190,579	)		10,527
Decrease in accounts payable and accrued liabilities		(197,012	)		(1,880	)
Net cash provided by operating activities		2,941,170			1,074,143

Investing activities
Purchase of equipment		(658	)		(301,413	)
Purchase of products rights		-			(118,000	)
Net cash used in investing activities		(658	)		(419,413	)

Financing activities
Repayment of long-term debt		(4,867	)		(4,471	)
Net cash used in financing activities		(4,867	)		(4,471	)

Effect of exchange rate changes on cash and cash equivalents		309,437			68,390
Increase in cash and cash equivalents		3,245,082			718,649
Cash and cash equivalents, beginning of the priod		13,153,741			9,625,657
Cash and cash equivalents, end of the period	$	16,398,823		$	10,344,306

Supplemental Disclosures of Cash Flow Information:
Interest paid	$	3,562		$	3,714
Income taxes paid	$	-		$	-

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

F-4

CHINA AGRI-BUSINESS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

China Agri-Business, Inc. (“China Agri” or the “Company”) 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 People’s Republic of China (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 immediately after the Transaction, to a trustee of a trust for the benefit of the Xinsheng stockholders. The Transaction was accounted for as a “reverse merger”, since the stockholders of Xinsheng owned a majority of China Agri’s common stock immediately following the Transaction. Xinsheng was deemed to be the acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations that are reflected in the financial statements prior to the Transaction are those of Xinsheng and are recorded at the historical cost basis of Xinsheng, and the consolidated financial statements after completion of the Transaction include the assets and liabilities of China Agri, Meixin, and Xinsheng (collectively, the “Company”), historical operations of Xinsheng, and operations of China Agri and Meixin from the date of the Transaction.

China Agri-Business, Inc., through its operating company in China, manufactures and sells non-toxic fertilizer, bactericide and fungicide products used for farming in the People’s Republic of China (the “PRC”). Crops grown with our products are eligible to qualify for the “AA Green Food” rating administered by the China Green Food Development Center, an agency under the jurisdiction of the Ministry of Agriculture of the PRC.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

F-5

Principles of Consolidation

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

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, net, accounts payable and accrued liabilities, long-term debt, and due to chief executive officer. The fair value of these financial instruments approximate their carrying amounts reported in the consolidated balance sheets due to the short term maturity of these instruments or by comparison to other instruments with similar terms.

Foreign Currency Transactions and Comprehensive Income

The functional currency of China Agri is the United States dollar. The functional currency of Xinsheng and Meixin is the RMB. The reporting currency of the Company is the United States dollar.

The assets and liabilities of Xinsheng and Meixin are translated into United States dollars at period-end exchange rates ($0.15472 and $0.15152 at June 30, 2011 and December 31, 2010, respectively). The revenues and expenses are translated into United States dollars at average exchange rates for the periods ($0.15378 and $0.14650 for the three months ended June 30, 2011 and 2010, respectively; $0.1528 and $0.14650 for the six months ended June 30, 2011 and 2010, respectively). Resulting translation adjustments are recorded as a component of accumulated other comprehensive income within stockholders’ equity.

Transaction gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency are included in the consolidated results of operations. There are no material foreign currency transaction gains or losses for the three and six months ended June 30, 2011 and 2010.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and such differences may be material to the financial statements.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand, cash on deposit with banks, and highly liquid debt investments with a maturity of three months or less when purchased.

Inventory

Inventory is stated at the lower of cost (first-in, first-out method) or market.

Property, Plant and Equipment, Net

Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the estimated useful lives of the respective assets.

F-6

Intangible and Other Long-Lived Assets, Net

Intangible and other long-lived assets are stated at cost, less accumulated amortization and impairments. The intangible assets are being amortized over their expected useful economic lives ranging from 5 to 10 years.

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the fair value of the assets.

Revenue Recognition

Sales of products are recorded when title passes to the customer, which is generally at time of shipment. The Company performs ongoing credit evaluations of its customers’ financial condition, but generally does not require collateral to support customer receivables. The credit risk is controlled through credit approvals, limits and monitoring procedures. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other factors. Accounts receivable are charged against the allowance for doubtful accounts once all collection efforts have been exhausted. The Company does not routinely permit customers to return product.

Delivery and other transportation costs are included in selling, general and administrative expenses.

Stock-Based Compensation

Stock-based compensation is accounted for at fair value in accordance with FASB Accounting Standards Codification (“ASC”) topic 718-10, Stock Compensation. In addition to requiring supplemental disclosures, FASB ASC 718 addresses the accounting for share-based payment transactions in which a company receives goods or services in exchange for (a) equity instruments of the company or (b) liabilities that are based on the fair value of the company’s equity instruments or that may be settled by the issuance of such equity instruments. FASB ASC 718 focuses primarily on accounting for transactions in which a company obtains employee services in share-based payment transactions.

References to the issuances of restricted stock refer to stock of a public company issued in private placement transactions to individuals who are eligible to sell all or some of their shares of restricted Common Stock pursuant to Rule 144, promulgated under the Securities Act of 1933 (“Rule 144”), subject to certain limitations. In general, pursuant to Rule 144, a stockholder who is not an affiliate and has satisfied a six-month holding period may sell all of his restricted stock without restriction, provided that the Company has current information publicly available. Rule 144 also permits, under certain circumstances, the sale of restricted stock, without any limitations, by a non-affiliate of the Company that has satisfied a one-year holding period.

Advertising

Advertising costs include advance payments to our branded stores (to be used for signage and store display and promotions). The Company expenses advertising costs as incurred in accordance with ASC 720-35, “Advertising Costs.” Advertising expenses were $97,446 and $82,006 for the three months ended June 30, 2011 and 2010, respectively. Advertising expenses were $147,984 and $94,486 for the six months ended June 30, 2011 and 2010, respectively.

F-7

Research and Development

In accordance with ASC subtopic 730-10, Research and Development, the Company expenses all research and development costs as incurred. Research and development expenses for the three months ended March 31, 2011 and 2010 were $211 and $12,045, respectively. Research and development expenses for the six months ended June 30, 2011 and 2010 were $3,255 and $23,033, respectively.

Segment Information

ASC 280-10 requires entity-wide disclosures about the products and services an entity provides, the countries in which it holds assets and reports revenues, and its major customers. The Company operates as a single segment currently and will evaluate additional segment disclosure requirements as it expands its operations.

Income Taxes

The Company accounts for income taxes using the asset and liability method described in ASC 740-10, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting and the tax bases of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Xinsheng is governed by the Income Tax Laws of the PRC. Pursuant to the PRC relevant laws and regulations and tax law, Xinsheng is exempt from income tax.

Earnings (Loss) Per Common Share

The Company has adopted ASC 260-10 which requires presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation.

Basic earnings (loss) per common share are computed on the basis of the weighted average number of common shares outstanding during the period.

Diluted earnings (loss) per common share are computed similarly to basic earnings per common share except that it includes the dilutive securities (such as convertible notes, stock options and warrants) outstanding and potential dilution that could occur if dilutive securities were converted. Dilutive securities having an anti-dilutive effect on diluted earnings (loss) per common share are excluded from the calculation.

A reconciliation of net income (the numerator) used to compute basic and diluted earnings per common share for the three and six months ended June 30, 2011 and 2010 follows:

F-8

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Net income (used to compute basic EPS)	$	2,256,307	$	753,221	$	3,122,273	$	1,085,029
Add back interest expense on convertible notes		-		3,750		-		7,500
Net income (used to compute diluted EPS)	$	2,256,307	$	756,971	$	3,122,273	$	1,092,529

A reconciliation of the weighted average number of common shares (the denominator) used to compute basic and diluted earnings per common share for the three and six months ended June 30, 2011 and 2010 follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Weighted average number of common shares outstanding (used to compute basic EPS)		13,118,574		12,958,574		13,118,574		12,958,574
Assumed conversion of convertible notes		-		1,000,000		-		1,000,000
Assumed exercise of warrants		21,455		-		29,521		-

Weighted average number of common shares outstanding and dilutive common stock equivalents outstanding (used to compute diluted EPS)		13,140,029		13,958,574		13,148,095		13,958,574

The Company uses the treasury stock method to account for the dilutive effect of unexercised stock options and warrants on diluted earnings per common share. Antidilutive common shares related to stock options excluded from the computation of diluted earnings per common share were 429,240 and 0 for the three months ended June 30, 2011 and 2010, respectively; 429,240 and 0 for the six months ended June 30, 2011 and 2010, respectively. Antidilutive common shares related to warrants excluded from the computation of diluted earnings per common share were 500,000 and 1,378,580 for the three months ended June 30, 2011 and 2010, respectively; 500,000 and 1,378,580 for the six months ended June 30, 2011 and 2010, respectively.

Recently Issued Accounting Pronouncements

Certain accounting pronouncements have been issued by the FASB and other standard setting organizations which are not yet effective and have not yet been adopted by the Company. The impact on the Company’s financial position and results of operations from adoption of these standards is not expected to be material.

NOTE 3 – INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements as of June 30, 2011 and for the three and six months ended June 30, 2011 and 2010 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, 2011 and the results of operations and cash flows for the three and six months ended June 30, 2011 and 2010. 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, 2011 is not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending December 31, 2011. The balance sheet at December 31, 2010 has been derived from the audited consolidated financial statements at that date.

F-9

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, 2010 included in our Form 10 –K filed March 31, 2011.

NOTE 4 – INVENTORY

Inventory at June 30, 2011 and December 31, 2010 consisted of:

	2011		2010
	(Unaudited)
Raw materials	$	40,804	$	45,827
Finished goods		18,944		37,840
Purchased fertilizers for resale in direct sales stores and branded stores		5,515		5,401
Other		2,580		2,528
Total inventory	$	67,843	$	91,596

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net, at June 30, 2011 and December 31, 2010 consisted of:

	2011			2010
	(Unaudited)
Buildings	$	278,525		$	272,763
Transportation equipment		240,417			235,446
Machinery and electronic equipment		375,744			367,329
Office equipment		3,703			3,626
		898,389			879,164

Less accumulated depreciation		(324,916	)		(279,696	)

Property, plant and equipment, net	$	573,473		$	599,468

In August 2009, Xinsheng acquired two units in a building in Shannxi, China containing approximately 3,800 square feet of space for $257,730 (1,665,783 RMB). $133,954 (865,783 RMB) of the purchase price was paid in cash and the remaining $123,776 (800,000 RMB) was financed through two 10 year mortgages (see Note 10). For legal expediency reasons, the property and mortgages were acquired in the name of the Company’s Chairman of the Board of Directors.

F-10

In the first quarter of 2010, the Company acquired additional machinery and equipment from a vendor for $309,440 (2,000,000 RMB).

Depreciation expense was $19,611 and $18,619 for the three months ended June 30, 2011 and 2010, respectively; $38,967 and $30,744 for the six months ended June 30, 2011 and 2010, respectively.

NOTE 6 – 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 $928,320 (6,000,000 RMB). 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. The Company has recently commenced negotiations with Tienwe regarding Xinsheng’s potential sale of this investment.

NOTE 7 – PREPAID LAND LEASE COSTS

Prepaid land lease costs at June 30, 2011 and December 31, 2010 consisted of:

	2011			2010
	(Unaudited)
Prepayment on November 12, 2010 of first 10 years rent pursuant to land lease (Note 16)	$	556,992		$	545,472
Accumulated amount recognized as rental expense		(34,812	)		(6,818	)
Balance	$	522,180		$	538,654

NOTE 8 – INTANGIBLE ASSETS, NET

Intangible assets, net, at June 30, 2011 and December 31, 2010 consisted of:

	2011			2010
	(Unaudited)
Product rights	$	123,776		$	121,216
Patent		15,472			15,152
Trademark		2,312			2,264
Total		141,560			138,632
Less accumulated amortization		(31,990	)		(24,397	)
Net	$	109,570		$	114,235

In the first quarter of 2010, the Company acquired the Jiamei license, permits and product rights for $123,776 (800,000 RMB). These rights are amortized over their expected useful economic lives of 10 years.

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.

F-11

At June 30, 2011, estimated amortization for the next five years and thereafter are as follows:

Year ending
June 30,	Amortization
	(Unaudited)
2012	$	13,295
2013		12,433
2014		12,433
2015		12,433
2016		12,433
Thereafter		46,543

Total	$	109,570

NOTE 9 – CONVERTIBLE NOTES PAYABLE, NET

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.

The Notes matured two years from the date of issuance and bore interest at the rate of 3% per annum, which was payable annually in cash or in shares of common stock, subject to approval of the holder. Overdue interest was to bear interest at the rate of 15% per annum. Overdue principal was to bear interest at the rate of 8% per annum. The Notes were 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 was 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 at 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.

The Company had 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 Series 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 will not receive any Series D warrants, any shares underlying the Series C or Series D warrants, or any other securities.

F-12

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 was not declared effective within 120 days from the filing date, the Company was 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. In response to SEC comment letters, the Company filed amendments to the registration statement on Form S-1. The Company and the investors entered into agreements extending the date that the Form S-1 was required to become effective to October 30, 2009. The registration statement on Form S-1 was declared effective on November 16, 2009. The Company accrued $734 liquidated damages under the registration rights agreement payable to the investors as of November 16, 2009.

The Company recorded the $149,615 relative fair value of the warrants ($78,136 for the Series C warrants; $71,479 for the Series D warrants) and the $49,615 intrinsic value of the beneficial conversion feature as additional paid in capital.

The $149,615 fair value of the Series C and Series D warrants was calculated using a Black-Scholes option pricing model and the following assumptions: risk-free interest rate of 2.26%; expected stock price volatility of 130.69%; stock price of $0.40 per share; exercise price of $1.50 per share for the Series C warrants and $2.00 per share for the Series 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. On October 9, 2009, the Company issued warrants to purchase 1,000 shares of the Company’s common stock at an exercise price of $1.00 per share for a term of three years for services rendered and waiving registration rights. The $426 fair value of these warrants (calculated using the same assumptions described above except for the exercise price) was charged to current financing cost and added to additional paid in capital.

On September 29, 2010, the maturity date of the Convertible Notes, the Company repaid the Notes principal of $500,000 together with the interest accrued on the Notes in the amount of $15,000.

On December 17, 2010, the investors exercised 160,000 Series C Warrants at a price of $1.50 per share. The Company received $240,000 in cash and issued 160,000 shares of common stock and 160,000 Series D Warrants to the investors.

F-13

NOTE 10 – LONG-TERM DEBT

Long-term debt represents mortgages payable to Xian Commerce Bank in connection with Xinsheng’s acquisition of two units in a building in August 2009 (see Note 5). The mortgages, which had a total initial balance of $123,776 (800,000 RMB), are secured by the units, bear interest at an annual rate of 6.53% and are due in monthly installments of interest and principal of approximately $1,407 (9,097 RMB) to August 6, 2019.

At June 30, 2011, maturities of the Long-term Debt for the next five years and in total are as follows:

Year ending
June 30,	Amount
	(Unaudited)
2012	$	10,223
2013		10,912
2014		11,646
2015		12,431
2016		13,268
Thereafter		48,430

Total	$	106,910

Interest expense incurred on the Long-term Debt during the three months ended June 30, 2011 and 2010 was $1,781 and $1,857, respectively; and for the six months ended June 30, 2011 and 2010 was $3,562 and $3,714, respectively.

F-14

NOTE 11 – 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 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.

On December 17, 2010, the Company issued 160,000 shares of its common stock to the two investors involved in our September 29, 2008 sale of $500,000 convertible notes payable (see Note 9) as a result of the investors’ exercise of 160,000 Series C warrants at $1.50 per share.

NOTE 12 – WARRANTS AND OPTIONS

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

	Six Months Ended		Year Ended
	June 30, 2011		December 31, 2010
	(Unaudited)
Outstanding at beginning of period		618,980		1,378,580
Warrants issued		-		160,000
Warrants exercised		-		(160,000	)
Warrants expired		-		(759,600	)
Outstanding at end of period		618,980		618,980

Exercisable at end of period		618,980		618,980

Warrants outstanding at June 30, 2011 consisted of:

		Number of		Weighted Average
Date Issued	Expiration Date	Warrants		Exercise Price
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		340,000		1.50
December 17, 2010 (2)	September 29, 2013		160,000		2.00
October 9, 2009	October 9, 2012		1,000		1.00

Total (Unaudited)			618,980	$	1.53

(1) Represents Series C warrants.

(2) Represents Series D warratns.

F-15

Effective January 1, 2011, the Company decided to grant stock options to its chief financial officer and to an outside director as part of their year 2011 compensation package. The number of options and specified terms were formalized pursuant to a unanimous written consent of the Board of Directors dated May 16, 2011, whereby the Company granted 257,544 stock options to its chief financial officer and 171,696 stock options granted to an outside director. The exercise price of the options was $1.16, the market closing price at May 13, 2011. These stock options expire on May 16, 2014. The $392,755 estimated fair value of these stock options is being expensed evenly over the year ending December 31, 2011, since the actual option grant instrument provides for the services of these individuals already performed to the date of the grant and services to be performed in 2011.

The $392,755 fair value of the stock options was calculated using a Black-Scholes option pricing model and the following assumptions: risk-free interest rate of 2.00%; expected stock price volatility of 142.36%; stock price of $1.16 per share; exercise price of $1.16 per share; and term of 3 years.

As of June 30, 2011, none of the stock options had been exercised into common stock.

NOTE 13 – 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. The restricted portion amounted to approximately $5,797,674 and $5,485,448 at June 30, 2011 and December 31, 2010, respectively.

NOTE 14 – 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, 2011 and December 31, 2010, 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.

Based on management’s present assessment, the Company has not yet determined it to be more likely than not that a deferred tax asset of approximately $370,000 ($327,000 at December 31, 2010) attributable to the future utilization of the approximately $1,058,000 net operating loss carry-forward of China Agri as of June 30, 2011 will be realized. Accordingly, the Company has maintained a 100% allowance against the deferred tax asset in the financial statements at June 30, 2011. The Company will continue to review this valuation allowance and make adjustments as appropriate. The net operating loss carry-forward expires in varying amounts from year 2025 to year 2031.

Current United States income tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs. Therefore, the amount available to offset future taxable income may be limited.

F-16

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 for the three and six months ended June 30, 2011 and 2010 follow:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Expected tax at 35%	$	789,707		$	263,627		$	1,092,796		$	379,760
Tax effect of unutilized losses of China Agri and Meixin		53,799			47,701			114,500			83,921
Effect of PRC income tax exemption granted to Xinsheng		(602,505	)		(222,377	)		(862,354	)		(331,201	)
Permanent difference relating to Xinsheng's earnings to be
permanently invested in operations outside the United States		(241,001	)		(88,951	)		(344,942	)		(132,480	)

Actual provision for income taxes	$	-		$	-		$	-		$	-

NOTE 15 – 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, 2011 and December 31, 2010 were located in the PRC. Net sales for the periods presented were all derived from PRC customers.

In 2008, the Company launched a new sales and marketing initiative 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”, which involves stores branded under the name of “Xinsheng Shiji” but owned and managed by third parties. The other is called “Direct Sales Stores”. The Direct Sales Stores were controlled and managed by the Company until December 2010. In December 2010, the Company outsourced the operation and ownership of the Direct Sales Stores to subcontractors who bear the risk of operations of the stores. Since both the “super chain sales stores” and the “outsourced direct sales stores” operate under the name of “Xinsheng Shiji”, we refer to these stores as the “Xinsheng Shiji” branded stores. There are approximately 630 branded stores as of June 30, 2011. The majority of branded stores are located in Shannxi Province (local province); others are located in Hunan and Sichuan provinces. For the three and six months ended June 30, 2011, approximately 66% and 68%, respectively, of revenue was generated from our branded and outsourced direct sales stores, and approximately 34% and 32%, respectively, from traditional sales channels.

Sales by Sales Network	Three Months Ended June 30,								Six Months Ended June 30,
	2011				2010				2011				2010
	(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Branded sales stores	$	2,539,609	66.17	%	$	2,950,386	85.45	%	$	3,791,657	67.80	%	$	4,196,128	84.03	%
Traditional sales network		1,298,391	33.83	%		502,188	14.55	%		1,800,757	32.20	%		797,387	15.97	%
Total Sales	$	3,838,000	100.00	%	$	3,452,574	100.00	%	$	5,592,414	100.00	%	$	4,993,515	100.00	%

F-17

NOTE 16 – COMMITMENTS AND CONTINGENCIES

Lease Agreements

Xinsheng leased its office space (approximately 7300 square feet) at an annual rent of 366,390 RMB ($56,688) under a lease with a three year term expiring March 31, 2011. The Company terminated this lease on October 1, 2009 after relocating to its new purchased two units in a building (see Note 5). On October 1, 2009, the Company signed a new lease with the same landlord for office space of 344 square feet at an annual rent of 12,000 RMB ($1,857). This one year lease expired on September 30, 2010. The Company did not renew the lease but, with the permission of the landlord, it continues to use the leased premises in exchange for the same rent.

Xinsheng leases its operating and testing space (approximately 2600 square feet) at an annual rent of 38,500 RMB ($5,957) under a lease which expired March 31, 2010. The Company did not renew the lease but, with the permission from the landlord, it continues to use the leased premises in exchange for the same rent.

On November 12, 2010, Xinsheng entered into a Land Leasing Contract with Xi’an Shishang Weiyang Investment & Management, Inc. pursuant to which the Company agreed to lease 24 mu of land (one mu is equivalent to approximately 0.165 acres) located in Zhongcha Village, Petrochemical Road, Weiyang District, Xi’an, China. Pursuant to the terms of the lease, the Company has the right to construct warehouses and processing centers on the land. The Company plans to build a warehouse and distribution center for the Company’s and other organic manufacturers’ products. The term of the lease is twenty-one years, from November 12, 2010 through November 12, 2031. The Company is obligated to pay rent of RMB 360,000 ($55,699) per year. Rent for the first ten years totaling RMB 3,600,000 ($556,992) was paid in November 2010 pursuant to the lease, which amount is being expensed as rent expense using the straight line method over the 10 year period of the prepayment. The annual rental will increase by 12% every three years starting on November 12, 2020. Upon the expiration of the lease, the Company has a right of first refusal with regard to contract renewal.

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

For the three months ended June 30, 2011 and 2010, rental and related expenses for all operating leases amounted to $17,174 and $31,798, respectively. For the six months ended June 30, 2011 and 2010, rental and related expenses for all operating leases amounted to $32,941 and $56,710, respectively.

At June 30, 2011, future minimum rental commitments (excluding the $556,992 rent prepaid for the first 10 years of the land lease described above) under all non-cancellable operating leases were:

Year Ending	Minimum
June 30,	Rent
2012	$	-
2013		-
2014		-
2015		-
2016		-
Thereafter		806,804
Total	$	806,804

Construction Contract

On March 21, 2011, Xinsheng entered into a contract with a general construction contractor to build a warehouse and distribution center for Xinsheng’s products on the property subject to the land lease discussed above. The estimated cost of the construction is approximately 3,000,000 RMB ($464,160). The construction will commence after receipt of approval of our plans from the local government.

F-18

Consulting Agreement

On March 31, 2010, the Company entered into an Investor and Media Relations Service Agreement with Christensen International Limited (“Christensen”). Pursuant to the agreement, Christensen was to provide investor relations services to the Company for a term of one year and the Company was to pay Christensen a total of $100,000 in fees, payable quarterly at the beginning of each quarter. The Company paid $25,000 in the second quarter of 2010 and then decided to terminate the service contract with Christensen.

Qinfeng Operation Agreement

On June 24, 2011, the Company, through its Chinese operating subsidiary, Xinsheng, acquired the right to manage and operate Shaanxi Qinfeng Agrochemical Inc. (“Qinfeng”) in Xi’an, China. Qinfeng is an agrochemical manufacturer. Currently, Qinfeng has an annual production capacity of 400 metric tons of diafenthiuron, 600 metric tons of prochloraz, and approximately 5,000 metric tons of seed coating agents and preparations.

Pursuant to the management and operating agreement with Qinfeng, the Company will manage Qinfeng’s operations from June 1, 2011 until December 31, 2013. The Company is entitled to the net profits or losses from the operations of Qinfeng during the Term. During the term, the Company has rights to use Qinfeng’s production facilities and intangible assets (i.e. trade names, trademarks, and certain licenses), to hire and dismiss employees, to file all applicable registrations with government authorities, and to coordinate with third parties in connection with technical development and production.

The Company agreed: (1) to manage Qinfeng’s assets and production lawfully; if production is unreasonably interrupted continually more than two months, Qinfeng may terminate the Agreement and hold the Company responsible for all resulting losses; (2) to be responsible for payment of all taxes and fees, except taxes relating to housing and land and pre-existing taxes and fees; (3) to be responsible for the safeguard of Qinfeng’s assets and intangible assets; (4) to be responsible for the safety of production and annual safety production inspections; (5) to be responsible for the validation and registration of fertilizer licenses; (6) to be responsible for the maintenance of current facilities and new equipment if needed; (7) to be responsible for the purchase of workers’ compensation insurance; (8) to be responsible for the payment of wages and salaries; (9) to be responsible for all civil administrative and criminal charges in connection with the operation of Qinfeng’s assets that occur during the Term.

As consideration for entering into the agreement, the Company paid Qinfeng 1,200,000 RMB (approximately $185,664) on June 14, 2011. The $186,544 is included in prepaid expenses at June 30, 2011 and will be expensed evenly over the six months ending December 31, 2011. From January 1, 2012 to December 31, 2013, the Company must pay an aggregate of 2,400,000 RMB each year to Qinfeng, payable in installments of 1,200,000 RMB (approximately $185,664) due within the first 15 business days of January and July of each year.

During the term of the agreement, the Company has a right of first refusal to purchase any shares of Qinfeng owned by Qinfeng’s controlling shareholder on the same terms as those offered by the third party offeror. Upon the expiration of the Agreement, if Qinfeng decides to continue to lease, transfer or sell its operations, and if the Company’s performance under the Agreement has been satisfactory, the Company has a right of first refusal on the same terms as those offered by the third party offeror

F-19

Potential Acquisition of Land Use Rights

On October 21, 2009, Xinsheng received an approval letter from the Bureau of Foreign Trade and Economic Cooperation of Lantian County of Xinsheng’s application to purchase land use rights in Lantian County to establish “Xinsheng Centennial Industrial Zone”. Xinsheng intends to purchase the land use rights for 66 acres for a term of 30 years. The land use rights purchase cost is expected to be approximately $4,332,160 (28,000,000 RMB). In addition, the estimated cost for relocation of local dwellers is expected to be approximately $315,629 (2,040,000 RMB). As of the filing date of this Form 10-Q, the transaction has not yet been finalized due to the delay in processing by the local government.

PRC Risks

Substantially all of the Company’s business operations are conducted in the PRC and governed by PRC laws and regulations. Meixin and Xinsheng are generally subject to laws and regulations applicable to foreign investments and foreign-owned enterprises. Because these laws and regulations are relatively new, the interpretation and enforcement of these laws and regulations involve uncertainties.

The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of the PRC. The Company receives substantially all of its revenues in RMB, which is currently not a freely convertible currency. Under existing PRC foreign exchange regulations, payment of current account items, including profit distributions, interest payments and expenditures from the transaction, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate governmental authorities is required where RMB is to be converted into foreign currency and remitted out of the PRC to pay capital expenses, such as the repayment of bank loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions.

NOTE 17 – CONCENTRATION OF CREDIT RISK

The Company maintains cash balances that are held in five 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, 2011 and December 31, 2010, the Company’s uninsured cash balances were approximately $16,329,000 and $13,008,000, respectively.

F-20

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

The following discussion should be read in conjunction with our financial statements and notes thereto included elsewhere in this Form 10-Q .

Results of Operations

Three Months Ended June 30, 2011 as compared to the Three Months Ended June 30, 2010

Comparison of Sales for the Three Months Ended June 30, 2011 and 2010

In 2008, the Company launched a new sales and marketing initiative to establish a closer relationship with farmers through agricultural cooperatives located throughout the rural areas of China. One component of this initiative was called the “Super Chain Sales Partner Program”, which involves stores branded under the name of “Xinsheng Shiji” but owned and managed by third parties. The other was called “Direct Sales Stores”. The Direct Sales Stores were controlled and managed by the Company until December 2010. In December 2010, the Company outsourced the operation and ownership of the Direct Sales Stores to subcontractors who bear the risk of operations of the stores. Since both of the “super chain sales stores” and the “outsourced direct sales stores” were operated under the name of “Xinsheng Shiji”, we refer to these stores as the “Xinsheng Shiji” branded stores. There are approximately 630 branded stores as of June 30, 2011. The majority of branded stores are located in Shannxi Province (local province); others are located in Hunan and Sichuan provinces. For the three months ended June 30, 2011 and 2010, approximately 66% and 85%, respectively, of revenue was generated from our branded and outsourced direct sales stores, and approximately 34% and 15%, respectively, from traditional sales channels.

Sales by Sales Network	Three Months Ended June 30,
	2011				2010
	(Unaudited)				(Unaudited)
Branded sales stores	$	2,539,609	66.17	%	$	2,950,386	85.45	%
Traditional sales network		1,298,391	33.83	%		502,188	14.55	%
Total Sales	$	3,838,000	100.00	%	$	3,452,574	100.00	%

The revenue was $3,838,000 in the three months ended June 30, 2011, an increase of $385,426, or 11%, compared to $3,452,574 in the three months ended June 30, 2010. The revenue from branded stores was $2,539,609 in 2011, a decrease of $410,777, or 14%, compared to $2,950,386 in 2010. The decrease was attributable to the fact that the Company did not sell third party products in 2011. There was $2,351,597 of third party products sold in our branded sales stores in 2010. Starting in the first quarter 2011, we ceased selling third party products in our branded stores. The revenue from our traditional sales network was $1,298,391 in 2011, an increase of $796,203, or 159%, compared to $502,188 in 2010. The increase was attributable to the Company’s marketing efforts.

Comparison of Gross Profit for the Three Months Ended June 30, 2011 and 2010

Cost of goods sold for the three months ended June 30, 2011 was $1,185,054, a decrease of $1,059,876, or (47)%, compared to $2,244,930 in the comparable period of 2010. Gross profit was 69% for the three months ended June 30, 2011, an increase of 34 percentage points from 35% for the comparative period of 2010. The increase in gross profit margin was attributable to the changes in our sales mix. Starting from the first quarter of 2011, all of the Company’s sales were its branded products, compared to 68% third party products in the comparable period of 2010. The gross profit margin on the Company’s branded products is generally between 66% and 69%. The gross profit margin on third party manufactured products in our branded sales stores was generally approximately 20%.

Comparison of Net Income for the Three Months Ended June 30, 2011 and 2010

	2011			2010

Gross Profit	$	2,652,946		$	1,207,644

Selling and marketing		186,683			244,440
Professional fees		141,602			50,452
Depreciation and amortization expenses		22,302			15,014
Other general and administrative expenses		56,019			95,927
Total selling, general and administrative expenses		406,606			405,833
Income from operations		2,246,340			801,811
Interest income		11,748			5,715
Interest expense		(1,781	)		(54,305	)

Net Income	$	2,256,307		$	753,221

Selling and marketing

Selling and marketing expenses were $186,683 for the three months ended June 30, 2011, a decrease of $57,757, or 24%, compared to $244,440 in 2010. The reduction in selling and marketing expenses resulted from the outsourcing of our direct sales stores starting in the fourth quarter of 2010.

Professional fees

Professional fees consist of audit and review fees, legal and attorney fees, director fees and contracted professional service fees. Professional fees were $141,602 and $50,452 in 2011 and 2010, respectively. The increase in professional fees was mainly attributable to the $96,377 expense for stock option compensation for our chief financial officer and for an outside director. The total $392,755 estimated fair value of these stock options is being expensed evenly over the year ending December 31, 2011.

Other General and Administrative Expenses

Other general and administrative expenses generally included: wages and related benefits, research and development expenses, rent and utility expenses, office expenses, bad debt expense, travel and miscellaneous expenses. Other general and administrative expenses were $56,019 in 2011, a decrease of $39,908, or 42%, compared to $95,927 in 2010. The reduction in other general and administrative expenses was also attributable to the outsourcing of our direct sales stores starting in the fourth quarter of 2010.

Interest expense

Interest expense was $54,305 in 2010, which consisted of amortization of deferred financing costs of $24,444, amortization of fair value of warrants of $18,214, amortization of a beneficial conversion feature of $6,040 and loan interest of $5,607. These expenses were related to the convertible notes issued in September 2008 and repaid in 2010.

Net income

Net income for the three months ended June 30, 2011 was $2,256,307, an increase of $1,503,086, or 200%, compared to net income of $753,221 in 2010. The increase in net income primarily resulted from the successful outsourcing of our direct sales stores and an increase in sales of our own manufactured products.

Six Months Ended June 30, 2011 as compared to the Six Months Ended June 30, 2010

Comparison of Sales for the Six Months Ended June 30, 2011 and 2010

For the six months ended June 30, 2011 and 2010, approximately 68% and 84%, respectively, of revenue was generated from our branded and outsourced direct sales stores, and approximately 32% and 16%, respectively, was generated from traditional sales channels.

Sales by Sales Network	Six Months Ended June 30,
	2011				2010
	(Unaudited)				(Unaudited)
Branded sales stores	$	3,791,657	67.80	%	$	4,196,128	84.03	%
Traditional sales network		1,800,757	32.20	%		797,387	15.97	%
Total Sales	$	5,592,414	100.00	%	$	4,993,515	100.00	%

Revenue was $5,592,414 in the six months ended June 30, 2011, an increase of $598,899, or 12%, compared to $4,993,515 in the six months ended June 30, 2010. The revenue from branded stores was $3,791,657 in 2011, a decrease of $404,471, or 10%, compared to $4,196,128 in 2010. The decrease was attributable to the fact that the Company did not sell third party products in 2011. There was revenue of $3,222,351 from third party products sold in our branded sales stores in 2010. Starting in the first quarter 2011, we ceased selling third party products in our branded sales stores. The revenue from our traditional sales network was $1,800,757 in 2011, an increase of $1,003,370, or 126%, compared to $797,387 in 2010. The increase was attributable to the Company’s marketing efforts.

Comparison of Gross Profit for the Six Months Ended June 30, 2011 and 2010

Cost of goods sold for the six months ended June 30, 2011 was $1,747,525, a decrease of $1,362,523, or 44%, compared to $3,110,048 in the comparable period of 2010. Gross profit was 69% for the six months ended June 30, 2011, an increase of 31 percentage points from 38% for the comparable period of 2010. The increase in gross profit margin was attributable to the changes in our sales mix. Starting from the first quarter of 2011, all of the Company’s sales were its own branded products, compared to 65% third party products in the comparable period of 2010. The gross profit margin on the Company’s branded products is generally between 66% and 69%. The gross profit margin on third party manufactured products in our direct sales stores was generally approximately 20%.

Comparison of Net Income for the Six Months Ended June 30, 2011 and 2010

	2011			2010

Gross Profit	$	3,844,889		$	1,883,467

Selling and marketing		285,075			397,559
Professional fees		309,213			95,202
Depreciation and amortization expenses		44,451			26,831
Other general and administrative expenses		101,717			181,500
Total selling, general and administrative expenses		740,456			701,092
Income from operations		3,104,433			1,182,375
Interest income		21,402			12,194
Interest expense		(3,562	)		(109,540	)

Net Income	$	3,122,273		$	1,085,029

Selling and marketing

Selling and marketing expenses were $285,075 for the six months ended June 30, 2011, a decrease of $112,484, or 28%, compared to $397,559 in 2010. The reduction in selling and marketing expenses resulted from the outsourcing of our direct sales stores starting in the fourth quarter of 2010.

Professional fees

Professional fees consist of audit and review fees, legal and attorney fees, director fees and contracted professional service fees. Professional fees were $309,213 and $95,202 in 2011 and 2010, respectively. The increase in professional fees was mainly attributable to the $196,377 expense for stock option compensation for our chief financial officer and for an outside director. The total $392,755 estimated fair value of these stock options is being expensed evenly over the year ending December 31, 2011.

Other General and Administrative Expenses

Other general and administrative expenses generally included: wages and related benefits, research and development expenses, rent and utility expenses, office expenses, bad debt expense, travel and miscellaneous expenses. Other general and administrative expenses were $101,717 for the six months ended June 30, 2011, a decrease of $79,783, or 44%, compared to $181,500 for the comparable period of 2010. The reduction in other general and administrative expenses was also attributable to the outsourcing of our direct sales stores starting in the fourth quarter of 2010.

Interest expense

Interest expense was $109,540 in 2010, which included amortization of deferred financing costs of $49,524, amortization of fair value of warrants of $36,635, amortization of a beneficial conversion feature of $12,149 and loan interest of $7,500. These expenses were related to the convertible notes issued in September 2008 and repaid in 2010.

Net income

Net income for the six months ended June 30, 2011 was $3,122,273, an increase of $2,037,244, or 188%, compared to net income of $1,085,029 for the six months ended June 30, 2010. The increase in net income primarily resulted from the successful outsourcing of our direct sales stores and an increase in sales of our own manufactured products.

Liquidity and Capital Resources

As of June 30, 2011, 86% of the Company’s assets consisted of cash and cash equivalents, compared to 85% as of December 31, 2010. As of June 30, 2011, our cash and cash equivalents amounted to $16,398,823, an increase of $3,245,082 compared to $13,153,741 as of December 31, 2010.

Net cash provided by operating activities was $2,941,170 and $1,074,143 for the six months ended June 30, 2011 and 2010, respectively. The increase resulted from the increase in net income of $2,037,244 in the six months ended June 30, 2011.

Net cash used in investing activities was $658 and $419,413 in the six months ended June 30, 2011 and 2010, respectively. During the first quarter of 2010, the Company acquired additional product rights for $118,000 (RMB 800,000) and related machinery and equipment from a vendor for $295,000 (RMB 2,000,000). The Company also spent $6,413 on other equipment.

The repayment for long-term debt was $4,867 and $4,471 for the six months ended June 30, 2011 and 2010, respectively.

Foreign currency translation

Xinsheng’s functional currency is the Chinese Yuan, or Renminbi (“RMB”). Our financial position and results of operations (reported in U.S. Dollars) are affected by changes in RMB exchange rates.

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 through the year ending December 31, 2011.

For purposes of comparison, had we been subject to the 25% tax, our cash provided by operating activities and net income for the six months ended June 30, 2011 and 2010 would each have been reduced by $862,354 and $331,201, respectively.

Private Placement of Convertible Notes and Warrants

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.

The notes matured two years from the date of issuance and bore interest at the rate of 3% per annum, which was payable annually in cash or in shares of common stock, subject to approval of the holder. Overdue interest was to bear interest at the rate of 15% per annum. Overdue principal was to bear interest at the rate of 8% per annum. The notes were 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 was subject to adjustment upon the occurrence of stock splits, combinations, dividends and subsequent offerings.

The Company had 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 Series 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 will not receive any Series D warrants, any shares underlying the Series C or Series D warrants, or any other securities.

On September 29, 2010, the maturity date of the Convertible Notes, the Company repaid the Notes principal of $500,000 together with the interest accrued on the Notes in the amount of $15,000.

Long-term Debt

Expansion plan

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 exercise of our outstanding stock options and warrants into shares of common stock would have a dilutive effect on our common stock, which could 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 exercise of our outstanding stock options and warrants could impact our stock price which could 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 and our business may be adversely affected.

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.

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 when: (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 amounts 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, 2011, the allowance for doubtful accounts totaled $9,519. It is equivalent to 5% of the balance of accounts receivable.

Long-Lived Assets

The Company has adopted Financial Accounting Standards Board (“FASB) Accounting Standards Codification (“ASC”) 350. ASC 350 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. ASC 350 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

In connection with the preparation of the quarterly report on Form 10-Q for the quarter ended June 30, 2011, our management, including our principal executive officer and principal financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures, which are defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2011.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the first fiscal quarter of 2011 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Not applicable to smaller reporting companies.

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

Effective January 1, 2011, the Company decided to grant stock options to its chief financial officer and to an outside director as part of their year 2011 compensation package. The number of options and specified terms were formalized pursuant to a unanimous written consent of the Board of Directors dated May 16, 2011, whereby the Company granted 257,544 stock options to its chief financial officer and 171,696 stock options granted to an outside director. The exercise price of the options was $1.16, the market closing price at May 13, 2011. These stock options expire on May 16, 2014. The issuance of options was exempt in accordance with the terms of Regulation D promulgated under the Securities Act of 1933, as amended.

As of June 30, 2011, none of the stock options had been exercised into common stock.

Item 3. Defaults Upon Senior Securities

None.

Item 4. [Removed and Reserved]

Item 5. Other Information

None.

Item 6. Exhibits.

(b) Exhibits

Exhibit No.		Description
31.1	*	Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	*	Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit No.		Description
32.1	*	Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

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.

	CHINA AGRI-BUSINESS, INC.

Date: August 15, 2011	By:	/s/ Liping Deng
	Liping Deng, President and Chief Executive Officer (Principal Executive Officer)

Date: August 15, 2011	By:	/s/ Xiaolong Zhou
	Xiaolong Zhou, Chief Financial Officer (Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit No.		Description
31.1	*	Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	*	Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	*	Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Filed herewith.

China Agri-Business, Inc. 10-Q