UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
WASHINGTON, D.C. 20549
 
FORM 20-F
 
(Mark One)
 
o
 
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
þ
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2005
 
OR
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
o
 
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report……………………
 
For the transition period from ___________ to ___________.
 
Commission file number: 000-51576
 
Origin Agritech Limited
 
(Exact name of Registrant as specified in its charter)
 
Not Applicable
(Translation of Registrant’s name into English)
 
British Virgin Islands
(Jurisdiction of incorporation or organization)

 
No. 21 Sheng Ming Yuan Road, Chanping District, Beijing 102206, China
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.
 
     
Title of each class
 
Name of each exchange on which registered
None
 
None
 
Securities registered or to be registered pursuant to Section 12(g) of the Act.
 
Ordinary Shares
 
_______________________________________________________
(Title of Class)
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 18,203,193 ordinary shares.
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 
o Yes
þ  No
 
If this report is an annual or transaction report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 

 
o Yes
þ  No
 
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.

 
þ Yes
o  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.

Large accelerated filer  o
Accelerated filer  þ
Non-accelerated filer  o  
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 
o Yes
þ  No
 
Indicate by check mark which financial statement item the registrant has elected to follow:

o  Item 17
þ  Item 18
 
 
 
2
 
ORIGIN AGRITECH LIMITED
 
TABLE OF CONTENTS
 
   
 
INTRODUCTION
 
PART I
   
Item 1.
Identity of Directors, Senior Management and Advisers
 
Item 2.
Offer Statistics and Expected Timetable
 
Item 3.
Key Information
 
Item 4.
Information on the Company
 
Item 5.
Operating and Financial Review and Prospects
 
Item 6.
Directors, Senior Management and Employees
 
Item 7.
Major Shareholders and Related Party Transactions
 
Item 8.
Financial Information
 
Item 9.
The Offer and Listing
 
Item 10.
Additional Information
 
Item 11.
Quantitative and Qualitative Disclosures About Market Risk
 
Item 12.
Description of Securities Other than Equity Securities
 
 
 
 
PART II
   
Item 13.
Defaults, Dividend Arrearages and Delinquencies
 
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
 
Item 15.
Controls and Procedures
 
Item 16A.
Audit Committee Financial Expert
 
Item 16B.
Code of Ethics
 
Item 16C.
Principal Accountant Fees and Services
 
Item 16D.
Exemption from the Listing Standard for Audit Committees
 
Item 16E.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
 
 
 
 
PART III
   
Item 17.
Financial Statement s
 
Item 18.
Financial Statements
 
Item 19.
Exhibits
 

 

EX-1.1
Memorandum and Articles of Association of Origin Agritech Limited re-registered under the new Business Companies Act of the British Virgin Islands as of July 10, 2006.
EX-4.2
Form of Employee Share Option Agreement of Origin Agritech Limited.  
EX-4.16
Form Equity Transfer Agreement between Beijing Origin and shareholders of Denong Zhengcheng Seed Co., Ltd. pursuant to which Beijing Origin acquired 52.21% equity interest in Denong Zhengcheng Seed Co., Ltd.
EX-4.17
Equity Transfer Agreement between Beijing Origin and Jilin Academy of Agriculture Science dated as of December 6, 2005.  
EX-4.18
Equity Transfer Agreement between Beijing Origin and China National Center for Biotechnology Development dated as of December 28, 2004.  
EX-4.19
Capital Contribution Agreement.
EX-4.20
New Corn Seed Liyu 35 Joint Development Agreement between Beijing Origin and Shijiazhuang Liyu Technology Development Co., Ltd.  
EX-4.21
Joint Development Agreement between Beijing Origin and Corn Research Institute of Li County dated January 31, 2002.
EX-4.22
Joint Development Agreement between Beijing Origin and Corn Research Institute of Li County dated January 9, 2003.
EX-4.23
Technology Transfer and Cooperation Agreement Concerning a New Corn Hybrid Yuyu 20.
EX-4.24
Renminbi Capital Loan Contract .
EX-4.25
Mortgage Contract.  
 
3
 
EX-4.26
Form of Hybrid Corn Seed Sales Contract.
EX-8.1
List of subsidiaries.
EX-12.1
CEO CERTIFICATION
EX-12.2
CFO CERTIFICATION
EX-13.1
CEO CERTIFICATION PURSUANT TO SECTION 906
EX-13.2
CFO CERTIFICATION PURSUANT TO SECTION 906

4

INTRODUCTION
 
Except where the context otherwise requires and for purposes of this annual report only:
 
 
·
 
“we,” “us,” “our company,” “our” the “Company” and Origin refer to Origin Agritech Limited and, in the context of describing our operations, also include our PRC operating companies: Beijing Origin Seed Limited, Changchun Origin Seed Technology Development Limited, Henan Origin Cotton Technology Development Limited and Beijing Origin State Harvest Biotechnology Limited;  
         
 
·
 
“shares” and “ordinary shares” refer to our ordinary shares, “preferred shares” refers to our preferred shares;
 
         
 
·
 
“China” or “PRC” refers to the People’s Republic of China, excluding Taiwan, Hong Kong and Macau;
 
         
 
·
 
“Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China; and
 
         
 
·
 
all references to “Renminbi,” “RMB” or “yuan” are to the legal currency of China, all references to “U.S. dollars,” “dollars,” “$” or “US$” are to the legal currency of the United States. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.
 

FORWARD-LOOKING INFORMATION
 
This annual report on Form 20-F contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. All statements other than statements of historical fact in this annual report are forward-looking statements. These forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “estimate,” “plan,” “believe,” “is /are likely to” or other similar expressions. The forward-looking statements included in this annual report relate to, among others:
 
·  
our goals and strategies, including how we effect our goals and strategies;
 
·  
our expectations for our future business development, business prospects, results of operations and financial condition;
 
·  
expected changes in our margins and certain costs or expenditures;
 
·  
our future pricing strategies or policies;
 
·  
our plans to expand our business operations and product offerings;
 
·  
expected changes in the respective shares of our revenues from particular sources;
 
·  
competition in the crop seed industry in China;
 
·  
the future development of the crop seed industry in China;
 
·  
our plans for staffing, research and development and regional focus;
 
·  
PRC governmental policies relating to the crop seed industry; and
 
·  
other “forward-looking” information.
 
We believe it is important to communicate our expectations to our stockholders. However, there may be events in the future that we are not able to predict accurately or over which we have no control. The risk factors and cautionary language discussed in this annual report provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations in these forward-looking statements, including among other things:
 
5
 
·  
changing interpretations of generally accepted accounting principles;
 
·  
outcomes of government reviews, inquiries, investigations and related litigation;
 
·  
continued compliance with government regulations;
 
·  
legislation or regulatory environments, requirements or changes adversely affecting the businesses in which we and our PRC operating companies are engaged;
 
·  
fluctuations in customer demand;
 
·  
management of rapid growth;
 
·  
intensity of competition from other providers of crop seeds;
 
·  
timing of approval and market acceptance of new products;
 
·  
general economic conditions; and
 
·  
geopolitical events and regulatory changes.
 
These forward-looking statements involve various risks, assumptions and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, we cannot assure you that our expectations will turn out to be correct. Our actual results could be materially different from and worse than our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in Item 3.D of this annual report, “Key information — Risk Factors” and elsewhere in this annual report.
 
This annual report also contains information relating to the crop seed market. This market data includes projections that are based on a number of assumptions. The crop seed market may not grow at the rates we project, or at all. The failure of this market to grow at the projected rates may have a material adverse effect on our business and the market price of our shares. In addition, the relatively new and rapidly changing nature of the genetically modified crop seed industry subjects any projections or estimates relating to the growth prospects or future condition of our markets to significant uncertainties. Furthermore, if any one or more of the assumptions underlying the market data turns out to be incorrect, actual results may differ from the projections based on these assumptions.
 
The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. You should not place undue reliance on these forward-looking statements, and you should read these statements in conjunction with the risk factors disclosed in Item 3.D of this annual report.
 
All forward-looking statements included herein attributable to us or other parties or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable laws and regulations, we undertake no obligations to update these forward-looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.
 
PART I
 
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS  
 
Not Applicable.
 
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE  
 
Not Applicable.
 
6
 
ITEM 3. KEY INFORMATION  
 
A. Selected financial data .
 
The following selected consolidated financial information has been derived from our consolidated financial statements. You should read the following information in conjunction with those statements and Item 5, “Operating and Financial Review and Prospects.” The summary consolidated statements of operations and comprehensive income data of the Company for the years ended December 31, 2003, 2004 and 2005 and the summary consolidated balance sheet data of the Company as of December 31, 2004 and 2005 set forth below are derived from, and are qualified in their entirety by reference to, the audited consolidated financial statements of the Company, including the notes thereto, which are included in this annual report. The summary statement of operations data for the years ended December 31, 2001 and 2002, and the summary balance sheet data as of December 31, 2001, 2002 and 2003 set forth below are derived from audited consolidated financial statements of the Company not included herein.
 
Our consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.   
 
   
For the year ended December 31,
 
   
2001
 
2002
 
2003
 
2004
 
2005
 
(in thousand, except share data)
 
RMB
 
RMB
 
RMB
 
RMB
 
RMB
 
US$(1)
 
Consolidated statement of operations and comprehensive income (loss) data:
 
 
 
 
 
 
 
 
 
 
 
 
 
Net revenues
   
75,056
   
98,717
   
191,645
   
301,520
   
207,291
   
25,687
 
Cost of revenues
   
(50,341
)
 
(46,006
)
 
(118,977
)
 
(178,313
)
 
(129,162
)
 
(16,005
)
Gross (loss) profit
   
24,715
   
52,711
   
72,668
   
123,207
   
78,129
   
9,682
 
Selling and marketing
   
(8,900
)
 
(6,480
)
 
(13,310
)
 
(20,390
)
 
(27,037
)
 
(3,350
)
General and administrative
   
(8,742
)
 
(9,642
)
 
(18,948
)
 
(24,149
)
 
(28,983
)
 
(3,591
)
Research and development
   
(2,497
)
 
(5,372
)
 
(5,288
)
 
(6,774
)
 
(6,977
)
 
(865
)
Total operating expenses
   
(20,139
)
 
(21,494
)
 
(37,546
)
 
(51,313
)
 
(62,997
)
 
(7,806
)
other operating income
   
-
   
-
   
-
   
-
   
2,309
   
286
 
Income (loss) from operations
   
4,576
   
31,217
   
35,122
   
71,894
   
17,441
   
2,162
 
Interest income
   
134
   
440
   
845
   
371
   
886
   
110
 
Interest expenses
   
(172
)
 
(417
)
 
(483
)
 
(831
)
 
(1,829
)
 
(227
)
Other income (expense)
   
6,584
   
(606
)
 
1,137
   
149
   
300
   
37
 
Equity in earnings of associated company
   
-
   
-
   
-
   
1,925
   
879
   
109
 
Income (loss) before income taxes
   
11,122
   
30,634
   
36,621
   
73,508
   
17,677
   
2,191
 
Income tax
   
(3,232
)
 
(1,498
)
 
(7,808
)
 
(7,698
)
 
(1,405
)
 
(174
)
Income (loss) before minority interests
   
7,890
   
29,136
   
28,813
   
65,810
   
16,272
   
2,017
 
Minority interests
   
225
   
(2,575
)
 
138
   
(351
)
 
137
   
17
 
Net income (loss)
   
8,115
   
26,561
   
28,951
   
65,459
   
16,409
   
2,034
 
Dividends on preference shares
   
-
   
-
   
-
   
-
   
-
   
-
 
Income (loss) attributable to ordinary shareholders
   
8,115
   
26,561
   
28,951
   
65,459
   
16,409
   
2,034
 
Net income per share:
                         
Basic
   
-
   
-
   
2.90
   
6.55
   
1.52
   
0.19
 
Diluted
   
-
   
-
   
2.90
   
6.55
   
1.46
   
0.18
 
Shares used in computation:
                         
Basic
   
-
   
-
   
10,000,000
   
10,000,000
   
10,786,719
   
10,786,719
 
Diluted
   
-
   
-
   
10,000,000
   
10,000,000
   
11,220,157
   
11,220,157
 

 
7
  
   
For the year ended December 31,  
 
   
2001  
 
2002  
 
2003  
 
2004  
 
2005  
 
(in thousand)  
RMB  
 
RMB  
 
RMB  
 
RMB  
 
RMB  
 
US$  
 
Consolidated balance sheet data:
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
   
37,308
   
78,698
   
49,221
   
68,848
   
237,828
   
29,471
 
Current working capital(2)
   
5,333
   
12,782
   
10,186
   
51,897
   
149,610
   
18,538
 
Total assets
   
97,434
   
257,388
   
307,257
   
416,384
   
798,769
   
98,981
 
Deferred revenue
   
4,784
   
74,764
   
65,296
   
37,921
   
181,583
   
22,501
 
Total current liabilities
   
77,212
   
205,158
   
227,768
   
273,002
   
499,616
   
61,911
 
Total liabilities
   
77,212
   
208,031
   
230,640
   
275,874
   
504,368
   
62,500
 
Minority interests
   
510
   
3,271
   
3,184
   
3,534
   
3,234
   
401
 
Total shareholders’ equity
   
19,712
   
46,086
   
73,433
   
136,976
   
291,167
   
36,080
 
 
(1)
 
Translations of RMB amounts into U.S. dollars were made at a rate of RMB8.0702 to US$1.00, the noon buying rate in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York on December 30, 2005.
     
(2)
 
Current working capital is the difference between total current assets and total current liabilities.
 
Exchange Rate Information  
 
We have published our financial statements in U.S. dollars. Our business is primarily conducted in China and revenues are denominated in Renminbi. Periodic reports will be made to shareholders and will be expressed in U.S. dollars using the then-current exchange rates. The conversion of Renminbi into U.S. dollars in this annual report is based on the noon buying rate in The City of New York for cable transfers of Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, for years ended December 31, 2003, 2004 and 2005, all translations from Renminbi to U.S. dollars in this annual report were made at RMB8.2769, RMB8.2765 and RMB8.0702 per $1.00, respectively, which were the prevailing year end rates for those three years. The prevailing rate on June 30, 2006 was $1.00 to RMB7.9943. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes controls over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade.
 
8
 
The People’s Bank of China sets and publishes daily a base exchange rate. Until July 21, 2005, the People’s Bank of China set this rate with reference primarily to the supply and demand of Renminbi against the U.S. dollar in the market during the prior day. Beginning on July 21, 2005, the People’s Bank of China has set this rate with reference primarily to the supply and demand of Renminbi against a basket of currencies in the market during the prior day. The People’s Bank of China also takes into account other factors such as the general conditions existing in the international foreign exchange markets. Although governmental policies were introduced in the PRC in 1996 to reduce restrictions on the convertibility of Renminbi into foreign currency for current account items, conversion of Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or security, requires the approval of the State Administration for Foreign Exchange and other relevant authorities.
 
The following table sets forth various information concerning exchange rates between the Renminbi and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this annual report or will use in the preparation of our periodic reports or any other information to be provided to you. The source of these rates is the Federal Reserve Bank of New York.  
 
   
  Average(1)
 
High
 
Low
 
Period-end
 
   
(RMB per .$1.00)
 
2001
   
8.2770
   
8.2786
   
8.2676
   
8.2766
 
2002
   
8.2770
   
8.2800
   
8.2669
   
8.2800
 
2003
   
8.2770
   
8.2800
   
8.2772
   
8.2769
 
2004
   
8.2770
   
8.2773
   
8.2765
   
8.2765
 
2005
   
8.1826
   
8.2765
   
8.0702
   
8.0702
 
                           
2006
                 
January
   
8.0654
   
8.0702
   
8.0596
   
8.0608
 
February
   
8.0512
   
8.0616
   
8.0415
   
8.0415
 
March
   
8.0350
   
8.0505
   
8.0167
   
8.0167
 
April
   
8.0143
   
8.0248
   
8.0040
   
8.0165
 
May
   
8.0131
   
8.0300
   
8.0005
   
8.0215
 
June
   
8.0042
   
8.0225
   
7.9943
   
7.9943
 
 
(1)
 
Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant period.
 
B. Capitalization and indebtedness.  
 
Not Applicable.
 
C. Reasons for the offer and use of proceeds.  
 
Not Applicable.
 
D. Risk factors.
 
Risks relating to our business
 
9
 
If we do not manage our growth successfully, our growth and chances for continued profitability may slow or stop.
 
We have expanded our operations rapidly during the last several years, and we plan to continue to expand with new seed products and distribution outlets. This expansion has created significant demands on our administrative, operational and financial personnel and other resources, particularly our need for working capital. Additional expansion in existing or new markets and new lines of business could strain these resources and increase our need for capital, which may result in cash flow shortages. Our personnel, systems, procedures, controls and existing space may not be adequate to support further expansion.

We have a short operating history and are subject to the risks of any new enterprise, any one of which could limit growth and product and market development.

Our short operating history makes it difficult to predict how our businesses will develop. Accordingly, we face all of the risks and uncertainties encountered by early-stage companies, such as:
 
·    uncertain growth in the market for, and uncertain market acceptance of, our products and services;
 
·    the evolving nature of the crop seed business in the PRC, where significant consolidation is likely to occur, leading to the formation of companies better able to compete with us than is currently the case; and
 
·    the risks of competition, technological change or evolving customer preferences could harm sales of our products or services.

If we are not able to meet the challenges of building our businesses and managing our growth, the likely result will be slowed growth, lower margins, additional operational costs and lower income.

The profitability of our businesses will decrease if we do not continue to find and market products considered valuable by Chinese farmers.
 
The profitability of our seed business depends on recurring and sustained reorders. Reorder rates are inherently uncertain due to several factors, many of which are outside our control. These include changing customer preferences, competitive price pressures, failure to develop acceptable new products, development of higher quality products by competitors and general economic conditions.
 
We are currently dependent on licensed seed products for the majority of our revenues, and if we lose the right to produce and sell licensed seeds, we will lose substantial revenues and suffer substantial losses.

The revenue related to licensed hybrid seeds for, 2003, 2004 and 2005 was $23,155,319, $35,933,245, $24,314,206 respectively. Licensed hybrid seeds accounted for 100% of the total seed revenue in 2003, 98.97% of the total seed revenue in 2004, and 93.97% of the total seed revenue in 2005. There were no revenues related to internally developed proprietary hybrid seeds in 2002 and 2003. The amount of revenue related to internally developed proprietary hybrid seeds in 2004 was $375,929, which accounted for 1.03% of the total 2004 seed revenue, while the amount of revenue related to proprietary hybrid seeds in 2005 was $1,558,883, which accounted for 6.03% of the total 2005 seed revenue. We sell a majority of seeds developed and produced under our license agreements with the Corn Research Institute Li County, Hebei Province (now Shijiazhuang Liyu Technology Development Co., Ltd.) and the Henan Agricultural University, representing respectively 48.19% and 35.3% of sales in 2003, 58.64% and 13.2% of sales in 2004, and 49.79% and 16.42% of sales in 2005. If we are not able to develop and produce the licensed seed products or if the current license agreements are terminated, we will suffer a substantial loss of revenue and will suffer substantial business losses. Our financial condition and results of operations may be materially and adversely affected.

We or our licensors may be subject to intellectual property infringement claims, which may force us to incur substantial legal expenses and, if determined adversely against us or our licensors, may materially disrupt our business.
 
We cannot be certain that our licensed or self-developed proprietary seed products do not or will not infringe upon intellectual property rights held by third parties. We or any of our licensors may become subject to legal proceedings and claims from time to time relating to the intellectual property of others. If we or our licensors are found to have violated the intellectual property rights of others, we may be required to pay damages and be enjoined from using such intellectual property, and we may incur new or additional licensing fees if we wish to continue using the infringing products, or be forced to develop or license alternatives. In addition, we may incur substantial expenses in defending against these third party infringement claims, regardless of their merit.
 
10
 
Due to our size and short operating history, we substantially depend on a few key personnel who, if not retained, could cause declines in productivity and profitability and loss of strategic guidance, all of which would diminish the prospects of the company and value to investors.

Due to our size and short operating history, our success depends to a large extent upon the continued service of a few executive officers and key employees, including:
 
·    Dr. Gengchen Han;
 
·    Yasheng Yang; and
 
·    Liang Yuan.

The loss of the services of one or more of these key employees could have an adverse effect on us and our PRC Operating Companies, as each of these individuals played and continues to play a significant role in developing and executing our overall business plan and maintaining customer relationships and proprietary technology systems. While none of these key personnel is irreplaceable, the loss of the services of any of these individuals would be disruptive to our business. We believe that our overall future success depends in large part upon our ability to attract and retain highly skilled managerial and marketing personnel. There can be no assurance that we will be successful in attracting and retaining such personnel on terms acceptable to them. Inadequate personnel will limit our growth, and will be seen as a detriment to our prospects, leading potentially to a loss in value for investors.

If we do not comply with applicable government regulations, we may be prohibited from continuing some or all of our operations, resulting in a reduction of growth and ultimately market share due to loss of competitive position.

Our revenue depends on receiving approval from the PRC government to market new seed hybrids that we are developing and will develop. In addition, there may be circumstances under which the approvals granted are subject to change without substantial advance notice, and it is possible that we could fail to obtain the approvals that we require to expand our business as we intend to do. The failure to obtain or to maintain such approvals would limit the number and quality of products that we would be able to offer. This reduction in product offerings would cause a reduction in the growth previously experienced and over time would result in loss of market share from the competitive pressures of seeds developed by others that would likely be better than our products.

Our single business line of crop seed development and production does not permit us to spread our business risks among different business segments, such that a disruption in our seed production or the industry would hurt the company more immediately and directly.

We operate mainly in the crop seed business. Without business line diversity, we will not be able to spread the risk of our operations. Therefore, our business opportunities, revenues and income could be more immediately and directly affected by disruptions from such things as drought and disease or widespread problems affecting the industry, such as the absence of farmer credit and payment disruptions and customer rejection of modified crop seeds. If there is a disruption as described above, our revenues and income will be reduced, and our business operations may have to be scaled back.

Natural disasters could damage seed production, in which event we will suffer a loss of production and will suffer consequential losses of revenues, market disruption and reputation, and there is no agriculture insurance in the PRC to cover loss of seed crops.

We produce our seeds using a network of approximately 10,000 farmers, which plant the crops and harvest the seeds for use as crop seeds for the next growing season. As a result, the source of supply for our seeds is subject to all of the risks associated with any agricultural enterprise, including widespread drought, pestilence or other natural disasters. While the use of such a large number of farmers provides some protection against a widespread failure of any particular crop, the majority of seed production farmers are located in just two provinces, making them subject to risks that are somewhat local in nature. We have attempted to manage this risk by obligating ourselves to pay the farmers who produce our seeds only for the quantity of seeds that they produce, thus limiting our expenses somewhat. We have also set up a storage system since 2003 attempting to manage this risk. However, in the event of a widespread failure of the seed crop, we would likely sustain substantial operating losses, due to both the fact that a significant portion of our expenses are fixed overhead and that the loss of a large portion of a seed crop would limit our revenues significantly. Although insurance to protect against such a risk is available in many jurisdictions, such insurance is not available in the PRC.

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We rely on our network of approximately 10,000 farmers for production of our seeds, and although our relationship with those farmers has been stable in the past, there are no assurances that those relationships will remain stable in the future, the result of which could limit the amount of seed products available to us for sale to customers and customer loyalty.

We believe we maintain a favorable relationship with the farmers in our seed production network by paying them a higher price for their crop seeds than they would receive by producing other crops for sale in the market. In addition, the large number of farmers on which we rely to produce crop seeds means that no one or even several of them can, acting independently, adversely and materially affect our business. However, events such as a shift in pricing caused by an increase in the value of food crops other than seed crops, increase in land prices or competition could disrupt the chain of supply. Any of these disruptions could limit the supply of seeds that we obtain, adversely affecting supply and thereby lowering revenues from the lack of product to sell. Such disruption could also damage distributor relationships and farmer loyalty to the brand if we cannot supply the quantity of seed expected from them.

The corn seed prices and sales volumes may decrease in any given year with a corresponding reduction in sales, margins and profitability.

During most of our brief existence, the corn seed market has been stable in the PRC, but in the past it was marked by periods of instability. In the future there may be periods of instability during which commodity prices and sales volume might fluctuate greatly. Commodities can be affected by general economic conditions, weather, disease and aspects of demand such as financing, competition and trade restrictions. Although we have followed a branded product strategy to differentiate our products from those of other crop seed producers, the crop seed market continues to behave as a commodity market. As a result, the price that we are able to demand for our seeds is somewhat dependent on the size of the supply of our seeds and the seeds of other producers. Therefore, the potential exists for fluctuation in supply, and consequently in price, in our own markets, even in the absence of significant external events that might cause volatility. As a result, the level of revenues that we receive in any given year is subject to change. Because decisions are made regarding the level of production prior to the time that the volume of orders and the market price for those orders is known, it is possible that we will have too much or not enough product available, each with the attendant impact on revenues, margins and profitability.

Our revenues depend on the ability of a large number of small farmers buying seed for cash because financing for purchases of this size and type is not available; therefore, if a substantial number of our customers become unable to pay for seed, our sales, revenues and profitability will decline.

We have a large and diversified customer base, with no single customer representing more than 1% of our revenues. The large customer base provides some protection against the loss of revenues due to the inability of a significant number of our customers paying for seed that has been previously ordered. However, the unavailability of credit for farmers in the PRC reduces the ability of those farmers to withstand the effects of difficult economic times. The lack of credit could prevent them from fulfilling their purchasing commitments with the result that our revenues and profitability would be reduced.

Competition, both domestic and foreign, may slow or reverse our recent rapid growth, which could result in a decrease in margins and cause an operating loss.

Competition may develop from consolidation within the Chinese seed industry and privatization of seed producers that are extensions of the county governments. A number of companies are developing using more efficient business models. Competition may develop from foreign seed producers who have high-quality products. As competition develops, we will expect our recent rapid growth to slow and will probably experience a reduction in margins. As marketing expenses increase, we may experience operating losses.
 
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Technological change in creating seed hybrids could adversely affect our business, causing a loss in business opportunities, market share and revenues.

We currently rely upon traditional methods of creating crop seed hybrids to develop new products. While these methods are highly effective, there has been an increase in the development of genetically modified agricultural products to increase the quality and quantity of crop yields. This new genetic technology is controversial, and it has not been widely accepted in many regions of the world, including the PRC. However, as the ability to use genetic modification to produce seeds that are superior to or less costly than those that we produce by traditional methods increases, the threat of competition from this source becomes more realistic. A number of factors that are difficult to predict, such as a shift among farmer and consumer attitudes making these kinds of products more or less acceptable, affect the extent to which this potential threat could affect our business prospects.

We are taking steps to respond to the competition risk presented by genetically modified agricultural products. We have commenced our own research and development efforts for genetically modified seeds, and we have entered into an agreement with a research institution in the PRC working on genetic modifications that give us the right to market the seeds they develop. However, there can be no assurance that these efforts will be successful in producing improved seed varieties that are able to compete with those produced by other genetically-modified seed producers.

If we do not comply with PRC regulations, we may not be able to operate our business or we may be fined, causing an adverse effect on our business, operations and revenues.

The PRC has many regulations relating to the seed business, including obtaining and maintaining operating licenses. Seed products also must be licensed and undergo a stringent review process before they may be sold in the PRC. Although we currently have all the necessary licenses, and we believe we are in compliance with applicable laws and regulations for our business, if we are not in compliance then we may be fined or lose the ability to sell a particular seed or operate our business altogether. If the fines are substantial or the ability to sell or operate is withdrawn, this will result in additional costs or the loss of revenues and perhaps our ability to continue as a business.

We may become a passive foreign investment company, or PFIC, which could result in adverse U.S. tax consequences to U.S. investors.   To be confirmed

Depending upon the value of our shares and the nature of our assets and income over time, we could be classified as a passive foreign investment company, or PFIC, by the United States Internal Revenue Service, or IRS, for U.S. federal income tax purposes. If we are classified as a “PFIC” in any taxable year in which you hold our shares and you are a U.S. investor, you would generally be taxed at higher ordinary income, rather than lower capital gain rates, if you dispose of shares at a gain in a later year, even if we are not a PFIC in that year. In addition, a portion of the tax imposed on your gain would be increased by an interest charge. Moreover, if we were classified as a PFIC in any taxable year, you would not be able to benefit from any preferential tax rate with respect to any dividend distribution that you may receive from us in that year or in the following year. Finally, you would also be subject to special U.S. tax reporting requirements.

We believe that we were not a PFIC for the taxable year 2005. However, there can be no assurance that we will not be a PFIC for the taxable year 2006 and/or later taxable years, as PFIC status is re-tested each year and depends on the facts in such year. For example, we would be a PFIC for the taxable year 2006 if the sum of our average market capitalization, which is our share price multiplied by the total amount of our outstanding shares, and our liabilities over that taxable year is not more than twice the value of our cash, cash equivalents, and other assets that are readily converted into cash. We could also be a PFIC for any taxable year if the gross income that we and our subsidiaries earn from investing cash exceeds the immediate capital needs of our active business is substantial in comparison with the gross income from our business operations.

While we will continue to examine our results under the PFIC tests, we cannot assure you that we will not be a PFIC for any future taxable year. For more information on the U.S. tax consequences to you that would result from our classification as a PFIC please see Item 10E, “Additional Information—Taxation — United States federal income taxation — U.S. Holders — Passive Foreign Investment Company.”
 
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Any diversion of management’s attention to matters related to acquisitions or any delays or difficulties encountered in connection with integrating acquired operations may have an adverse effect on our business, results of operations, and/or financial condition.

We have recently completed several acquisitions involving seed companies. These transactions are designed to contribute to our long-term growth. We must fit such acquisitions into our growth strategies to generate sufficient value to justify their cost. Acquisitions also present other challenges, including geographical coordination, personnel integration and retention of key management personnel, systems integration and the reconciliation of corporate cultures. Those operations could divert management’s attention from our business or cause a temporary interruption of or loss of momentum in our business and the loss of key personnel from the acquired companies.
 
Our business benefits from certain PRC government incentives. Expiration of, or changes to, these incentives could have a material adverse effect on our operating results.

The PRC government has provided various incentives to high-technology companies in order to encourage development of the high-technology industry. Such incentives include reduced tax rates and other measures. For example, Henan Origin is currently entitled to a preferential tax rate of 15% as a high technology company. Origin Biotechnology is also entitled to a preferential tax rate of 15% as a high technology company, and was exempted from income tax in 2005. As these tax benefits expire, the effective tax rate will increase, which could have a material adverse effect on our financial condition and results of operations. In addition, repeal of privileges granted by the Chinese government to the seed industry, such as subsidies, could adversely affect our earnings as well.
 
Efforts to protect our intellectual property rights and to defend against claims against us can increase our costs and will not always succeed; any failures could adversely affect sales and profitability or restrict our ability to do business.
 
Intellectual property rights are crucial to our business. We endeavor to obtain and protect our intellectual property rights where our products are produced. However, we may be unable to obtain protection for our intellectual property. Even if protection is obtained, competitors, growers, or others in the chain of commerce may raise legal challenges to our rights or illegally infringe on our rights, including through means that may be difficult to prevent or detect. In addition, because of the rapid pace of technological change, and the confidentiality of patent applications in some jurisdictions, competitors may be issued patents from applications that were unknown to us prior to issuance. These patents could reduce the value of our commercial or pipeline products or, to the extent they cover key technologies on which we have unknowingly relied, require that we seek to obtain licenses or cease using the technology, no matter how valuable to our business. We cannot assure you we would be able to obtain such a license on acceptable terms. The extent to which we succeed or fail in our efforts to protect our intellectual property will affect our costs, sales and other results of operations.
 
Our ability to estimate growers’ future needs, and match our production and the level of product at our distributors to those needs, has a significant effect on our sales.
 
Growers’ decisions are affected by market, economic and weather conditions that are not known in advance. Failure to provide distributors with enough inventory of our products will reduce our current sales. However, high product inventory levels at our distributors may reduce sales in future periods, as those distributor inventories are worked down. In addition, inadequate distributor liquidity could affect distributors’ ability to pay for our products and, therefore, affect our sales or our ability to collect on our receivables.
 
Deficient railway transportation capacity in the Northwestern China may result in the increase of our transportation related costs and thus adversely affect our business.

Our major production base is located at Linze County, Gansu Province, China. Seeds produced there are transported throughout China each year by means of railway, which is currently the most cost efficient way. With economic development and frequent flow of material, the North-West railway is obviously deficient in term of its transportation capability. As our volume of freight increases year by year, the seeds may have to be transported by other vehicles if the railway cannot guarantee the increasingly larger volume of freight. The production costs thus will grow accordingly with the increase of transportation costs, which will adversely affect our business.
 
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There are difficulties in managing the storage system, which may result in damage of seeds in storage and operating losses.

There is a high risk for seed storage, due to difficulty in management of moisture, temperature, humidity of storage condition, any failure of which may result in damage of seeds in store and operating losses.

Seasonal Sales changes of our main products result in cyclical changes of cash flow and operating activities, which may cause difficulties in our capital chain and have a material and adverse effect on our business operations.

The sales season of our main products lasts from September to June of the following year, and we essentially basically do not have any sales revenue from July to August, which results in cyclical changes of our cash flow and operating activities. From July to August in each year, our cash flow will be very limited, so that any failure in utilizing capital during this period may cause difficulties in our capital chain, and therefore may have a material and adverse effect on our business operations.

If we fail to maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud or restatement of previously reported financial results, and investor confidence and the market price of our shares may be adversely impacted.

We will become subject to Section 404 of the Sarbanes-Oxley Act of 2002 in the fiscal year ending December 31, 2006, which requires us set out a management report containing an assessment on our internal controls over financial reporting in our annual report. It also requires an independent registered public accounting firm attest to and report on management's assessment of the effectiveness of our internal controls over financial reporting. If we cannot implement the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner or with adequate compliance, our independent auditors may not be able to provide a written attestation as to the effectiveness of our internal controls over financial reporting and we may be subject to sanctions or investigation by regulatory authorities, such as the Securities and Exchange Commission. It could also result in the loss of investor confidence in us, in particular the reliability of financial statements, which in turn could harm the our business and negatively affect the market price of our shares. Furthermore, we may be required to incur significant costs for compliance with Section 404, and thereby increase our costs relative to our revenues and decreasing our operating margins.  

We have limited business insurance coverage in China.  
 
The insurance industry in China is still at an early stage of development. In particular, PRC insurance companies do not offer extensive business insurance products. As a result, we do not have any business liability or disruption insurance coverage for our operations in China. Any business disruption, litigation or natural disaster might result in our incurring substantial costs and the diversion of resources.

Risks relating to organization of our business and our structure

Three of the PRC Operating Companies will be controlled subsidiaries through stock consignment agreements rather than by direct ownership of shares, the terms of which may have to be enforced, which would require us to incur extra costs, create uncertainty as to ownership of the operating businesses involved and the possible loss of rights.

Under PRC law, foreign entities are not currently permitted to own more than 49% of a seed production company. In order to address those restrictions, We, a non-Chinese entity that cannot directly own the shares of three of the PRC Operating Companies, will instead hold the right to control such shares in all respects, including voting, dividends, nomination of directors, and corporate management, through stock consignment agreements executed by the owners of the stock of these companies. When the shares can be transferred, they will be transferred to us for no additional consideration.

There is the risk, however, that a consigning stockholder will not fulfill its obligations under the stock consignment agreement. In that event, we may need to resort to PRC courts to have our rights under the agreements enforced. Such enforcement will cause us to incur legal expenses. In addition, while a case is pending there will be uncertainty regarding our rights as to the PRC Operating Companies involved. In addition, a PRC court may decide not to enforce the agreements in part or at all. To the extent these agreements are neither observed nor enforced as intended, the PRC Operating Companies will not be controlled by us as intended, which will affect our value and restrict our ability to obtain the income and other rights of ownership associated with the consigned stock. It may also prevent the consolidation of our financial statements with the PRC Operating Companies, which would reduce the reported earnings of the consolidated companies. The uncertainty of ownership may also affect the market value of the company.
 
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Whether or not a consignment agreement is terminated depends on the consensus of our board and the consignees, the result of which termination would be a possible loss of some rights or assets held by us without receiving fair value in return.

The consignment agreements relating to our control of the stock of three of our PRC Operating Companies (not including Origin Biotechnology) may be terminated after three years upon mutual agreement between us and the consignees. Three of the consignees, Messrs. Han, Yang and Yuan, also serve as our officers and/or directors. These three persons own, in the aggregate, 8,619,350 shares of our common stock, or about 37% of our issued and outstanding common stock. Holding such amount of stock will allow them to control or greatly influence the selection of directors and matters submitted to a vote of our stockholders. One of the things they could vote to do is terminate the consignment agreements.

There are corporate protections in place to protect our interests, such as an independent board of directors, an audit committee of independent directors that must approve insider transactions, a code of ethics requiring fair dealing with the Company, and the British Virgin Islands statutory provision that a disposition of more than 50% of the assets of a company must be approved by a majority of the stockholders. Moreover, if consigned stock is transferred to us as provided in the agreements when the restrictions under PRC law are lifted, that stock will thereafter not be subject to the consignment agreements, and the termination of the consignment agreements would then have no effect as to ownership of that stock. There are also legal protections for minority stockholders under PRC law. However, if the consignment agreements should be terminated, then we would lose our rights with respect to the consigned stock and profits of the issuing corporation. Such a loss would impair the value of the corporation and would reduce our ability to generate revenue.

The technical services agreements between Beijing Origin State Harvest Biotechnology Limited and the other three Operating Companies may be subject to scrutiny by the PRC tax authorities for transfer pricing adjustments.  

We also could face material and adverse tax consequences if the PRC tax authorities determine that our technical service agreements between Beijing Origin State Harvest Biotechnology Limited, or Origin Biotechnology, and the other three Operating Companies were not entered into based on arm’s length negotiations. If the PRC tax authorities determine that these agreements were not entered into on an arm’s length basis, they may adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. A transfer pricing adjustment could result in a reduction, for PRC tax purposes, or deductions recorded by the three PRC Operating Companies, which could adversely affect us by:

·  
increasing the three PRC Operating Companies’ tax liability without reducing Origin Biotechnology’s tax liability, which could further result in late payment fees and other penalties to our PRC operating companies for under-paid taxes; or

·  
limiting Origin Biotechnology’s ability to maintain preferential tax treatments and government financial incentives, which, if the transfer pricing adjustment is significant, could result in Origin Biotechnology failing to qualify for those preferential tax treatments and government financial incentives.

     As a result, any transfer pricing adjustment could have a material and adverse impact upon our financial condition.

There are government regulations that limit or prohibit foreign investment in the PRC, which may restrict our growth.

Although there is a general restriction on foreign investment in the seed industry in the PRC, our corporate structure enables us to receive foreign investment, those restrictions notwithstanding. Our continued ability to receive foreign investment may be important to our ability to continue to expand our business rapidly and to manage that expansion effectively. There is no way to be certain that a change in the regulations allowing us to receive foreign investment will not occur, which could disrupt our plan to expand our business.
 
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Risks relating to the PRC

Adverse changes in political and economic policies of the PRC, including its policy of reforming its economic system, could have a material adverse effect on the growth of private businesses in the PRC such as ours.

Since the late 1970’s, the PRC has been reforming its economic system and changing from a planned economy based on governmental dictates and priorities to one that uses market forces to influence deployment of economic resources, labor and capital and to determine business endeavors. It is impossible to predict whether or not the government will continue to encourage economic liberalization and further release its control over the economy and encourage private enterprise. We also cannot predict the timing or extent of future economic reforms that may be proposed. Any reimposition of planned economy regulation or similar kinds of restrictions could reduce the freedom of private businesses to operate in a profitable manner, restrict inflows of capital or stifle investor willingness to participate in the PRC economy. To the extent we need additional capital, any restrictions on foreign ownership, foreign investment and repatriation of profits will hamper our ability to find capital outside of the PRC.

The economy of China has been experiencing unprecedented growth, leading to some inflation. If the government tries to control inflation by traditional means of monetary policy or returns to planned economic techniques, our business will suffer a reduction in sales growth and expansion opportunities.

The rapid growth of the PRC economy has historically resulted in high levels of inflation. If the government tries to control inflation, it may have an adverse effect on the business climate and growth of private enterprise in the PRC. An economic slow down could have an adverse effect on our sales and may increase costs. If inflation is allowed to proceed unchecked, our costs would likely increase, and there can be no assurance that we would be able to increase our prices to an extent that would offset the increase in our expenses.

A return to profit repatriation controls may limit our ability to pay dividends, expand business and reduce the attractiveness of investing in PRC business opportunities.

PRC law allows enterprises owned by foreign investors to remit their profits, dividends and bonuses earned in the PRC to other countries, and the remittance does not require prior approval by the State Administration of Foreign Exchange, or SAFE. SAFE regulations require extensive documentation and reporting, some of which is burdensome and slows payments. If there is a return to payment restrictions and reporting, the ability of a PRC company to attract investors will be reduced. Also, current investors may not be able to obtain the benefits of the profits of the business generated in the PRC for other reasons. Relevant PRC laws and regulations permit payment of dividends only from retained earnings, if any, determined in accordance with PRC accounting standards and regulations. It is possible that the PRC tax authorities may require changes in determining income of the company that would limit its ability to pay dividends and make other distributions. PRC law requires companies to set aside a portion of net income to fund certain reserves, which amounts are not distributable as dividends. These rules and possible changes could restrict our PRC Operating Companies from repatriating funds to State Harvest and ultimately to us and our stockholders as dividends.
 
Any fluctuations in exchange rates could result in foreign currency exchange losses.

Because our earnings and cash from operations are denominated in Renminbi, fluctuations in exchange rates between U.S. dollars and Renminbi will affect our balance sheet and earnings per share in U.S. dollars. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. The People’s Bank of China sets and publishes daily a base exchange rate. Until July 21, 2005, the People’s Bank of China set this rate with reference primarily to the supply and demand of Renminbi against the U.S. dollar in the market during the prior day; beginning on July 21, 2005, the People’s Bank of China has set this rate with reference primarily to the supply and demand of Renminbi against a basket of currencies in the market during the prior day, and the People’s Bank of China also takes into account other factors such as the general conditions existing in the international foreign exchange markets. The PRC government may further adjust the exchange rate between the Renminbi and the U.S. dollar and other foreign currencies, and may further amend its policy of using a fixed-rate regime to govern foreign currency transactions, although the PRC government has not committed itself to take any such action currently. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue which will be exchanged into U.S. dollars, the value of any U.S. dollar denominated investments we make in the future and any earnings on such investments.
 
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 Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.  

Substantially all our revenues and expenses are denominated in Renminbi. We may need to convert a portion of our revenues into other currencies to meet our foreign currency obligations, including, among others, payment of dividends declared, if any, in respect of our ordinary shares. Under China’s existing foreign exchange regulations, our PRC subsidiary is able to pay dividends in foreign currencies, without prior approval from the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. However, we cannot assure you that the PRC government will not take measures in the future to restrict access to foreign currencies for current account transactions.

Foreign exchange transactions under the capital account continue to be subject to significant foreign exchange controls and require the approval of PRC governmental authorities, including the SAFE. If our PRC Operating Companies borrow foreign currency loans from us or other foreign lenders, these loans must be registered with the SAFE, and if we finance our PRC subsidiary by means of additional capital contributions, these capital contributions must be approved by certain government authorities including the Ministry of Commerce or its local counterparts. These limitations could affect the ability of our PRC subsidiary to obtain foreign exchange through debt or equity financing.

Recent PRC regulations relating to offshore investment activities by PRC residents may increase the administrative burden we face and create regulatory uncertainties that could restrict our overseas and cross border investment activity, and a failure by our shareholders who are PRC residents to make any required applications and filings pursuant to such regulations may prevent us from being able to distribute profits and could expose us and our PRC resident shareholders to liability under PRC law.

 SAFE recently promulgated regulations that require registration with local SAFE offices in connection with direct or indirect offshore investment by PRC residents, including PRC individual residents and PRC corporate entities. These regulations apply to our shareholders who are PRC residents and also apply to our prior and future offshore acquisitions. In particular, the SAFE regulations require PRC Residents to file with competent SAFE offices information about offshore companies in which they have directly or indirectly invested and to make follow-up filings in connection with certain material transactions involving such offshore companies, such as increases or decreases in investment amount, transfers or exchanges of shares, mergers or divisions, long-term equity or debt investments, or external guarantees, or other material events that do not involve return investment.
    
The SAFE regulations retroactively require registration by March 31, 2006 of direct or indirect investments previously made by PRC residents in offshore companies. If a PRC resident with a direct or indirect stake in an offshore parent company fails to make the required SAFE registration, the PRC subsidiaries of such offshore parent company may be prohibited from making distributions of profit to the offshore parent and from paying the offshore parent proceeds from any reduction in capital, share transfer or liquidation in respect of the PRC subsidiaries. Further, failure to comply with various SAFE registration requirements described above could result in liability under PRC law for foreign exchange evasion.

Our major shareholders who are PRC residents, or whose shares are beneficially owned by PRC residents, have completed foreign exchange registration with the local foreign exchange bureau according to these SAFE regulations. As a result of the newness of the regulations and uncertainty concerning the reconciliation of the new regulations with other approval requirements, it remains unclear how the regulations, and any future legislation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We are committed to complying and to ensuring that our shareholders who are subject to the regulations comply with the relevant rules. However, we cannot assure you that all of our shareholders who are PRC residents will comply with our request to make or obtain any applicable registrations or approvals required by the regulations or other related legislation. The failure or inability of our PRC resident shareholders to receive any required approvals or make any required registrations may subject us to fines and legal sanctions, restrict our overseas or cross border investment activities, limit our PRC subsidiary to make distributions or pay dividends or affect our ownership structure, as a result of which our business operations and our ability to distribute dividend to you could be materially and adversely affected.
 
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If certain exemptions within the PRC regarding withholding taxes are removed, we may be required to deduct Chinese corporate withholding taxes from any dividends that are paid to us by the PRC Operating Companies which will reduce the return on investment.

Under current PRC tax laws, regulations and rulings, companies are exempt from withholding taxes with respect to dividends paid to stockholders of PRC companies outside the PRC. If the foregoing exemption is eliminated, we may be required to withhold such taxes, which will reduce our revenues as a parent company and the amount of retained earnings that may be distributed to our stockholders.

The PRC legal system has inherent uncertainties that could limit the legal protections available to you.

Nearly all of our assets and all of our operations are in the PRC. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but are not binding on subsequent cases and have limited precedential value. Since 1979, the PRC legislative bodies have promulgated laws and regulations dealing with such economic matters as foreign investment, corporate organization and governance, commerce, taxation and trade. However, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. The laws in the PRC differ from the laws in the United States and may afford less protection to our stockholders.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in the PRC based on United States judgments against us, our subsidiaries, our officers and directors and experts named in the annual report.

We are incorporated in the British Virgin Islands and our PRC Operating Companies are formed under PRC law. Substantially all of our assets are located in the PRC. In addition, most of our directors and executive officers reside within the PRC, and substantially all of the assets of these persons are located within the PRC. It may not be possible to effect service of process within the United States or elsewhere outside the PRC upon our directors, or executive officers and experts named in the annual report, including effecting service of process with respect to matters arising under United States federal securities laws or applicable state securities laws. The PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States and many other countries. As a result, recognition and enforcement in the PRC of judgments of a court in the United States and many other jurisdictions in relation to any matter, including securities laws, may be difficult or impossible. Furthermore, an original action may be brought in the PRC against our assets and our subsidiaries, our directors and executive officers and experts named in the annual report only if the actions are not required to be arbitrated by PRC law and only if the facts alleged in the complaint give rise to a cause of action under PRC law. In connection with any such original action, a PRC court may award civil liability, including monetary damages.

The recurrence of SARS in China, the potential outbreak of avian flue in China, or similar adverse public health developments, and concerns over the spread of these diseases in China and elsewhere may materially and adversely affect our business and operating results.

From December 2002 to June 2003, China and certain other countries experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or SARS. On July 5, 2003, the World Health Organization declared that the SARS outbreak had been contained. Since September 2003, however, a number of isolated new cases of SARS have been reported, most recently in central China in April 2004. During May and June of 2003, many businesses in China were closed by the PRC government to prevent transmission of SARS. Recently, concerns have been raised with respect to the spread of avian flu in various regions in China. Any recurrence of the SARS outbreak, outbreak of avian flu, or the development of a similar health hazard in China, may adversely affect our business and operating results. For instance, a recurrence of SARS, outbreak of avian flu or any other epidemic may lead to health or other government regulations requiring temporary closure of our business, or the businesses of our suppliers or customers, which will severely disrupt our business operations and have a material adverse effect on our financial condition and results of operations.
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Risks relating to our shares

There will be a substantial number of shares of common stock available for sale in the future which may increase volumes of common stock available and lead to a decline in the market price of the common stock.

The initial purchase price for the acquisition of State Harvest and its subsidiaries included 10,000,000 shares of common stock. These shares were not registered, and a substantial portion of them are held by insiders; therefore they are restricted. Commencing on November 8, 2006, one year after the consummation of the acquisition, these shares will become eligible for resale in the public market under SEC Rule 144 with limitations, and after two years some of these shares may become eligible for resale in the public market under SEC Rule 144(k). As a result, the number of shares available for sale will likely increase over time, which tends to reduce the market price of a stock.

If certain financial or financing objectives are achieved, the former State Harvest stockholders will be entitled to receive additional shares of our stock as contingent consideration for the acquisition of their stock, which would result in dilution and might have an adverse effect on the market price of our common stock.

Under the stock purchase agreement among Chardan, State Harvest and all the shareholders of the State Harvest, the former State Harvest stockholders are entitled to receive additional common stock if certain financial performance or financing targets are achieved. There is no obligation to register the stock after issuance. However, after being held for the appropriate periods, the common stock will be eligible for resale under Rule 144. If the additional stock is earned, it will significantly increase the number of shares of common stock outstanding. The issuance of this additional stock will have a dilutive effect on the stock already outstanding and may cause a reduction in the trading price of our common stock in the public market.

Voting control by executive officers, directors and other of our affiliates may limit investors’ ability to influence the outcome of director elections and other matters requiring stockholder approval.

Three of our executive officers and directors, Messrs. Han, Yang and Yuan own about 37% of our issued and outstanding ordinary shares. These three major shareholders may maintain significant control over the outcome of some corporate transactions or other matters submitted to our shareholders for approval, including the election of directors and the approval of other business transactions. This concentration of ownership could have the effect of delaying or preventing a change in our control or discouraging a potential acquirer from attempting to obtain control of us, which in turn could have a material adverse effect on the market price of our common stock or prevent stockholders from realizing a premium over the market price for their shares of our common stock. In addition, if our major shareholders chose to dispose of a material portion of our ordinary shares they hold, the prevailing market price of our securities may decline.

Certain provisions in our organizational documents may discourage our acquisition by a third party, which could limit your opportunity to sell your shares at a premium

Our memorandum and articles of association include provisions that could limit the ability of others to acquire control of us. Under those provisions, the board of directors has the power to issue preferred shares with such rights attaching to them as they decide and that this power could be used in a manner that would delay, defer of prevent a change of control of the Company. These provisions could have the effect of depriving you of an opportunity to sell your shares at a premium over prevailing market prices by discouraging third parties from seeking to acquire control of us in a tender offer or similar transactions.

As a result of the merger of Chardan with and into Origin, a British Virgin Islands company, and the issuance of shares in the acquisition of State Harvest, we qualify as a foreign private issuer and as a result are subject to reduced requirements with respect to the reporting of financial statements and other material events to our stockholders and the SEC.

As a foreign private issuer, we are obligated to file an annual report with audited financial statements and 6-K reports at such times as we release information to the public either voluntarily or pursuant to the laws of the British Virgin Islands or the PRC. Therefore, the regularity of financial and other information will be less than would be applicable to a domestic United States registered company under the rules and regulations of the SEC. Investors may not receive information on a timely basis, therefore increasing their risk of investment.
 
20
 
ITEM 4. INFORMATION ON THE COMPANY  
 
A. History and development of the company.  
 
Origin Agritech Limited, or Origin, was first incorporated as a company under the International Business Companies Act, 1984 (as amended) of the British Virgin Islands on February 10, 2005. In view of the passing into law of the BVI, Business Companies Act, 2004 (“BCA”), which will soon replace the International Business Companies Act, the Company   was re-registered on 10 July 2006 under the BCA.
 
Chardan China Acquisition Corp., or Chardan, the predecessor of Origin, was a blank check company organized as a corporation under the laws of the State of Delaware on December 5, 2003. Chardan was formed for the purpose of effecting a business combination with companies having operations based in China and significant growth potential. Initially, Chardan’s efforts were limited to organizational activities, completion of its initial public offering and the evaluation of possible business combinations opportunities. On March 22, 2004, Chardan successfully consummated an initial public offering of its equity securities from which it derived net proceeds of approximately $21,216,000. Chardan’s common stock, warrants to purchase common stock and units (each unit consisting of one share of common stock and two warrants to purchase common stock) were quoted on the Over-the-Counter Bulletin Board under the symbols CAQC for the common stock, CAQCW for the warrants and CAQCU for the units. Other than its initial public offering and the pursuit of business combination opportunities, Chardan was not engaged in any other business until December 2004.
 
On December 20, 2004, Chardan entered into a stock purchase agreement, or the Stock Purchase Agreement, with State Harvest Holdings Limited, or State Harvest, a company incorporated in the British Virgin Islands and all the stockholders of State Harvest. State Harvest was organized on October 6, 2004. On February 10, 2005, Chardan formed a wholly-owned subsidiary under the laws of the British Virgin Islands, under the name “Origin Agritech Limited” to effect a stock acquisition of State Harvest. Pursuant to the terms and conditions of the Stock Purchase Agreement, Chardan merged into Origin for the purpose of redomestication out of the United States, and immediately thereafter, Origin acquired all of the issued and outstanding stock of State Harvest, which acquisition included four controlled affiliated operating corporations, namely, Beijing Origin Seed Limited, or Beijing Origin, Changchun Origin Seed Technology Development Limited, or Changchun Origin, Henan Origin Cotton Technology Development Limited, or Henan Origin, and Beijing Origin State Harvest Biotechnology Limited, or Origin Biotechnology. All the four controlled operating corporations are organized under the laws of the PRC (these four companies are collectively referred to as the “PRC Operating Companies”).
 
On December 5, 2005, Origin sent out redemption notices to all of the holders of its issued and its outstanding callable common stock purchase warrants. The warrants were originally issued by Chardan in March 2004. As a result of the merger of Chardan into Origin, the warrants were exercisable into ordinary shares of Origin. The warrants were exercised for ordinary shares of Origin at $5.00 per warrant. Approximately 8,041,000 of the 8,050,000 warrants that were then issued and outstanding were exercised at a price of $5.00 per warrant through the redemption date of January 9, 2006. Holders of the few remaining warrants that were not exercised were paid $.01 per warrant and the warrants were extinguished. The gross proceeds received from this redemption were approximately $40 million, of which $15 million was used to satisfy the outstanding obligations of Origin to the shareholders of State Harvest under the Stock Purchase Agreement, and remainder is used as working capital and for other corporate purposes, including future acquisitions. After the redemption of the warrants, Origin has approximately 23,472,410 common shares issued and outstanding.

As part of our efforts to expand our operations, we have made the following acquisitions:
 
In September 2004, the Company purchased a 30% equity interest in Shijiazhuang Liyu Technology Development Co., Ltd. from Yang Yasheng, one of the major shareholders of the Company, for RMB30,000. Shijiazhuang Liyu Technology Development Co., Ltd. is mainly engaged in research and development of new varieties corn seeds.
 
On August 4, 2005, Beijing Origin acquired a 7% interest in Biocentury Transgene (China) Co., Ltd., or Shenzhen Biocentury, a high-tech precursor in China's transgenic plant industry for $0.69 million. Together with the 8% interest Beijing Origin acquired in Shenzhen Biocentury in 2004, Beijing Origin holds 15% of Shenzhen Biocentury.
 
21
 
On December 6, 2005, Beijing Origin entered into a share transfer agreement with the Jilin Academy of Agricultural Sciences. Pursuant to the share transfer agreement, the Jilin Academy of Agricultural Sciences, or JAAS, will transfer 23% of equity interest in Jilin Jinong Hi-tech Limited, or Jinong, to Beijing Origin for RMB 21,879,900. Jinong is presently the commercial subsidiary of JAAS and focuses on the production and marketing of corn, rice and soybean seeds, as well as fertilizers and pesticides. Jinong is known for its large portfolio of proprietary rice and corn hybrids, having submitted 69 accepted proprietary rights applications to the Chinese central government and having 48 already approved. In addition, Jinong has an estimated 30% of the corn seed market in Jilin Province. Currently, this share transfer transaction is proceeding pursuant to procedures for the transfer of State-owned assets at Changchun Equity Exchange. We cannot guarantee that this transaction will be consummated in our favor or at all.
 
On January 16, 2006, Beijing Origin entered into agreements with certain shareholders of Denong Zhengcheng Seed Company, or Denong, to acquire 52.21% of equity interest in Denong for approximately $5 million. Denong is a developer, producer and marketer of hybrid rice, cotton and rape seed, principally in the southwest region of China.
 
On January 24, 2006, Beijing Origin and Jilin Jinong Hi-tech Limited, or Jinong, jointly established Jilin Changrong High-tech Seed Limited, or Jilin Changrong, with Beijing Origin owning 33.5% of Jilin Changrong. Jilin Changrong engages in the research, development, production, sale and distribution of hybrid corm rice in the northeast region China.
 
Our principal executive offices are located at No. 21 Sheng Ming Yuan Road, Changping District, Beijing 102206, China, and our telephone number is (86-10) 5890-7588.
 
Our principal capital expenditures for 2003, 2004 and 2005 consisted primarily of depreciation expenses of fixed assets, and costs and expenses relating to construction of manufacturing facilities that is currently in process   for a total of approximately $3.98 million, $3.29 million and $7.77 million, respectively.
 
We spent approximately $0.79 million, from January 1, 2006 to May 31, 2006, principally on constructing manufacturing facilities.
 
B. Business overview.  
 
Overview
 
We are one of the leading seed companies in China, specializing in the research, development, production, sale and distribution of hybrid crop seeds in China, currently including corn seeds, cotton seeds, and rice seeds. We conduct our business operations mainly through our PRC Operating Companies. Beijing Origin was our first PRC Operating Company. It was formed in Beijing in 1997, and began operations in 1998. Beijing Origin’s initial operations consisted of licensing existing proprietary hybrid corn seeds for development and production and commercial distribution of its first hybrid corn seed, YuYu 22.
 
We began to develop our own proprietary hybrid seed varieties in 1998. To date, we have five internally developed seed products that have been approved by the Ministry of Agriculture and that are in commercial production and distribution. Today, we develop, produce and sell both internally developed and licensed crop seeds in China, but we also continue to rely on licensed seeds from others. The majority of our revenues are from licensed seeds.
 
Our sales are concentrated mostly in the central, northwest, northeast and northern regions of China. We sell seed products mostly between September and June of the following year because the months of June through September of each calendar year are growing seasons in China. Our initial focus was on hybrid corn seed production and sales. In 2001, we expanded our business activities to include the production and sale of hybrid cotton seeds. We further expanded into the production and sale of rice seeds in 2004. Over the past three years, the numbers of varieties of our corn, cotton and rice seed products we have sold, licensed and internally developed were as follows:
 
22
 
Varieties of Seed Products:
 
Year
 
Varieties of Seed Products
   
Corn
 
Cotton
 
Rice
2003
 
17
 
3
 
0
2004
 
19
 
4
 
1
2005
 
29
 
8
 
2
 
Commercial Product Development  

We believes that we maintain a strict seed quality control system. We were the first Chinese seed company to gain ISO9001-2000 certification. This certification is important in China because it assures that a certain quality standard is present. Also, ISO certification means that a system for monitoring customer satisfaction is in place.

To maintain our position as a quality producer, we budgets approximately 5% our its gross revenues based on each prior year’s results on research and development. Because of the increase in our gross revenues, the actual amount spent in any year has generally been around 3% of gross revenues in that year. We spent RMB5,287,964 (US$638,913), RMB6,773,621 (US$818,416) and RMB6,977,000 (US$865,000) in each of the years ended December 31, 2003, 2004, and 2005, respectively.

We have established our own stable of seed production bases in Gansu, Inner Mongolia, Yunnan and Beijing by providing seed-producing farmers with technical training and field quality control practices. We believe that we have significant processing capability and use advanced equipment for efficiency and maintaining a high quality of hybrid seeds. By employing these practices, we believe that we have achieved a product quality on par with that of our foreign counterparts that is consistently well received by our customers.

We have relationships with several academic research institutions in China, including the Chinese Academy of Science, China Agricultural Academy of Science, Beijing Agricultural Academy of Science, Henan Agricultural University, Liaoning Agricultural Academy, Yunnan Agricultural Academy, Guizhou Agricultural Academy of Science and Jilin Agricultural Academy of Science. We have cooperated with these institutions through contractual research, partnering relationships and by joint-licensing various varieties of their hybrid seeds. Beijing Origin is 2.04% owned by Henan Agriculture University.

These relationships were important to us in our early stages to help us get started in the crop seed business, as they made available to us already developed and approved seeds that we could then put into production and distribution. As we have developed our internal capabilities to perform research and develop hybrid and genetically modified seeds, the importance of these relationships has diminished significantly, but they remain helpful to our continuing efforts to expand our product offerings and market share.

The development of the science of genetics has permitted the creation of new species of corn, rice and cotton, rather than just new varieties. Genetically modified, or GM, corn, soybean and cotton have been widely used in the United States and many other countries to guard against insect damage and to increase yields. The future potential for GM corn and rice in China exists. Since receiving Chinese government approval, genetically modified cotton to guard against borer damage is now widely planted. Because the Chinese market has widely accepted GM cotton and the Ministry of Agriculture is beginning to promote GM rice seed as well, we believe that GM products will eventually be fully promoted and accepted in the Chinese market. In response to these developments, we initiated our own biotech program in 2000 to ensure that our technology will be ready when the market is ready.

Once approval for distribution of a new seed is obtained, the producer must turn to commercial development of the seed variety. We do this by distributing the seed to our network of more than 10,000 farmers, each of whom plants the hybrid to produce seeds for commercial distribution the following season. This network of local farmers who produce our seeds is an important element of our strategy to produce an increasing number of products with consistent quality.

23

National Marketing and Distribution  

We have our own sales organization consisting of 137 persons that oversee all aspects of the distribution and retail sale network and promote the company sales to the expanding distribution chain.

We have established a nationwide distribution network with over 2,400 first-level distributors and over 50,000 second-level distributors and some retailers. The distributors in turn sell to the retailers and retailers sell to the farmers. This distribution network covers almost all the provinces of the PRC, excluding only Qinghai and Tibet.

The terms of our distributor agreements provide for territorial exclusivity on a designated product, usually on a county-wide basis. To enforce exclusivity and monitor product locations, we assign a code to each distributor and mark all packaging sent to the distributor with this code. Vigilant monitoring of territory integrity and enforcement of contractual penalties, which may include termination of distribution rights, provides stability and profitability within the distribution network, ensuring quality services and product availability. We believe that we enjoy a very positive reputation for our implementation and enforcement of this exclusive distribution system. Distributors buy our seeds at a wholesale price established by us and are required to make full payment prior to delivery. Distributors that place orders and make deposits on an order in the period August - October for sales to be made the following year are generally offered a discount. At the end of the annual sales season, we set a final sales price that often is below the suggested retail price. Normally, we will defer recognition of revenue from deposits until products have been delivered; the price is fixed or determinable; and collectibility is reasonably assured and the right of return has expired. The specific term of a distributor agreement varies depending on negotiations and the nature of the distributor and its prospective territory. There usually is an initial payment for the distribution right which is applied in whole or in part to future orders, depending upon compliance with the terms of the agreement. The agreement also delineates pricing adherence requirements and permissible discounting sales, territory, ordering and supply obligations, returns, market support and other regular business terms and dispute resolution provisions. No one distributor accounts for more than 1% of our sales.

On an annual basis, our sales team assists distributors in writing monthly sales plans. These sales plans are then submitted to us via facsimile 30 days prior to the required seed delivery dates. Every year during the harvest season, we organize corn production demonstrations in cooperation with local villages and seed distributors, to which are invited farmers and others in the seed distribution chain. At these demonstrations, our teams show their hybrid corn, explain planting techniques, discuss industry best practices and disseminate promotional materials. These marketing and production demonstrations help create new demand, not only in each village where demonstrations are held, but also in nearby villages, for both the current season and for succeeding years.

Our technical service department has a 24-hour toll-free number available for farmers and distributors, through which they can obtain solutions to specific technical problems and issues of seed piracy. If on-site help is required, a technical assistant will arrive on location within 48 hours of a call. We also enlist the help of our distributors to provide help and advice to farmers. We believe that our focus on customer service and technical support have helped it to build brand identity and loyalty, contributing to our total sales growth over the last several years.

Using local TV and radio broadcasts, we promote our brand to over 70% of our geographic market, reaching over fourteen million individual farmer households. Additionally, we publish a seasonal newspaper, “Origin News,” with a distribution to about twenty million farmers in which it addresses technical issues, shares success stories and further promotes the Origin brand. Origin maintains a database of over 1,000,000 farmers to track buying habits and contact information.

Product and technical service brochures are provided throughout the distribution network and have proved to be a valuable tool in promoting the sale of the corn seed product and the recognition of the Origin brand. Our slogan, “When buying seed, quality is paramount -- trust Origin,” appears on all promotional material, helping to build the brand in all the local markets.
 
Intellectual Property :

We currently have two patents and eleven trademarks, including two trademarks registered in 2005. The following table lists the two patents. The trademarks include names and artwork and are used in connection with our seed products and packaging. In addition, we have applied for one additional trademark, and the applications has been accepted and is now being reviewed by the Trademark Office of China’s State Administration for Industry and Commerce.

24
 
Table of Patents:
 
Patent
 
Name of Patent
 
Patent Number
 
Proprietor of Patent
Design
Patent
 
Packing
bag
 
ZL 993
14865.4
 
Beijing
Origin
Invention
Patent
 
A method of
producing
hybrid
corn seed
 
ZL
021465
10.X
 
Beijing
Origin *
Henan
Agriculture
University*
 
*
Henan Agriculture University and Beijing Origin share this patent relating to a proprietary method of producing hybrid corn seed. Both parties may use the method to produce seed and are not required to pay any sum to the other. Neither party has the right to allow a third party to use the patent. Those provisions are embodied in the patent and not in a separate agreement.

In 2004, we delivered two new proprietary seed products, and in 2005 we delivered another three new proprietary seed products. With our research, breeding system and management, we expect to have approximately 49 new proprietary products in the government testing and approval cycle in 2006.

The following table lists our self-developed proprietary seed products which have been approved by the Ministry of Agriculture:

Name of Variety
 
Name of Seed Product
 
Name of Proprietor
 
Date of Approval
AoYu 3202
 
Corn
 
Beijing Origin
 
June, 2005
AoYu 3007
 
Corn
 
Beijing Origin
 
April, 2005
AoYu 3111
 
Corn
 
Beijing Origin
 
April, 2005
AoYu 3102
 
Corn
 
Beijing Origin
 
September, 2004
AoYu 3101
 
Corn
 
Beijing Origin
 
March, 2004

In addition to the development of our own proprietary seeds, we have licenses to distribute seeds developed by independent research and development institutions which have no commercialization ability or distribution channels of their own. Currently, we have licenses to distribute twenty-three varieties of corn, three varieties of cotton seed and two variety of rice. Under a typical license agreement, one of the PRC Operating Companies will obtain the license in respect of a designated product for exclusive production and marketing within China. The license fees vary in their method of determination, but generally they are a percentage of revenues from the sale of the variety or a flat fee arrangement. No agreement either in the past or currently results in a payment in excess of 1% of our revenues. Beijing Origin has these types of agreements with Hubei Province Shiyan Agricultural Sciences Institute, China Academy of Sciences Microbiology Institute, Shijiazhuang Liyu Technology Development CO., Ltd. in Hebei Province, Henan Puyang Agricultural Academy, Tieling Agricultural Academy, Lining Benxi Agricultural Academy, Sichuang Agricultural Academy, Corn Research Institution of Beijing Agricultural Forestry Academy, Huafeng Seed Limited, Liaocheng Huafeng Corn Breeding Research Institution, Food Corn Research Institution of Yunnan Agricultural Academy, and Henan Agriculture University. Except for the agreement with Hubei Province Shiyan Agricultural Sciences Institute, which has a term expiring on January 10, 2008, these agreements generally have no fixed term or termination date. The agreements may be terminated for breaches by either party. We may terminate the agreements at any time, in effect, by not producing seeds thereunder, without penalty.

We have joint development agreements with the Shijiazhuang Liyu Technology Development CO., Ltd. , Hebei Province, or the Institute, under which we and the Institute are to develop several varieties of corn seed. Under these agreements, we have developed and produced six varieties of corn seed, which together have represented a substantial amount of sales in each of 2003, 2004 and 2005 as follows:

25
 
 
 
Varieties of Corn Seed
 
Percentage of
2003 Sales
 
Percentage of
2004 Sales
 
Percentage of
2005 Sales
 
LinAo1
   
49.00
%
 
50.50
%
 
21
%
AoYu 17
   
1.14
%
 
7.44
%
 
2.95
%
Liyu 16
   
0.00
%
 
0.11
%
 
26.01
%
AoYu 19
   
0.09
%
 
0.57
%
 
0
%
Liyu 26
   
0.00
%
 
0.02
%
 
0
%
Liyu35
   
0.00
%
 
0.00
%
 
0.00
%
Total
   
50.23
%
 
58.64
%
 
49.96
%

We have exclusive rights to producing and marketing of the seeds developed under the agreements until the agreements are terminated, and the Institute has agreed that it will not develop any derivative hybrids from these seeds. Moreover, the Institute will pay the government fees to protect our exclusive rights. We must promote the seeds licensed under the agreements and are obligated to pay RMB0.4 for each kilogram of seed we produce as a license fee, which has generally amounted to less than 4.01% of our cost of goods sold. The agreement has no termination date, hence it continues until the parties jointly agree to terminate or the breach of the agreement by one party or the other.

Only one corn seed product, YuYu 22, is licensed to us on a non-exclusive basis. The YuYu 22 variety is licensed from Henan Agriculture University for an indefinite term. The university has granted Beijing Origin the right to produce, distribute and propagate the variety. The university also will provide technical materials and instructions, supervise seed quality and evaluate growing areas. It will also pursue the PRC New Plant Variety Notification for YuYu 22. Beijing Origin pays a technology license fee of RMB20 for each mu (unit of area equivalent to .164 of an acre) of seed production area per year which has been less than 1% our cost of goods sold. Beijing Origin is responsible for all the propagation costs, maintaining quality standards, and safeguarding the variety reputation and rights of the university. The YuYu22 seed product represented approximately 37%, 13%, and 16.42% of our sales in each of the fiscal years 2003, 2004 and 2005, respectively. There is no fixed term or termination date for this agreement.

Except as discussed immediately above, no other seed products represented more than 10% of our sales in the past three years. In addition, except as disclosed above, no one entity is responsible for a seed product or group of seed products that represents more than 1% of our revenues.

As we develop and receive approval for our own seeds, the number of seeds with respect to which we obtain licenses from others will gradually decline. We do not believe that we are dependent on any single licensed seed product. The revenue related to licensed hybrid seeds for 2003, 2004 and 2005 was $23,155,319, $35,933,245, $24,314,206 respectively. Licensed hybrid seeds accounted for 100% of the total seed revenue in 2003, 98.97% of the total seed revenue in 2004, and 93.97% of the total seed revenue in 2005. There were no revenues related to proprietary hybrid seeds in 2002 and 2003. The amount of revenue related to proprietary hybrid seeds in 2004 was $375,929, which accounted for 1.03% of the total 2004 seed revenue, while the amount of revenue related to proprietary hybrid seeds in 2005 was $1,558,883, which accounted for 6.03% of the total 2005 seed revenue. We are currently dependent on licensed seeds for revenues, which presents the risk that if we should not have access to the license arrangements, our revenues would be decrease substantially, and we may incur losses.

The Chinese Crop Seed Market

The Chinese agricultural sector is primarily made up of small, family-oriented farms. Increasingly, corn is becoming an important crop in China because it has a number of uses, including as livestock feed and a source of fuel in the form of ethanol. In addition, rice is an important human food crop and cotton is an important industrial crop.

The Chinese agricultural seed industry is fragmented, with the corn seed market being served by approximately 5,000 small, local seed suppliers. Most of these seed companies were established in the 1960s and 1970s by local county governments to address Chinese central government agricultural initiatives. They were designed at the time to provide service and support to local farmers. These local seed providers usually sell varieties of agricultural seed that have been grown in their respective locales for years.

26

Improved seed products have been generally available in China through large multinational suppliers, the largest being Pioneer Hi-Bred International, Inc., or Pioneer, Monsanto Company, or Monsanto, and Sygenta AG, or Sygenta, each of which established operations in China more than a decade ago. These multinational companies, however, have not yet penetrated the Chinese market to any appreciable extent. For more discussions about competition, please see “Competition” of this Item 4.B below.

Origin was founded with a business strategy that would meet what it believes to be the needs of the small Chinese farmers. That business strategy consisted of the following elements:

(i)  
Relying on proprietary seed products, initially licensed and increasingly internally developed, to deliver superior value to customers;

(ii)  
Devising a process for obtaining regulatory approvals for new crop seeds (a Chinese legal requirement) that has proven efficient and effective;

(iii)  
Establishing a broad network of farmers in several regions to participate in the seed development process and to produce crop seeds for commercial distribution once approval is received;

(iv)  
Creating an effective distribution system using a relatively small network of primary distributors, only one in each county with exclusive territories, with which it can deal directly and efficiently which, in turn, develop their own secondary distribution network to reach out directly to the family farmers. This distribution network is not only a means for securing and fulfilling orders, but it acts as a conduit for our marketing and technical support activities.

(v)  
Relying on a number of marketing activities to retain existing customers and attract new ones. These marketing activities include:

 
-
a demonstration program that provides technical assistance to customers regarding the correct seed choice and proper cultivation methods;
 
-
television advertising and a newsletter published three times per year that reaches nearly 2 million seed customers and provides them with information on the benefits of our products and the techniques for maximizing yields;
 
-
a database of over 1 million customers that we use to keep repeat sales at a high level, an important component of revenue growth.

(vi)  
Delivering service and technical support to customers throughout the growing season for its products. Customers can contact us through a dedicated call center that handles up to1,000 calls per day. Field service representatives are dispatched within 48 hours of a customer’s request for help.

Competition  

We face competition at several different levels, ranging from several other private Chinese companies, local seed companies that are often extensions of the local government, and large multinational hybrid and genetically modified seed producers. We believe that we can compete effectively with each of these and believe that we can continue to do so into the future. Each of these groups of competitors is discussed in turn, below.

Other Large Chinese Seed Companies. We believe there are eight seed companies that control about 25% of the corn seed market of China. The majority of the largest crop seed companies have been in existence for considerably longer periods of time than we have. Many of them have greater financial resources than we do. Some of these larger entities are state owned enterprises. We compete within this group on the basis of our consistent product quality, brand identity, customer and technical support, enforcement of its intellectual property rights and a pipeline of proprietary products.

Local Seed Companies. The local seed companies in China are the legacy of the centrally planned agricultural economy that was predominant in China until recently. Most of these are, or were, affiliated with county governments, which played a role in determining what crops would be grown and by whom. As was often the case with planned economies, these extensions of the bureaucracy had no profit motive, and no incentive to improve efficiencies, increase sales or innovate with new products. Market expansion was limited by the tight geographic boundaries within which they were designed to operate.

27

The majority of these local companies lack the scale and the resources to compete with us in a number of ways. They lack access to the improved, proprietary hybrids that are the core of our business. For the most part they do not have effective marketing, advertising, technical support or customer service operations. The majority of our recent growth has come from acquiring customers from these operations. We believe that the existing trend will continue, and that eventually some of these smaller, local distributors can be integrated into our distribution network.

Multinational Seed Companies. At the opposite end of the competitive spectrum from the local seed companies are the large multinational companies, of which Pioneer , Monsanto and Sygenta are just three. These companies present a formidable competitive threat from the standpoint of their financial resources and the high quality of their seed products. However, the unique aspects of the Chinese crop seed market, which distinguish it from the market in western countries, have proven a significant barrier to entry for these very large companies, even though they have come to the market through joint ventures formed with existing Chinese seed companies.

The principal difference between the Chinese and Western markets is that in China a large number of low volume sales are made to local farmers, while in the West, relatively few sales of very large volumes make up the majority of product sales. As a result, success in China depends on marketing and distributing effectively to a very large number of small customers. Relatively few Chinese companies have achieved any degree of success in doing so, and the international competitors, despite several years of trying, have not succeeded to any meaningful degree.

Another important factor limiting the competitiveness of these multinationals within the PRC is their heavy reliance on genetically modified, or GM, seed products. Our market research indicates that most of the superior products that the multinationals have to offer are genetically modified. GM products have not yet achieved acceptance in China. To date, cotton seed is the only genetically modified seed product that has have received approval for sale in China.

We rely primarily on standard hybridizing techniques to produce our improved seed varieties for the Chinese marketplace. However, we recognize that genetically modified crop seeds will gain acceptance in China, and for that reason it has begun a biotech seed development program that relies on genetic modifications to improve the quality of seeds and their yields. As a result, we believe we are in a position to compete in the genetically modified portion of the seed market when it becomes meaningful to do so.

Should genetically modified seeds begin to gain broader acceptance in the market, as expected, the large biotech companies would become more serious competitors. However, they will also continue to face numerous obstacles in competing with us, including the significant lead time associated with obtaining approval of a new seed (usually at least six years) and the need to establish effective sales, marketing and distribution networks to manage the large volume of small purchases that is characteristic of the Chinese market.

Government Regulation  

We operate our business mainly in China under a legal regime that consists of the State Council, which is the highest authority of the executive branch of the PRC central government, and several ministries and agencies under its leadership, including:
 
 
·  
 
the Ministry of Agriculture;
 
·
 
the Ministry of Commerce ;
 
 
·
 
the State Administration of Industry and Commerce;
 
 
·
 
the State Administration of Foreign Exchange; and
 
 
·
 
the State Administration of Taxation.
 
 
28
 
The following sets forth a summary of significant regulations or requirements that affect our business activities in China and our shareholders’ right to receive dividends and other distributions from us.
 
Seed Law and Other Relevant Regulations
 
Participation in the crop seed business is a highly regulated activity in the PRC. In July 2000, China enacted its Seed Law, which became effective on December 1, 2000. The Seed Law was revised in August, 2004. The Seed Law sets forth provisions concerning the development, government approval, production, and distribution of crop seeds. Various provinces have enacted regulations to implement the Seed Law.

Under the Seed Law, for a company to enter the seed business, it must obtain two licenses. One is the production license, which is issued at the provincial level, entitling the holder to engage in seed production in that province. The production license specifies the types of seeds that may be produced, the location of the production of the seeds, and the term of the production license. The second is a license to distribute seeds. Generally, a distribution license is issued by the government at the county level or above. A seed company must obtain a provincial-level license to distribute major crop seeds in that province. A national level license is necessary for a seed company to distribute seeds nation wide. As described below, among others, the amount of the licensee’s registered capital determines if the distribution license is issued at the national or local level:
 
·  
to obtain a national distribution license, the licensee must have registered capital of at least RMB30 million (approximately $3,717,380);
 
·  
to obtain a provincial license to distribute hybrid seeds, the licensee must have registered capital of not less than RMB5 million (approximately $619,563); and
 
·  
to obtain a provincial license to distribute non-hybrid seed varieties, the licensee must have registered capital of not less than RMB1 million (approximately $123,913).
 
A separate license is required to import and export seeds. To obtain this license, the applicant must have minimum registered capital of RMB10 million (approximately $1,239,127).

We have a national distribution license, which entitles us to sell approved seeds in any province in the PRC.

In addition to the license(s) needed to engage in the seed production and distribution business, each seed must undergo a stringent regulatory review before it may be sold in China. A seed production company cannot receive a license to engage in seed production, regardless of the level of its registered capital, until it has secured rights to an approved seed product.

The testing of seeds for approval can be conducted at the provincial level or the national level. However, seeds that have been approved at the provincial level can only be distributed in the province in which the approval was issued. An approval at the national level means the approved seed can be distributed nationwide.

The procedure for provincial examination and approval requires the applicant to:
 
·  
Submit the application to provincial government;
 
·  
Go through two cycles of monitored growth in at least five different locations in the province. Seeds submitted for testing are planted together with control seeds, which is typically the most popular seed with farmers in the testing locations. Only seeds that have and increased yield of 8% or higher versus the control seeds and that rank in the top six among all seeds then being tested are cleared to proceed to the second year of testing, during which the results of the initial test season must be confirmed;
 
·  
Go through one successful cycle of trial production, also in at least five different locations. If successful, a provincial examination certificate is granted and a public announcement is made.
 
The procedure for national examination and approval requires the applicant to:

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·  
Submit the application to the Ministry of Agriculture;
 
·  
Go through two cycles of monitored production in at least five different locations. Only seeds that have 8% or higher yield compared to control seeds and that also rank in the top six among all seeds being tested in that cycle can proceed to the second year of testing; and
 
·  
Go through one successful cycle of trial production in at least five different locations.
 
Seeds developed outside of China must also follow the above procedures before they can be distributed in China.

The ability to process an application for approval is an important element of success, especially in view of the long timeframe associated with obtaining approval after the seed has been developed. Failures and delays in getting the approvals on a timely basis can seriously disrupt the planning that is critical to begin commercial production. A minimum of six years - three to obtain approval and three to develop the first crop of seed for commercial distribution - is required to bring a seed to market after it has been developed. Because of its extensive network of seed-producing farmers, we have been able to bring a new product to market consistently in the minimum time. Other seed companies often take an additional season or more to bring an approved product to market. This loss of an entire growing season can be a significant disadvantage.

Foreign Ownership Restrictions  

Currently, China restricts foreign ownership of businesses in the seed industry. Foreign ownership of businesses engaged in the development, production, marketing, distribution and sale of food crop hybrid seeds is limited to 49% pursuant to the “Regulation on the Approval and Registration of Foreign Investment Enterprises in Agricultural Seed Industry” and “The Foreign Investment Industrial Guidance Catalogue” (effective as of January 1, 2005).

Tax

PRC enterprise income tax is calculated based on taxable income determined under PRC accounting principles. In accordance with “Income Tax of China for Enterprises with Foreign Investment and Foreign Enterprises,” or the Income Tax Law, and the related implementing rules, foreign invested enterprises incorporated in the PRC are generally subject to an enterprise income tax rate of 33.0% (30.0% of state income tax plus 3.0% local income tax). PRC domestic companies are governed by the Enterprise Income Tax Laws of the PRC and are generally subject to an enterprise income tax rate of 33.0%.

State Harvest is a tax-exempted company incorporated in the British Virgin Islands. Our PRC Operating Companies Subsidiaries are incorporated in the PRC and governed by the PRC laws.
 
The applicable tax rate of the PRC enterprise income tax to Beijing Origin is 33% (30% of state income tax plus 3% local income tax). However, our PRC Operating Companies are entitled to a preferential tax rate of 15%.    

Pursuant to the Provisional Regulation of China on Value Added Tax (“VAT”) and their implementing rules, all entities and individuals that are engaged in the sale of goods, the provision of repairs and replacement services and the importation of goods in China are generally required to pay VAT at a rate of 17.0% of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayer. Pursuant to the Notice of the Ministry of Finance and the State Taxation Administration on Exempting the Value Added Tax for Agricultural Material, self-produced agricultural products sold by agricultural producers shall be exempt from VAT. Pursuant to an approval document received from Beijing Haidian District State Tax Bureau, Beijing Origin has been entitled to exemption from VAT since August 1, 2001.

Dividend Distribution

Under PRC law, foreign-invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting principles. In addition, a foreign-invested enterprise in China are required to set aside at least 10% of their after-tax profit based on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reach 50% of its registered capital. These reserves are not distributable as cash dividends. The board of directors of a foreign-invested enterprise has the discretion to allocate a portion of its after-tax profits to staff welfare and bonus funds, and expansion (development) fund which may not be distributed to equity owners except in the event of liquidation.

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We believe that we are currently in compliance with all applicable PRC laws and regulations relating to our business.

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C. Organizational structure.  
 
Origin is a holding company with no operations of its own. We conduct our operations in China primarily through our PRC Operating Companies. The following diagram illustrates our organizational structure as of June 30, 2006:
 
ORG LOGO
 
(1) We do not have any ownership interest in Beijing Origin, Henan Origin or Changchun Origin. Through State Harvest, we have entered into a series of stock consignment agreements with their respective shareholders. Han Gengchen (our CEO and Chairman), Yang Yasheng (our director and chief operating officer) and Yuan Liang (our Vice Chairman) currently own 34.4%, 28.675%, and 25.8% of Beijing Origin, respectively.
 
Stock Consignment Agreements  

Under Chinese law, foreign ownership of businesses engaged in the development, production, marketing, distribution and sale of hybrid food crop seeds is limited to 49% pursuant to the “Regulation on the Approval and Registration of Foreign Investment Enterprises in Agricultural Seed Industry” and “The Foreign Investment Industrial Guidance Catalogue.” State Harvest, as a non-Chinese corporation, may not directly own more than 49% of any of the PRC Operating Companies. However, Chinese law does not forbid the owner of stock to consign rights associated with the stock, as long as the owner does not transfer title to the stock.

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To gain control over the PRC Operating Companies (other than Origin Biotechnology, which State Harvest already directly owns entirely), State Harvest entered into a series of stock consignment agreements with shareholders of those companies. These agreements consign to State Harvest all of the rights of ownership of the shares involved other than legal title, effectively transferring the control of the shares subject to the agreements to State Harvest. Those rights include the right to manage in all respects the shares held in title by the stockholders that are parties to them, including all stockholder rights to call meetings of stockholders, to submit stockholder proposals, to elect directors, to vote the shares on all matters and to exercise all other rights of a stockholder in respect of the shares consigned. More specifically, the consignment agreements include giving the right to select, replace and increase the number of the directors, supervisors and recommend new directors and supervisory personnel and to exercise management rights, controlling rights and decision-making power over the shares or the subject company.

Each title holder of these shares has agreed not to interfere with State Harvest’s exercise of its rights and to cooperate fully and promptly to permit State Harvest to exercise its authority over the consigned shares. This includes all limitations on the ability of the consignee to transfer or dispose of the shares to someone other than State Harvest, give guarantees using the shares, consign the shares to another, alter the ownership proportion in any way, dispose of any rights in the ownership of the shares, and agree to any debt or restructuring of the shares. State Harvest has the right to take all action in respect of the consigned shares to avoid any damage or infringement of its rights, including in the event of the consigning stockholder’s bankruptcy. State Harvest, under the agreements, has virtually all property rights in the consigned shares, including the profits, interests, dividends, bonuses and residue assets, except for legal title. If in the future any stock subject to the consignment agreements can be legally transferred to State Harvest then, without further action by State Harvest, it shall be transferred to State Harvest in whole or in part for no additional consideration to the consigning stockholder.
 
As a result, if and when the restriction on foreign ownership of food production companies to 49% is removed or the percentage is increased, the consigned shares will then be transferred to State Harvest. If not, the consignment agreements continue in full force and govern State Harvest’s rights over the shares.

The agreements are subject to force majeure limitations. The term of the agreements is initially three years, but they are automatically renewed indefinitely until both State Harvest and the consignor agree to terminate. There is no unilateral right of termination except in the event of a breach, in which event the non-breaching party may cancel the consignment agreement after notice and a reasonable cure period has passed and the breach continues. The consigning stockholders have warranted their authority to enter into the agreements and that State Harvest has the exclusive rights to control the shares that are subject to the consignment agreements. The agreements are binding on the heirs of the respective consigning stockholders.

The importance of the stock consignment agreements is that State Harvest may consolidate the financial reporting of the PRC Operating Companies whose shares are subject to stock consignment agreements in the manner of wholly and majority owned subsidiaries and enjoy the economic benefits of such subsidiaries. Each stock consignment agreement is subject to enforceability and limitations of the laws and rules of PRC. State Harvest may not transfer the consignment agreement, except as permitted by PRC law, such that the consignee cannot do indirectly what the title owner cannot do directly. However, we may transfer our interest in State Harvest without limitation. If there is non-performance by the stockholder or some or all of an agreement is unenforceable, we and State Harvest may lose the benefits of the agreements and suffer severe economic loss as a result. No assurance can be given that State Harvest will be able to enforce its rights vis-à-vis the consigning stockholders in the courts of the PRC, and we are not aware of any cases where these types of stock consignment agreements have been interpreted by PRC courts.

Notwithstanding the foregoing, these agreements are enforceable under current PRC law. However, none of these kinds of agreements have yet been subject to judicial review or interpretation. The consignment agreements provide that if there is any interpretation of the terms by a PRC court, the agreements should be construed in such a way as to give State Harvest as much of the full and actual ownership and full beneficial rights and benefits of the consigned stock as is possible, so as to approximate full ownership under all applicable law.

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In the event that the consignment agreement is not enforced or is terminated because of a breach by State Harvest that is not cured, the right to the stock would be lost and the economic rights would be terminated. However, such a termination would not terminate the agreement to transfer technology to Origin Biotechnology, so notwithstanding the termination of a consignment agreement, State Harvest would continue to own the technology and intellectual property through Origin Biotechnology, its wholly owned subsidiary. Also, the termination of one stockholder’s consignment agreement does not cause the termination of any of the other consignment agreements, so it would only result in a reduction in consigned shares under State Harvest’s control.

The following is a table of the parties to the consignment agreements:

PRC Operating Company
 
Consigning Owner
 
% of Shares Consigned
 
Beijing Origin
   
Han Gengchen
   
34.4
%
     
Yang Yasheng
   
28.675
%
     
Yuan Liang
   
25.8
%
     
Zhao Yuping
   
3.995
%
     
Zhang Weidong
   
3.13
%
     
Chen Weicheng
   
1.96
%
           
97.96
%
Changchun Origin
   
Beijing Origin
   
99.0
%
     
Han Gengchen
   
1.0
%
           
100.0
%
Henan Origin
   
Beijing Origin
   
90.0
%
     
Zhang Yingli
   
4.08
%
     
Yang Yasheng
   
3.88
%
           
97.96
%

Technical Service Agreements
 
All of the intellectual property rights of Beijing Origin, Changchun Origin and Henan Origin have been transferred to Origin Biotechnology pursuant to technical service agreements dated December 25, 2004. The purpose of this was to permit the better management and licensing of the intellectual property that the three assignors have developed. Under the technical agreements, Origin Biotechnology will provide technical research and production and distribution services for the seeds produced by the group. These services include support in the research and development of agricultural seeds, analysis of breeding technologies, environment and feasibility suggestions, technical tutorials and breeding field supervision, market analysis and seed promotion, insect prevention and technical education to distributors and farmers. The initial term is for three years, but the agreements are automatically renewed unless both parties agree to a termination. The fees payable under the agreements are variable, depending on differing formulae for different categories of seeds. Generally, the fees will be as follows: RMB1.20 per kilogram of corn sold by the party receiving the technical services; RMB6 per kilogram of rice sold by the party receiving the technical service and RMB12 per kilogram of cotton sold by the party receiving the technical services. The fees are to be confirmed and paid at the end of each growing season.
 
D. Property, plant and equipment.  
 
Our principal executive offices are located in the Changping District in Beijing where we own approximately 10,320 square meters of office, and the right to use approximately 19,250 square meters of land. The land use right currently secures a n extendadable loan of RMB17 million from the China Construction Bank Beijing Shangdi Branch to Beijing Origin. We also own or lease manufacturing facilities, laboratories, seed production and other agricultural facilities, office space, warehouses, research stations and breeding centers in Gansu, Henan, Liaoning, Jilin, Hebei, Yunnan, Jiangsu, Shan’xi and Sichuan provinces, and in Daxing of Beijing. These facilities include approximately 220,000 square meters of land and approximately 30,000 square meters of office. The leased facilities are rented at regular commercial rates, and management believes other facilities are available at competitive rates should it be required to change locations or add facilities.

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We are in the process of constructing additional new facilities in Shenyang, Liaoning Province, including approximately 7,700 square meters of new office and approximately 19,999.98 square meters of seed processing plant. These facilities are scheduled to be completed by October 2006.

We believe that our existing facilities, together with our facilities under construction, are adequate to conduct our current and foreseeable future business operations.
 
 
The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included in this annual report on Form 20-F. This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect”, “anticipate”, “intend”, “believe”, or similar language. All forward-looking statements included in this annual report are based on information available to us on the date hereof, and we assume no obligation to update any such forward — looking statements. Actual results could differ materially from those projected in the forward — looking statements. In evaluating our business, you should carefully consider the information provided under the caption “Risk Factors” in this annual report on Form 20-F. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.  
 
A. Operating Results
 
Overview
 
We specialize in the research, development, production, sale and distribution of hybrid crop seeds, currently including corn seeds, cotton seeds, and rice seeds. We conduct our business operations mainly through our PRC Operating Companies in China. We develop, produce and supply both internally developed and licensed crop seeds to the Chinese agricultural market. Our initial focus was on hybrid corn seed production and sales. In 2001, we expanded our business activities to include the production and sale of hybrid cotton seeds. We further expanded into rice seeds in 2004. We have established our own stable of seed production bases in China. We provide seed producing farmers technical training and teach them field quality control practices. In addition to distributing and supplying seeds that are licensed from other parties, we also develop and supply internally developed seed products. We believe that genetically modified products will eventually be promoted and accepted in the Chinese market. In 2000, we initiated our own biotechnology research program that applies genetic modifications to improve the quality of seeds and their yields. We have a sales and marketing team of 137 employees. Our nationwide distribution network covers most parts of China, and consists of over 2,400 first-level distributors and over 50,000 second-level distributors and retailers. Our distributors sell our products to retailers who in turn sell to farmers, who are end-users of our products.
 
We recognize revenue after our products have been delivered to our distributors, when there is no right of return of our delivered products for refund or credit, and the sales price is determined and fixed. We deliver our products and receive payments on a relatively predictable schedule. First, we request and generally receive a cash deposit for our products, followed by a full pre-payment of the expected sales price. Then, we deliver products to our customers and receive confirmation of delivery. Finally, we set the final sales price of our delivered products to a customer based on the total volume of sales to that customer. This final price includes any end of the season discount we offer to our customers. As a result of our discount policy, we cannot set the final sales price of our products to a customer until the entire selling season has ended for that customer. Selling seasons vary among customers from region to region and from year to year, and generally start in September and end in June of the following year.
 
Due to the revenue recognition policies required by accounting rules, we do not count our cash receipts from a customer as revenue until the discount for such customer is fixed and determinable, even though we have received full pre-payment of the expected sales price from each customer and in most cases are entitled to retain a substantial portion of that payment. Instead, before delivery of our products we book our cash receipts as advances from customers. After delivery, we take into account the maximum amount of discount that a customer will receive, and estimate the minimum amount of our cash receipts that will be counted as revenue once the final sales price is fixed and determined and book that amount as deferred revenues. The recognition of deferred revenue as revenue takes place at the end of the selling reasons for our customers, when there is no right of return of our delivered products for refund or credit and the sales price of our products is fixed and determined. If final discounts offered to our customers are less than expected, then the amount added to revenue will actually be higher than the amount of our deferred revenue.
 
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Our fiscal year before July 2006 ended on December 31, and our selling seasons typically begin in September and end in June of the following year. Due to the way we recognize revenue, our reported revenues for any given fiscal year typically reflect sales generated from January to June of that fiscal year and sales generated from September to December of the prior year. Our deferred revenues for any given fiscal year typically reflect products delivered between September and December of that year.
 
In 2004, we confirmed final sales prices for a portion of our product deliveries between September and December of that year to customers principally located in the southwestern region of China, and realized that portion of the sales as revenue in 2004. As a result, our revenues for 2005 decreased approximately 31.25% to RMB207.29 million ($25.69 million) from RMB301.52 million ($36.43 million) in 2004, and our net income for 2005 decreased approximately 74.93% to RMB16.41 million ($2.03 million) from RMB65.46 million ($7.91 million) in 2004. At the same time, our deferred revenues for 2005 increased 378.85% to RMB181.58 million ($22.50 million) from RMB37.92 million ($4.58 million) in 2004.
 
The volume of our crop seeds delivered between July and December increased to 20.24 million kilograms in 2005 from 14.14 million kilograms for the same period in 2004, representing an increase of 43.14%. Our significant growth in product delivery during the second half of 2005 was attributable to a number of factors, including our substantial expansion in operations in the cities of Kunming, Xi’an and Xuzhou, as well as the introduction of our new hybrid corn seed product, Li Yu 16, in 2005.
 
On June 30, 2006, we changed our fiscal year-end from December 31 to June 30 starting from the fiscal year for 2006.
 
Key factors affecting our growth, operating results and financial condition
 
We expect our future growth, operating results and financial condition to be driven and affected by a number of factors and trends including:
 
·  
Our ability to manage the growth and expansion of the company, including our ability to attract and retain high quality professionals to help manage our growth. If we do not manage our growth effectively, our growth may slow and we may not be able to maintain profitability;
 
·  
Potential fluctuation in the demand for and supply of crop seeds in China;
 
·  
Our ability to continue to license or acquire crop seeds from third party developers and our ability to develop proprietary crop seeds;
 
·  
Future consolidations in the crop seed industry in China may give rise to new or strengthened competitors;
 
·  
The possibility that the crop seed industry in China may favor genetically modified seeds over hybrid seeds;
 
·  
The possibility of major natural disasters in China, which may have materially adverse impact on our business and results of operation, as there is currently no agriculture insurance available in China against natural disasters;
 
·  
Chinese government’s continuing support for the growth and development of the agriculture sector;
 
·  
Our benefits from certain government incentives including tax incentive and expiration of, or changes to, these incentives could have a material adverse effect on our operating results; and
 
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·  
Our ability to correctly estimate growers’ future needs, and match our product varieties and production levels to meet those needs.
 
Revenues
 
We derive revenues primarily from the sale of various crop seeds, including corn seeds, cotton seeds and rice seeds in China. The sale of corn seeds accounted for approximately 97.90% and 94.61% of our revenues in 2004 and 2005, respectively; the sale of cotton seeds accounted for 1.61% and 4.06% of our revenues in 2004 and 2005, respectively; and the sale of rice seeds accounted for 0.48% and 1.33% of our revenues in 2004 and 2005, respectively. The most significant factor that affects our sale of crop seeds in China is the demand for and supply of crop seeds in China’s agriculture market. As a result, the price we are able to demand for our seeds is mainly dependent on the aggregate supply of crop seeds in relation with crop seed demand in any growing season. Any potential fluctuation in the demand and supply of seeds in China may cause significant volatility in the pricing of crop seeds in China and, in consequence, in our operating results and financial condition. In addition, because decisions relating to our production volume are made before we know the volume of seed orders and the market price for such orders, we face the risk of either over-supplying the market or under-supplying the market, which could materially and adversely affect our revenues, profitability and operating results.
 
Deferred revenue
 
Because of the discount policy we offer to our customers, we sometimes carry a sizeable deferred revenue on our balance sheet. This deferred revenue r eflects the value of our crop seeds delivered after evidence of a sales arrangement is confirmed, delivery to the customer is made and full pre-payment from the customer is received, but before the final sales price is fixed and determined. This aspect of our revenue recognition policy does not have a significant effect when deferred revenues in the periods being compared remain roughly the same proportion to overall sales. However, when the proportion of our sales classified as deferred revenue varies significantly from year to year, as sometimes occurs, our revenues and earnings as reported in our financial statements may give an inaccurate indication of our financial performance, tending to understate revenues in years where the deferred revenue component is high and overstating revenues in the subsequent year. This potential for distortion in results from calendar year to calendar year is one of the principal reasons that we have chosen to change to a June 30 fiscal year. We believe this change will alleviate the potential for distortion on a fiscal year basis. However, the results being reported in this Form 20-F are calendar year results, and a large increase in deferred revenue for the year 2005 as compared to 2004 coincided with a decrease in revenues in 2005 when compared with 2004, even though our business expanded in 2005 in terms of volume of products delivered. Since a substantial portion of our deferred revenue will typically be recorded as revenue in the subsequent period, we believe deferred revenue is an important measure of our sales generated in the current reporting period.
 
For the year ended December 31, 2005, we had a deferred revenue of RMB181.58 million ($22.50 million) compared with RMB37.92 million ($4.58 million) in 2004. This increase of 378.85% reflects what we believe to be significant product delivery growth during the second half of 2005 when compared with the same period in 2004, even though our reported revenues in 2005 decreased 31.25% to RMB207.29 million (US$25.68 million) in 2005 from RMB301.52 million (US$36.43 million) in 2004.
 
The volume of our crop seeds delivered between July and December increased to 20.24 million kilograms in 2005 from 14.14 million kilograms for the period in 2004, representing an increase of 43.14%.
 
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Cost of revenues
 
Our cost of revenues consisted of expenses directly related to our crop seeds sales. Our cost of revenues primarily consists of the purchase prices for seeds, depreciation and amortization, shipping and handling cost, salary and compensation, supplies and rent.
 
Purchase price for seeds . The purchase price for seeds consists of the price we pay to farmers for the seeds we ask them to grow for us. The purchase price for seeds is the largest component of our cost of revenues and is likely to be our most variable element of our cost of revenues. Our purchase price for seeds is expected to increase (1) as our business continues to grow and if we enter into additional seed purchase arrangements with farmers, and (2) due to seed price increases we may experience in the future.
 
Depreciation and amortization . Depreciation consists of depreciation of property, plant and equipment. Amortization consists of amortization of our seed license fees.
 
Shipping and handling . Shipping and handling costs include costs associated with product delivery and handling.
 
Salary and compensation . Salary and compensation expenses include wages, bonuses and other benefits, including welfare benefits. Salary and compensation included in our cost of revenues relate to our production personnel. We expect that our salary and compensation expenses will increase in the future in conjunction with our intended growth .
 
Supplies . Supplies consist of supplies and packing cost for producing seeds.
 
Operating expenses
 
Our operating expenses consist of general and administrative expenses, research and development expenses, selling and marketing expenses and stock-based compensation expenses. Our operating expenses have increased as a percentage of revenues for 2005 primarily due to the distortions caused by our revenue recognition policies, which resulted in a significant portion of sales receipts from our product deliveries in 2005 being deferred into 2006. The increase in our operating expenses as a percentage of revenues is also attributable to the expansion of our business and the increase in the cost of professional services and other related costs associated with our being publicly listed in the U.S.
 
We expect our operating expenses will continue to increase for the foreseeable future, but the rate of such increase will depend primarily on our business needs, including efforts we may undertake to expand our business. We expect our operating expenses as a percentage of revenues will decrease in 2006 because we have changed our fiscal year-end from December 31 to June 30 and expect to be able to recognize most of our deferred revenues in 2005 as revenues in 2006.
 
General and administrative expenses . General and administrative expenses primarily consist of salary and compensation for our general management, finance and administrative personnel, rent, professional expenses and other expenses, including travel and other general business expenses, office supplies and general office furniture and equipment. We expect our general and administrative expenses to increase in 2006 and for the foreseeable future as we adopt SFAS 123(R) to recognize all share-based payments to employees including grants of employee stock options in our income statement based on the grant-date fair values commencing January 1, 2006. Among some of the general administrative expenses we expect to incur are expenses incurred in connection with our compliance with the Sarbanes-Oxley Act of 2002.
 
Research and development expenses . Our research and development expenses primarily consist of salary and compensation expenses of personnel engaged in the research and development of our proprietary crop seeds, rent and depreciation of plant and equipment attributable to our research and development efforts. We expect that our product development expenditures will remain relatively stable for at least the next twelve months, which we believe will be sufficient to meet our expected research and development needs during that period.
 
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Selling and marketing expenses . Our selling and marketing expenses primarily consist of salary and compensation for our sales and marketing personnel, transportation expenses and related marketing expenses. Growth in our selling and marketing expenses will depend on our market expansion. We expect to continue to increase our sales and marketing efforts in the foreseeable future, including our plan to hire additional sales and marketing personnel to focus on our new product promotion and market expansion.
 
Stock-based compensation expenses . In December 2004, the Financial Accounting Standards Board (“FASB” or the “Board”) issued Statement of Accounting Standards (“SFAS”) No.123(R), “Share-Based Payment”. SFAS No. 123(R) is a revision of SFAS No. 123, and supersedes Accounting Principal Board Opinion No. 25 (“APB 25”). Among other items, SFAS 123(R) eliminates the use of APB 25 and the intrinsic value method of accounting, and requires companies to recognize in the financial statements the cost of employee services received in exchange for awards of equity instruments, including stock option grants, based on the grant date fair value of those awards on the grant date. We adopted SFAS No. 123(R) effective for the year ended December 31, 2005. We expect that the adoption of SFAS 123(R) will result in additional amortization of stock--based compensation expense and an increase in our operating expenses for 2006.
 
Stock option plan and option agreements
 
Our stock option is granted under the Chardan China Acquisition Corp. 2005 Performance Equity Plan, which became the Origin Agritech Limited 2005 Performance Equity Plan (the “Plan”) by operation of law under the terms of our merger with Chardan China Acquisition Corp. We adopted the Plan in November 2005, under which we could issue share options with the right to purchase up to 1,500,000 ordinary shares to our directors, officers, employees, individual consultants and advisors. We granted options under the Plan with the right to purchase a total of 974,000 ordinary shares in 2005. We may in the future grant options to purchase up to an additional 526,000 ordinary shares under the Plan.

All of the options we granted in November 2005 have an exercise price of $8.75 per share and are exercisable for a term of 3-5 years starting from November 8, 2005. All of the options granted under the Plan to our directors and managers have a vesting period of three to five years. As of June 30, 2006, we had no options that were vested or immediately exercisable for ordinary shares. We recorded a total stock-based compensation expense of RMB774,000 ($96,000) for the year ended December 31, 2005.
 
Critical Accounting Policies
 
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions.
 
Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies that involve a high degree of judgment and the methods of their application. For a description of all of the company’s significant accounting policies, see Note 2 to Origin’s consolidated financial statements.
 
Revenue recognition.
 
We derive revenue primarily from the sale of various crop seeds, including corn seeds, cotton seeds and rice seeds in China. We recognize revenue when pervasive evidence of a sales arrangement exists, products are delivered, the price is fixed and determinable, collectibility is reasonably assured, and the right of return has expired. Accordingly, we defer revenue recognition until all sale return privileges lapse, which generally occurs within 15 days of delivery, and until the selling price has been finalized by our management and confirmation has been issued to the customer, which generally occurs at the end of our selling season. Because of the discount policy we offer to our customers, we sometimes carry a sizeable deferred revenue that r eflects the value of our crop seeds delivered after evidence of a sales arrangement is confirmed, delivery to the customer is made and pre-payments from the customer is received, but before the final sales price is fixed and determined at the end of the selling season. This aspect of our revenue recognition policy does not have a significant effect when deferred revenues in the periods being compared remain roughly the same proportion to overall sales. However, when the proportion of our sales classified as deferred revenue varies significantly from year to year, as sometimes occurs, our revenues and earnings as reported in our financial statements may give an inaccurate indication of our financial performance, tending to understate revenues in years where the deferred revenue component is high and overstating revenues in the subsequent year. This potential for distortion in results from calendar year to calendar year is one of the principal reasons that we have chosen to change to a June 30 fiscal year.
 
39
 
 
Impairment of long-lived assets.
 
We review our 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, we measure 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 asset and eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair market value of the asset is recognized.
 
Income taxes.
 
We record a valuation allowance to reduce our deferred tax assets to the amount that we believe is more likely than not to be realized. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of their recorded amount, an adjustment to our deferred tax assets would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax assets in the future, an adjustment to our deferred tax assets would be charged to income in the period such determination was made.
 
Stock-based compensation.
 
In preparing the consolidated financial statements for 2005, we adopted SFAS No. 123 (revised 2004), or SFAS No. 123(R), issued by the FASB in December 2004, to recognize all share-based payments to employees, including grants of employee stock options, in our income statement based on the grant-date fair values. Pro forma disclosure will no longer be permitted. As a result, if we grant stock options in the future, our reported earnings would be adversely affected.
 
Acquired intangible assets, net
 
Acquired intangible assets consist primarily of purchased technology rights and are stated at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the estimated useful lives of these assets of 5 to 10 years and records in cost of revenues.
 
Government subsidies
 
We receive government subsidies in the form of funds for research and development activities. These research and development subsidies reduce the costs of our research and development activities. We also receive subsidies in the form of land use subsidies. Land use subsidies are recorded against the costs of land use rights. These are recognized when received because there are no continuing obligations for their retention once received.
 
40
 
 
Results of Operations
 
The following table sets forth certain information relating to our results of operations, and our consolidated statements of operations as a percentage of revenues, for the periods indicated:
 
   
For the year ended December 31,
 
   
2001
 
2002
 
2003
 
2004
 
2005
 
   
in thousand RMB
 
as % of net revenue
 
RMB
 
as % of net revenue
 
in thousand RMB
 
as % of net revenue
 
in thousand RMB
 
as % of net revenue
 
in thousand RMB
 
as % of net revenue
 
Consolidated statement of operations and comprehensive income (loss) data:
                                                             
Revenues
   
75,056
   
100.00
   
98,717
   
100.00
   
191,645
   
100.00
   
301,520
   
100.00
   
207,291
   
100.00
 
Cost of revenues
   
(50,341
)
 
(67.07
)
 
(46,006
)
 
(46.60
)
 
(118,977
)
 
(62.08
)
 
(178,313
)
 
(59.14
)
 
(129,162
)
 
(62.31
)
Gross (loss) profit
   
24,715
   
32.93
   
52,711
   
53.40
   
72,669
   
37.92
   
123,207
   
40.86
   
78,129
   
37.69
 
                                                               
Selling and marketing
   
(8,900
)
 
(11.86
)
 
(6,480
)
 
(6.56
)
 
(13,310
)
 
(6.95
)
 
(20,390
)
 
(6.76
)
 
(27,037
)
 
(13.04
)
General and administrative
   
(8,742
)
 
(11.65
)
 
(9,642
)
 
(9.77
)
 
(18,948
)
 
(9.89
)
 
(24,149
)
 
(8.01
)
 
(28,983
)
 
(13.98
)
Research and development
   
(2,497
)
 
(3.33
)
 
(5,372
)
 
(5.44
)
 
(5,288
)
 
(2.76
)
 
(6,774
)
 
(2.25
)
 
(6,977
)
 
(3.37
)
Total operating expenses
   
(20,139
)
 
(26.83
)
 
(21,494
)
 
(21.77
)
 
(37,546
)
 
(19.59
)
 
(51,313
)
 
(17.02
)
 
(62,997
)
 
(30.39
)
                                                               
other operating income
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
-
   
2,309
   
1.11
 
                                                               
Income (loss) from operations
   
4,576
   
6.10
   
31,217
   
31.62
   
35,122
   
18.33
   
71,894
   
23.84
   
17,441
   
8.41
 
                                                               
Interest income
   
134
   
0.18
   
440
   
0.45
   
845
   
0.44
   
371
   
0.12
   
886
   
0.43
 
Interest expenses
   
(172
)
 
(0.23
)
 
(417
)
 
(0.42
)
 
(483
)
 
(0.25
)
 
(831
)
 
(0.28
)
 
(1,829
)
 
(0.88
)
Other income (expense)
   
6,584
   
8.77
   
(606
)
 
(0.61
)
 
1,137
   
0.59
   
149
   
0.05
   
300
   
0.14
 
Equity in earnings of associated company
   
-
   
-
   
-
   
-
   
-
   
-
   
1,925
   
0.64
   
879
   
0.42
 
Income (loss) before income taxes
   
11,122
   
14.82
   
30,634
   
31.03
   
36,621
   
19.11
   
73,508
   
24.38
   
17,677
   
8.53
 
Income tax
   
(3,232
)
 
(4.31
)
 
(1,498
)
 
(1.52
)
 
(7,808
)
 
(4.07
)
 
(7,698
)
 
(2.55
)
 
(1,405
)
 
(0.68
)
Income (loss) before minority interests
   
7,890
   
10.51
   
29,136
   
29.51
   
28,813
   
15.03
   
65,810
   
21.83
   
16,272
   
7.85
 
Minority interests
   
225
   
0.30
   
(2,575
)
 
(2.61
)
 
138
   
0.07
   
(351
)
 
(0.12
)
 
137
   
0.07
 
Net income (loss)
   
8,115
   
10.81
   
26,561
   
26.91
   
28,951
   
15.11
   
65,459
   
21.71
   
16,409
   
7.92
 
 
41
 
 
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
 
Revenues
 
Our revenues for 2005 decreased approximately 31.25% to RMB207.29 million (US$25.69 million) from RMB301.52 million ($36.43 million) in 2004. This decrease does not reflect a decrease in our business during 2005, which actually expanded based on volume of products delivered. For example, the volume of our crop seeds delivered between July and December increased to 20.24 million kilograms in 2005 from 14.14 million kilograms for the same period in 2004, representing an increase of 43.14%.
 
As noted under the discussions of Overview and Critical Accounting Policies above, revenue is recognized only after a sale is made and the price is fixed and determinable, which usually occurs at the end of a selling season. Until that occurs, the revenue associated with those sales is carried as deferred revenue. Our fiscal year before June 2006 ended on December 31, and our selling seasons typically begin in September and end in June of the following year. Due to the way we recognize revenue, our reported revenues for any given fiscal year typically reflect sales generated from January to June of that fiscal year and sales generated from September to December of the prior year. Our deferred revenues for any given fiscal year typically reflect products delivered between September and December of that year.
 
In 2004, we confirmed final sales prices for a portion of our product deliveries between September and December of that year to customers principally located in the southwestern region of China, and realized that portion of the sales as revenue in 2004. As a result, our revenues for 2005 decreased approximately 31.25% to RMB207.29 million ($25.68 million) from RMB301.52 million ($36.43 million) in 2004, while our deferred revenues for 2005 increased 378.85% to RMB181.58 million ($22.50 million) from RMB37.92 million ($4.58 million) in 2004.
 
In 2005, approximately 94.61% of our revenues were derived from sales of our corn hybrid seeds. Approximately 4.06% of our revenues were derived from sales of cotton seeds and 1.33% of revenues came from sales of rice seed. We anticipate that cotton seed and rice seed will represent an increasing share of our revenues in future periods.
 
Cost of revenues
 
The cost of revenues decreased by 27.56% to RMB129.16 million (US$16.00 million) in 2005 from RMB178.31 million (US$ 21.54 million) in 2004. This decrease was generally in line with a similar decrease in our revenues due to the effects of an increase in deferred revenue. This decrease also reflects an increase in our purchase price for seeds.
 
Gross profit
 
As a result of the foregoing, our gross profit for 2005 decreased approximately 36.59% to RMB78.13 million ($9.68 million) from RMB123.21 million ($14.89 million) in 2004.
 
Gross margin
 
As a percentage of total revenues, our gross margin was 37.69% in the year ended December 31, 2005, as compared with 40.86% in the year ended December 31, 2004. The decrease in gross margins was primarily due to an increase in purchase price for seeds in 2005.
 
Operating expenses  
 
Operating expenses increased by 22.78% to RMB63.00 million (US$7.81 million) in 2005 from RMB51.31 million (US$6.20 million) in 2004. The increase was due to a substantial increase in selling and marketing expenses and, to a lesser extent, due to an increase in general and administrative expenses.
 
42
 
 
Selling and marketing
 
Selling and marketing expenses increased by 32.60% to RMB27.04 million (US$3.35 million) in 2005 from RMB 20.39 million (US$2.46 million) in 2004. The increase in selling and marketing expenses was largely attributable to our build-up of sales and marketing capabilities in the cities of Kunming, Xi’an and Xuzhou in 2005, and the increase in our advertising expenditures and costs and expenses associated with other promotional activities.
 
General and administrative  
 
Our general and administrative expenses increased slightly to RMB28.98 million (US$3.59 million) in 2005 from RMB24.15 million (US$2.92 million) in 2004. This increase was primarily due to stock-based compensation expenses, merger related consulting fees, and auditing expenses that we incurred in 2005.
 
Research and development
 
Our research and development expense in 2005 was RMB6.98 million (US$0.87 million), and it remained relatively flat compared with our research and development expense of RMB6.77 million (US$0.82 million) in 2004.
 
Income from operations
 
As a result of the foregoing, we had income from operations in 2005 of RMB17.44 million (US$2.16 million), compared with income from operations of   RMB71.89 million ( US$8.69 million) in 2004. Our income from operations decreased 75.74% from 2004 to 2005 primarily due to the large deferred revenue we recorded in 2004, a substantial portion of which was recorded as revenue in 2005.
 
Interest expense
 
Interest expense increased by 120.05% to RMB1.83million (US$ 0.23million) in 2005 from RMB0.83 million (US$0.1 million) in 2004. The increase in interest expense was primarily attributable to the amount of loans outstanding, which increased from RMB41million (US$4.95 million) in 2004 to RMB63 million (US$7.81 million) in 2005.
 
Equity in earnings of associated company  
 
Equity in earnings of associated company decreased 54.33% to RMB0.88 million (US$0.11 million) from RMB1.92 million (US$0.23 million) in 2004, due to a decease in net income of Shijiazhuang Li Yu Technology Development Co., Ltd., in which hold 30% equity interest.
 
Other income
 
Other income increased by 101.18% to RMB0.30 million (US$ 0.04 million) in 2005 from RMB0.15 million (US$0.02 million) in 2004, primarily as a result of government subsidies and compensation paid in connection with a successful commercial litigation.
 
Income taxes
 
Income taxes decreased 81.75% to RMB1.41million (US$0.17 million) in 2005 from RMB7.7 million (US$0.93 million) in 2004, primarily due to a decrease in taxable income.
 
Net income
 
As a resulting of the foregoing, our net income decreased by 74.93% to RMB16.41 million (US$2.03million) in 2005, compared with RMB65.46 million (US$7.91 million) in 2004. This decrease in net income was primarily attributable to our revenue recognition policy, which resulted in an increase in deferred revenue for the 2005 fiscal year.
 
43
 
 
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003.
 
Revenues
 
Total revenues increased by 57.33% from 2003 to 2004, to RMB301.52 million (US$36.43 million) in 2004, as compared to RMB191.65 million (US$23.16 million) in 2003. This increase was due to an increase in the quantity of corn seed sold together with a higher selling price. The expansion of sales in the southwest and northeast regions of China caused a substantial increase in sales quantity. The volume of corn seed was increased by 12.15 million kilograms, which grew from 26.3 million kilograms in 2003 to 38.45 million kilograms in 2004. In addition, the expansion in net revenue was due to the change in product sales mix. In 2003, the corn seed product brand YuYu 22 was the principal product followed by Linao No. 1. However, its unit selling price was relatively lower than the other corn seeds sold by us. In 2004, the corn seed product brand, Linao No. 1, had a relatively higher unit selling price brand and was the most popular product sold while YuYu 22 represented 13% of sales. In addition, there were 140,000 kilograms in rice seed sales valued at (RMB2.22 million (US$0.27 million), resulting from our developing, planting, and selling rice seeds beginning in 2004.
 
Cost of revenues
 
The cost of seeds sold increased by 49.86% to RMB178.31 million (US$ 21.54 million) in 2004 from RMB118.98 million (US$14.38 million) in 2003. This increase was primarily the result of the increase in the quantity of corn seed sold. Nevertheless, the increase in cost of sales is less than the increase in net revenue. This was mainly caused by the increase in selling price which outweighed the increase in cost of sales. In 2004, cost of corn seeds sold was RMB173.79million (US$20.99 million). The average cost of corn seed sold per unit increased by 1.5% in 2004 compared to 2003, of which in 2004, an increase in technology usage fees and the shipping costs were the key causes. On the other hand, there were savings in other material costs such as seed coatings. The technology usage fees, paid based on quantity sold were RMB13.39 million (US$1.62 million) and, RMB6.52 million (US$0.79 million) in 2004 and in 2003 respectively. The increase of technology usage fee is more than the increase of cost of sales, which is mainly due to the amount sold of product YuYu 22, which had a lower charge for technology usage fee, and the decrease in sales quantity from 48.42% in 2003 to 18.7% in 2004. Shipping and handling costs increased by 70.32% to RMB8.09 million in 2004 from RMB4.75 million in 2003 because of the increase in sales together with the increase in gas prices and strict limits on loads per trucks.
 
Gross margin
 
As a percentage of total net revenues, overall gross margin was 40.86% in the year ended December 31, 2004, as compared with 37.92% in the year ended December 31, 2003. This increase in gross margins was primarily the result of change in product sales mix, an increase in the selling price and effective cost controls.
 
Operating expenses
 
Operating expenses increased to RMB51.31 million (US$6.20 million) in 2004 from RMB37.55 million (US$4.54 million) in 2003. The increase was due to substantial increases in selling and marketing expenses and general and administrative expenses and, to a lesser extent, an increase in research and development expenses.
 
Selling and marketing
 
Selling and marketing expenses increased by 53.19% to RMB20.39 million (US$2.46 million) in 2004 from RMB 13.31 million (US$1.61 million) in 2003. Of the RMB20.39 million (US$2.46 million) in 2004, approximately RMB3.15 million (US$0.38 million) was used for advertising, RMB3.06 (US$0.37 million) million was used for materials to educate our customers about the basics of planting our seed products, RMB9.17 million (US$1.11 million) was spent for transportation and traveling, RMB3.44 million (US$0.42 million) for salary and benefits, and RMB1.42 million (US$0.17 million) on telecommunication. The increase in selling and marketing expenses was primarily due to an increase in advertising of RMB1.35 million (US$0.16 million); an increase in materials to educate our customers of RMB1.85 million (US$0.22 million); an increase in transportation and traveling expenses of RMB3.04 million (US$0.37 million); an increase in salary and benefits expenses of RMB0.79 million (US$0.09 million), related to increased sales; setting up three new marketing departments in Changchun, Baoding and Shenyang; and the increase in incentive bonuses for its marketing staff.
 
44
 

General and administrative
 
General and administrative expenses increased by 27.44% to RMB24.15 million (US$2.92 million) in 2004 from RMB18.95 million (US$2.29 million) in 2003 primarily due to the increase in general personnel expenses of RMB3.67 million (US$0.44 million), increase in expenses associated with running motor vehicles and traveling expenses of RMB0.56 million (US$0.07 million) and an increase in general office supplies of RMB0.42 million (US$0.05million). All these were associated with the increase in the scale of our operation.
 
Research and development
 
Research and development expense increased by 27.98% to RMB6.77 million (US$0.82 million) in 2004 from RMB5.29 million (US$0.64 million) in 2003. The increase was due primarily to the hiring of additional staff used in developing our own breeding program and the set up of two research stations in Chengdu and Changchun.
 
Income from operations
 
Income from operations increased by 104.69%, from RMB71.89 million (US$8.69 million) in 2004 to RMB35.12 million (US$4.24 million) in 2003. This increase in income from operations was primarily attributable to the large growth in overall revenues and the level of the costs for sales we maintained.
 
Interest expense
 
Interest expense increased by 72.91% to RMB0.83 million (US$0.1 million) in 2004 from RMB0.48 million (US$0.06 million) in 2003. The increase in interest expense was primarily attributable to the amount of loans outstanding which increased from RMB35million (US$4.23 million) in 2003 to RMB41 million (US$4.95 million) in 2004, and the average interest rate increased from 5.04% to 5.33%.
 
Equity in earnings of associated company
 
Equity in earnings of associated companies increased to RMB1.92 million (US$0.23 million) in 2004 from zero in 2003 due to the acquisition of 30% interest in Shijiazhuang Li Yu Technology Development Co., Ltd.
 
Other income
 
Other income decreased by 86.84% to RMB0.15 million (US$0.02 million) in 2004 from RMB1.14 million (US$0.14 million) in 2003 as reduction in subsidy from government.
 
Income taxes
 
Income taxes decreased 1.79% to RMB7.67 million (US$0.93 million) in 2004 from RMB7.81 million (US$0.94 million) in 2003. Though Origin recorded a substantial increase in income before taxation, there was still a decrease in taxation due to the shifting of operations to our PRC subsidiary and branch which were either exempted or enjoyed the tax cut from the enterprise income tax in 2004.
 
Net income
 
Net income increased 126.11% to RMB65.46 million (US$7.91 million) in 2004, compared to approximately RMB28.95 million (US$3.50 million) in 2003. This significant increase in profits was primarily the result of an increase in sales, both in terms of volume and average selling price per kilogram of seed, with a lower growth rate in the associated costs to produce the income as compared with fiscal year 2003.
 
B. Liquidity and Capital Resources  
 
As of December 31, 2005, we had approximately RMB237.83 million (US$29.47 million) in cash and cash equivalents. Our cash and cash equivalents primarily consisted of cash on hand and liquid investments with original maturities of three months or less that are deposited with banks and other financial institutions. We generally deposit our excess cash in interest bearing bank accounts.
 
45
 
 
We financed our operations through cash generated from operating activities and short term borrowings. We had a total short-term borrowings of RMB63.00 million (US$7.81 million) and a total long-term borrowings of RMB1.88 million (US$233,000). A portion of our short-term borrowings (RMB43.00 million) is secured by our land use rights in the Zhongguancun Life Science Park. Our long-term borrowings consisted of a third-party loan of RMB1.88 million (US$233,000) which is due in 2010 and 2015 by two equal installments and bears an interest of 2.4% per annum.
 
The following table shows our cash flows with respect to operating activities, investing activities and financing activities in 2003, 2004 and 2005:
 
   
Year ended December 31,
 
   
2001
 
2002
 
2003
 
2004
 
2005
 
(in thousand)
 
RMB
 
RMB
 
RMB
 
RMB
 
RMB
 
US$
 
Net cash (used in) provided by operating activities
   
32,943
   
55,976
   
(14,961
)
 
42,745
   
24,387
   
3,020
 
Net cash used in investing activities
   
(5,671
)
 
(24,586
)
 
(32,962
)
 
(27,201
)
 
(62,722
)
 
(7,772
)
Net cash used in financing activities
   
5,000
   
10,000
   
18,446
   
4,083
   
207,706
   
25,740
 
Net increase(decrease) in cash and cash equivalents
   
32,272
   
41,390
   
(29,477
)
 
19,627
   
169,371
   
20,988
 
Cash and cash equivalents, beginning of year
   
5,036
   
37,308
   
78,698
   
49,221
   
68,848
   
8,531
 
Effect of exchange rate changes on cash and cash equivalents
   
-
   
-
   
-
   
-
   
(391
)
 
(48
)
Cash and cash equivalents, end of year
   
37,308
   
78,698
   
49,221
   
68,848
   
237,828
   
29,471
 
 
Net cash provided by operating activities was RMB24.39 million (US$3.02 million) in 2005 compared to RMB42.75 million (US$5.17 million) in 2004. This decrease was primarily due to a decrease in net income of RMB16.41 million (US$2.03 million), an increase of our inventory of RMB121.56 million (US$15.06 million), a decrease in due to growers of RMB17.16 million (US$2.13 million), and offset by an increase in deferred revenues of RMB143.66 million (US$17.8 million). Net cash provided by operating activities increased RMB24.39 million (US$3.02 million) to net cash of RMB42.74 million (US$5.16 million) in 2004, compared to net cash used in operating activities of RMB14.96 million (US$1.81 million) in 2003. This increase was primarily attributable to an increase in net income of RMB65.46 million (US$7.91 million), a decrease of account receivable of RMB5.32 million (US$0.64 million) and an increase in due to growers of RMB47.95 million (US$5.79million), as we grew our business in 2004.
 
Net cash used in investment activities was RMB62.72 million (US$7.77 million) in 2005, of which RMB43.20 million (US$5.35 million) was used in the construction of our new headquarter offices in Beijing and for completion of the manufacturing plant in Linze, RMB5.70 million (US$0.71 million) was used to purchase land use rights, RMB2.92 million (US$0.36 million) was used to purchase intangible assets, and RMB5.68 million (US$0.70 million) was used to acquire an additional 7% interest of Biocentury Transgene (China) Co., Ltd. Net cash used in investment activities was RMB27.2 million (US$3.29 million) in 2004, of which RMB15.47 million (US$1.87 million) was used to start the construction of our headquarter offices and in the purchase of fixed assets, and RMB8.32 million (US$1.0 million) was used to complete our purchase of 8% of Biocentury Transgene (China) Co., Ltd.
 
46
 
 
Net cash provided by financing activities was RMB207.71 million (US$25.74 million) in 2005, which reflects our short-term borrowings of RMB63.00 million (US$7.81 million) and includes net proceeds from our reverse merger of RMB159.83 million (US$19.81).
 
To date, we have funded our operations through cash flow derived from operations and short-term borrowings. Due to the cyclical nature of the cash flow inherent in our business, with the majority of cash flow from operations received during the second half of the calendar year, we use bridge loan financings and bank credit facilities to cover operating expenses during low-revenue portions of the year.
 
The nature of our business involves cycles in expenses and revenues that are not always in phase. Most often in the third calendar quarter of each year, we may face costs that are in excess of its cash flow sources during that period. Whether that occurs, and to what extent it occurs, depends on the amount of deposits received from customers compared with the advanced payments made by us to our seed producing farmers and the final payment for seed procurement. The exact timing of these payments is determined by the Chinese lunar calendar, which varies from one calendar year to the next. As a result, in some years our working capital needs are greater than in others. This aspect of the business is the reason we have customarily relied upon short term bridge loans to cover our expenses pending receipt of cash payment from farmers at the time of seed purchases. We, on a consolidated basis, have had access to sufficient financing in the past to manage these cash flow cycles. As discussed above, we have consistently repaid our short-term borrowings at or before maturity.
 
On July 1, 2006, we identified the existence of potential contingent tax liabilities arising from our reverse merger in November 2004. We determined that these contingent tax liabilities were more likely than remote. As of December 31, 2005, we estimate such contingent tax liabilities to be in the range of RMB39.06 million (US$4.84 million) to RMB64.22 million (US$7.96 million). Consequently, RMB39.06 million (US$4.84 million) was included in income tax payable on our balance sheet and was charged to equity because such liabilities were part of the recapitalization in connection with our reverse merger. We do not expect to incur tax liabilities at the higher end of the range, based on information currently available.
 
We believe that our cash and cash equivalents balance, together with our access to financing sources, will continue to be sufficient to meet the working capital needs associated with our current operations on an ongoing basis, as well as the RMB39.06 million (US$4.84 million) contingent tax liability described above, although that cannot be assured. It is also possible that our cash flow requirements can increase as a result of a number of factors, including unfavorable timing of cash flow events, the decision to increase investment in marketing and development activities or the use of cash for the acquisition of one or more of its competitors to accelerate our rate of growth.
 
Relevant PRC laws and regulations permit payments of dividends by our PRC Operating Companies only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the statutory general reserve fund, which requires that annual appropriations of 10%-15% of net after-tax income be set aside prior to payment of any dividends. As a result of these and other restrictions under PRC laws and regulations, our PRC Operating Companies are restricted in their ability to transfer a portion of their net assets to us either in the form of dividends, loans or advances.
 
Even though we currently do not require any such dividends, loans or advances from our PRC Operating Companies, we may in the future require additional cash resources from our PRC Operating Companies due to changes in business conditions, to fund future acquisitions or developments, or merely to declare and pay dividends or distributions to our shareholders, although we currently have no intention to do so.
 
47
 
C. Research and Development, Patents and Licenses, etc.
 
We focus our research and development efforts on agro-biotechnology, crop breeding and the development of new crop seeds. In November, 2001, we established a new seed research and development center in Tongzhou, Beijing, engaging in research and development of crop commercial breeding. In September, 2005, we established the “Origin Life Science Research Center” in Zhong Guan Cun, Beijing, the principal activities of which include crop gene engineering, molecular marker-assisted breeding, and molecular identification.
 
We have established technological cooperative relationships with three universities and sixteen research institutes in China, including Beijing University, China Agricultural University, and Chinese Academy of Sciences. We employ 47 full time research personnel.
 
Our research and development expenditures were $0.64 million, $0.82 million and $0.87 million in 2003, 2004 and 2005, respectively.
 
D. Trend Information .  
 
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2003 to December 31, 2005 that are reasonably likely to have a material effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
 
E. Off-balance Sheet Arrangements .  
 
We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. We do not engage in trading activities involving non-exchange traded contracts.
 
F. Tabular Disclosure of Contractual Obligations  
 
We have various contractual obligations that will affect our liquidity. The following table sets forth our contractual obligations as of December 31, 2005:
 
 
Payments due by period
   
Within
         
 
Total
2006
2007
2008
2009
2010
Thereafter
 
RMB
RMB
RMB
RMB
RMB
RMB
RMB
Operating Lease Obligations
13,301,711
1,698,408
1,259,650
694,742
537,498
504,546
8,606,867
Capital Commitments (1)
3,990,790
3,990,790
         
Short-Term Debt Obligations (2)
63,000,000
63,000,000
         
Long-Term Debt Obligations (3)
1,880,000
   
940,000
940,000
   
Total
82,172,501
68,689,198
1,259,650
694,742
537,498
1,444,546
9,546,867
 
 
(1)
Includes capital commitment to plant, building construction and equipment purchase.
 
(2)
Represents a short term loan from China Construction Bank Shangdi Branch.
 
(3)
Represents a third party’s loan repayable in 2008 and 2009 by two equal installments and bear interest 2.4% per annum. The borrowings are not secured.

O n July 1, 2006, we identified the existence of potential contingent tax liabilities arising from our reverse merger in November 2005. We determined that these contingent tax liabilities were more likely than remote. As of December 31, 2005, we estimate such contingent tax liabilities to be in the range of RMB39.06 million (US$4.84 million) to RMB64.22 million (US$7.96 million). Consequently, RMB39.06 million (US$4.84 million) was included in income tax payable on our balance sheet and was charged to equity because such liabilities were part of the recapitalization in connection with our reverse merger. We do not expect to incur tax liabilities at the higher end of the range, based on information currently available.

On December 6, 2005, Beijing Origin entered into a share transfer agreement with the Jilin Academy of Agricultural Sciences. Pursuant to the share transfer agreement, the Jilin Academy of Agricultural Sciences, or JAAS, will transfer 23% of equity interest in Jilin Jinong Hi-tech Limited, or Jinong, to Beijing Origin for RMB 21,879,900. Jinong is presently the commercial subsidiary of JAAS and focuses on the production and marketing of corn, rice and soybean seeds, as well as fertilizers and pesticides. Jinong is known for its large portfolio of proprietary rice and corn hybrids, having submitted 69 accepted proprietary rights applications to the Chinese central government and having 48 already approved. In addition, Jinong has an estimated 30% of the corn seed market in Jilin Province. Currently, this share transfer transaction is proceeding pursuant to procedures for the transfer of State-owned assets at Changchun Equity Exchange. We cannot guarantee that this transaction will be consummated in our favor or at all.

On December 30, 2000, Lin Ze Xian Origin Seed Technology Development Co., Ltd., or Lin Ze Origin, entered into a guarantee agreement with Agriculture Bank of China Lin Ze Branch to guarantee a loan extended by Agriculture Bank of China Lin Ze Branch to Lin Ze Xian Seed Company. Lin Ze Origin subsequently merged into Beijing Origin, which assumed rights and obligations of Lin Ze Origin by operation of law under the guarantee agreement. Upon Lin Ze Xian Seed Company’s announcement of bankruptcy, we were required to repay the outstanding loan. On December 28, 2001, the Company was ordered by the Lin Ze Xian People’s Court to pay approximately RMB2,872,000 to Agricultural Bank of China Lin Ze Branch in fulfillment of the guarantee obligation. The civil judgment of the Zhangyi Intermediate People’s Court suspended this decision pending final outcome of Lin Ze Xian Seed Company’s bankruptcy hearings.
 
48
 
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES  
 
A. Directors and senior management.
 
The following table sets forth certain information regarding our directors and executive officers as of June 30, 2006. 

Name
 
Age
 
Position
Gengchen Han
 
51
 
Chairman of the Board and Chief Executive Officer
Yasheng Yang
 
43
 
Director and President, Treasurer and Chief Operating Officer
Liang Yuan
 
49
 
Director and Executive Vice Chairman
Bailiang Zhang
 
65
 
Director
Dafang Huang
 
64
 
Director
Kerry S. Propper
 
31
 
Director
Steven Urbach
 
30
 
Independent Director
Michael W. Trimble *
 
49
 
Independent Director
Remo Richli
 
43
 
Independent Director
Youqiang Wang
 
43
 
Chief Financial Officer
 
* Michael W. Trimble was appointed as a member of the Board of Directors and member of the Audit Committee and Nomination Committee, effective May 12, 2006, to replace Mr. Michael D. Chermak, who resigned from his position as a director of Origin and member of the Audit Committee and Nomination Committee effective May 12, 2006.
 
Gengchen Han is the Chairman and Chief Executive Officer of Origin and the chief executive officer of each of our PRC Operating Companies and Origin. Mr. Han is also the Executive Chairman of Beijing Origin and its affiliated companies, a position that he has held since founding the business in 1997. Dr. Han has more than 20 years of experience in research and development of hybrid seed products, particularly corn seed. From 1982 until 1984, Dr Han was a lecturer at the Henan Agriculture University. From 1984 to 1987, Dr. Han studied at Iowa State University and received his PhD degree in Plant Breeding and Cytogenics. From 1989 until 1990 he was with the International Maize and Wheat Improvement Center, or CIMMYT, in Mexico. He worked Pioneer Hi-bred International from 1990 to 1996; his positions there included Regional Technical Coordinator for Asia/Pacific and Regional Supervisor for China Business.

Yasheng Yang is a director and the president, treasurer and chief operating officer of Origin and is an executive officer of each of the our PRC Operating Companies and Origin. He has been the President and Chief Operating Officer of Beijing Origin in its affiliated companies since 1998, principally responsible for advertising and marketing. Prior to joining Beijing Origin, from 1995 to 1997, he worked in the Fujian government as an officer, where he specialized in technology, medical and educational areas.

Liang Yuan is a director and the executive vice chairman of Origin. He is also an executive officer of our PRC Operating Companies. Mr. Yuan has been the vice chairman of Beijing Origin and its affiliated companies since 1997, principally responsible for infrastructure and public relations. Prior to joining Beijing Origin, Mr. Yuan was at the Fujian Economic Research Institute from 1985 to 1997, where he was in charge of the research and development of the regional economy in Fujian province.  

Bailiang Zhang is a director of Origin. Mr. Zhang served a president of Henan Agriculture University from 1994 to 2003, and occupied other positions in the University since 1985. As a result of his work in the field of agriculture, he has received numerous honors, including acting as a representative to the National People’s Congress, and the 51 Labor Medal, one of the highest awards given to Chinese citizens in recognition of significant contributions to the welfare of the country.

Dafang Huang is a director of Origin. Mr. Huang has been the director and CAAS Professor of the Biotechnology Research Institute located in Beijing, PRC since 1995. From 1993 to 1995, Mr. Huang was the Deputy Director and CAAS Professor of the Institute of Plant Protection. From 1986 to 1988 and in 1992, Mr. Huang was a visiting scientist at Cornell University and the Boyce Thompson Institute. From 1960 to 1965, Mr. Huang was working at the Beijing Agriculture University in the Department of Plant Pathology.

Kerry S. Propper is a director of Origin. He was a founder and has been the executive vice president and a director of Chardan since its inception in December 2003. Mr. Propper is the chief executive officer and a director of each of Chardan North China Acquisition Corp. II and Chardan South China Acquisition Corp. III, blank check companies organized to locate and consummate business combinations in the PRC. Mr. Propper is also a principal and CEO of Chardan Capital Markets, LLC, a broker dealer, which he founded with Steven Urbach in February 2003. Mr. Propper has been the owner and chief executive officer of The Gramercy Group LLC, a New York based broker/dealer, since July 2003. From February 1999 to March 2003 Mr. Propper was a founder, owner and managing director of Windsor Capital Advisors, LLC, an investment advisory and investment banking firm located in New York. Mr. Propper also founded The Private Capital Group LLC, a small private investment firm specializing in loans and convertible preferred debt and equity offerings for small public companies, in May 2000 and was affiliated with it until December 2003. From July 1997 until February 1999, Mr. Proper served as a senior trader of Aegis Capital Corp, a broker dealer and member firm of the NASD. Mr. Propper is also currently serving as a board member of Source Atlantic, Inc., a Boston based health care technology company.  
 
49
 
Steven Urbach is a director of Origin. He is currently a principal in and President and Chief Financial Officer of Chardan Capital Markets, LLC, which he founded with Kerry S. Propper in February 2003. From February 1999 to February 2003, Mr. Urbach was a Senior Trader at Windsor Capital Advisors, LLC, a firm specializing in making markets in Nasdaq securities. From September 1997 until February 2000, Mr. Urbach worked at Chase Manhattan Bank as an analyst and portfolio manager.

Michael W. Trimble is a director of Origin. Dr. Trimble is the founder of Trimble Genetics International LLC. (“Trimble Genetics”) and has been the President of Trimble Genetics since 2001. Trimble Genetics is a plant genetics research company. Dr. Trimble is a leader in plant genetics research with over twenty-six years of experience in crop breeding and the agricultural seed industry. Dr. Trimble is an inventor of patents that have contributed to over $500 million in revenue. He also serves as a director for the African Agricultural Technology Foundation in Nairobi, Kenya. Dr. Trimble graduated with a Ph.D. degree from the University of Minnesota, and also completed graduate programs at Purdue University and Iowa State University.

Remo Richli is a director of Origin. He is an Associate Partner of Bridgelink AG, an international Mergers and Acquisitions firm headquartered in Switzerland. His activities include the acquisition and divestiture of companies as well as raising funds, including private equity deals. Prior to this he worked in the US as a financial expert at RP Associates in San Diego, a venture capital firm focusing on corporate finance and financial structures. During his time with RP Associates, Mr. Richli served also as Chief Financial Officer of one of its portfolio companies. From 1993 to 1999, Mr. Richli owned a consulting firm engaged in corporate finance consultancy for mid-sized companies and acted as the Chief Executive Officer of client companies on a consulting basis. From 1991 to 1993, Remo Richli was a director at the Department of Finance in Switzerland. Mr. Richli is also a director of Diguang International Development Co. Limited. He studied in Switzerland and in the US and holds several degrees in Business and Economics.

Youqiang Wang is the Chief Financial Officer of Origin. He joined Origin in 2005. Prior to joining Origin, Mr. Wang has more than 16 years of experience both in China and the US including CITIC, Mitsubishi subsidiary in northern California and Sinotech Investment Management. Mr. Wang graduated from University of Illinois at Urbana-Champaign and Peking University.

B. Compensation.  
 
In 2005, the aggregate cash compensation paid to our directors and executive officers as a group was RMB 1,326,231(US$164,324). In addition, options to acquire an aggregate of 330,000 ordinary shares were granted to our directors and executive officers in 2005.
 
2005 Performance Equity Plan

Chardan adopted its 2005 Performance Equity Plan on October 28, 2005. After the closing of the merger of Chardan with and into Origin, the 2005 Performance Equity Plan became that of Origin by operation of law under the terms of the merger.

On November 8, 2005, our stock option committee decided that options would be granted under a standard form of option agreement pursuant to the 2005 Performance Equity Plan to our certain employees. The table set forth below summarizes our outstanding options as of June 30, 2006.
 
50

Name
 
Ordinary Shares Underlying Outstanding Option
 
Exercise Price
 
Grant Date
 
Expiration Date
 
Gengcheng Han
   
75,000
 
$
8.75/Share
   
November 8, 2005
   
November 8, 2010
 
Liang Yuan
   
30,000
 
$
8.75/Share
   
November 8, 2005
   
November 8, 2010
 
Yasheng Yang
   
60,000
 
$
8.75/Share
   
November 8, 2005
   
November 8, 2010
 
Steven Urbach
   
15,000
 
$
8.75/Share
   
November 8, 2005
   
November 8, 2010
 
Kerry Propper
   
20,000
 
$
8.75/Share
   
November 8, 2005
   
November 8, 2010
 
Remo Richli
   
25,000
 
$
8.75/Share
   
November 8, 2005
   
November 8, 2010
 
Michael Chermak
   
15,000
 
$
8.75/Share
   
November 8, 2005
   
November 8, 2010
 
Bailiang Zhang
   
15,000
 
$
8.75/Share
   
November 8, 2005
   
November 8, 2010
 
Dafang Huang
   
15,000
 
$
8.75/Share
   
November 8, 2005
   
November 8, 2010
 
 
C. Board Practices.
 
Terms of directors and executive officers

Our directors are not subject to a term of office and hold office until the next annual meeting of members or until such director’s earlier resignation, removal from office, death or incapacity. Any vacancy on the board of directors resulting from death, resignation, removal or other cause and any newly created directorship resulting from any increase in the authorized number of directors between meetings of members may be filled either by the affirmative vote of a majority of all the directors then in office (even if less than a quorum) or by a resolution of members.

Our officers are appointed by the board of directors. The officers shall hold office until their successors are duly elected and qualified, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by resolution of directors. Any vacancy occurring in any office may be filled by resolution of directors.

Employment Agreements

Each of Dr. Gengchen Han and Messrs. Liang Yuan and Yasheng Yang have entered into employment agreements with State Harvest. Dr. Han is employed as the chairman and chief executive officer, Mr. Yuan as the executive vice chairman and Mr. Yang as the president and chief operating officer. The agreements have a term of three years commencing as of January 1, 2005, and provide for an annual salary of $250,000 and a discretionary cash bonus based on growth in the combined company’s per-share value, achievement of growth and business targets, satisfaction of company capital requirements and other criteria. The executives are entitled to insurance benefits, five weeks’ vacation, a car and reimbursement of business expenses and, if necessary, relocation expenses. The agreements are terminable by State Harvest for death, disability and cause. The executive may terminate for good reason, which includes State Harvest’s breach, the executive’s loss of his seat on the board of directors, and change of control. In the event of termination for good reason or without cause, the executive will receive compensation and benefits under his or her employment agreement through the earlier of two years from the date of termination or through the term of the agreement. The agreements contain provisions for the protection of confidential information and a three-year-after employment non-competition period within China. In the purchase agreement, there is an additional non-competition agreement applicable to these persons for the greater of five years after consummation or two years after employment that includes Hong Kong and Taiwan, in addition to China.
 
  Board committees  
 
Our board of directors has established an audit committee, a stock option committee and a nominations committee.
 
Audit Committee  
 
The members of our audit committee are Remo Richli (chairman), Steven Urbach and Michael W. Trimble. Our board of directors has determined that all of our audit committee members are independent directors within the meaning of Nasdaq Marketplace Rule 4200(a)(15) and meet the criteria for independence set forth in Rule 10A-3(b)(1) of the Securities and Exchange Act of 1934.

51
 
The board of directors has determined that Messrs. Richli, Urbach and Trimble each has an understanding of generally accepted accounting principles and financial statements, the ability to assess the general application of such principles in connection with our financial statements, including estimates, accruals and reserves, experience in analyzing or evaluating financial statements of similar breadth and complexity as our financial statements, an understanding of internal controls and procedures for financial reporting and an understanding of audit committee functions.

The board of directors believes that Mr. Remo Richli qualifies as an “audit committee financial expert” within the meaning of all applicable rules. The board of directors believes that Mr. Richli has financial expertise from his degrees in business, his activities as a chief executive officer and chief financial officer of various companies, and his consulting activities in the areas of accounting, corporate finance, capital formation and corporate financial analysis.

We adopted an audit committee charter under which the committee is responsible for reviewing the scope, planning and staffing of the audit and preparation of the financial statements. This includes consultation with management, the auditors and other consultants and professionals involved in the preparation of the financial statements and reports. The committee is responsible for performing oversight of the our relationship with our independent auditor. The committee also has a general compliance oversight role in assuring that our directors, officers and management comply with our code of ethics, review and approval of related party transactions, dealing with complaints regarding accounting, internal controls and auditing matters, and compliance with accounting and legal requirements applicable to us.

Pursuant to the terms of its charter, the audit committee’s responsibilities include, among other things:

 
●
annually reviewing and reassessing the adequacy of the committee’s formal charter;
 
●
reviewing our annual audited financial statements with our management and our independent auditors and the adequacy of our internal accounting controls;
 
●
reviewing analyses prepared by management and independent auditors concerning significant financial reporting issues and judgments made in connection with the preparation of our financial statements;
 
●
the engagement of the independent auditor;
 
●
reviewing the independence of the independent auditors;
 
●
reviewing our auditing and accounting principles and practices with the independent auditors and reviewing major changes to our auditing and accounting principles and practices as suggested by the independent auditor or our management;
 
●
the appointment of the independent auditor;
 
●
approving professional services provided by the independent auditors, including the range of audit and non-audit fees; and
 
●
reviewing all related party transactions on an ongoing basis for potential conflicts of interest.
 
The audit committee will pre-approve the services to be provided by our independent auditors going forward. The audit committee also will also review and recommend to the board of directors whether or not to approve transactions between us and any officer or director that occurs outside the ordinary course of business.
 
Stock Option Committee

We established a stock option committee with Steven Urbach and Remo Richli as its members. The purpose of the stock option committee is to administer our stock option plans, including authority to make and modify awards under such plans. Initially, our only plan is the 2005 Performance Equity Plan, as assumed by Origin in the merger with Chardan.

Nominating Committee

Our nominating committee consists of Steven Urbach, Remo Richli and Michael W. Trimble. The nominating committee is responsible for overseeing the selection of persons to be nominated to serve on our board of directors. The nominating committee will identify, evaluate and recommend candidates to become members of the Board of Directors with the goal of creating a balance of knowledge and experience.
 
52
 
The committee will consider suggestions from individual stockholders, based upon its assessment of certain criteria, including the proposed person’s merits. The suggested nominee must provide a statement of consent to being considered for nomination.
 
D. Employees .
 
We had 375, 423 and 511 employees as of December 31, 2003, 2004 and 2005, respectively. We plan to hire additional employees as we expand. Substantially all of our employees are located in China. The following table sets forth the number of our employees categorized by our areas of operations and as a percentage of our workforce as of December 31, 2005:

Areas of Operations
   
Number of Employees
   
Percentage of Total
 
Research and Development
   
47
   
9.2
%
Sales and Marketing
   
137
   
26.8
%
Production
   
151
   
29.5
%
Quality Control
   
34
   
6.7
%
Others
   
142
   
27.8
%
Total
   
511
   
100
%

From time to time, we also employ part-time employees, independent contractors to support our research and development and producing activities, and other temporary employees. During 2005, we had an aggregate of 31 temporary employees.

We offer our employees additional annual merit-based bonuses based on the overall performance of our company, his or her department and the individual. We are required by applicable PRC regulations to contribute amounts equal to 28%, 12%, 16%, 2%, 0.8% and 0.8%, of our employees’ aggregate salary to a pension contribution plan, a medical insurance plan, a housing fund, an unemployment insurance plan, a personal injury insurance plan and a maternity insurance plan, respectively, for our employees.

Our employees are not covered by any collective bargaining agreement. We believe that we have a good relationship with our employees.
 
E. Share ownership.  
 
     The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of May 31, 2006, by:

·  
each of our directors and executive officers who beneficially own our ordinary shares; and

·  
each person known to us to own beneficially more than 5.0% of our ordinary shares.
 
53
 
   
Shares Beneficially Owned ( * )
 
   
Number
 
Percentage of Total
 
Directors and Executive Officers:
         
Gengchen Han
Chairman of the Board and Chief Executive
Officer (1) (2)
   
3,336,400
   
14.2
%
Yasheng Yang
President, Treasurer and Chief Operating
Officer and Director (1) (3)
   
1,946,550
   
8.3
%
Liang Yuan
Executive Vice Chairman and Director (1) (4)
   
3,336,400
   
14.2
%
Kerry S. Propper
Director (5)
   
324,292
   
1.83
%
Steven Urbach
Director (5)
   
94,917
   
0.4
%
Michael W. Trimble
   
9,532
   
0.04
%
Principal Shareholders:
             
Jeff Feinberg
   
1,804,619
   
7.69
%

* Beneficial ownership and percentage is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended.

(1)  
Unless otherwise indicated, the business address of each of the individuals is c/o 21 Shengmingyuan Road, Changping District, Beijing PRC 102206.

(2)  
The shares reported in the above table are held by Dr. Han through a personal holding company, Sinodream Limited, a company formed under the laws of the British Virgin Islands of which he is the sole officer and director. Therefore, Dr. Han will have voting and dispositive authority over all the shares.

(3)  
The shares reported in the above table are held by Mr. Yang through a personal holding company, Leekdon Limited, a company formed under the laws of the British Virgin Islands of which he is the sole officer and director. Therefore, Mr. Yang will have voting and dispositive authority over all the shares.

(4)  
The shares reported in the above table are held by Mr. Yuan through a personal holding company, Bonasmart Limited, a company formed under the laws of the British Virgin Islands of which he is the sole officer and director. Therefore, Mr. Yuan will have voting and dispositive authority over all the shares.

(5)  
Unless otherwise indicated, the business address of each of the individuals is c/o 625 Broadway, Suite 1111, San Diego, CA 92101
 
None of the above shareholders have voting rights that differ from the voting rights of other shareholders. For information regarding stock options granted to them and other employees, see Item 6.B above.

 
A. Major shareholders.  
 
Please refer to Item 6.E “Directors, Senior Management and Employees — Share Ownership”
 
B. Related party transactions .  
 
Stock Consignment Agreements
 
In order to comply with PRC regulations, we operate our business in China through our PRC Operating companies. We have entered into stock consignment agreements with our PRC Operating Companies other than Origin Biotechnology. The following is a summary of the material provisions of these agreements.
 
The Stock Consignment Agreements give State Harvest control over the shares of the three PRC Operating Companies. The agreements give State Harvest the right to manage in all respects the shares held in title by the stockholders, including all stockholder rights to call meetings of stockholders, to submit stockholder proposals, to elect directors, to vote the shares on all matters and to exercise all other rights of a stockholder in respect of the consigned shares. More specifically, the Consignment Agreements give State Harvest the right to select, replace and increase the number of the directors, supervisors and recommend new director and supervisor persons, and to exercise management rights, controlling rights and decision-making power over the shares of the PRC Operating Companies. The stockholders agreed not to interfere with State Harvest’s exercise of its rights and to cooperate fully and promptly to permit State Harvest to exercise its authority over the consigned shares. This includes all limitations on the ability of each consignee to transfer or dispose of the shares other than to State Harvest, give guarantees using the shares, consign the shares to another, alter their ownership proportions in any way, dispose of any rights in the ownership of the shares, agree to any debt, waive rights or restructure the shares. State Harvest has the right to take all action in respect of the consigned shares to avoid any damage or infringement of its rights, including in the event of the consigning stockholder’s bankruptcy. State Harvest, under the Consignment Agreements, has all rights in the consigned shares, including rights to profits, interest, dividends, bonuses and residual assets. If in the future any stock subject to the Consignment Agreements can be legally transferred to State Harvest, then without further action or payment by State Harvest, it shall be transferred to State Harvest in whole or in part for no additional consideration to the consigning stockholder. The term of each Consignment Agreement is initially three years, but is automatically renewed indefinitely until both consigners and the consignee agree to terminate. For more information about the Stock Consignment Agreements, See Item 8.01 “Other Events” of our Form 8-K (file no. 000-51576) filed with the Securities and Exchange Commission on August 8, 2005.
 
54
 
Techn ical Service Agreements

As part of the reorganization of our PRC Operating Companies, all of the intellectual property rights of Beijing Origin, Changchun Origin and Henan Origin are being transferred to Origin Biotechnology pursuant to technology service agreements dated December 25, 2004. The purpose of this was to permit the better management and licensing of the intellectual property that the three assignors have developed. Under the technology agreements, Origin Biotechnology will provide technical research and production and distribution services for the seeds produced by the group. These services will include support in the research and development of agricultural seeds, analysis of breeding technologies, environment and feasibility suggestions, technical tutorials and breeding field supervision, market analysis and seed promotion, insect prevention and technical education to distributors and farmers. The initial term is for three years, but the agreements are automatically renewed unless both parties agree to a termination. The fees payable under the agreements are variable, depending on differing formulae for different categories of seeds. Generally, the fees will be as follows: 1.20 Yuan RMB per kilogram of corn sold by the party receiving the technical services; 6 Yuan RMB per kilogram of rice sold by the party receiving the technical service and 12 Yuan RMB per kilogram of cotton sold by the party receiving the technical services. The fees are to be confirmed and paid at the end of each growing season.
 
Corn Originator Agreement

Beijing Origin entered into this agreement with Trimble Genetics International LLC, a corporation incorporated in Iowa of the United States (“Trimble Genetics”) on July 17, 2002. Trimble Genetics is a plant genetics research company. Michael W. Trimble, a director of Origin, is the founder of Trimble Genetics (“Trimble Genetics”) and currently owns 100% of its equity interest. Mr. Trimble has been the President of Trimble Genetics since 2001. Under this agreement, Beijing Origin appoints Trimble Genetics as its agent to test, promote, license and collect research fees on hybrids involving inbred lines of corn developed by Beijing Origin. Trimble Genetics retains fifty percent of such research fees and pays the remaining fifty percent to Beijing Origin. This agreement is immaterial in amount or significance. Up to the date of this annual report, we have not made and payment or incurred any payment liability to Trimble Genetics under this agreement.  

Corn Inbred License Agreement

Beijing Origin entered into this agreement with Trimble Genetics on August 26, 2002. Under this agreement Trimble Genetics grants a non-exclusive license to Beijing Origin to use, maintain or increase certain corn inbred lines (“Inbreds”); Beijing Origin may, subject to express prior written approval of Trimble Genetics, allow any person or entity to use, maintain or increase the Inbreds. Beijing Origin agrees to pay Trimble Genetics annual research fees on or before August 31. Research fees payable under this agreement for each Inbred is based on a percentage of the full retail price. This agreement is immaterial in amount or significance.   Up to the date of this annual report, we have not made any payment or incurred any payment liability to Trimble Genetics under this agreement . Beijing Origin and Trimble Genetics approved an addendum on February 24, 2003 in connection with the provision of Sweet Corn Inbreds and Hybrids by Trimble Genetics to Beijing Origin for production and marketing in China.
 
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Corn Inbred and Hybrid Transfer and Use Agreement

Beijing Origin, or its predecessor, entered into this agreement with Trimble Genetics on September 6, 2002. Under this agreement, Trimble Genetics provides corn inbreds and hybrids to Beijing Origin for experimental testing purposes. The agreement applies to all corn inbreds and hybrids transferred from Trimble Genetics to Beijing Origin previously, currently or in the future. If a hybrid from the testing proves to be marketable, the parties will negotiate a license agreement. If for any reason, it is not possible to conclude a license agreement, Beijing Origin agrees to return all remnant inbred seed and to destroy any inbreds or hybrids that may have originated from the material provided by Trimble Genetics. This agreement is immaterial in amount or significance.   Up to the date of this annual report, we have not made any payment or incurred any payment liability to Trimble Genetics under this agreement .

New Corn Seed Liyu 35 Joint Development Agreement

Beijing Origin entered into three such agreements with Shijiazhuang Liyu Technology Development Co., Ltd. on March 30, 2006 to jointly a new hybrid cord seed, Liyu 35. The proprietary right to the seed developed under this agreement belongs to Shijiazhuang Liyu Technology Development Co., Ltd, but Beijing Origin has exclusive production and marketing of this variety of seed. The agreement has no fixed term or termination date, but the agreement automatically terminates if the seeds produced by Beijing Origin are less than 3 million kilograms for three consecutive years, subject to limited exceptions. The fees payable by Beijing Origin represent a percentage of revenues from the sale of the varieties and plus a flat fee.

Joint Development Agreements

Beijing Origin, or its predecessor, has entered into three such agreements with Corn Research Institute of Li County in Hebei Province, China, to develop new hybrid corn seeds. Corn Research Institute of Li County was incorporated as Shijiazhuang Liyu Technology Development Co., Ltd. on May 2004, of which 30% equity interest was owned by Yang Yasheng, a major shareholder and director of Origin. Yang Yasheng transferred his 30% interest to Beijing Origin on September 2004. On March 11, 2004, Corn Research Institute of Li County, Shijiazhuang Liyu Technology Development Co., Ltd. and Beijing Origin entered into an agreement pursuant to which all the rights and obligations of Corn Research Institute of Li County under the three joint development agreements are assumed by Shijiazhuang Liyu Technology Development Co., Ltd, after the dissolution of Corn Research Institute of Li County. In accordance with these joint development agreements, the parties agree to jointly develop six varieties of new corn hybrid seeds, Liyu 26, Liyu 16, Liyu 6, Liyu 15, Li 168, and Li 9918. The proprietary right to the varieties of seeds developed under these agreements belongs to Corn Research Institute of Li County, now Shijiazhuang Liyu Technology Development Co., Ltd, but Beijing Origin has exclusive right to production and marketing of these seeds. The fees payable by Beijing Origin represent a percentage of revenues from the sale of the varieties, and plus a flat fee with respect to Liyu 26 and Liyu 16. The agreements have no fixed term or termination date. The agreements may be terminated for breaches by either party. We may terminate the agreements at any time, in effect, by not producing seeds without penalty. The amount of fees paid to Shijiazhuang Liyu Technology Development Co., Ltd. under these agreements was $0.67 million, $1.08 million, and $1.49 million in 2003, 2004, and 2005, respectively.

Technology Transfer Agreement

Beijing Origin, or its predecessor, entered into this agreement with Henan Agriculture University in 1998. Henan Agriculture University currently owns 2.04% equity interest in Beijing Origin. Under this agreement, the proprietary right to the new variety of seed, Yuyu 22, belongs to Henan Agriculture University. Beijing Origin has the right to propagate, produce and sell the new corn variety. The fee payable under this agreement is RMB20 per mu (until of area equivalent to 0.164 of an acre) of seed production area per year. There is no fixed term or termination date of this agreement.

Technology Transfer and Cooperation Agreement Concerning a New Corn Hybrid Yuyu 20

Henan Origin entered into this agreement with Henan Agriculture University on August 16, 1999. Under this agreement, the proprietary intellectual property right to a new variety of seed, Yuyu 20, belongs to Henan Agriculture University. Henan Origin has the exclusive right to produce and distribute the seeds. Henan Agriculture agrees not to provide the third party any technology related to the seed. Fees payable to Henan Agriculture University by Henan Origin is determined based on the area of land where Yuyu 20 is planted.
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Cash Advances and Loans to Directors and Officers

As of December 31, 2005, a total of RMB163,000 cash advances and loans were due to us from three of our directors. The following table sets forth details of such cash advances and loans.

Name
 
Relationship
 
Travel Cash Advances
(RMB)
 
Loans (RMB)
 
Amount due as of December 31, 2005 (RMB)
 
Han Gengchen
   
(1
)
 
10,000
   
29,000
   
39,000
 
Yuan Liang
   
(1
)
       
22,000
   
22,000
 
Yang Yasheng
   
(1
)
 
77,000
   
25,000
   
102,000
 
Total
       
87,000
   
76,000
   
163,000
 

(1)  
Director of Origin.

As of July 14, 2006, the entire amount of cash advances and loans described above have all been paid off by the directors.

Consulting Services by Chardan Capital LLC

Chardan Capital LLC, an affiliate of Dr. Richard Propper (father of Kerry S. Propper), provided a variety of ongoing services to Origin in 2005 at a cost to Origin of $30,000 per month. Such services were provided on a non-exclusive basis and included advice and help in meeting US public reporting requirements and accounting standards, Sarbanes-Oxley compliance, corporate structuring and development, stockholder relations, corporate finance and operational capitalization and such other similar services as suggested and agreed to by Chardan Capital, LLC. There was no written agreement governing the services.


Voting Agreement

In November 2005, Origin entered into a voting agreement with Dr. Han Gengchen and Messrs. Yang Yasheng and Yuan Liang (the “Stockholders”). Pursuant to this voting agreement, the Stockholders agree to vote in favor of the following items:

(A) The election to Origin’s board of directors of the following two (2) individuals: (i) Kerry Propper; and (ii) one (1) nominee designated by Kerry Propper; and

(B) In the event that any of the persons nominated pursuant to the above Section (A) is unable or unwilling to serve as a director, the election of such successor nominee as is designated by the parties entitled to designate such nominee pursuant to the above Section (A).

This voting agreement will remain in effect until the third anniversary of the acquisition of State Harvest by Origin on November 8, 2005, and then terminate automatically from and after such date.
 
C. Interests of experts and counsel.  
 
Not applicable.
 
 
A. Consolidated statements and other financial information.  
 
We have appended consolidated financial statements filed as part of this annual report. See Item 18 “Financial Statements.”

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Legal Proceedings  
 
On December 30, 2000, Lin Ze Xian Origin Seed Technology Development Co., Ltd., or Lin Ze Origin, entered into a guarantee agreement with Agriculture Bank of China Lin Ze Branch to guarantee a loan extended by Agriculture Bank of China Lin Ze Branch to Lin Ze Xian Seed Company. Lin Ze Origin subsequently merged into Beijing Origin, which assumed rights and obligations of Lin Ze Origin by operation of law under the guarantee agreement. Upon Lin Ze Xian Seed Company’s announcement of bankruptcy, we were required to repay the outstanding loan. On December 28, 2001, the Company was ordered by the Lin Ze Xian People’s Court to pay approximately RMB2,872,000 to Agricultural Bank of China Lin Ze Branch in fulfillment of the guarantee obligation. The civil judgment of the Zhangyi Intermediate People’s Court suspended this decision pending final outcome of Lin Ze Xian Seed Company’s bankruptcy hearings.

Except as disclosed above, we are currently not a party to any material legal or administrative proceedings, and we are not aware of threatened material legal or administrative proceedings against us. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.
 
Dividend Policy
 
We have never declared or paid any dividends, nor do we have any present plan to pay any cash dividends on our ordinary shares in the foreseeable future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

Our board of directors may by resolution authorize payment of dividends if the directors are satisfied, on reasonable grounds, Origin will, immediately after the distribution of dividends, satisfy the solvency test as stipulated in Section 56 of the BVI Business Companies Act. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
 
B. Significant changes.
 
 
ITEM 9. THE OFFER AND LISTING
 
A. Offering and listing details.  
 
The common stock, warrants and units of Chardan, our predecessor, were quoted on the Over the Counter Bulletin Board (“OTCBB”) under the symbols of CAQC,CAQCW and CAQCU, respectively. Chardan’s Units commenced public trading on March 22,2004, and its common stock and warrants commenced public trading on March 29, 2004. On November 8, 2005, Chardan merged with and into Origin for the purpose of redomestication out of the United States. On November 8, 2005, Origin’s ordinary shares were approved to be listed on the then Nasdaq National Market, now the Nasdaq Global Market, under the symbol of SEED. Through January 9, 2006, approximately 8,041,000 of the 8,050,000 warrants that were then issued and outstanding were exercised at a price of $5.00 per warrant. Holders of the few remaining warrants that were not exercised were paid $.01 per warrant and the warrants were extinguished.

The following table provides the high and low trading prices for Origin’s common stock, and historical prices for the common stock, warrants and units of Chardan for the periods indicated below.
 
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The OTCBB Price per Common Stock
 
The OTCBB Price per Warrant
 
The OTCBB Price per Unit
 
The Nasdaq Global Market Price per Share
 
   
High
 
Low
 
High
 
Low
 
High
 
Low
 
High
 
Low
 
Annual Market Prices
                                                 
Year 2004 (from March 22, 2004)
   
6.65
   
4.65
   
1.90
   
0.61
   
6.95
   
5.70
   
N/A
   
N/A
 
Year 2005 (until November 8, 2005)
   
10.38
   
6.20
   
5.06
   
1.60
   
20.20
   
9.30
   
N/A
   
N/A
 
Year 2005 (from November 8, 2005)
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
13.80
   
8.45
 
                                                   
Quarterly Market Prices
                                                 
First Quarter 2004
   
N/A
   
N/A
   
N/A
   
N/A
   
6.25
   
5.99
   
N/A
   
N/A
 
Second Quarter 2004
   
5.00
   
4.65
   
1.05
   
0.64
   
6.95
   
6.03
   
N/A
   
N/A
 
Third Quarter 2004
   
4.94
   
4.75
   
0.85
   
0.61
   
6.80
   
5.70
   
N/A
   
N/A
 
Fourth Quarter 2004
   
6.65
   
4.85
   
2.03
   
0.62
   
10.60
   
6.00
   
N/A
   
N/A
 
First Quarter 2005
   
8.20
   
6.10
   
3.21
   
1.60
   
14.35
   
9.30
   
N/A
   
N/A
 
Second Quarter 2005
   
9.10
   
7.30
   
3.35
   
2.00
   
15.50
   
12.25
   
N/A
   
N/A
 
Third Quarter 2005
   
9.74
   
7.85
   
8.60
   
3.75
   
30.00
   
14.86
   
N/A
   
N/A
 
Fourth Quarter 2005
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
13.80
   
8.45
 
First Quarter 2006
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
17.56
   
14.74
 
Second Quarter 2006
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
17.49
   
12.27
 
                                                   
Monthly Market Prices
                                                 
January 2006
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
17.70
   
11.48
 
February 2006
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
18.35
   
15.35
 
March 2006
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
17.50
   
14.94
 
April 2006
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
17.74
   
16.10
 
May 2006
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
17.36
   
13.16
 
June 2006
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
15.00
   
12.18
 
 
B. Plan of distribution.  
 
Not applicable
 
C. Markets.
 
See Item 9.A above.

D. Selling shareholders.  
 
Not applicable
 
E. Dilution.  
 
Not applicable
 
F. Expenses of the issue.  
 
Not applicable
 
 
A. Share capital.  
 
Not applicable.
 
B. Memorandum and articles of association.  
 
Our board of directors adopted certain amendments to the memorandum and articles of association on June 26, 2006. Origin was incorporated in the British Virgin Islands on February 10, 2005 under the International Business Companies Act. In view of the passing into law of the BVI Business Companies Act, or the BCA, and the automatic re-registration of all International Business Companies under this Act with effect from January 1, 2007, we have made certain changes to the Memorandum and Articles of Association in compliance with the BCA. The directors of the board of Origin, at a meeting of the board of directors held in Beijing on June 25-26, duly considered the Amended and Restated Memorandum and Association and Articles of Association, or the M&A, and determined that it is in the our interests and the best interests of our shareholders that the Amended and Restated M&A be adopted as our new Memorandum of Association and Articles of Association, in substitution for and to the exclusion of the existing Memorandum of Association and Articles of Association. Our board of directors has determined that it would be in our best interests to re-register as a company governed by the BCA. In addition to the above changes, we have made certain other changes, including changes related to corporate governance. Among others, we have added provisions regarding the audit committee of the board of directors. Our board of directors has determined that these amendments to the Memorandum of Association and Articles of Association of the company do not materially vary rights of our shareholders.
 
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The following is a summary description of certain provisions of our new Memorandum and Articles of Association:

Charter

Our charter documents consist of our Memorandum of Association and our Articles of Association. The Memorandum of Association loosely resembles the Articles of Incorporation of a United States corporation, and the Articles of Association loosely resembles the bylaws of a United States corporation. This description and summary does not purport to be complete and does not address all differences between United States and British Virgin Islands corporate laws. Copies of our new Memorandum and Articles of Association have been filed as exhibits to this report. Readers are urged to review the exhibits in their entirety for a complete understanding of the provisions of our charter documents.  

Corporate Powers

Origin was first incorporated as a company under the International Business Companies Act, 1984 (as amended) on February 10, 2005 and was re-registered on July 10, 2006 under the BVI, Business Companies Act, 2004. Clause 7 of the Amended and Restated M&A states that the Company can carry out any object not prohibited by the BVI Business Companies Act 2004 or as the same may be revised from time to time, or any other law of the British Virgin Islands .

Directors

For so long as our shares are listed or quoted on Nasdaq, we are required to conduct a review of all material related party transactions on an ongoing basis (which includes transactions in which a director may be interested). We have an audit committee which undertakes the review and approval of potential conflicts of interest situations.

The directors may fix their compensation for services rendered to us.

By a resolution of directors, the directors may exercise all our powers to borrow money, mortgage our property, issue debentures, and issue stock or other securities for any debt, liability or obligation given by us.

A director may resign or retire from our board at any time. The director must give written notice of his resignation to us. Directors hold office until the next annual meeting of members. We currently do not have a staggered election of directors.

The shareholding qualification for directors may be fixed and varied by a resolution of members and unless it is fixed no shareholding qualification is required. A director must be an individual.

Rights of Shares
 
We are authorized to issue ordinary shares and preferred shares. The ordinary shares have one vote each, are subject to purchase or acquisition by us for fair value and have the same rights with regard to dividends and distributions upon our liquidation. The directors are authorized to issue one or more classes and series of preferred shares and to fix the rights and preferences attached to each class of preferred shares. If at any time the shares are divided into different classes, the rights attached to any class may only be varied with the consent in writing of or by a resolution passed at a meeting by the holders of not less than 50 percent of the issued shares in that class.
 
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Meetings

An annual meeting of members must be held each year at such date and time as may be determined by the directors, but no later than one year after the end of our fiscal year pursuant to relevant Nasdaq rules. Special meetings of members may be called by the directors pursuant to a resolution of directors to that effect or upon the written request of members holding more than 50 percent of the votes of our outstanding voting shares.   No less than seven days notice of meetings is required to be given to members.

A meeting of members may be called on short notice if members holding not less than 90 percent of the total number of shares entitled to vote on all matters to be considered at the meeting, or 90 percent of the votes of each class or series of shares where members are entitled to vote thereon as a class or series together with not less than a 90 percent majority of the remaining votes, have agreed to short notice of the meeting, or if all members holding shares entitled to vote on all or any matters to be considered at the meeting have waived notice of the meeting and for this purpose presence at the meeting shall be deemed to constitute waiver.

The inadvertent failure of the directors to give notice of a meeting to a member, or the fact that a member has not received notice, does not invalidate the meeting.

A member may be represented at a meeting of members by a proxy who may speak and vote on behalf of the member. A written instrument giving the proxy such authority must be produced at the place appointed for the meeting before the time for holding the meeting.

A meeting of members is duly constituted if; at the commencement of the meeting, there are present in person or by proxy not less than 50 percent of the votes of the shares or class or series of shares entitled to vote on resolutions of members to be considered at the meeting.

Limitations on Ownership of Securities

There are no limitations on the right of non residents or foreign persons to own our securities imposed by British Virgin Islands law or by our Amended and Restated M&A.

Change in Control of Company

There are no provisions in our Amended and Restated M&A that would operate only to delay, defer or prevent a change of control of our company. However, the board of directors has the power to issue preferred shares with such rights attaching to them as they decide and that this power could be used in a manner that would delay, defer of prevent a change of control of our company.

Ownership Threshold

There are no provisions governing the ownership threshold above which shareholder ownership must be disclosed.  

Changes in Capital

Subject to the provisions of the BVI Business Companies Act, 2004, we may, by a resolution of directors or members, amend our Amended and Restated M&A to increase or decrease the number of shares authorized to be issued. There is no definition of capital in the BVI Business Companies Act, 2004. The directors of a company may, by resolution, authorise a distribution (including a capital distribution) by their company at a time, of an amount, and to any members they think fit if they are satisfied, on reasonable grounds, that the company will, immediately after the distribution, satisfy the solvency test. The solvency test is satisfied if the value of the company’s assets exceeds its liabilities, and the company is able to pay its debts as they fall due.

C. Material contracts.  
 
We have not entered into any material contracts other than in the ordinary course of business and other than those described in Item 4, “Information on the Company” and in Item 7, “Major Shareholders and Related Party Transactions” or elsewhere in this annual report on Form 20-F.
 
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D. Exchange controls.  
 
British Virgin Islands

There are no material exchange controls restrictions on payment of dividends, interest or other payments to the holders of our ordinary or preferred shares or on the conduct of its operations in the BVI, where we were incorporated. There are no material BVI laws which impose any material exchange controls on us or that affect the payment of dividends, interest or other payments to nonresident holders of its ordinary or preferred shares. BVI law and our Amended and Restated M&A impose no material limitations on the right of non-residents or foreign owners to hold or vote our ordinary or preferred shares.

China

China’s government imposes control over the convertibility of RMB into foreign currencies. Under the current unified floating exchange rate system, the China Foreign Exchange Transaction Center, authorized by the People’s Bank of China publishes a daily exchange rate for RMB, or the PBOC Exchange Rate, based on the weighted average of quotations from all the market makers in the inter-bank foreign exchange market before open quotation. Financial institutions authorized to deal in foreign currency may enter into foreign exchange transactions at exchange rates within an authorized range above or below the PBOC Exchange Rate according to market conditions.

Pursuant to the Foreign Exchange Control Regulations issued by the State Council on January 29, 1996 and effective as of April 1, 1996 (and amended on January 14, 1997) and the Administration of Settlement, Sale and Payment of Foreign Exchange Regulations which came into effect on July 1, 1996 regarding foreign exchange control, or the Regulations, conversion of Renminbi into foreign exchange by foreign investment enterprises for current account items, including the distribution of dividends and profits to foreign investors of joint ventures, is permissible upon the proper production of qualified commercial vouchers or legal documents as required by the Regulations. Foreign investment enterprises are permitted to remit foreign exchange from their foreign exchange bank account in China upon the proper production of, inter alia, the board resolutions declaring the distribution of the dividend and payment of profits. Conversion of RMB into foreign currencies and remittance of foreign currencies for capital account items, including direct investment, loans, security investment, is still subject to the approval of the State Administration of Foreign Exchange or any authorized local branches, or SAFE or the Branches, in each such transaction. On January 14, 1997, the State Council amended the Foreign Exchange Control Regulations and added, among other things, an important provision, as Article 5 provides that the State shall not impose restrictions on recurring international payments and transfers under current accounts.
 
Under the Regulations, foreign investment enterprises are required to open and maintain separate foreign exchange accounts for capital account items (but not for other items). In addition, foreign investment enterprises may only buy, sell and/or remit foreign currencies at those banks authorized to conduct foreign exchange business upon the production of valid commercial documents and, in the case of capital account item transactions, document approval from SAFE or the Branches.
 
Currently, foreign investment enterprises are required to apply to SAFE for “foreign exchange registration certificates for foreign investment enterprises.” With such foreign exchange registration certificates (which are granted to foreign investment enterprises upon fulfilling specified conditions and which are subject to review and renewal by SAFE or its Branches on an annual basis) or with the foreign exchange sales notices from SAFE (which are obtained on a transaction-by-transaction basis), foreign-invested enterprises may open foreign exchange bank accounts (the advance examination and approval for the opening of foreign exchange current accounts has been cancelled according to the Notice of SAFE on Adjusting Policies Concerning the Administration of Foreign Exchange Current Accounts, which came into effect on May 1, 2006) and enter into foreign exchange transactions at banks authorized to conduct foreign exchange business to obtain foreign exchange for their needs.
 
E. Taxation.  
 
The following is a general summary of certain material British Virgin Islands and   U.S. federal income tax considerations. The discussion is not intended to be,   nor should it be construed as, legal or tax advice to any particular   prospective shareholder. The discussion is based on laws and relevant   interpretations thereof in effect as of the date hereof, all of which are   subject to change or different interpretations, possibly with retroactive   effect.
 
62
 
The discussion does not address United States state or local tax laws,   or tax laws of jurisdictions other than the British Virgin Islands and the United   States.
 
British Virgin Islands Taxation
 
The British Virgin Islands, or BVI, does not impose a withholding tax on dividends paid by us to holders of our ordinary or preferred shares. Nor does the BVI levy any capital gains or income taxes on us.

Further, a holder of our ordinary or preferred shares who is not a resident of the BVI is exempt from the BVI income tax on dividends paid with respect to the ordinary or preferred shares. Holders of ordinary or preferred shares are not subject to the BVI income tax on gains realized on the sale or disposition of the ordinary or preferred shares.

Our ordinary and preferred shares are not subject to transfer taxes, stamp duties or similar charges in the BVI. However, as a business company, we are required to pay the BVI government an annual license fee based on the number of shares we are authorized to issue.

There is no income tax treaty or convention currently in effect between the United States and the BVI.

United States federal income taxation
 
This discussion describes the material U.S. federal income tax consequences of the purchase, ownership and disposition of our ordinary shares. This discussion does not address any aspect of U.S. federal gift or estate tax, or the state, local or foreign tax consequences of an investment in our ordinary shares. This discussion applies to you only if you hold and beneficially own our ordinary shares as capital assets for tax purposes. This discussion does not apply to you if you are a member of a class of holders subject to special rules, such as:
 
 
·
 
dealers in securities or currencies;
         
 
·
 
traders in securities that elect to use a mark-to-market method of accounting for securities holdings;
 
         
 
·
 
banks or other financial institutions;
 
         
 
·
 
insurance companies;
 
         
 
·
 
tax-exempt organizations;
 
         
 
·
 
partnerships and other entities treated as partnerships for U.S. federal income tax purposes or persons holding ordinary shares through any such entities;
 
         
 
·
 
persons that hold ordinary shares as part of a hedge, straddle, constructive sale, conversion transaction or other integrated investment;
 
         
 
·
 
U.S. Holders (as defined below) whose functional currency for tax purposes is not the U.S. dollar;
 
         
 
·
 
persons liable for alternative minimum tax; or
 
         
 
·
 
persons who actually or constructively own 10% or more of the total combined voting power of all classes of our shares (including ordinary shares) entitled to vote.
 
 
This discussion is based on the U.S. Internal Revenue Code of 1986, as amended, which we refer to in this discussion as the Code, its legislative history, existing and proposed regulations promulgated thereunder, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. In addition, this discussion relies on our assumptions regarding the value of our shares and the nature of our business over time. Finally, this discussion is based in part upon the representations of the depositary and the assumption that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.
 
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You should consult your own tax advisor concerning the particular U.S. federal income tax consequences to you of the purchase, ownership and disposition of our ordinary shares, as well as the consequences to you arising under the laws of any other taxing jurisdiction.
 
For purposes of the U.S. federal income tax discussion below, you are a “U.S. Holder” if you beneficially own ordinary shares and are:
 
 
·
 
a citizen or resident of the United States for U.S. federal income tax purposes;
         
 
·
 
a corporation, or other entity taxable as a corporation, that was created or organized in or under the laws of the United States or any political subdivision thereof;
 
         
 
·
 
an estate the income of which is subject to U.S. federal income tax regardless of its source; or
 
         
 
·
 
a trust if (a) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (b) the trust has a valid election in effect to be treated as a U.S. person.
 
 
If you are not a U.S. person, please refer to the discussion below under “Non-U.S. Holders.”
 
For U.S. federal income tax purposes, income earned through a foreign or domestic partnership or other flow-through entity is attributed to its owners. Accordingly, if a partnership or other flow-through entity holds ordinary shares, the tax treatment of the holder will generally depend on the status of the partner or other owner and the activities of the partnership or other flow-through entity.
 
U.S. Holders  
 
Dividends on ordinary shares  
 
We do not anticipate paying dividends on our ordinary shares or indirectly on our ordinary shares, in the foreseeable future. See “Dividend policy.”
 
Subject to the “Passive Foreign Investment Company” discussion below, if we do make distributions and you are a U.S. Holder, the gross amount of any distributions you receive on your ordinary shares will generally be treated as dividend income if the distributions are made from our current or accumulated earnings and profits, calculated according to U.S. federal income tax principles. Dividends will generally be subject to U.S. federal income tax as ordinary income on the day you actually or constructively receive such income. However, if you are an individual and have held your ordinary shares for a sufficient period of time, dividend distributions on our ordinary shares will generally constitute qualified dividend income taxed at a preferential rate (generally 15% for dividend distributions before January 1, 2011) as long as our ordinary shares continue to be readily tradable on the Nasdaq Global Market and certain other conditions apply. You should consult your own tax adviser as to the rate of tax that will apply to you with respect to dividend distributions, if any, you receive from us.
 
We do not intend to calculate our earnings and profits according to U.S. tax accounting principles. Accordingly, distributions on our ordinary shares, if any, will generally be taxed to you as dividend distributions for U.S. tax purposes. Even if you are a corporation, you will not be entitled to claim a dividends-received deduction with respect to distributions you receive from us. Dividends generally will constitute foreign source passive income for U.S. foreign tax credit limitation purposes.
 
Sales and other dispositions of ordinary shares  
 
Subject to the “Passive Foreign Investment Company” discussion below, when you sell or otherwise dispose of ordinary shares, you will generally recognize capital gain or loss in an amount equal to the difference between the amount realized on the sale or other disposition and your adjusted tax basis in the ordinary shares, both as determined in U.S. dollars. Your adjusted tax basis will generally equal the amount you paid for the ordinary shares. Any gain or loss you recognize will be long-term capital gain or loss if your holding period in our ordinary shares is more than one year at the time of disposition. If you are an individual, any such long-term capital gain will be taxed at preferential rates. Your ability to deduct capital losses will be subject to various limitations.
 
64
 
Passive Foreign Investment Company  
 
If we were a Passive Foreign Investment Company, or PFIC, in any taxable year in which you hold our ordinary shares, as a U.S. Holder, you would generally be subject to adverse U.S. tax consequences, in the form of increased tax liabilities and special U.S. tax reporting requirements.
 
We will be classified as a PFIC in any taxable year if either: (1) the average percentage value of our gross assets during the taxable year that produce passive income or are held for the production of passive income is at least 50% of the value of our total gross assets or (2) 75% or more of our gross income for the taxable year is passive income (such as certain dividends, interest or royalties). For purposes of the first test: (1) any cash, cash equivalents, and cash invested in short-term, interest bearing, debt instruments, or bank deposits that is readily convertible into cash, will generally count as producing passive income or held for the production of passive income and (2) the average value of our gross assets is calculated based on our market capitalization.
 
We believe that we were not a PFIC for the taxable year 2005. However, there can be no assurance that we will not be a PFIC for the taxable year 2006 and/or later taxable years, as PFIC status is re-tested each year and depends on the facts in such year. For example, we would be a PFIC for the taxable year 2005 if the sum of our average market capitalization, which is our share price multiplied by the total amount of our outstanding shares, and our liabilities over that taxable year was not more than twice the value of our cash, cash equivalents, and other assets that are readily converted into cash. We could also be a PFIC for any taxable year if the gross income that we and our subsidiaries earn from investing the portion of the cash that exceeds the immediate capital needs of our active business is substantial in comparison with the gross income from our business operations.
 
If we were a PFIC, you would generally be subject to additional taxes and interest charges on certain “excess” distributions we make and on any gain realized on the disposition or deemed disposition of your ordinary shares, regardless of whether we continue to be a PFIC in the year in which you receive an “excess” distribution or dispose of or are deemed to dispose of your ordinary shares. Distributions in respect of your ordinary shares during a taxable year would generally constitute “excess” distributions if, in the aggregate, they exceed 125% of the average amount of distributions in respect of your ordinary shares over the three preceding taxable years or, if shorter, the portion of your holding period before such taxable year.
 
To compute the tax on “excess” distributions or any gain, (1) the “excess” distribution or the gain would be allocated ratably to each day in your holding period, (2) the amount allocated to the current year and any tax year before we became a PFIC would be taxed as ordinary income in the current year, (3) the amount allocated to other taxable years would be taxable at the highest applicable marginal rate in effect for that year, and (4) an interest charge at the rate for underpayment of taxes for any period described under (3) above would be imposed with respect to any portion of the “excess” distribution or gain that is allocated to such period. In addition, if we were a PFIC, no distribution that you receive from us would qualify for taxation at the preferential rate discussed in the “Dividends on ordinary shares” section above.
 
If we were a PFIC in any year, and if you are a U.S. Holder, you would be required to make an annual return on IRS Form 8621 regarding your ordinary shares. However, we do not intend to generate, or share with you, information that you might need to properly complete IRS Form 8621. You should consult with your own tax adviser regarding reporting requirements with regard to your ordinary shares.
 
If we were a PFIC in any year, you would generally be able to avoid the “excess” distribution rules described above by making a timely so-called “mark-to-market” election with respect to your ordinary shares provided our ordinary shares are “marketable.” Our ordinary shares will be “marketable” as long as they remain regularly traded on Nasdaq Global Market. If you made this election in a timely fashion, you would generally recognize as ordinary income or ordinary loss the difference between the fair market value of your ordinary shares on the first day of any taxable year and their value on the last day of that taxable year. Any ordinary income resulting from this election would generally be taxed at ordinary income rates and would not be eligible for the reduced rate of tax applicable to qualified dividend income. Any ordinary losses would be limited to the extent of the net amount of previously included income as a result of the mark-to-market election, if any. Your basis in the ordinary shares would be adjusted to reflect any such income or loss. You should consult with your own tax adviser regarding potential advantages and disadvantages to you of making a “mark-to-market” election with respect to your ordinary shares. Separately, if we were a PFIC in any year, you would be able to avoid the “excess” distribution rules by making a timely election to treat us as a so-called “Qualified Electing Fund”, or QEF. You would then generally be required to include in gross income for any taxable year (1) as ordinary income, your pro rata share of our ordinary earnings for the taxable year, and (2) as long-term capital gain, your pro rata share of our net capital gain for the taxable year. However, we do not intend to provide you with the information you would need to make or maintain a QEF election and you will, therefore, not be able to make or maintain such an election with respect to your ordinary shares.
 
65
 
Non-U.S. Holders  
 
If you beneficially own ordinary shares and are not a U.S. Holder for U.S. federal income tax purposes, or a Non-U.S. Holder, you generally will not be subject to U.S. federal income tax or withholding on dividends received from us with respect to ordinary shares unless that income is considered effectively connected with your conduct of a U.S. trade or business and, if an applicable income tax treaty so requires as a condition for you to be subject to U.S. federal income tax with respect to income from your ordinary shares, such dividends are attributable to a permanent establishment that you maintain in the United States. You generally will not be subject to U.S. federal income tax, including withholding tax, on any gain realized upon the sale or exchange of ordinary shares, unless:
 
  ·     that gain is effectively connected with the conduct of a U.S. trade or business and, if an applicable income tax treaty so requires as a condition for you to be subject to U.S. federal income tax with respect to income from your ordinary shares, such gain is attributable to a permanent establishment that you maintain in the United States; or
       
 
·
 
you are a nonresident alien individual and are present in the United States for at least 183 days in the taxable year of the sale or other disposition and either (1) your gain is attributable to an office or other fixed place of business that you maintain in the United States or (2) you have a tax home in the United States.
 
If you are engaged in a U.S. trade or business, unless an applicable tax treaty provides otherwise, the income from your ordinary shares, including dividends and the gain from the disposition of ordinary shares, that is effectively connected with the conduct of that trade or business will generally be subject to the rules applicable to U.S. Holders discussed above. In addition, if you are a corporation, you may be subject to an additional branch profits tax at a rate of 30% or any lower rate under an applicable tax treaty.
 
U.S. information reporting and backup withholding rules  
 
In general, dividend payments with respect to the ordinary shares and the proceeds received on the sale or other disposition of those ordinary shares may be subject to information reporting to the IRS and to backup withholding (currently imposed at a rate of 28%). Backup withholding will not apply, however, if you (1) are a corporation or come within certain other exempt categories and, when required, can demonstrate that fact or (2) provide a taxpayer identification number, certify as to no loss of exemption from backup withholding and otherwise comply with the applicable backup withholding rules. To establish your status as an exempt person, you will generally be required to provide certification on IRS Form W-9, W-8BEN or W-8ECI, as applicable. Any amounts withheld from payments to you under the backup withholding rules will be allowed as a refund or a credit against your U.S. federal income tax liability, provide that you furnish the required information to the IRS.
 
HOLDERS OF OUR ORDINARY SHARES SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF THE ORDINARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF THE TAX LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION AND INCLUDING ESTATE, GIFT, AND INHERITANCE LAWS.
 
F. Dividends and paying agents.  
 
Not applicable.
 
G. Statement by experts.  
 
Not applicable.
 
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H. Documents on display.
 
We have filed this Annual Report on Form 20-F with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Statements made in this Annual Report as to the contents of any document referred to are not necessarily complete. With respect to each such document filed as an exhibit to this Annual Report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.
 
We are subject to the informational requirements of the Exchange Act and file reports and other information with the Securities and Exchange Commission. Reports and other information which the Company filed with the Securities and Exchange Commission, including this Annual Report on Form 20-F, may be inspected and copied at the public reference room of the Securities and Exchange Commission at 450 Fifth Street N.W. Washington D.C. 20549.
 
You can also obtain copies of this Annual Report on Form 20-F by mail from the Public Reference Section of the Securities and Exchange Commission, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed rates. Additionally, copies of this material may be obtained from the Securities and Exchange Commission’s Internet site at http://www.sec.gov. The Commission’s telephone number is 1-800-SEC-0330.
 
I. Subsidiaries information.  
 
Not Applicable.
 
 
  Interest rate risk  
 
Our exposure to market rate risk for changes in interest rates relates primarily to the interest income generated by excess cash invested in short term money market accounts and certificates of deposit. We have not used derivative financial instruments in our investment portfolio. Interest earning instruments carry a degree of interest rate risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. However, our future interest income may fall short of expectations due to changes in interest rates.
 
Foreign currency risk  
 
Substantially all our revenues and expenses are denominated in Renminbi and a substantial portion of our cash is kept in Renminbi, but a portion of our cash is also kept in U.S. dollars. Although we believe that, in general, our exposure to foreign exchange risks should be limited, the value of our shares will be affected by the foreign exchange rate between U.S. dollars and Renminbi. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operational needs and the Renminbi appreciates against the U.S. dollar at that time, our financial position and the price of our shares may be adversely affected. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of declaring dividends on our shares or otherwise and the U.S. dollar appreciates against the Renminbi, the U.S. dollar equivalent of our earnings in China would be reduced.
 
We have recorded nil foreign exchange gains/loss in net income in year 2005, due to the recent revaluation of the Renminbi against the U.S. dollar by the PRC government. The PRC government may further readjust the current rate at which Renminbi-U.S. dollar exchanges are fixed, as well as re-evaluate its decades-old policy of using a fixed-rate regime to govern foreign currency transactions, although the PRC government has not committed itself to take any such action currently. Since we have not engaged in any hedging activities, we may experience economic loss as a result of any foreign currency exchange rate fluctuations.
 
Inflation  
          
In recent years, China has not experienced significant inflation, and thus inflation has not had a significant effect on our business during the past three years. According to the China Statistical Bureau, China’s overall national inflation rate, as represented by the general consumer price index, was approximately 1.2%, 3.9% and 1.8%, in 2003, 2004 and 2005 respectively. Sustained or increased inflation in China may have an adverse impact on China’s economy, which could affect demand for our products or services or increase our cost of services or operating expenses. As we have not previously operated during a period of significant inflation, we cannot predict with confidence the effect that such inflation may have on our business.  

 
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES  
 
Not Applicable.
 
PART II
 
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES  
 
Not Applicable.
 
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS  
 
The rights of securities holders have not been materially changed.
 
On December 5, 2005, Origin sent out redemption notices to all of the holders of its issued and its outstanding callable common stock purchase warrants. The warrants were originally issued by Chardan in March 2004. As a result of the merger of Chardan into Origin, the warrants were exercisable into common shares of Origin. Origin had the right to call these warrants when the common shares had traded at greater than $8.50 for at least 20 of 30 trading days prior to the notice of redemption being sent to warrant holders. The warrants were exercised for common shares of Origin at $5.00 per warrant. Approximately 8,041,000 of the 8,050,000 warrants that were then issued and outstanding were exercised at a price of $5.00 per warrant through January 9, 2006. Holders of the few remaining warrants that were not exercised were paid $0.01 per warrant and the warrants were extinguished. The gross proceeds received from this redemption were approximately $40 million, of which $15 million was used to satisfy the outstanding obligations of Origin to the initial shareholders of State Harvest under the Stock Purchase Agreement among State Harvest, Chardan and other parties, and the remainder has been used as working capital and other corporate purposes, including acquisitions.
 
ITEM 15. CONTROLS AND PROCEDURES  
 
Our management has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act, as of the end of the fiscal year covered by this report. Based on such evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of the fiscal year covered by this report, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act.
 
There have not been any change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal year covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
ITEM 16A.   AUDIT COMMITTEE FINANCIAL EXPERT.

The board of directors believes that Mr. Remo Richli, a member of our audit committee, meets the criteria for an “audit committee financial expert” as established by the U.S. Securities and Exchange Commission.
 
Mr. Remo Richli will not be deemed an “expert” for any purpose, including, without limitation, for purposes of Section 11 of the U.S. Securities Act of 1933, as amended, as a result of being designated or identified as an audit committee financial expert. The designation or identification of Mr. Remo Richli as an audit committee financial expert does not impose on him any duties, obligations or liability that are greater than the duties, obligations and liability imposed on him as a member of the audit committee and board of directors in the absence of such designation or identification. The designation or identification of Mr. Remo Richli as an audit committee financial expert does not affect the duties, obligations or liability of any other member of the audit committee or board of directors.
 
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ITEM 16B.   CODE OF ETHICS.

Our board of directors has adopted a code of ethics that applies to Origin’s directors, officers and employees and to those of its subsidiaries. A copy of the form of Origin’s code of ethics was filed as Annex G to our registration statement on Form S-4 filed with the Securities and Exchange Commission on May 26, 2005 and with effect as of September 27, 2005.

ITEM 16C.   PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
(a)        Audit Fees.  

The aggregate fees billed for 2002, 2003 and 2004 for professional services rendered by Deloitte Touche Tohmatsu CPA Ltd . for the audit of the annual financial statements of State Harvest Holdings Limited were $0.3 million. The aggregate fees billed for 2005 for professional services rendered by Deloitte Touche Tohmatsu CPA Ltd . for the audit of the annual financial statements of Origin Agritech Limited were $0.5 million. 

(b)       Audit — Related Fees

No fees were billed in each of the last two fiscal years for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under paragraph (a) of this Item 16C for 2004 and 2005.

(c)        Tax Fees

We did not enter into any engagement in 2004 or 2005 for professional services rendered by our principal accountant for tax compliance, tax advice or tax planning.

(d)       All Other Fees

No fees were billed in each of the last two fiscal years for products and services provided by our principal accountant, other than the services reported in paragraphs (a) through (b) of this Item 16C for 2004 and 2005.

(e)    Audit Committee Pre-Approval Policies and Procedures.  

The Audit Committee is to pre-approve all auditing services and permitted non-audit services to be performed for us by our independent auditor, including the fees and terms thereof (subject to the de minimums exceptions for non-audit services described in Section 10A(i)(l)(B) of the Exchange Act which are approved by the Audit Committee prior to the completion of the audit).

(f). Not applicable.

ITEM 16D.   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

We have not been granted an exemption from the applicable listing standards for the audit committee of our board of directors.

ITEM 16E.   PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

None.

PART III
 
ITEM 17. FINANCIAL STATEMENTS  
 
We have elected to provide financial statements pursuant to Item 18.
 
ITEM 18. FINANCIAL STATEMENTS  
 
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The consolidated financial statements for the Company and its subsidiaries are included at the end of this annual report.
 
ITEM 19. EXHIBITS  
 
Index to Exhibits
 
Exhibit
 
 
Number
 
Description
 
1.1
 
 
Memorandum and Articles of Association of Origin Agritech Limited re-registered under the new Business Companies Act of the British Virgin Islands as of July 10, 2006.
         
 
2.1
 
 
Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.2 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on August 22, 2005).
         
 
4.1
 
 
2005 Performance Equity Plan (Incorporated by reference to Annex D of the proxy statement/prospectus included in our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on September 27, 2005).
         
 
4.2
 
 
Form of Employee Share Option Agreement of Origin Agritech Limited.
         
 
4.3
 
 
Technical Service Agreement between Origin Biotechnology and Beijing Origin (Incorporated by reference to Exhibit 10.14 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on August 22, 2005).
         
 
4.4
 
 
Technical Service Agreement between Origin Biotechnology and Henan Origin (Incorporated by reference to Exhibit 10.15 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on August 22, 2005).
         
 
4.5
 
 
Technical Service Agreement between Origin Biotechnology and Changchun Origin (Incorporated by reference to Exhibit 10.16 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on August 22, 2005).
         
 
4.6  
 
 
Form of Stock Consignment Agreement (Incorporated by reference to Exhibit 10.17 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on August 22, 2005).
         
 
4.7  
 
 
Employment Agreement between State Harvest and Dr. Han Gengchen (Incorporated by reference to Exhibit 10.20 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on July 7, 2005).
         
 
4.8  
 
 
Employment Agreement between State Harvest and Mr. Yang Yasheng (Incorporated by reference to Exhibit 10.21 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on July 7, 2005).
         
 
4.9  
 
 
Employment Agreement between State Harvest and Mr. Yuan Liang (Incorporated by reference to Exhibit 10.22 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on July 7, 2005).
         
 
4.10
 
 
Form of Voting Agreement among Origin and Dr. Han and Messrs. Yang and Yuan (Incorporated by reference to Exhibit 10.24 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on July 7, 2005).
         
 
4.11
 
 
Form Corn Seed Production Booking Contract (Incorporated by reference to Exhibit 10.26 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on August 22, 2005).
 
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4.12
 
 
Technology Transfer Agreement between Henan Agriculture University and Beijing Origin (YuYu22) (Incorporated by reference to Exhibit 10.27 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on August 22, 2005).
         
 
4.13
 
 
Joint Development agreement with Corn Research Institute of Li County (1 st Agreement) (Incorporated by reference to Exhibit 10.28 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on August 22, 2005).
         
 
4.14
 
 
Joint Development Agreement with Corn Research Institute of Li County (2 nd Agreement) (Incorporated by reference to Exhibit 10.29 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on September 16, 2005).
         
 
4.15
 
 
Joint Development Agreement with Hubei Province Shiyan Agricultural Sciences Institute (EYu10) (Incorporated by reference to Exhibit 10.30 to our Registration Statement S-4/A (file no. 333-124709) filed with the Securities and Exchange Commission on September 16, 2005).
         
 
4.16
   
Form Equity Transfer Agreement between Beijing Origin and shareholders of Denong Zhengcheng Seed Co., Ltd. pursuant to which Beijing Origin acquired 52.21% equity interest in Denong Zhengcheng Seed Co., Ltd.
         
 
4.17
   
Equity Transfer Agreement between Beijing Origin and Jilin Academy of Agriculture Science dated as of December 6, 2005.
         
 
4.18
 
 
Equity Transfer Agreement between Beijing Origin and China National Center for Biotechnology Development dated as of December 28, 2004.
         
 
4.19
 
 
Capital Contribution Agreement.
         
 
4.20
   
New Corn Seed Liyu 35 Joint Development Agreement between Beijing Origin and Shijiazhuang Liyu Technology Development Co., Ltd.
         
 
4.21
   
Joint Development Agreement between Beijing Origin and Corn Research Institute of Li County dated January 31, 2002.
         
 
4.22
   
Joint Development Agreement between Beijing Origin and Corn Research Institute of Li County dated January 9, 2003.
         
 
4.23
   
Technology Transfer and Cooperation Agreement Concerning a New Corn Hybrid Yuyu 20.
         
 
4.24
   
Renminbi Capital Loan Contract
         
 
4.25
   
Mortgage Contract
         
 
4.26
   
Form of Hybrid Corn Seed Sales Contract
         
 
8.1  
 
 
List of subsidiaries.
         
 
12.1
 
 
CEO Certification Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)) (17 CFR 240.13a-14(a)) or Rule 15d-1(a) (17 CFR 240.15d-14(a))
         
 
12.2
 
 
CFO Certification Pursuant to Rule 13a-14(a) (17 CFR 240.13a-14(a)) or Rule 15d-1(a) (17 CFR 240.15d-14(a))
         
 
13.1
 
 
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
         
 
13.2
 
 
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

71
 
SIGNATURE
 
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
 
Date: July 14, 2006    ORIGIN AGRITECH LIMITED
 
  		 
  		 
 
    /s/ Han Gengchen
 
Name: Han Gengchen
   
 
Title: Chief Executive Officer
 
 
72
 
ORIGIN AGRITECH LIMITED
 
Report of Independent Registered Public Accounting
Firm and Consolidated Financial Statements
For the years ended December 31, 2003, 2004 and 2005

 
ORIGIN AGRITECH LIMITED

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS
 
PAGE
     
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
F-1
     
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2004 AND 2005
 
F-2
     
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
 
F-3
     
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME   FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
 
F-4
     
CONSOLIDATED STATEMENTS OF CASH FLOWS   FOR THE YEARS ENDED DECEMBER 31, 2003, 2004 AND 2005
 
F-5
     
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
F-7
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
ORIGIN AGRITECH LIMITED

We have audited the accompanying consolidated balance sheets of Origin Agritech Limited and its subsidiaries and variable interest entities (the "Company") as of December 31, 2004 and 2005 and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for each of the three years ended December 31, 2005, all expressed in Renminbi. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2005 and the results of its operations and its cash flows for each of the three years ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.

Our audits also comprehended the translation of Renminbi amounts into United States dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2. Such United States dollar amounts are presented solely for the convenience of the readers.


/s/ Deloitte Touche Tohmatsu CPA Ltd.
Beijing, China
July 14 , 2006
 
F-1

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

   
As of December 31,
 
 
 
2004
 
2005
 
2005
 
   
  RMB
 
  RMB
 
  US$
 
Assets
             
Current assets:
             
Cash and cash equivalents
   
68,848
   
237,828
   
29,471
 
Due from related parties
   
785
   
3,373
   
418
 
Advances to suppliers
   
1,644
   
38,626
   
4,786
 
Inventories
   
235,821
   
355,699
   
44,077
 
Income tax recoverable
   
7,532
   
3,366
   
417
 
Prepaid expenses and other current assets
   
10,269
   
10,334
   
1,280
 
Total current assets
   
324,899
   
649,226
   
80,449
 
Land use rights, net
   
11,302
   
16,616
   
2,059
 
Plant and equipment, net
   
66,002
   
104,987
   
13,010
 
Long-term investments
   
10,275
   
16,830
   
2,086
 
Acquired intangible assets, net
   
2,872
   
4,778
   
592
 
Deferred income tax assets
   
419
   
327
   
41
 
Other assets
   
615
   
6,005
   
744
 
Total assets
   
416,384
   
798,769
   
98,981
 
 
         
 
   
 
 
Liabilities, minority interests and shareholders' equity
                   
Current liabilities:
                   
Short-term borrowings
   
41,000
   
63,000
   
7,807
 
Accounts payable
   
22,742
   
28,823
   
3,572
 
Due to growers
   
83,357
   
66,195
   
8,203
 
Due to related parties
   
1,413
   
1,938
   
240
 
Advances from customers
   
78,683
   
102,743
   
12,731
 
Deferred revenues
   
37,921
   
181,583
   
22,501
 
Income tax payable
   
1,152
   
39,251
   
4,864
 
Other payables and accrued expenses
   
6,734
   
16,083
   
1,993
 
Total current liabilities
   
273,002
   
499,616
   
61,911
 
Long-term borrowings
   
-
   
1,880
   
233
 
Other long-term liability
   
2,872
   
2,872
   
356
 
Total liabilities
   
275,874
   
504,368
   
62,500
 
                     
Minority interests
   
3,534
   
3,234
   
401
 
                     
Commitments and contingencies (Note 20)
                   
                     
Shareholders' equity:
                   
Preferred stock (no par value, 1,000,000 shares authorized; none issued)
                   
Common stock (US$1 par value; 10,000 shares authorized, issued and outstanding in 2004; no par value; 60,000,000 shares authorized, 18,203,193 shares issued and outstanding in 2005)
   
83
   
-
   
-
 
Additional paid-in capital
   
100,000
   
246,093
   
30,494
 
Retained earnings
   
36,893
   
45,465
   
5,634
 
Accumulated other comprehensive loss
   
-
   
(391
)
 
(48
)
Total shareholders' equity
   
136,976
   
291,167
   
36,080
 
Total liabilities, minority interests and shareholders' equity
   
416,384
   
798,769
   
98,981
 

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

F-2

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)

   
Year ended December 31,
 
 
 
2003
 
2004
 
2005
 
2005
 
 
 
RMB
 
RMB
 
RMB
 
US$
 
                   
Revenues
   
191,645
   
301,520
   
207,291
   
25,687
 
Cost of revenues
   
(118,977
)
 
(178,313
)
 
(129,162
)
 
(16,005
)
Gross profit
   
72,668
   
123,207
   
78,129
   
9,682
 
                           
Operating expenses:
                         
Selling and marketing
   
(13,310
)
 
(20,390
)
 
(27,037
)
 
(3,350
)
General and administrative
   
(18,948
)
 
(24,149
)
 
(28,983
)
 
(3,591
)
Research and development
   
(5,288
)
 
(6,774
)
 
(6,977
)
 
(865
)
Total operating expenses
   
(37,546
)
 
(51,313
)
 
(62,997
)
 
(7,806
)
Other operating income
   
-
   
-
   
2,309
   
286
 
Income from operations
   
35,122
   
71,894
   
17,441
   
2,162
 
Interest expense
   
(483
)
 
(831
)
 
(1,829
)
 
(227
)
Equity in earnings of associated company
   
-
   
1,925
   
879
   
109
 
Interest income
   
845
   
371
   
886
   
110
 
Other income
   
1,137
   
149
   
300
   
37
 
Income before income taxes and minority interests
   
36,621
   
73,508
   
17,677
   
2,191
 
Income tax expense:
                         
Current
   
(8,377
)
 
(5,975
)
 
(1,313
)
 
(163
)
Deferred
   
569
   
(1,723
)
 
(92
)
 
(11
)
Income tax expense
   
(7,808
)
 
(7,698
)
 
(1,405
)
 
(174
)
Income before minority interests
   
28,813
   
65,810
   
16,272
   
2,017
 
Minority interests
   
138
   
(351
)
 
137
   
17
 
Net income
   
28,951
   
65,459
   
16,409
   
2,034
 
Net income per share-basic
   
RMB2.90
   
RMB6.55
   
RMB1.52
 
 
US $ 0.19
 
Net income per share-diluted
   
RMB2.90
   
RMB6.55
   
RMB1.46
 
 
US $ 0.18
 
Shares used in calculating basic net income per share
   
10,000,000
   
10,000,000
   
10,786,719
   
10,786,719
 
Shares used in calculating diluted net income per share
   
10,000,000
   
10,000,000
   
11,220,157
   
11,220,157
 
Cash dividend per share
   
RMB0.16
   
RMB0.20
   
RMB0.73
 
 
US $ 0.09
 

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

F-3

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(In thousands, except share data)
 
   
Common shares
 
Additional
paid-in
 
Retained
Earnings
(accumulated
 
Accumulated
Other
Comprehensive
 
Total
shareholders'
 
Comprehensive
 
 
 
Shares
 
Amount
 
capital
 
deficit)
 
loss
 
equity
 
income
 
 
 
 
 
RMB
 
RMB
 
RMB
 
RMB
 
RMB
 
RMB
 
Balance as of January 1, 2003
   
-
   
-
   
3,672
   
42,415
   
-
   
46,087
   
-
 
Net income
   
-
   
-
   
-
   
28,951
   
-
   
28,951
   
28,951
 
Capital restructuring
   
-
   
-
   
96,328
   
(96,328
)
 
-
   
-
   
-
 
Cash dividend
   
-
   
-
   
-
   
(1,604
)
 
-
   
(1,604
)
 
-
 
Balance as of December 31, 2003
   
-
   
-
   
100,000
   
(26,566
)
 
-
   
73,434
   
28,951
 
Net income
   
-
   
-
   
-
   
65,459
   
-
   
65,459
   
65,459
 
Capital contribution
   
10,000
   
83
   
-
   
-
   
-
   
83
   
-
 
Cash dividend
   
-
   
-
   
-
   
(2,000
)
 
-
   
(2,000
)
 
-
 
Balance as of December 31, 2004
   
10,000
   
83
   
100,000
   
36,893
   
-
   
136,976
   
65,459
 
Net income
   
-
   
-
   
-
   
16,409
   
-
   
16,409
   
16,409
 
Recapitalization in connection with the Share Exchange Transaction (Note 1)
   
15,090,000
   
(83
)
 
113,324
   
-
   
-
   
113,241
   
-
 
Issuance of common shares upon exercise of Warrants (Note 18)
   
2,793,868
   
-
   
112,872
   
-
   
-
   
112,872
   
-
 
Issuance of common shares upon conversion of Unit Purchase Options (Note 18)
   
309,325
   
-
   
-
   
-
   
-
   
-
   
-
 
Share-based compensation expense
   
-
   
-
   
774
   
-
   
-
   
774
   
-
 
Cumulative translation adjustment
   
-
   
-
   
-
   
-
   
(391
)
 
(391
)
 
(391
)
Deemed distribution (Note 1)
   
-
   
-
   
(80,877
)
 
-
   
-
   
(80,877
)
 
-
 
Cash dividend
   
-
   
-
   
-
   
(7,837
)
 
-
   
(7,837
)
 
-
 
Balance as of December 31, 2005
   
18,203,193
   
-
   
246,093
   
45,465
   
(391
)
 
291,167
   
16,018
 
In US$
         
-
   
30,494
   
5,634
   
(48
)
 
36,080
   
1,985
 
 
The accompanying notes are an integral part of these consolidated financial statements.

F-4
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

   
Year ended December 31,
 
   
2003
 
2004
 
2005
 
2005
 
   
RMB
 
RMB
 
RMB
 
US$
 
                   
Operating activities:
                 
Net income
   
28,951
   
65,459
   
16,409
   
2,034
 
Adjustments to reconcile net income to net
                         
cash (used in) provided by operating activities:
                         
Depreciation and amortization
   
3,261
   
5,225
   
6,754
   
837
 
Loss (gain) on disposal of plant and equipment
   
473
   
76
   
(26
)
 
(3
)
Bad debt provision
   
(51
)
 
-
   
125
   
15
 
Inventory write down
   
-
   
-
   
1,685
   
209
 
Interest capitalized in plant and equipment
   
-
   
-
   
(1,207
)
 
(150
)
Minority interests
   
(138
)
 
351
   
(137
)
 
(17
)
Share-based compensation expense
   
-
   
-
   
774
   
96
 
Equity in earnings of associated company
   
-
   
(1,925
)
 
(879
)
 
(109
)
Changes in operating assets and liabilities:
                         
Accounts receivable, net
   
5,325
   
-
   
-
   
-
 
Due from related parties
   
(100
)
 
(264
)
 
(2,588
)
 
(321
)
Advances to suppliers
   
(5,560
)
 
5,727
   
(36,982
)
 
(4,583
)
Inventories
   
(55,984
)
 
(64,933
)
 
(121,563
)
 
(15,063
)
Income tax recoverable
   
8,346
   
(6,081
)
 
4,166
   
516
 
Prepaid expenses and other current assets
   
(1,466
)
 
(1,765
)
 
(4,734
)
 
(587
)
Deferred income tax assets
   
(569
)
 
1,723
   
92
   
11
 
Other assets
   
(60
)
 
(82
)
 
(70
)
 
(9
)
Accounts payable
   
2,405
   
8,267
   
6,081
   
754
 
Due to growers
   
(7,141
)
 
47,946
   
(17,162
)
 
(2,127
)
Due to related parties
   
-
   
1,413
   
(1,497
)
 
(186
)
Advances from customers
   
16,134
   
5,264
   
24,060
   
2,981
 
Deferred revenues
   
(9,468
)
 
(27,375
)
 
143,662
   
17,802
 
Income tax payable
   
-
   
1,152
   
(960
)
 
(119
)
Other payables and accrued expenses
   
681
   
2,567
   
8,384
   
1,039
 
Net cash (used in) provided by operating activities
   
(14,961
)
 
42,745
   
24,387
   
3,020
 
 
         
 
   
 
   
 
 
Investing activities:
                         
Purchase of plant and equipment
   
(26,996
)
 
(15,470
)
 
(43,198
)
 
(5,353
)
Proceeds on disposal of plant and equipment
   
-
   
255
   
94
   
12
 
Purchase of land use rights
   
(5,957
)
 
(536
)
 
(5,701
)
 
(706
)
Acquisition of cost method investment
   
-
   
(8,320
)
 
(5,676
)
 
(703
)
Acquisition of equity method investment
   
-
   
(30
)
 
-
   
-
 
Deposit for purchase of a subsidiary
   
-
   
-
   
(2,000
)
 
(248
)
Deposits for purchase of acquired technology
   
-
   
-
   
(1,995
)
 
(248
)
Deposits for purchase of plant and equipment
   
-
   
-
   
(1,325
)
 
(164
)
Purchase of intangible assets
   
(9
)
 
(3,100
)
 
(2,921
)
 
(362
)
 
         
 
   
 
   
 
 
Net cash used in investing activities
   
(32,962
)
 
(27,201
)
 
(62,722
)
 
(7,772
)
 
         
 
   
 
   
 
 
Financing activities:
                         
Proceeds from short-term borrowings
   
35,000
   
41,000
   
77,000
   
9,542
 
Repayment of short-term borrowings
   
(15,000
)
 
(35,000
)
 
(55,000
)
 
(6,815
)
Proceeds from long-term borrowings
   
-
   
-
   
1,880
   
233
 
Net cash inflow from the Share Exchange
                         
Transaction, net of transaction costs (Note 1)
   
-
   
-
   
159,831
   
19,806
 
Cash dividend
   
(1,604
)
 
(2,000
)
 
(7,837
)
 
(971
)
Dividend paid to minority owners
   
-
   
-
   
(163
)
 
(20
)
Deemed distribution (Note 1)
   
-
   
-
   
(80,877
)
 
(10,022
)
Issuance of share capital
   
-
   
83
   
-
   
-
 
Contribution from minority owners
   
50
   
-
   
-
   
-
 
Advance from a shareholder
   
-
   
-
   
8,276
   
1,026
 
Repayment to a shareholder
   
-
   
-
   
(8,276
)
 
(1,026
)
Exercise of warrants
   
-
   
-
   
112,872
   
13,987
 
Net cash provided by financing activities
   
18,446
   
4,083
   
207,706
   
25,740
 
 
F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(In thousands)

   
Year ended December 31,
 
   
2003
 
2004
 
2005
 
2005
 
   
RMB
 
RMB
 
RMB
 
US$
 
                   
Net (decrease) increase in cash and cash equivalents
   
(29,477
)
 
19,627
   
169,371
   
20,988
 
Cash and cash equivalents, beginning of year
   
78,698
   
49,221
   
68,848
   
8,531
 
Effect of exchange rate changes on cash and
                         
cash equivalents
   
-
   
-
   
(391
)
 
(48
)
Cash and cash equivalents, end of year
   
49,221
   
68,848
   
237,828
   
29,471
 
 
         
 
   
 
   
 
 
Supplemental disclosure of cash flow information:
                         
Income taxes paid
   
2,355
   
10,905
   
4,700
   
582
 
Interest paid
   
483
   
831
   
3,036
   
376
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
F-6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)
 
1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Origin Agritech Limited ("Agritech"), incorporated under the laws of the British Virgin Islands, and its subsidiaries and variable interest entities (together, the "Company") are engaged in hybrid crop seed development, production and distribution.

As of December 31, 2005, details of Origin Agritech Limited's subsidiaries and variable interest entities are as follows:

   
Date of
 
Place of
       
   
incorporation
 
incorporation
 
Percentage
 
Principal
Name
 
or establishment
 
or establishment
 
of ownership
 
activity
                 
Subsidiary:
               
State Harvest Holdings Limited
 
October 6, 2004
 
British Virgin Islands
 
100%
 
Investment holding
("State Harvest")
               
                 
Beijing Origin State Harvest
 
December 1, 2004
 
People's Republic of China
 
100%
 
Hybrid seed
Biotechnology Limited
     
("PRC")
     
technology development
                 
Variable interest entity:
               
Beijing Origin Seed Limited (Note)
 
December 26, 1997
 
PRC
 
-
 
Hybrid crop seed
               
development, production
               
and distribution
Subsidiaries held by Beijing Origin
               
Seed Limited:
               
He Nan Origin Cotton Technology
 
March 2, 2001
 
PRC
 
90%
 
Hybrid crop seed
Development Limited (Note)
             
development, production
               
and distribution
Chang Chun Origin Seed Technology
 
April 29, 2003
 
PRC
 
99%
 
Hybrid crop seed
Development Limited (Note)
             
development, production
               
and distribution

Note:   Beijing Origin Seed Limited and its subsidiaries are collectively referred to as "Beijing Origin".

The Share Exchange Transaction

On December 20, 2004, Chardan China Acquisition Corp. ("Chardan") entered into a Stock Purchase Agreement with State Harvest, and all the stockholders of State Harvest for Chardan's acquisition of State Harvest. For the acquisition, Chardan formed its wholly-owned subsidiary, Agritech. On November 8, 2005, the closing date of the acquisition (the "Closing Date" ), Chardan merged with and into Agritech for the purpose of redomestication out of the United States. The redomestication merger was achieved by a one-for-one exchange of all the outstanding common stock of Chardan for common stock of Agritech and the assumption of all the rights and obligations of Chardan by Agritech, including assumption of the outstanding warrants of Chardan. Immediately after the redomestication merger, Agritech acquired all the common stock of State Harvest by the issuance of shares and payments of cash consideration to the then shareholders of State Harvest ("State Harvest Shareholders") or their designee, making it a wholly owned subsidiary (the "Share Exchange Transaction"). State Harvest Shareholders and their designee were paid an aggregate of US$10,000 in cash, using the funds held in the trust account of Chardan, and were issued an aggregate of 10,000,000 shares of Agritech common stock for all the outstanding common stock of State Harvest. The Share Exchange Transaction was accounted for as a reverse acquisition in which State Harvest was deemed to be the accounting acquirer and Agritech the legal acquirer. The payments of the cash consideration are accounted for as a deemed distribution.
 
F-7

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)
 
1.   ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The Share Exchange Transaction - continued

Of the cash portion of the purchase price, US$250 has been held back for one year by Agritech to secure certain indemnification obligations of State Harvest Shareholders and their designee. Other than the issuance of the above-mentioned 10,000,000 shares, Agritech has issued 200,000 shares to a financial advisor in connection with the Share Exchange Transaction.

As a result of the Share Exchange Transaction the historical consolidated financial statements of the Company for the periods prior to the Closing Date are those of State Harvest and its majority owned subsidiaries and its variable interest entity, Beijing Origin and all references to the consolidated financial statements of the Company apply to the historical consolidated financial statements of State Harvest, its majority owned subsidiary and Beijing Origin prior to the Closing Date and the consolidated financial statements of Agritech and its majority owned subsidiaries and Beijing Origin subsequent to the Closing Date. The Company's equity components are stated in terms of State Harvest before the Closing Date, with an adjustment to reflect the effects of the reverse acquisition on the equity components at the Closing Date.

As Chardan was a non-operating public shell company before the Share Exchange Transaction, no goodwill has been recorded in connection with the Share Exchange Transaction and the costs incurred in connection with such transaction have been charged directly to equity as there was sufficient equity to absorb the costs. The net book value of acquired assets and liabilities pursuant to the Share Exchange Transaction is as follows:
 
   
RMB
 
Net assets acquired:
     
Cash
   
163,517
 
Other current assets
   
6,201
 
Due to State Harvest Shareholders and their designee
   
(2,022
)
Other payables and accrued expenses
   
(965
)
     
166,731
 
Less: Transaction costs paid in cash
   
(14,431
)
Tax effect of the Share Exchange Transaction
   
(39,059
)
     
113,241
 
 
Additional purchase price payments will be made to State Harvest Shareholders and their designee, up to an aggregate of US$15,000 if either of the following occurs during any fiscal year of Agritech after the Closing Date until December 31, 2008 (or June 30, 2009 if the fiscal year is changed to a July 1-June 30 fiscal year) from funds generated in the additional financing or from operational earnings as described below:

(1)
If Agritech receives at least US$40,000 in gross proceeds in additional financing as a result (i) of the call of the issued and outstanding public warrants assumed by Agritech at the closing; (ii) Agritech's successful completion of a follow-on offering; or (iii) a private investment into Agritech by a strategic investor ("Financing Adjustment"), then Agritech will pay an additional US$15,000 to State Harvest Shareholders and their designee; or


F-8

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

1.   ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

The Share Exchange Transaction - continued

(2)
If Origin generates net positive cash flow of US$2,000 or more on a consolidated basis ("Earnings Adjustment"), then State Harvest Shareholders and their designee will be entitled to receive 75% of the net positive cash flow up to a maximum of US$7,500 per fiscal year and US$15,000 in the aggregate.

If both an Earnings Adjustment and a Financing Adjustment occur, the maximum aggregate amount to be paid to State Harvest Shareholders from one or both adjustments is US$15,000.

As further additional purchase price, certain State Harvest Shareholders and their designee will be issued an aggregate of 1,500,000 shares of common stock of Agritech for any of the next four years if, on a consolidated basis, Agritech generates after-tax profits (excluding after-tax operating profits from any subsequent acquisitions of securities that have a dilutive effect and before the expenses of this transaction and director and employee option expense) of at least the following amounts:

Year ending June 30,
 
After-tax profit
 
   
US$
 
       
2006
   
11,000
 
2007
   
16,000
 
2008
   
21,000
 
2009
   
29,000
 

As of December 31, 2005, the Company does not consider the outcome of the above contingencies is probable and accordingly, no adjustment for the contingent purchase price payments was recorded in the financial statements.

Subsequent to December 31, 2005, Agritech receives RMB211,832 (equivalent to approximately US$26,249) in gross proceeds as a result of the call of the issued and outstanding warrants assumed by Agritech on the Closing Date (Note 18). Accordingly, Agritech paid an additional RMB121,050 (equivalent to approximately US$15,000) to State Harvest Shareholders and their designee.

Reorganization of State Harvest prior to the Share Exchange Transaction

On December 1, 2004, State Harvest established Beijing Origin State Harvest Biotechnology Limited ("BioTech"), a wholly foreign owned enterprise under the laws of the PRC with an operating period of 20 years.

PRC regulations restrict direct wholly foreign ownership of seed industry in the PRC. In order to comply with these regulations while allowing foreign indirect participation, State Harvest conducts substantially all of its business through its variable interest entity, Beijing Origin.
 
F-9
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)
 
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES - continued

Reorganization of State Harvest prior to the Share Exchange Transaction - continued

Beijing Origin entered into Technical Service Agreements with BioTech. Under these agreements, BioTech shall provide, with its own technical research resource and team, technical services for the production and distribution of agricultural seeds during the period of the agreements. In return, Beijing Origin is required to pay BioTech service fee calculated according to the weight of corn, rice and cotton seeds sold by the Beijing Origin.

In addition, State Harvest has been assigned 97.96% voting rights by the shareholders of Beijing Origin through a consignment agreement which includes the following terms: (1) The shares of Beijing Origin cannot be transferred without the approval of State Harvest; (2) State Harvest has the right to appoint all directors and senior management personnel of Beijing Origin and (3) The shareholder rights including voting rights require the transfer of the shares of Beijing Origin to State Harvest or any party designated by State Harvest within three years upon the removal of the PRC legal restriction.

Through the consignment agreements described above, State Harvest is deemed the sole beneficiary of Beijing Origin resulting in Beijing Origin being deemed a subsidiary of State Harvest under the requirements of Financial Interpretation 46 (Revised)"Consolidation of Variable Interest Entities" issued by the Financial Accounting Standards Board ("FASB"). The agreements described above provided for effective control of Beijing Origin to be transferred to State Harvest at December 25, 2004. Neither State Harvest nor BioTech had any operating activity prior to entering into the consignment agreements with Beijing Origin. In substance, State Harvest has substantially all the same shareholders of Beijing Origin. This transaction has been accounted for on a basis similar to a reorganization between entities under common control. Accordingly, State Harvest's consolidated financial statements are prepared by including the consolidated financial statements of Beijing Origin through December 24, 2004, and subsequently the Company's consolidated financial statements include the financial statements of State Harvest, its majority owned subsidiary and Beijing Origin through the date of the Share Exchange Transaction.

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP").

Basis of consolidation

Following the Share Exchange Transaction, the consolidated financial statements include the financial statements of Agritech, its majority owned subsidiaries and Beijing Origin. Prior to the Share Exchange Transaction, the consolidated financial statements include State Harvest, its majority owned subsidiary and Beijing Origin. All significant inter-company transactions and balances are eliminated upon consolidation.

F-10

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

2.  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Basis of consolidation - continued

Investments in operating companies in which the Company has the ability to exercise significant influence, which is normally indicated by a 20% to 50% interest, are accounted for under the equity method. The Company's share of these companies' earnings or losses are included in the consolidated statement of operations as equity in earnings of associated company.

Convenience translation into United States dollars

The consolidated financial statements are presented in Renminbi. The translation of Renminbi amounts into United States dollar amounts has been made for the convenience of the reader and has been made at the exchange rate quoted by the People's Bank of China on December 31, 2005 of RMB8.07 to US$1.00. Such translation amounts should not be construed as representations that the Renminbi amounts could be readily converted into United States dollar amounts at that rate or any other rate.

Use of estimates

The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are adjusted to reflect actual experience when necessary. Significant accounting estimates reflected in the Company's consolidated financial statements include revenue recognition, inventory valuation, useful lives of plant and equipment and acquired intangible assets, and the valuation allowance for deferred income tax assets. Actual results could differ from those estimates.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and highly liquid investments which are unrestricted as to withdrawal or use, and which have maturities of three months or less when purchased.

Concentrations of credit risk

Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents with high-quality institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally these deposits may be redeemed upon demand and therefore bear minimal risk.

F-11

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Inventories

Inventories are stated at the lower of cost or market value. Actual cost is used to value raw materials and supplies. Finished goods and work in process are valued at weighted-average actual cost. Weighted-average actual cost includes packaging costs and manufacturing overhead costs.

Land use rights, net

Land use rights are recorded at cost less accumulated amortization. Amortization is provided over the term of the land use right agreements on a straight-line basis for the beneficial period.

Plant and equipment, net

Plant and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on a straight-line basis over the following estimated useful lives:

Plant and building
 
20-40 years
Machinery and equipment
 
10-15 years
Furniture and office equipment
 
5 years
Motor vehicles
 
5 years
Leasehold improvements
 
Shorter of the useful lives or the lease term

The Company constructs certain of its facilities. In addition to costs under construction contracts, external costs directly related to the construction of such facilities, including duty and tariff, and equipment installation and shipping costs, are capitalized. Depreciation is recorded at the time assets are placed in service.

Acquired intangible assets, net

Acquired intangible assets consist primarily of purchased technology rights and are stated at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the estimated useful lives of these assets of an average of 5 years and recorded in cost of revenues.

Impairment of long-lived assets

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 asset and eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair market value of the asset, is recognized.

F-12

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Due to growers

The Company purchases seeds from the growers throughout the operating cycle. The majority of the seeds is purchased from the growers from the end of November through the following February.

Advances from customers

Due to the high demand for the Company's products, the Company requires all customers to pay cash in full prior to delivery of the seeds. Advances from customers represent cash received from customers in advance of fulfilling a customer's purchase order. Revenues related to such transactions are recognized when the seeds are delivered and all other revenue recognition criteria are met.

Revenue recognition

The Company derives its revenue primarily from the sale of various branded conventional seeds and branded seeds with biotechnology traits.

Revenue is recognized when pervasive evidence of an arrangement exists, products have been delivered, the price is fixed or determinable, collectibility is reasonably assured and the right of return has expired. The Company generally determines the selling price after the goods are delivered to the customers. Accordingly, the Company defers revenue until the selling price has been finalized with the customers.

The estimated amounts of revenues billed in excess of revenues recognized are recorded as deferred revenues.

Government subsidies

The Company receives government subsidies in the form of funds for research and development activities and subsidies which reduce the cost of land use rights.

(a)  
The Company received RMB1,137, RMB71 and RMB859, to fund research and development activities for the years ended December 31, 2003, 2004 and 2005, respectively. Such amounts are recorded as a reduction of research and development expenses for the respective years.

(b)  
The Company received a government incentive of RMB5,005 and RMB3,720 for the years ended December 31, 2003 and 2004, respectively, in the form of a reduction in the cost of land use rights.

(c)  
The Company received a government subsidy of RMB1,543 for year ended December 31, 2005, in the form of a reduction in the cost of plant and equipment.

(d)  
The Company received a government incentive of RMB300 for year ended December 31, 2005 for the achievement of obtaining a listing status in the overseas stock market. Such amounts are recorded as other income.

F-13

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Research and development costs

Research and development costs relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred.

Advertising costs

Advertising costs are expensed as incurred. Advertising expenses were RMB1,806, RMB3,154 and RMB4,288, for the years ended December 31, 2003, 2004 and 2005, respectively, and included as part of selling and marketing expenses.

Foreign currency translation

The functional currency of the Company excluding Agritech and State Harvest is Renminbi. Monetary assets and liabilities denominated in currencies other than Renminbi are translated into Renminbi at the rates of exchange ruling at the balance sheet date. Transactions in currencies other than Renminbi are converted into Renminbi at the applicable rates of exchange prevailing the transactions occurred. Transaction gains and losses are recognized in the consolidated statements of operations.

The functional currency of Agritech and State Harvest are maintained in United State dollars. Assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the period. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive loss in the consolidated statements of shareholders' equity and comprehensive income. The Company has chosen Renminbi as its reporting currency

Income taxes

Deferred income taxes are recognized for the future tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carry forwards and credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.

Comprehensive income

Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Comprehensive income for the years presented has been disclosed within the consolidated statements of shareholders' equity and comprehensive income.

F-14

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Fair value of financial instruments

The carrying amounts of financial instruments, consisting primarily of cash and cash equivalents and short-term borrowings, approximate their fair values due to the short-term maturity of these instruments.

Shipping and handling costs

The Company includes shipping and handling costs as either cost of goods sold or selling and administrative expenses depending on the nature of the expenses. Shipping and handling costs which relate to transportation of products to customers' locations is charged to selling and marketing expenses and shipping and handling which relate to the transportation of corn seed to factories from suppliers and from one factory to another is charged to cost of goods sold. The shipping and handling costs included as part of cost of revenues in the consolidated statements of operations for the years ended 2003, 2004 and 2005 were RMB4,753, RMB8,089 and RMB9,853, respectively. The shipping and handling costs included as part of selling and marketing expenses in the statements of operations for the years ended 2003, 2004 and 2005 were RMB3,981, RMB6,322 and RMB5,870, respectively.

Income per share

Basic income per share is computed by dividing net income by the weighted average number of ordinary shares outstanding during the year. Diluted income per ordinary share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares.

Share-based compensation

The Company has adopted Statement of Financial Accounting Standard ("SFAS") No. 123 (revised 2004) ("SFAS No. 123(R)"), ''Share-based Payment'', which requires that share-based payment transactions with employees, such as share options, be measured based on the grant-date fair value of the equity instrument issued and recognized as compensation expense over the requisite service period, with a corresponding addition to equity. Under this method, compensation cost related to employee share options or similar equity instruments is measured at the grant date based on the fair value of the award and is recognized over the period during which an employee is required to provide service in exchange for the award, which generally is the vesting period.

Recently issued accounting standards

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets-An Amendment of APB Opinion No. 29". SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions", and replaces it with an exception for exchanges that do not have commercial substance. The adoption of SFAS 153 in January 2006 did not have a significant impact on the Company's financial statements.

F-15

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Recently issued accounting standards - continued

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of the correction of an error. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 will not have a significant impact on the Company's results of operations and financial condition.

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Financial Instruments-an amendment of FASB Statements No. 133 and 140." SFAS No. 155 amends SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", to permit fair value remeasurement for any hybrid financial instrument with an embedded derivative that otherwise would require bifurcation, provided that the whole instrument is accounted for on a fair value basis. SFAS No. 155 amends SFAS No. 140, "Accounting for the Impairment or Disposal of Long-Lived Assets", to allow a qualifying special-purpose entity (SPE) to hold a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 applies to all financial instruments acquired or issued after the beginning of an entity's first fiscal year that begins after September 15, 2006, with earlier application allowed. The Company does not expect the adoption of SFAS No. 155 to have a material impact on its consolidated results of operations and financial condition.

3.
RELATED PARTY BALANCES AND TRANSACTIONS

(1)  
Amounts due from related parties as of December 31, 2004 and 2005 are as follows:

Name of related party
 
Relationship
 
As of December 31,
 
       
2004
 
2005
 
       
RMB
 
RMB
 
               
Hang Geng Chen
   
(i
)
 
29
   
39
 
                     
Yuan Liang
   
(i
)
 
22
   
22
 
                     
Yang Ya Sheng
   
(i
)
 
324
   
102
 
                     
Other State Harvest Shareholders
   
(ii
)
 
208
   
37
 
 
                   
Shijiazhuang Li Yu Technology Development Co., Ltd.
   
(iii
)
 
-
   
3,173
 
                     
He Nan Agriculture University
   
(iv
)
 
202
   
-
 
 
                 
           
785
   
3,373
 
 
 
F-16

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

3.
RELATED PARTY BALANCES AND TRANSACTIONS - continued

(2)  
Amounts due to related parties as of December 31, 2004 and 2005 are as follows:

Name of related party
 
Relationship
 
As of December 31,
 
       
2004
 
2005
 
       
RMB
 
RMB
 
               
Shijiazhuang Li Yu Technology Development Co., Ltd.
   
(iii
)
 
1,413
   
-
 
Company controlled by Han Geng Chen
         
-
   
673
 
Company controlled by Yuan Liang
         
-
   
673
 
Company controlled by Yang Ya Sheng
         
-
   
393
 
Other State Harvest Shareholders
   
(ii
)
 
-
   
178
 
Zhang Bai Liang
   
(v
)
 
-
   
21
 
           
1,413
   
1,938
 
 
(3)  
Transactions with related parties for the years ended December 31, 2003, 2004 and 2005 are follows:

(a)  
Technology usage fee

Name of related party
 
Relationship
 
Year ended December 31,
 
       
2003
 
2004
 
2005
 
       
RMB
 
RMB
 
RMB
 
Shijiazhuang Li Yu Technology Development Co., Ltd.
   
(iii
)
 
4,496
   
8,243
   
4,958
 
                           
He Nan Agriculture University
   
(iv
)
 
-
   
1,104
   
302
 
           
4,496
   
9,347
   
5,260
 
 
The above amounts relate to technology usage fees paid to certain related party research centers for the exclusive right to use certain seed technologies.

F-17

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

3.
RELATED PARTY BALANCES AND TRANSACTIONS - continued

 
(3)
Transactions with related parties for the years ended December 31, 2003, 2004 and 2005 are follows: - continued

(b)  
Consulting service fee

Name of related party
 
Relationship
 
Year ended December 31,
 
       
2003
 
2004
 
2005
 
       
RMB
 
RMB
 
RMB
 
                   
Chardan Capital LLC.
   
(vi
)
 
-
   
-
   
242
 
 
The above amount relates to certain financial and management advisory services.

(c)  
In September 2004, the Company purchased a 30% equity interest in Shijiazhuang Li Yu Technology Development Co., Ltd. ("Li Yu") from Yang Ya Sheng, one of the Company's principal shareholders, for RMB30.

(d)  
In May 2005, a principal shareholder of the Company provided RMB8,276 for capital injection to BioTech, which had been fully repaid as of December 31, 2005.

Relationship between the Company and related parties is as follows:

(i)  
Being the principal shareholders and directors of the Company.

(ii)  
Being State Harvest Shareholders, other than Han Geng Chen, Yuan Liang and Yang Ya Sheng.

(iii)  
Li Yu was previously owned by one of the Company's principal shareholders, Yang Ya Sheng, and from September 2004 onwards, it became the Company's equity method investment.

(iv)  
Being a shareholder of Beijing Origin.

(v)  
Being a director of the Company.

(vi)  
Being an affiliate of a former member of management of the Company.

F-18

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

4.
ADVANCES TO SUPPLIERS

Advances to suppliers consist of the following:

   
As of December 31,
 
   
2004
 
2005
 
   
RMB
 
RMB
 
           
Purchase of raw materials
   
604
   
37,160
 
Prepayments for advertisement
   
172
   
1,320
 
Others
   
868
   
146
 
     
1,644
   
38,626
 

On November 21, 2005, the Company entered into a purchase contract for rice seeds with Denong Zhengcheng Seed Limited Co. ("Denong"), a company subsequently acquired by the Company in January 2006 (see Note 11). Denong is principally engaged in production and sales of licensed and non-licensed seed products and self-developed seed products including hybrid rice, rape and cotton seeds to local farmers through its distributors. The Company paid RMB33,000 as a prepayment for the purchase of rice seeds for resale which was included in purchase of raw materials as of December 31, 2005.

5.
INVENTORIES

Inventories consist of the following:

   
As of December 31,
 
   
2004
 
2005
 
   
RMB
 
RMB
 
           
Work in progress and supplies
   
131,457
   
199,756
 
Finished goods
   
104,364
   
155,943
 
     
235,821
   
355,699
 

As of December 31, 2004 and 2005, goods delivered to the customers, recorded in finished goods, are RMB20,802 and RMB119,384, respectively. As the Company defers revenue until the selling price has been finalized with the customers, the goods delivered to the customers will be relieved from inventories and recorded in cost of revenues when the related revenue is recognized.

F-19
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

6.           
PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:
 
   
As of December 31,
 
   
2004
 
2005
 
   
RMB
 
RMB
 
           
Advances for employee traveling
   
3,109
   
4,964
 
Deposit for technology usage fee
   
1,000
   
3,801
 
Professional fees for the Share Exchange Transaction
   
4,544
   
-
 
Other prepaid expenses
   
1,616
   
1,569
 
     
10,269
   
10,334
 

7.           
LAND USE RIGHTS, NET

Land use rights, net consist of the following:
 
   
As of December 31,
 
   
2004
 
2005
 
   
RMB
 
RMB
 
           
Land use rights
   
11,787
   
17,488
 
Less: accumulated amortization
   
485
   
872
 
Land use rights, net
   
11,302
   
16,616
 

8.           
PLANT AND EQUIPMENT, NET

Plant and equipment, net consist of the following:
   
As of December 31,
 
 
 
2004
 
2005
 
 
 
RMB
 
RMB
 
           
Plant and building
   
30,814
   
76,558
 
Machinery and equipment
   
19,226
   
21,411
 
Furniture and office equipment
   
5,550
   
7,844
 
Motor vehicles
   
8,923
   
11,371
 
Leasehold improvements
   
128
   
55
 
Total
   
64,641
   
117,239
 
Less: accumulated depreciation and amortization
   
10,761
   
16,098
 
Construction in progress
   
12,122
   
3,846
 
Plant and equipment, net
   
66,002
   
104,987
 

Construction in progress relates to the production facilities under construction by the Company.

F-20

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

9.           
LONG-TERM INVESTMENTS

Long-term investments consist of the following:
 
   
As of December 31,
 
 
 
2004
 
2005
 
 
 
RMB
 
RMB
 
           
Equity method investment
   
1,955
   
2,834
 
Cost method investment
   
8,320
   
13,996
 
Total
   
10,275
   
16,830
 

Equity method investment

In 2004, the Company purchased a 30% equity interest in Li Yu from one of its principal shareholders, Yang Ya Sheng, for RMB30. The Company accounts for its ownership in Li Yu under the equity method accounting.

As of December 31, 2004 and 2005, the Company recorded its pro-rata share of earnings in Li Yu of RMB1,925 and RMB879 respectively.

Cost method investment

In 2004, the Company acquired an 8% interest in Biocentury Transgene (China) Co., Ltd. ("Shengzhen Biocentury") for a cash consideration of RMB8,320. The Company and Shengzhen Biocentury completed this transaction on October 8, 2004 upon obtaining the necessary government approvals. In 2005, the Company acquired an additional 7% interest in Shengzhen Biocentury for a cash consideration of RMB5,676. On August 4, 2005, the Company obtained necessary government approval and completed the acquisition. The Company accounts for its ownership in Shengzhen Biocentury at cost.

10.         
ACQUIRED INTANGIBLE ASSETS, NET

Acquired intangible assets consist of the following:
   
As of December 31,
 
 
 
2004
 
2005
 
 
 
RMB
 
RMB
 
           
Technology transfer and usage agreements
   
4,091
   
7,012
 
Others
   
9
   
9
 
     
4,100
   
7,021
 
Accumulated amortization
   
1,228
   
2,243
 
Acquired intangible assets, net
   
2,872
   
4,778
 
 
F-21

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)
 
10.           
ACQUIRED INTANGIBLE ASSETS, NET - continued

Amortization expense for the years ended December 31, 2003, 2004 and 2005 were RMB206, RMB465 and RMB1,015, respectively.

Amortization expense on these intangible assets for each of the next five years is as follows:

   
RMB
 
Year ending December 31,
     
2006
   
1,273
 
2007
   
1,260
 
2008
   
1,260
 
2009
   
923
 
2010
   
62
 
Total
   
4,778
 

The Company enters into technology transfer and usage agreements with strategic partners. The Company pays up-front fees for the exclusive rights to certain seed technologies. Amounts are then amortized over an average usage period of 5 years into cost of revenues.

11.         
OTHER ASSETS

Other assets consist of the following:

   
As of December 31,
 
 
 
2004
 
2005
 
 
 
RMB
 
RMB
 
           
Prepaid lease
   
615
   
685
 
Deposit for purchase of a subsidiary
   
-
   
2,000
 
Deposits for purchase of acquired intangible assets
   
-
   
1,995
 
Deposits for purchase of plant and equipment
   
-
   
1,325
 
     
615
   
6,005
 
 
On November 18, 2005, the Company paid a deposit of RMB2,000 to certain owners of Denong for the acquisition of 52% of Denong. On January 16, 2006, the Company entered into a series of sale and purchase agreements with certain owners of Denong to purchase a 52% equity interest in Denong for an aggregate purchase price of RMB41,766. The Company completed this acquisition on January 24, 2006 upon obtaining the necessary government approvals.

During 2005, the Company entered into technology transfer agreements with certain inventors of new seed products and prepaid deposits of RMB1,995.
 
F-22
 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)
 
11.         
OTHER ASSETS - continued
 
During 2005, the Company entered into certain agreements to purchase plant and equipment and prepaid RMB1,325 as deposits.

12.         
BORROWINGS

   
As of December 31,
 
 
 
2004
 
2005
 
 
 
RMB
 
RMB
 
           
Short-term borrowings
   
41,000
   
63,000
 
Long-term borrowings
   
-
   
1,880
 
 
Short-term borrowings

As of December 31, 2005, short-term borrowings were comprised of five new loans of RMB21,000, RMB17,000, RMB14,000, RMB6,000 and RMB5,000, repayable on May 30, 2006, October 13, 2006, January 28, 2006, April 20, 2006 and October 13, 2006, respectively, bear interest at 5.58%, 5.58%, 5.22%, 5.22% and 5.58% per annum respectively. Short-term borrowings of RMB21,000, RMB17,000 and RMB5,000 were guaranteed by an unrelated third party. The unrelated third party guarantee was secured by the Company's land use rights certification and the Company's Zhongguancun Life Science Park Land Development Contract.

As of December 31, 2004, short-term borrowings were comprised of two loans of RMB20,000 and RMB21,000, repayable on April 22, 2005 and May 30, 2005, bore interest at 5.31%, 5.31% per annum, and were fully repaid in 2005. Short-term loan of RMB20,000, RMB21,000 were guaranteed by an unrelated third party. The unrelated third party guarantee was secured by the Company's land use rights certification, and the Company's Zhongguancun Life Science Park Land Development Contract.

The costs of obtaining the above third party guarantees were not significant.

Interest expense and weighted average interest rate for the years ended December 31, 2003, 2004 and 2005 were RMB483 and 5.2% and RMB831 and 5.3%, RMB3,036 and 5.4%, respectively.

Long-term borrowings

As of December 31, 2005, long-term borrowings were comprised of a third party's loan of RMB1,880 repayable in 2008 and 2009 by two equal installments and bear interest at 2.4% per annum. The borrowings are not secured.

F-23

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

13.         
OTHER PAYABLES AND ACCRUED EXPENSES

Other payables and accrued expenses consist of:
 
   
As of December 31,
 
 
 
2004
 
2005
 
 
 
RMB
 
RMB
 
           
Payable for purchase of plant and equipment
   
382
   
2,043
 
Payable for purchase of land use rights
   
620
   
620
 
Professional fee payable
   
-
   
4,841
 
Salaries payable
   
-
   
411
 
Accrued welfare benefits
   
4,023
   
4,084
 
Other taxes payable
   
359
   
2,055
 
Others
   
1,350
   
2,029
 
     
6,734
   
16,083
 

14.         
OTHER LONG-TERM LIABILITY

In December 2000, the Company signed an agreement to be a guarantor on a loan given to Lin Ze Xian Seed Company by Agriculture Bank of China Lin Ze Branch. Upon Linze Xian Seed Company's announcement of bankruptcy, the Company was required to repay the outstanding loan. On December 28, 2001 the Company was ordered by the Linze People's Court to pay RMB2,872 to Agricultural Bank of China Lin Ze Branch in fulfilment of the guarantee obligation. The civil judgement of the Zhangye Intermediate People's Court suspended this decision pending final outcome of Lin Ze Seed Company's bankruptcy hearings. In 2002, the final judgement was made by the court, and accordingly, the Company recorded a provision of RMB2,872.

15.         
SHARE OPTION PLAN

On November 8, 2005, the Company adopted the 2005 Performance Equity Plan (the "Plan") which allows the Company to offer a variety of incentive awards to employees. Options to purchase 1,500,000 ordinary shares are authorized under the Plan. On the same day, options to purchase 974,000 ordinary shares were granted under the terms of the Plan. All such options were priced at US$8.75 per share and expire 5 years from the date of grant and vest over a period of 3 to 5 years. No further share options has been granted subsequent to November 8, 2005. Options to purchase 526,000 ordinary shares are available under the Plan as of December 31, 2005.

F-24
 
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

15.
SHARE OPTION PLAN - continued

A summary of the share option activity under the Plan is as follows:

   
Number
of option
 
Exercise price
 
       
RMB
 
US$
 
               
Options outstanding at January 1, 2005
   
-
   
-
   
-
 
Granted
   
974,000
   
70.77
   
8.75
 
Exercised
   
-
   
-
   
-
 
Cancelled
   
-
   
-
   
-
 
 
         
 
   
 
 
Options outstanding at December 31, 2005
   
974,000
   
70.77
   
8.75
 
 
The following table summarizes information with respect to options outstanding at December 31, 2005:

   
Options outstanding
         
   
and exercisable
         
       
Weighted
 
 
 
       
average
 
Weighted average
 
   
Number
 
remaining
contractual
 
fair value
as of November 8,
 
   
outstanding
 
 life
 
2005, the grant date
 
       
years
 
RMB
 
US$
 
Exercise price:
                 
RMB70.77 (US$8.75)
   
974,000
   
4.85
   
21.76
   
2.69
 
 
The fair value of each option granted is estimated on the date of grant using the Black-Scholes Option Pricing Model:
 
Options granted (weighted average)
     
Average risk-free rate of return
   
4.47
%
Expected option life
   
3.5 years
 
Volatility rate
   
30.79
%
Dividend yield
   
-
 

The Company recorded share-based compensation expense of RMB774 for the year ended December 31, 2005. As of December 31, 2005, there was RMB18,268 of total unrecognized compensation expense related to non-vested share-based compensation arrangement under the Plan. That unrecognized compensation expense is expected to be recognized over a weighted-average period of 3.60 years.
 
F-25

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

16.          INCOME TAXES

Agritech and its subsidiary, State Harvest are incorporated in the British Virgin Islands and are not subject to taxation under the British Virgin Islands. State Harvest's subsidiary and State Harvest's variable interest entity, Beijing Origin Seed Limited and its major owned subsidiaries (together, the "PRC entities") were incorporated in the PRC and governed by the PRC laws.

The applicable tax rate of the PRC Enterprise Income Tax ("EIT") to Beijing Origin Seed Limited is 33% (30% of state income tax plus 3% local income tax). However, preferential tax treatment of Beijing Origin Seed Limited as "high technology" company has been agreed with the relevant tax authorities. Beijing Origin Seed Limited is entitled to a preferential tax rate of 15%. Pursuant to the document of (1998) Hai Di Shui Suo Zi 3205 and (2001) Hai Di Shui Qi Mian Zi (1306), Beijing Origin Seed Limited is entitled to a three-year exemption from income taxes commencing in 1998, followed by a 50% reduction in tax rates for the succeeding three years. As a result of these preferential tax treatments, the reduced tax rates applicable to Beijing Origin Seed Limited for 2003, 2004 and 2005 are 7.5%, 15% and 15%, respectively.

According to the document Gan Di Shui Suo Jian Mian Zi (2001) No. 107, Zhang Shi Di Shui Zheng Jian Mian Zi (2002) No. 2 and (2003) No. 1 of Carry through the Advantage Tax Treatment of West Development Strategy, Lin Ze Branch is entitled to a preferential tax rate of 15%.

According to the document Cheng Guo Shui Shen (2004) 11, Cheng Du Branch of Beijing Origin Seed Limited is entitled to a preferential tax rate of 15% as "high technology" company, and was exempted from EIT for 2003 and 2004.

According to the document Yu Di Shui Suo Jian Mian (2003) No. 75, He Nan Origin Seed Cotton Technology Development Co., Ltd. is entitled to a preferential tax rate of 15% as "high technology" company.

According to the document Chang Guo Shui (Gao Xin) Zi (2004) 001, Chang Chun Origin Seed Technology Development Co., Ltd. is entitled to a preferential tax rate of 15% as "high technology" company, and was exempted from EIT for 2004 and 2005.

According to the document Beijing Guo Shui No. 9365987, BioTech is entitled to a preferential tax rate of 15% as "high technology" company, and was exempted from Foreign Enterprise Income Tax for 2005.

Bao Ding Branch of Beijing Origin Seed Limited was exempted from EIT for 2005 according to the document Guo Shui (2005) No. 1239. Shen Yang Branch, He Nan Branch and Tie Ling Branch of Beijing Origin Seed Limited are subject to income tax at a statutory rate of 33%.
 
F-26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

16.
INCOME TAXES - continued

The provision for income taxes consists of the following:

   
Year ended December 31,
 
   
2003
 
2004
 
2005
 
   
RMB
 
RMB
 
RMB
 
               
Current
   
8,377
   
5,975
   
1,313
 
Deferred
   
(569
)
 
1,723
   
92
 
     
7,808
   
7,698
   
1,405
 
 
The principal components of the deferred income tax assets are as follows:

   
As of December 31,
 
   
2004
 
2005
 
   
RMB
 
RMB
 
           
Noncurrent deferred tax assets:
         
Net operating loss carry forward
   
4,325
   
1,304
 
Others
   
419
   
327
 
Noncurrent deferred income tax assets
   
4,744
   
1,631
 
Valuation allowance
   
(4,325
)
 
(1,304
)
Net noncurrent deferred income tax assets
   
419
   
327
 
 
The Company did not have any significant temporary differences relating to deferred tax liabilities as of December 31, 2004 and 2005.

A significant portion of the deferred tax assets recognized relates to net operating loss and credit carry forwards. The Company operates through the PRC entities and the valuation allowance is considered on each individual basis. Where a valuation allowance was not recorded, the Company believes that there was sufficient positive evidence to support its conclusion not to record a valuation allowance as it expects to generate sufficient taxable income in the future.
 
F-27

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

16.
INCOME TAXES - continued

A reconciliation between total income tax expense and the amount computed by applying the statutory income tax rate to income before taxes is as follows:

   
Years ended December 31,
 
   
2003
 
2004
 
2005
 
 
%
 
%
 
% 
 
               
Statutory rate
   
33
   
33
   
33
 
Effect of preferential tax treatment
   
(19
)
 
(31
)
 
(30
)
Effect of different tax jurisdiction
   
-
   
-
   
10
 
Permanent book-tax difference
   
6
   
4
   
6
 
Change in valuation allowance
   
1
   
5
   
(17
)
Under provision in prior year
   
-
   
-
   
6
 
Effective income tax rate
   
21
   
11
   
8
 

17.          INCOME PER SHARE

The following table sets forth the computation of basic and diluted income per share for the years indicated:

   
Year ended December 31,
 
   
2003
 
2004
 
2005
 
   
RMB
 
RMB
 
RMB
 
               
Net income (numerator), basic and diluted
   
28,951
   
65,459
   
16,409
 
 
         
 
   
 
 
Shares (denominator):
                   
Weighted average ordinary shares outstanding used
                   
in computing basic income per share
   
10,000,000
   
10,000,000
   
10,786,719
 
 
         
 
   
 
 
Incremental weighted average ordinary shares
                   
from assumed exercise of Warrants (Note 18)
   
-
   
-
   
433,438
 
 
         
 
   
 
 
Weighted average ordinary shares outstanding used
                   
in computing diluted income per share
   
10,000,000
   
10,000,000
   
11,220,157
 
Net income per share-basic
   
RMB2.90
   
RMB6.55
   
RMB1.52
 
Net income per share-diluted
   
RMB2.90
   
RMB6.55
   
RMB1.46
 
 
For the years prior to the date of the Share Exchange Transaction, the number of shares included in the income per share calculations above has been retroactively restated to reflect the number of shares to which State Harvest Shareholders and their designee are entitled at the date of the Share Exchange Transaction.
 
F-28

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

17.
INCOME PER SHARE - continued

As disclosed in Note 1, the Share Exchange Transaction during 2005 provides for additional purchase price payments in the form of common stock, the issuance of which is contingent upon attainment of certain amounts of earnings and such contingency has not been met at December 31, 2005. As disclosed in Note 18, there are 21,216 Unit Purchase Options outstanding as of December 31, 2005, the conversion of which into common stock is at the discretion of the Company and the holders Unit Purchase Options and is uncertain as of December 31, 2005. Accordingly, the above diluted income per share calculations have not included these contingently issuable shares and Unit Purchase Options. In addition, the diluted income per share calculations have not included the outstanding options as of December 31, 2005 to purchase 974,000 ordinary shares since the effect is anti-dilutive.

18.          WARRANTS AND UNIT PURCHASE OPTIONS

As a part of the Share Exchange Transaction, Agritech assumed 4,025,000 shares of common stock, 8,050,000 Redeemable Common Stock Purchase Warrants ("Warrants") and 350,000 Unit Purchase Options ("UPO") issued by Chardan. There was no remeasurement required for these assumed Warrants and UPO because such assumption is part of the recapitalization in connection with the Share Exchange Transaction.

Each Warrant will entitle the holder to purchase from Agritech one share of common stock at an exercise price of US$5 commencing on the date of the Share Exchange Transaction. The Warrants will be redeemable at a price of US$0.01 per Warrant upon 30 days' notice after the Warrants become exercisable, only in the event that the last sale price of the common stock is at least US$8.50 per share for any 20 trading days within a 30 trading day period ending on the third day prior to the date on which notice of redemption is given. 2,793,868 Warrants were exercised before December 31, 2005 and were converted into 2,793,868 shares of common stock.

UPO were granted and recorded in connection with the initial public offering of Chardan in 2004 to the underwriters for nominal consideration. UPO may be exercised for cash or cashless basis at the holders' option such that the holders may use the appreciated value of the UPO to exercise the option without the payment of cash. UPO are convertible into shares and Warrants at the discretion of the Company and the UPO holders. 328,784 UPO were converted into 309,325 shares and 7,332 Warrants before December 31, 2005 without any cash consideration.

As of December 31, 2005, there were 21,216 UPO and 5,263,464 Warrants outstanding.

F-29

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

19.           EMPLOYEE BENEFIT PLANS AND PROFIT APPROPRIATION

Full time employees of the PRC entities participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Company to accrue for these benefits based on certain percentages of the employees' salaries. The total provisions for such employee benefits were RMB858, RMB1,577 and RMB2,605 for the years ended December 31, 2003, 2004 and 2005, respectively.

Pursuant to the laws applicable to the PRC, the PRC entities, other than BioTech, must make appropriations from after-tax profit to non-distributable reserves funds including: (i) the statutory surplus reserve and; (ii) the statutory public welfare fund. Subject to certain cumulative limits, the statutory surplus reserve fund requires annual appropriations of 10% and the stutory public welfare fund requires annual appropriations of 5% of after-tax profit (as determined under accounting principles generally accepted in the PRC ("PRC GAAP") at each year-end). The Company's wholly foreign owned subsidiary, BioTech, however subject to the law applicable to foreign invested enterprises in the PRC, was required annual appropriation of the general reverse fund, no less than 10% of after-tax profit (as determined under PRC GAAP at each year-end). These reserve funds can only be used for specific purposes of enterprise expansion and staff welfare and are not distributable as cash dividends. Appropriations to these reserves by the PRC entities were RMB7,212, RMB9,800 and RMB4,348 for the years ended December 31, 2003, 2004 and 2005, respectively.

20.           COMMITMENTS AND CONTINGENCIES

(a)  
Capital commitments

Capital commitments for the purchase of plant and equipment, as of December 31, 2005, are as follows:

   
RMB
 
       
Plant and building construction
   
3,220
 
Equipment
   
771
 
     
3,991
 
 
(b)  
Operating lease

The Company leases certain lands used for seed development and office premises under non-cancellable leases. Rental expenses under operating leases for the years ended December 31, 2003, 2004 and 2005 were RMB2,016, RMB2,868 and RMB2,134, respectively.
 
F-30

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

20.
COMMITMENTS AND CONTINGENCIES - continued

 
 (b)
Operating lease - continued

Future minimum lease payments under non-cancelable operating lease agreements were as follows:

Year ended December 31,
 
RMB
 
       
2006
   
1,698
 
2007
   
1,260
 
2008
   
695
 
2009
   
537
 
2010
   
504
 
Thereafter
   
8,607
 
     
13,301
 

(c)  
Contingent tax liabilities
 
On December 6, 2005, the Company entered into a transfer agreement with the Jilin Academy of Agricultural Sciences ("JAAS"). Pursuant to the transfer agreement, JAAS will transfer 23% of equity interest in Jilin Jinong Hi-tech Limited ("Jinong") to the Company for RMB21,880. Jinong focuses on the production and marketing of corn, rice and soybean seeds, as well as fertilizers and pesticides. This transaction is proceeding pursuant to procedures for the transfer of State-owned assets at Changchun Equity Exchange.
 
(d)  
Contingent tax liabilities

The Company assesses the contingent tax liabilities that may arise from the Share Exchange Transaction and considers such contingent tax liabilities are more likely than remote. As of December 31, 2005, such contingent tax liabilities are reasonably possible to be in the range of RMB39,059 to RMB64,218. Consequently, RMB39,059 was included in the income tax payable in the accompanying consolidated balance sheet and was charged to the equity because the assumption of such liabilities by the Company is part of the recapitalization in connection with the Share Exchange Transaction. The Company does not expect to incur tax liabilities at the higher end of the range, based on the information currently available.


21.         
SEGMENT AND GEOGRAPHIC INFORMATION

The Company is engaged in hybrid crop seed development, production and distribution. In accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", the Company's chief operating decision maker, the Chief Executive Officer, receives and reviews consolidated results of operations when making decisions about allocating resources and assessing performance of the Company. The Company believes it operates in one segment which is hybrid crop seed development, production and distribution, and all financial segment information required by SFAS No. 131 can be found in the consolidated financial statements.

All of the Company's sales and all of the Company's long-lived assets are located in the PRC.

The Company had no customers which accounted for 10% or more of the Company's revenues for any of the years presented in the consolidated financial statements.
 
F-31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR EACH OF THE THREE YEARS ENDED DECEMBER 31, 2005
(In thousands, except share data and unless otherwise stated)

22.          SUBSEQUENT EVENT
 
Save as disclosed elsewhere in the consolidated financial statements, the following event occurred subsequent to December 31, 2005.

On January 24, 2006, the Company invested RMB10,050 into Jilin Changrong Hi-tech Seed Limited ("Jilin"), a joint venture registered in the PRC. Jilin is engaged in the development and sale of hybrid seed. The total registered capital of Jilin is RMB30,000 and the investment made by the Company accounted for 33.5% of the total registered capital of Jilin.

F-32
 
 
EXHIBIT 1.1
 
 
CO. NO:
 
 

 
 
 
 

British Virgin Islands
 
 
The BVI Business Companies Act
 
 
(No. 16 of 2004)
 
 
Memorandum and Articles of Association
 
of
 
ORIGIN AGRITECH LIMITED
 
 
Incorporated : 10 February 2005
Re-Registered: 10 July 2006
 
 
Maples Finance BVI Limited
P.O. Box 173
Kingston Chambers
Road Town, Tortola
British Virgin Islands

 
 
 
 

 
 
TERRITORY OF THE BRITISH VIRGIN ISLANDS
 
 
 
THE BVI BUSINESS COMPANIES ACT, 2004

 
(the "Act")
 
 
MEMORANDUM OF ASSOCIATION
 
 
OF
 
 
ORIGIN AGRITECH LIMITED
 
 
 
1
DEFINITIONS AND INTERPRETATION
 
1.1
In this Memorandum of Association and the attached Articles of Association, if not inconsistent with the subject or context:
 
"Act" means the BVI Business Companies Act, 2004 (No. 16 of 2004) and includes the regulations made under the Act;
 
"Articles" means the attached Articles of Association of the Company;
 
"Distribution" in relation to a distribution by the Company to a Member means the direct or indirect transfer of an asset, other than shares, to or for the benefit of the Member, or the incurring of a debt to or for the benefit of a Member, in relation to shares held by a Member, and whether by means of the purchase of an asset, the purchase, redemption or other acquisition of shares, a transfer of indebtedness or otherwise, and includes a dividend;
 
"Independent Director" means a director who is an independent director as defined in the Nasdaq Marketplace rules, as amended from time to time;
 
"Meeting of Directors" in respect to calling a meeting of directors, a resolution consented to in writing by any one director and notified to all other directors;
 
"Member" means a Person whose name is entered in the Register of Members of the Company as the holder of one or more shares or fractional shares;
 
"Memorandum" means this Memorandum of Association of the Company;
 
2
"Nasdaq" means the Nasdaq National Market of the United States;
 
"Person" means individuals, corporations, trusts, the estates of deceased individuals, partnerships and unincorporated associations of persons;
 
"Registrar" means the Registrar of Corporate Affairs appointed under Section 229 of the Act;
 
"Related Party" means (a) any director or executive officer of the Company; (b) any nominee for election as a director; (c) any security holder who is known to the Company to own of record or beneficially more than five percent of any class of the Company's voting securities; and (d) any member of the immediate family of any of the foregoing persons;
 
"Related Party Transaction" means a transaction between the Company or any of its subsidiaries and a related party;
 
"Resolution of Directors" means (a) a resolution approved at a duty convened directors and constituted meeting of directors of the Company or of a committee of directors of the Company by the affirmative vote of a simple majority of the directors present at the meeting who voted and did not abstain; or (b) a resolution consented to in writing by a simple majority of the directors or of a simple majority of the members of the committee of directors, as the case may be; (c) the foregoing resolutions or consents may include the actions of director alternates;
 
"Resolution of Directors" means (a) a resolution approved at a duty convened directors and constituted meeting of directors of the Company or of a committee of directors of the Company by the affirmative vote of a simple majority of the directors present at the meeting who voted and did not abstain; or (b) a resolution consented to in writing by a simple majority of the directors or of a simple majority of the members of the committee of directors, as the case may be;
 
"Resolution of Members" means a resolution approved at a duly convened and constituted meeting of the members of the Company by the affirmative vote of (a) a simple majority of the votes of the shares entitled to vote thereon which were present at the meeting and were voted and not abstained, or (b) a simple majority of the votes of each class or series of shares which were present at the meeting and entitled to vote thereon as a class or series and were voted and not abstained and of a simple majority of the votes of the remaining shares entitled to vote thereon which were present at the meeting and were voted and not abstain;
 
"Seal" means any seal which has been duly adopted as the common seal of the Company;
 
"Securities" means shares and debt obligations of every kind of the Company, and including without limitation options, warrants and rights to acquire shares or debt obligations;
 
"Share" means a share issued or to be issued by the Company;
 
3
 
"Treasury Share" means a share that was previously issued but was repurchased, redeemed or otherwise acquired by the Company and not cancelled; and
 
"Written" or any term of like import includes information generated, sent, received or stored by electronic, electrical, digital, magnetic, optical, electromagnetic, biometric or photonic means, including electronic data interchange, electronic mail, telegram, telex or telecopy, and " in writing " shall be construed accordingly.
 
1.2
In the Memorandum and the Articles, unless the context otherwise requires a reference to:
 
(a)
a "Regulation" is a reference to a regulation of the Articles;
 
(b)
a "Clause" is a reference to a clause of the Memorandum;
 
(c)
a reference in these Memorandum and Articles to voting in relation to shares shall be construed as a reference to voting by members holding the shares except that it is the votes allocated to the shares that shall be counted and not the number of members who actually voted and a reference to shares being present at a meeting shall be given a corresponding construction;
 
(d)
the Act, the Memorandum or the Articles is a reference to the Act or those documents as amended or, in the case of the Act, any re-enactment thereof; and
 
(e)
the singular includes the plural and vice versa.
 
1.3
A reference to money in these Articles is, unless otherwise stated, a reference to the currency in which shares in the Company shall be issued according to the provisions of the Memorandum, currently United States dollar.
 
1.4
Any words or expressions defined in the Act unless the context otherwise requires bear the same meaning in the Memorandum and the Articles unless otherwise defined herein.
 
1.5
Headings are inserted for convenience only and shall be disregarded in interpreting the Memorandum and the Articles.
 
2
NAME
 
The name of the Company is ORIGIN AGRITECH LIMITED.
 
3
INTERNATIONAL BUSINESS COMPANIES ACT
 
The Company was first incorporated as a company under the International Business Companies Act, 1984 (as amended) on 10 February 2005 and immediately prior to its re-registration under the Act was governed by the International Business Companies Act.
 
4
COMPANY LIMITED BY SHARES
 
The Company is a company limited by shares. The liability of each member is limited to the amount from time to time unpaid on such member's shares.
 
4
 
5
REGISTERED OFFICE
 
At the time of the application to re-register the Company under the Act, the registered office of the Company was situated at P.O. Box 173, Kingston Chambers, Road Town, Tortola, British Virgin Islands.
 
6
REGISTERED AGENT
 
At the time of the application to re-register the Company under the Act, the registered agent of the Company was Maples Finance BVI Limited of P.O. Box 173, Kingston Chambers, Road Town, Tortola, British Virgin Islands.
 
7
G ENERAL OBJECTS AND POWERS
 
Subject to Clause 8 below the objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the BVI Business Companies Act, 2004 or as the same may be revised from time to time, or any other law of the British Virgin Islands .
 
8
LIMITATIONS ON THE COMPANY'S BUSINESS
 
For the purposes of Section 9(4) of the Act the Company has no power to:
 
(a)
carry on banking or trust business, unless it is licensed under the Banks and Trust Companies Act, 1990;
 
(b)
c arry on business as an insurance or as a reinsurance company, insurance agent or insurance broker, unless it is licensed under an enactment authorising it to carry on that business;
 
(c)
c arry on the business of company management unless it is licensed under the Companies Management Act, 1990;
 
(d)
carry on the business of providing the registered office or the registered agent for companies incorporated in the British Virgin Islands; or
 
(e)
carry on the business as a mutual fund, mutual fund manager or mutual fund administrator unless it is licensed under the Mutual Funds Act, 1996.
 
9
CURRENCY
 
Shares in the Company shall be issued in the currency of the United States of America.
 
10
AUTHORIZED CAPITAL
 
The Company shall have no authorized capital but shall be authorised to issue 61,000,000 shares.
 
11
CLASSES, NUMBER AND PAR VALUE OF SHARES
 
11.1
T he Company is authorised to issue two classes of shares as follows:
 
(a)
60,000,000 shares in one series of no par value ("Ordinary Shares"); and
 
5
 
(b)
1,000,000 preference shares in one series of no par value ("Preferred Stock").
 
11.2
T he Company may issue fractional Shares and a fractional Share shall have the corresponding fractional rights, obligations and liabilities of a whole Share of the same class or series of shares.
 
12
DESIGNATIONS, POWERS, PREFERENCES, ETC. OF SHARES
 
12.1
Ordinary Shares
 
All Ordinary Shares shall:
 
(a)
have one vote each; and
 
(b)
be subject to redemption, purchase or acquisition by the Company for fair value; and
 
(c)
have the same rights with regard to dividends and distributions upon liquidation of the Company.
 
12.2
Preferred Stock
 
The Board of Directors of the Company is authorized, subject to limitations prescribed by law and the provisions of this Clause 12, to amend the Company’s Memorandum of Association to provide for the creation from time to time of one or more classes of shares of Preferred Stock, and pursuant to such amendment, to establish the number of shares and series to be included in each such class, and to fix the designation, relative rights, preferences, qualifications and limitations of the shares of each such class. The authority of the Board of Directors with respect to each class shall include, but not be limited to, determination of the following:
 
(a)
the number of shares and series constituting that class and the distinctive designation of that class;
 
(b)
the dividend rate on the shares of that class, whether dividends shall be cumulative, and, if so, from which date or dates, and whether they shall be payable in preference to, or in another relation to, the dividends payable on any other class or classes of stock;
 
(c)
whether that class shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights;
 
(d)
whether that class shall have conversion or exchange privileges, and if so, the terms and conditions of such conversion or exchange, including provision for adjustment of the conversion or exchange rate in such events as the Board of Directors shall determine;
 
(e)
whether or not the shares of that class shall be redeemable, and, if so, the terms and conditions of such redemption, including the manner of selecting shares for redemption if less than all shares are to be redeemed, the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
 
6
 
(f)
whether that class shall be entitled to the benefit of a sinking fund to be applied to the purchase or redemption of shares of that class, and, if so, the terms and amounts of such sinking fund;
 
(g)
the right of the shares of that class to the benefit of conditions and restrictions upon the creation of indebtedness of the Company or any subsidiary, upon the issue of any additional stock (including additional shares of such class of any other class) and upon the payment of dividends or the making of other distributions on, and the purchase, redemption or other acquisition by the Company or any subsidiary of any outstanding stock of the Company;
 
(h)
the right of the shares of that class in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and whether such rights shall be in preference to, or in another relation to, the comparable rights of any other class or classes of stock; and
 
(i)
any other relative, participating, optional or other special rights, qualifications, limitations or restrictions of that class.
 
13
RIGHTS NOT VARIED BY THE ISSUE OF SHARES PARI PASSU
 
The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.
 
14
VARIATION OF RIGHTS
 
If at any time the shares are divided into different classes, the rights attached to any class may only be varied, whether or not the Company is in liquidation, with the consent in writing of or by a resolution passed at a meeting by the holders of not less than 50 percent of the issued shares in that class.
 
15
REGISTERED SHARES ONLY
 
Shares in the Company may only be issued as registered shares and the Company is not authorised to issue bearer shares. Registered shares may not be exchanged for bearer shares or converted to bearer shares.
 
16
AMENDMENTS
 
Subject to the provisions of the Act, the Company shall by resolution of the directors or members have the power to amend or modify any of the conditions contained in this Memorandum of Association.
 
7
 
We, Maples Finance BVI Limited of P.O. Box 173, Kingston Chambers, Road Town, Tortola, British Virgin Islands in our capacity as registered agent for the Company hereby apply to the Registrar for the re-registration of the Company this [   ] day of [     ] 2006.
 
 
 
A pplicant to re-Register
 
 
 
________________________________
[           ]
Authorised Signatory
Maples Finance BVI Limited

 
8

 
EXHIBIT 1.1

 

 
 
TERRITORY OF THE BRITISH VIRGIN ISLANDS
 
 
 
THE BVI BUSINESS COMPANIES ACT, 2004
 
 
(the "Act")
 
 
ARTICLES OF ASSOCIATION
 
 
OF
 
 
ORIGIN AGRITECH LIMITED
 
 
 
SHARES
 
1
E very person whose name is entered as a member in the share register, being the holder of registered shares, shall without payment, be entitled to a certificate signed by a director or under the common seal of the Company with or without the signature of any director or officer of the Company specifying the share or shares held and the par value thereof, provided that in respect of shares held jointly by several persons, the Company shall not be bound to issue more than one certificate and delivery of a certificate for a share to one of several joint holders shall be sufficient delivery to all.
 
2
If a certificate is worn out or lost it may be renewed on production of the worn out certificate, or on satisfactory proof of its loss together with such indemnity as the directors may reasonably require. Any member receiving a share certificate shall indemnify and hold the Company and its officers harmless from any loss or liability which it or they may incur by reason of wrongful or fraudulent use or representation made by any person by virtue of the possession of such a certificate.
 
SHARES AND VARIATION OF RIGHTS
 
3
S ubject to the provisions of these Articles, the unissued shares of the Company (whether forming part of the original or any increased authorised shares)   shall be at the disposal of the directors   who may offer, allot, grant options over or otherwise dispose of them to such persons at such times and for such consideration, being not less than the par value of the shares being disposed of, and upon such terms and conditions as the directors may determine.
 
 
4
Without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, any share in the Company may be issued with such preferred, deferred or other special rights or such restrictions, whether in regard to dividend, voting or otherwise as the directors may from time to time determine.
 
5
Subject to the provisions of the Act in this regard, shares may be issued on the terms that they are redeemable, or at the option of the Company be liable to be redeemed on such terms and in such manner as the directors before or at the time of the issue of such shares may determine.
 
6
The directors may redeem any share issued by the Company at a premium.
 
7
Except as required by the Act, no person shall be recognised by the Company as holding any share upon any trust, and the Company shall not be bound by or be compelled in any way to recognise (even when having notice thereof) any equitable, contingent, future or partial interest in any share or any interest in any fractional part of a share or (except as provided by these Articles or by the Act) any other rights in respect of any share except any absolute right to the entirety thereof by the registered holder.
 
TRANSFER OF SHARES
 
8
S hares in the Company shall be transferred by a written instrument of transfer signed by the transferor and containing the name and address of the transferee. The instrument of transfer shall also be signed by the transferee if registration as a holder of the shares imposes a liability to the Company on the transferee. The instrument of transfer of a registered share shall be sent to the Company for registration.
 
9
T he Board of Directors may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any share which is not fully paid up or upon which the Company has a lien. The Board may also decline to register any transfer of any share unless:
 
(a)
the instrument of transfer is lodged with the Company, accompanied by the certificate for the shares to which it relates and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer;
 
(b)
the instrument of transfer is in respect of only one class of shares;
 
(c)
the instrument of transfer is properly stamped, if required;
 
(d)
in the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four; or
 
(e)
the shares transferred are free of any lien in favour of the Company.
 
10
If the Directors refuse to register a transfer of any shares, they shall within two months after the date on which the transfer was lodged with the Company send to each of the transferor and the transferee notice of the refusal.
 
11
The registration of transfers may, on 14 days' notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and the Register of Members closed at such times and for such periods as the Directors may, in their absolute discretion, from time to time determine, provided always that such registration shall not be suspended nor the Register of Members closed for more than 30 days in any year.
 
2
 
12
The Company shall not be required to treat a transferee of a registered share in the Company as a member until the transferee’s name has been entered in the share register.
 
13
Subject to the Memorandum of Association, these Articles and to Section 54(5) of the Act, the Company shall, on receipt of an instrument of transfer, enter the name of the transferee of the share in the Register of Members unless the directors resolve to refuse or delay the registration of the transfer for reasons that shall be specified in the resolution.
 
TRANSMISSION OF SHARES
 
14
Subject to Sections 52(2) and 53 of the Act, the executor or administrator of a deceased member, the guardian of an incompetent member or the trustee of a bankrupt member shall be the only person recognised by the Company as having any title to his share, save that and only in the event of death, incompetence or bankruptcy of any member or members of the Company as a consequence of which the Company no longer has any directors or members, then upon the production of any documentation which is reasonable evidence of the applicant being entitled to:
 
(a)
a grant of probate of the deceased's will, or grant of letters of administration of the deceased's estate, or confirmation of the appointment as executor or administrator (as the case may be), of a deceased member's estate; or
 
(b)
t he appointment of a guardian of an incompetent member; or
 
(c)
the appointment as trustee of a bankrupt member; or
 
(d)
upon production of any other reasonable evidence of the applicant's beneficial ownership of, or entitlement to the shares,
 
 
to the Company's registered agent in the British Virgin Islands together with (if so requested by the registered agent) a notarised copy of the share certificate(s) of the deceased, incompetent or bankrupt member, an indemnity in favour of the registered agent and appropriate legal advice in respect of any document issued by a foreign court, then the administrator, executor, guardian or trustee in bankruptcy (as the case may be) notwithstanding that their name has not been entered in the share register of the Company, may by written resolution of the applicant, endorsed with written approval by the registered agent, be appointed a director of the Company or entered in the share register as the legal and or beneficial owner of the shares.
 
15
T he production to the Company of any document which is reasonable evidence of:
 
(a)
a grant of probate of the will, or grant of letters of administration of the estate, or confirmation of the appointment as executor, of a deceased member; or
 
(b)
the appointment of a guardian of an incompetent member; or
 
(c)
the trustee of a bankrupt member; or
 
(d)
the applicant's legal and or beneficial ownership of the shares,
 
3
shall be accepted by the Company even if the deceased, incompetent member or bankrupt member is domiciled outside the British Virgin Islands if the document is issued by a foreign court which had competent jurisdiction in the matter. For the purposes of establishing whether or not a foreign court had competent jurisdiction in such a matter the directors may obtain appropriate legal advice. The directors may also require an indemnity to be given by the executor, administrator, guardian or trustee in bankruptcy.
 
16
A ny person becoming entitled by operation of law or otherwise to a share or shares in consequence of the death, incompetence or bankruptcy of any member may be registered as a member upon such evidence being produced as may reasonably be required by the directors. An application by any such person to be registered as a member shall for all purposes be deemed to be a transfer of shares of the deceased, incompetent or bankrupt member and the directors shall treat it as such.
 
17
Any person who has become entitled to a share or shares in consequence of the death, incompetence or bankruptcy of any member may, instead of being registered himself, request in writing that some person to be named by him be registered as the transferee of such share or shares and such request shall likewise be treated as if it were a transfer.
 
18
What amounts to incompetence on the part of a person is a matter to be determined by the court having regard to all the relevant evidence and the circumstances of the case.
 
ACQUISITION OF OWN SHARES
 
19
S ubject to the provisions of the Act in this regard, the directors may, on behalf of the Company purchase, redeem or otherwise acquire any of the Company's own shares for such consideration as they consider fit, and either cancel or hold such shares as treasury shares. The directors may dispose of any shares held as treasury shares on such terms and conditions as they may from time to time determine. Shares may be purchased or otherwise acquired in exchange for newly issued shares in the Company.
 
MORTGAGES AND CHARGES OF SHARES
 
20
Members may mortgage or charge their shares.
 
21
There shall be entered in the Register of Members at the written request of the member:
 
(a)
a statement that the shares held by him are mortgaged or charged;
 
(b)
the name of the mortgagee or chargee; and
 
(c)
the date on which the particulars specified in subparagraphs (a) and (b) are entered in the Register of Members.
 
22
Where particulars of a mortgage or charge are entered in the Register of Members, such particulars may be cancelled:
 
(a)
with the written consent of the named mortgagee or chargee or anyone authorised to act on his behalf; or
 
(b)
upon evidence satisfactory to the directors of the discharge of the liability secured by the mortgage or charge and the issue of such indemnities as the directors shall consider necessary or desirable.
 
4
 
23
Whilst particulars of a mortgage or charge over shares are entered in the Register of Members pursuant to Regulations 20 to 23:
 
(a)
no transfer of any share the subject of those particulars shall be effected;
 
(b)
the Company may not purchase, redeem or otherwise acquire any such share; and
 
(c)
no replacement certificate shall be issued in respect of such shares,
 
without the written consent of the named mortgagee or chargee.
 
FORFEITURE
 
24
Shares that are not fully paid on issue are subject to the forfeiture provisions set forth in this Regulation 24 and for this purpose shares issued for a promissory note, other written obligation to contribute money or property or a contract for future services are deemed to be not fully paid.
 
25
A written notice of call specifying the date for payment to be made shall be served on the member who defaults in making payment in respect of the Shares.
 
26
The written notice of call referred to in Regulation 25 shall name a further date not earlier than the expiration of 14 days from the date of service of the notice on or before which the payment required by the notice is to be made and shall contain a statement that in the event of non-payment at or before the time named in the notice the Shares, or any of them, in respect of which payment is not made will be liable to be forfeited.
 
27
Where a written notice of call has been issued pursuant to Regulation 26 and the requirements of the notice have not been complied with, the directors may, at any time before tender of payment, forfeit and cancel the shares to which the notice relates.
 
28
The Company is under no obligation to refund any moneys to the member whose shares have been cancelled pursuant to Regulation 27 and that member shall be discharged from any further obligation to the Company.
 
LIEN
 
29
T he Company shall have a first and paramount lien on every share issued for a promissory note or for any other binding obligation to contribute money or property or any combination thereof to the Company, and the Company shall also have a first and paramount lien on every share standing registered in the name of a member, whether singly or jointly with any other person or persons, for all the debts and liabilities of such member or his estate to the Company, whether the same shall have been incurred before or after notice to the Company of any interest of any person other than such member, and whether the time for the payment or discharge of the same shall have actually arrived or not, and notwithstanding that the same are joint debts or liabilities of such member or his estate and any other person, whether a member of the Company or not. The Company’s lien on a share shall extend to all dividends payable thereon. The directors may at any time either generally, or in any particular case, waive any lien that has arisen or declare any share to be wholly or in part exempt from the provisions of this Regulation 29.
 
30
In the absence of express provisions regarding sale in the promissory note or other binding obligation to contribute money or property, the Company may sell, in such manner as the directors may by resolution of directors determine, any share on which the Company has a lien, but no sale shall be made unless some sum in respect of which the lien exists is presently payable nor until the expiration of twenty-one days after a notice in writing, stating and demanding payment of the sum presently payable and giving notice of the intention to sell in default of such payment, has been served on the holder for the time being of the share.
 
5
 
31
The net proceeds of the sale by the Company of any shares on which it has a lien shall be applied in or towards payment of discharge of the promissory note or other binding obligation to contribute money or property or any combination thereof in respect of which the lien exists so far as the same is presently payable and any residue shall (subject to a like lien for debts or liabilities not presently payable as existed upon the share prior to the sale) be paid to the holder of the share immediately before such sale. For giving effect to any such sale the directors may authorize some person to transfer the share sold to the purchaser thereof. The purchaser shall be registered as the holder of the share and he shall not be bound to see to the application of the purchase money, nor shall his title to the share be affected by any irregularity or invalidity in the proceedings in reference to the sale.
 
MEETINGS AND CONSENTS OF MEMBERS
 
32
Any action required or permitted to be taken by the members must be effected at a duly called meeting (as described in Regulations 34 to 35) of the members entitled to vote on such action and may not be effected by written resolution.
 
33
Meetings of members shall be held at such places as may be fixed from time to time by the directors.
 
34
An annual meeting of members for election of directors and for such other business as may come before the meeting shall be held each year at such date and time as may be determined by the directors, but no later than one year after the end of the Company’s fiscal year-end pursuant to relevant Nasdaq rules.
 
35
Special meetings of members (being all meetings of members which are not annual meetings) may be called only by the directors pursuant to a resolution of directors to that effect or upon the written request of members holding more than 50 percent of the votes of the outstanding voting shares in the Company.
 
36
Written notice of all meetings of members, stating the time, place and purposes thereof, shall be given not fewer than seven days before the date of the proposed meeting to those persons whose names appear as members in the share register of the Company on the date of the notice and are entitled to vote at the meeting.
 
37
The directors may fix the date notice is given of a meeting of members as the record date for determining those shares that are entitled to vote at the meeting.
 
38
A meeting of members may be called on short notice:
 
(a)
if members holding not less than 90 percent of the total number of shares entitled to vote on all matters to be considered at the meeting, or 90 percent of the votes of each class or series of shares where members are entitled to vote thereon as a class or series together with not less than a 90 percent majority of the remaining votes, have agreed to short notice of the meeting, or
 
6
 
(b)
if all members holding shares entitled to vote on all or any matters to be considered at the meeting have waived notice of the meeting and for this purpose presence at the meeting shall be deemed to constitute waiver.
 
39
The inadvertent failure of the directors to give notice of a meeting to a member, or the fact that a member has not received notice, does not invalidate the meeting.
 
40
A member may be represented at a meeting of members by a proxy who may speak and vote on behalf of the member.
 
41
The instrument appointing a proxy shall be produced at the place appointed for the meeting before the time for holding the meeting at which the person named in such instrument proposes to vote.
 
42
An instrument appointing a proxy shall be in substantially the following form or such other form as the Chairman of the meeting shall accept as properly evidencing the wishes of the member appointing the proxy:
 
(Name of Company)
 
 
I/We_______________________________________________ being a member of the above Company with _________________________________ shares HEREBY APPOINT___________________________________________ of ___________________________________________ or failing him___________________________________ of __________________________________________________ to be my/our proxy to vote for me/us at the meeting of members to be held on the ___________ day of ___________________________ and at any adjournment thereof.
 
[Any restrictions on voting to be inserted here]
 
Signed this___________________________ day of___________________________________
 
____________________________________
Member
 
43
The following shall apply in respect of joint ownership of shares:
 
(a)
if two or more persons hold shares jointly each of them may be present in person or by proxy at a meeting of members and may speak as a member;
 
(b)
if only one of the joint owners is present in person or by proxy he may vote on behalf of all joint owners, and
 
(c)
if two or more of the joint owners are present in person or by proxy they must vote as one.
 
7
 
44
A member shall be deemed to be present at a meeting of members if he participates by telephone or other electronic means and all members participating in the meeting are able to hear each other.
 
45
A meeting of members is duly constituted if; at the commencement of the meeting, there are present in person or by proxy not less than 50 percent of the votes of the shares or class or series of shares entitled to vote on resolutions of members to be considered at the meeting. If a quorum be present, notwithstanding the fact that such quorum may be represented by only one person then such person may resolve any matter and a certificate signed by such person accompanied where such person be a proxy by a copy of the proxy form shall constitute a valid resolution of members.
 
46
If within two hours from the time appointed for the meeting a quorum is not present, the meeting, if convened upon the requisition of members, shall be dissolved; in any other case it shall stand adjourned to the next business day at the same time and place or to such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting in person or by proxy not less than one third of the votes of the shares or each class or series of shares entitled to vote on the resolutions to be considered by the meeting, those present shall constitute a quorum but otherwise the meeting shall be dissolved.
 
47
At any meeting of members, only such business shall be conducted as shall have been brought before such meeting:
 
(a)
by or at the direction of the Chairman of the Board of Directors; or
 
(b)
by any member who is a holder of record at the time of the giving of the notice provided for in Regulation 36 who is entitled to vote at the meeting and who complies with the procedures set out in Regulation 48.
 
48 (a)
For business to be properly brought to the annual meeting of members by a member, the member must have given timely written notice thereof, either by personal delivery or by prepaid registered post to the Secretary of the Company (the “Secretary”) at the principal executive offices of the Company. To be timely, a member’s notice must be delivered not less than 60 days nor more than 90 days prior to the anniversary date of the prior year’s annual meeting; provided, however, that in the event that the date of the annual meeting changed by more than 30 days from such anniversary date, in order to be timely, notice by the member must be so received not later than the close of business on the tenth day following the day on which public disclosure is first made of the date of the annual meeting. For the purposes of this Regulation 48, any adjournment(s) or postponement(s) of the original meeting whereby the meeting will reconvene within 30 days from original date shall be deemed, for purposes of notice, to be a continuation of the original meeting and no business may be brought before any reconvened meeting unless such timely notice of such business was given to the Secretary for the meeting as originally scheduled. A member’s notice to the Secretary shall set out as to each matter that the member wishes to be brought before the meeting of members:
 
8
 
 
(i)
a brief description of the business desired to be brought before the meeting;
 
 
(ii)
the name and address of record of the member proposing such business;
 
 
(iii)
the class and number of shares of the Company which are beneficially owned by such member;
 
 
(iv)
any material interest of such member in such business; and
 
 
(v)
if the member intends to solicit proxies in support of such member’s proposal, a representation to that effect.
 
 
(b)
Notwithstanding the foregoing, nothing in this Regulation 48 shall be interpreted or construed to require the inclusion of information about any such proposal in any proxy statement distributed by, at the direction of, or on behalf of, the directors. The chairman of a meeting of members shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Regulation 48 and, if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. However, the notice requirements set out in this Regulation 48 shall be deemed satisfied by a member if the member has notified the Company of his intention to present a proposal at a meeting of members and such member’s proposal has been included in a proxy statement that has been distributed by, at the direction of, or on behalf of, the directors to solicit proxies for such meeting; provided that, if such member does not appear or send a qualified representative, as determined by the chairman of the meeting, to present such proposal at such meeting, the Company need not present such proposal for a vote at such meeting notwithstanding that proxies in respect of such vote may have been received by the Company.
 
49
At every meeting of members, the Chairman of the Board of Directors shall preside as chairman of the meeting. If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not present at the meeting, the chief executive officer shall be the chairman. In the absence of the chief executive officer, such person as shall be selected by the Board of Directors shall act as chairman of the meeting.
 
50
The chairman may, with the consent of the meeting, adjourn any meeting from time to time, and from place to place, but no business shall be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place.
 
51
At any meeting of the members the chairman shall be responsible for deciding in such manner as he shall consider appropriate whether any resolution has been carried or not and the result of his decision shall be announced to the meeting and recorded in the minutes thereof. If the chairman shall have any doubt as to the outcome of any resolution put to the vote, he shall cause a poll to be taken of all votes cast upon such resolution, but if the chairman shall fail to take a poll then any member present in person or by proxy who disputes the announcement by the chairman of the result of any vote may immediately following such announcement demand that a poll be taken and the chairman shall thereupon cause a poll to be taken. If a poll is taken at any meeting, the result thereof shall be duly recorded in the minutes of that meeting by the chairman.
 
9
 
52
Any person other than an individual shall be regarded as one member and subject to the specific provisions hereinafter contained for the appointment of representatives of such persons the right of any individual to speak for or represent such member shall be determined by the law of the jurisdiction where, and by the documents by which, the person is constituted or derives its existence. In case of doubt, the directors may in good faith seek legal advice from any qualified person and unless and until a court of competent jurisdiction shall otherwise rule, the directors may rely and act upon such advice without incurring any liability to any member.
 
53
Any person other than an individual which is a member of the Company may by resolution of its directors or other governing body authorize such person as it thinks fit to act as its representative at any meeting of the Company or of any class of members of the Company, and the person so authorized shall be entitled to exercise the same powers on behalf of the person which he represents as that person could exercise if it were an individual member of the Company.
 
54
The chairman of any meeting at which a vote is cast by proxy or on behalf of any person other than an individual may call for a notarially certified copy of such proxy or authority which shall be produced within 7 days of being so requested or the votes cast by such proxy or on behalf of such person shall be disregarded.
 
55
Directors of the Company may attend and speak with members of the Company and at any separate meeting of the holders of any class or series of shares in the Company.
 
56
No business of the Company shall be conducted at a meeting of members except in accordance with the provisions of Regulations 32 to 55.
 
DIRECTORS
 
57
The minimum number of directors shall be five and there shall be no maximum number. Unless otherwise determined by the Company in a meeting of members and subject to the requirements of the Memorandum, the directors may by a resolution of directors, amend this Regulation 57 to change the number of directors. For as long as the Company’s shares are listed on Nasdaq, the Directors shall include such number of independent directors as applicable law, regulations or the Nasdaq regulations require for a foreign private issuer as long as the Company is a foreign private issuer.
 
58
Subject to this Regulation 58 to change the number of directors, the continuing directors may act, notwithstanding any casual vacancy in their body, so long as there remain in office not less than the prescribed minimum number of directors duly qualified to act, but if the number falls below the prescribed minimum, the remaining directors shall not act except for the purpose of filling such vacancy.
 
59
The shareholding qualification for directors may be fixed, and from time to time varied, by a resolution of members and unless and until so fixed no shareholding qualification shall be required. A director must be an individual.
 
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60
The directors shall receive such remuneration as the Board may from time to time determine. Each director shall be entitled to be repaid or prepaid all traveling, hotel and incidental expenses reasonably incurred or expected to be incurred by him in attending meetings of the Board or committees of the Board or meetings of members of the Company or otherwise in connection with the discharge of his duties as a Director.
 
APPOINTMENT AND RETIREMENT OF DIRECTORS
 
61
The first directors of the Company shall be appointed by the subscribers to the Memorandum, and thereafter, directors shall hold office until the next annual meeting of member or until such director’s earlier resignation, removal from office, death or incapacity.
 
62
Any vacancy on the Board of Directors resulting from death, resignation, removal or other cause and any newly created directorship resulting from any increase in the authorized number of directors between meetings of members may be filled either by the affirmative vote of a majority of all the directors then in office (even if less than a quorum) or by a resolution of members.
 
63 (a)
Nominations of persons for election to the Board of Directors shall be made only at a meeting of members and only:
 
 
(i)
by or at the direction of the directors; or
 
 
(ii)
by a member entitled to vote for the election of directors who complies with the notice procedures set out below.
 
 
(b)
Such nominations, other than those made by or at the direction of the directors, shall be made pursuant to timely notice in writing to the Secretary. To be timely, a members’ notice shall be delivered to or mailed and received at the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the anniversary date of the prior year’s annual meeting; provided, however, that in the event that the date of the annual meeting changed by more than 30 days from such anniversary date, notice by the member to be timely must be so received not later than the close of business on the tenth day following the day on which public disclosure is first made of the date of the annual meeting. For the purposes of this Regulation 63, any adjournment or postponement of the original meeting whereby the meeting will reconvene within 30 days from the original date shall be deemed for the purposes of this notice to be a continuation of the original meeting and no nominations by a member of persons to be elected directors of the Company may be made at any such reconvened meeting unless pursuant to a notice which was timely for the meeting on the date originally scheduled. Each such notice shall set out:
 
 
(i)
the name and address of the member who intends to make the nomination and of the persons to be nominated;
 
 
(ii)
a representation that the member is a holder of record of shares in the Company entitled to vote at such meeting and that he intends to appear in person or by a proxy at the meeting to nominate the persons specified in the notice;
 
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(iii)
a description of all arrangements at understandings between the member and each nominee and any other person (naming such person) pursuant to which the nominations are to be made by the member;
 
 
(iv)
such other information regarding each nominee proposed by such member as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the United States Securities and Exchange Commission, had each nominee been nominated, or intended to be nominated, by the directors;
 
 
(v)
the consent of each nominee to serve as a director of the Company if so elected; and
 
 
(vi)
if the member intends to solicit proxies in support of such member’s nominees, a representation to that effect.
 
64
The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the aforegoing procedure detailed in Regulation 63. Only such persons as are nominated in accordance with the procedures set out in Regulation 63 shall be eligible to serve as directors of the Company. If at any meeting of members at which an election of directors ought to take place, the place of any retiring director is not filled, he shall, if willing, continue in office until the dissolution of the annual meeting of members in the next year, and so on from year to year until his place is filled, unless it shall be determined at such meeting not to fill such vacancy.
 
65
The appointment of a director shall take effect upon compliance with the requirements of the Act.
 
DISQUALIFICATION AND REMOVAL OF DIRECTORS
 
66
Subject to the provisions of the Act, a director shall cease to hold office as such only:
 
(a)
if he becomes of unsound mind; or
 
(b)
if (unless he is not required to hold a share qualification) he has not duly qualified himself within two months of his appointment or if he ceases to hold the required number of shares to qualify him for office; or
 
(c)
if he is absent from meetings of the directors for six consecutive months without leave of the board of directors, provided that the directors shall have power to grant any director leave of absence for any or an indefinite period; or
 
(d)
if he dies; or
 
(e)
one month or, with the permission of the directors earlier, after he has given notice in writing of his intention to resign; or
 
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(f)
if he shall, pursuant to the provisions of the Act, be disqualified or cease to hold office or be prohibited from acting as director; or
 
(g)
if he is removed from office by a resolution signed by a majority of the directors; or
 
(h)
if he is removed from office for cause by a resolution of members. For the purposes hereof, cause means the willful and continuous failure by a director to substantially perform his duties to the Company (other than any such failure resulting from incapacity due to physical or mental illness) or the willful engaging by the director in gross misconduct materially and demonstrably injurious to the Company; or
 
(i)
if he is removed from office without cause by a resolution of the majority of the members of the Company, being for the purposes of this Regulation 66(i) only, an affirmative vote of the holders of 662/3 percent or more of the outstanding votes of the shares entitled to vote thereon.
 
MANAGING DIRECTORS
 
67
The directors may from time to time and by resolution of directors appoint one or more of their number to be a managing director of joint managing director and may, subject to any contract between him or them and the Company, from time to time terminate his or their appointment and appoint another or others in his or their place or places.
 
68
A director appointed in terms of the provisions of Regulation 67 to the office of managing director of the Company may be paid, in addition to the remuneration payable in terms of Regulation 60, such remuneration not exceeding a reasonable maximum in each year in respect of such office as may be determined by a disinterested quorum of the directors.
 
69
The directors may from time to time, by resolution of directors, entrust and confer upon a managing director for the time being such of the powers and authorities vested in them as they think fit, save that no managing director shall have any power or authority with respect to the matters requiring a resolution of directors under the Act.
 
POWER OF DIRECTORS
 
70
The business and affairs of the Company shall be managed by the directors who may exercise all such powers of the Company as are not by the Act or by the Memorandum or these Articles required to be exercised by the members of the Company, subject to any delegation of such powers as may be authorized by these Articles and to such requirements as may be prescribed by a resolution of members; but no requirement made by a resolution of members shall prevail if it be inconsistent with these Articles not shall such requirement invalidate any prior act of the directors which would have been valid if such requirement had not been made.
 
71
The directors may, by a resolution of directors, appoint any person, including a person who is a director, to be an officer or agent of the Company. The resolution of directors appointing an agent may authorize the agent to appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company.
 
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72
Every officer or agent of the Company has such powers and authority of the directors, including the power and authority to affix the Seal, as are set forth in these Articles or in the resolution of directors appointing the officer or agent, except that no officer or agent has any power or authority with respect to the matters requiring a resolution of directors under the Act.
 
73
The directors may authorize the payment of such donations by the Company to such religious, charitable, public or other bodies, clubs, funds or associations or persons as may seem to them advisable in the interests of the Company.
 
74
The directors may by resolution of directors exercise all the powers of the Company to borrow money and to mortgage or charge its undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed or as security for any debt, liability or obligation of the Company or of any third party.
 
75
All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for moneys paid to the Company, shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as shall from time to time be determined by resolution of directors.
 
76
The Company may determine by resolution of directors to maintain at its registered office a register of mortgages, charges and other encumbrances in which there shall be entered the following particulars regarding each mortgage, charge and other encumbrance:
 
(a)
the sum secured;
 
(b)
the assets secured;
 
(c)
the name and address of the mortgagee, chargee or other encumbrancer;
 
(d)
the date of creation of the mortgage, charge at other encumbrance; and
 
(e)
the date on which the particular’s specified above in   respect of the mortgage, charge or other encumbrance are entered in the register.
 
77
The Company may further determine by a resolution of directors to register a copy of the register of mortgages, charges or other encumbrances with the Registrar of Companies.
 
PROCEEDINGS OF DIRECTORS
 
78
The directors of the Company or any committee thereof may meet at such times and in such manner and places within or outside the British Virgin Islands as the directors may determine to be necessary or desirable.
 
79
A director shall be deemed to be present at a meeting of directors if he participates by telephone or other electronic means and all directors participating in the meeting are able to hear each other.
 
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80
A director shall be given not less than 3 days notice of meetings of directors, but a meeting of directors held without 3 days notice having been given to all directors shall be valid if all the directors entitled to vote at the meeting who do not attend, waive notice of the meeting and for this purpose, the presence of a director at a meeting shall constitute waiver on his part. The inadvertent failure to give notice of a meeting to a director, or the fact that a director has not received the notice, does not invalidate the meeting.
 
81
A meeting of directors is duly constituted for all purposes if at the commencement of the meeting there are present in person not less than one-half of the total number of directors.
 
82
At every meeting of the directors the Chairman of the Board of Directors shall preside as chairman of the meeting. If there is no Chairman of the Board of Directors or if the Chairman of the Board of Directors is not present at the meeting the Vice-Chairman of the Board of Directors shall preside. If there is no Vice-Chairman of the Board of Directors or if the Vice-Chairman of the Board of Directors is not present at the meeting the directors present shall choose some one of their number to be chairman of the meeting.
 
83
An action that may be taken by the directors or a committee of directors at a meeting may also be taken by a resolution of directors or a committee of directors consented to in writing or by telex, telegram, cable, facsimile or other written electronic communication by three quarters of the directors or three quarters of the members of the committee as the case may be, provided that a copy of the proposed resolution will have been sent to all of the directors or the members of the committee, for their consent. The consent may be in the form of counterparts, each counterpart being signed by one or more directors.
 
84
The directors shall cause the following corporate records to be kept:
 
(a)
minutes of all meetings of directors, members, committees of directors, committees of officers and committees of members;
 
(b)
copies of all resolutions consented to by directors, members, committees of directors, committees of officers and committees of members; and
 
(c)
such other accounts and records as the directors by resolution of directors consider necessary or desirable in order to reflect the financial position of the Company.
 
85
The books, records and minutes shall be kept at the registered office of the Company, its principal place of business or at such other place as the directors determine.
 
COMMITTEES
 
86
The directors may, by resolution of directors, designate one or more committees, each consisting of one or more directors.
 
87
Each committee of directors has such powers and authorities of the directors, including the power and authority to affix the Seal, as are set forth in the resolution of directors establishing the committee, except that no committee has any power or authority to amend the Memorandum or these Articles, to appoint directors or fix their emoluments, or to appoint officers or agents of the Company.
 
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88
The meetings and proceedings of each committee of directors consisting of 2 or more directors shall be governed mutatis mutandis by the provisions of these Articles regulating the proceedings of directors so far as the same are not superseded by any provisions in the resolution establishing the committee.
 
89
Without prejudice to the freedom of the Directors to establish any other committees, for so long as the shares of the Company are listed or quoted on Nasdaq, it shall establish and maintain an Audit Committee as a committee of the Board, the composition and responsibilities of which shall comply with the applicable rules of the Nasdaq Marketplace rules, as amended from time to time. The Audit Committee shall have at least three members, comprised solely of Independent Directors or such other Directors as allowed from time to time under applicable laws and rules.
 
90
The Company shall adopt a formal written audit committee charter and review and assess the adequacy of the formal written charter on an annual basis. The charter shall specify the responsibilities of the Audit Committee which shall include responsibility for, among other things, ensuring its receipt from the outside auditors of the Company of a formal written statement delineating all relationships between the auditor and the Company, and the Audit Committee's responsibility for actively engaging in a dialogue with the auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the auditor take appropriate action to oversee the independence of the outside auditor. In addition, the Audit Committee is responsible for reviewing potential conflict of interest situations and approving all Related Party Transactions.
 
91
Without prejudice to the freedom of the Directors to establish any other committees, the Board may establish a Stock Option Committee to administer the company’s stock option plans, including authority to make and modify awards under such plans. For so long as the shares of the Company are listed or quoted on Nasdaq, the Stock Option Committee shall have at least two independent directors. The Stock Option Committee will administer the Company’s stock option plans, including the authority to make and modify awards under such plans.
 
92
Without prejudice to the freedom of the Directors to establish any other committees, the Board may establish a Nominating Committee to assist the Board in identifying qualified individuals to become board members. For so long as the shares of the Company are listed or quoted on Nasdaq, the Nominating Committee shall have at least three members, who are independent directors.
 
OFFICERS
 
93
The Company may by resolution of directors appoint officers of the Company at such times as shall be considered necessary or expedient. Such officers may consist of a Chief Executive Officer or one or more Joint Chief Executive Officers, a Chairman of the Board of Directors, a Vice-Chairman of the Board of Directors, a President or one or more Joint Presidents, a Chief Operating Officer and one or more Vice-Presidents, Secretaries and Treasurers and such other holders of any other executive office in the Company or officers as may from time to time be deemed desirable. Any number of offices may be held by the same person.
 
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94
The officers shall perform such duties as shall be prescribed at the time of their appointment subject to any modification in such duties as may be prescribed thereafter by resolution of directors or resolution of members, but in the absence of any specific allocation of duties it shall be the responsibility of the Chairman of the Board of Directors to preside at meetings of directors and members, the Vice-Chairman to act in the absence of the Chairman, the President to manage the day to day affairs of the Company, the Vice-Presidents to act in order of seniority in the absence of the President but otherwise to perform such duties as may be delegated to them by the President, the Secretaries to maintain the share register, minute books and records (other than financial records) of the Company and to ensure compliance with all procedural requirements imposed on the Company by applicable law, and the Treasurer to be responsible for the financial affairs of the Company.
 
95
The emoluments of all officers shall be fixed by resolution of directors.
 
96
The officers of the Company shall hold office until their successors are duly elected and qualified, but any officer elected or appointed by the directors may be removed at any time, with or without cause, by resolution of directors. Any vacancy occurring in any office of the Company may be filled by resolution of directors.
 
CONFLICT OF INTERESTS
 
97
For so long as the shares of the Company are listed or quoted on Nasdaq, the Company shall conduct an appropriate review of all material related party transactions on an ongoing basis and shall utilize the Audit Committee for the review and approval of potential conflicts of interest situations.
 
INDEMNITY
 
98
T o the full extent permitted by the Act or any other applicable laws presently or hereafter in effect, no director of the Company shall be personally liable to the Company or its members for or with respect to any acts or omissions in the performance of his or her duties as a director of the Company. Any repeal or modification of this Regulation 98 by a resolution of members shall not adversely affect the right or protection of a director of the Company existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.
 
99
Subject to the limitations hereinafter provided the Company may indemnify against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred in connection with legal, administrative or investigative proceedings any person who:
 
(a)
is or was a party or is threatened to be made a party to any threatened, pending or completed proceedings, whether civil, criminal, administrative or investigative, by reason of the fact that the person is or was a director, an officer or a liquidator of the Company; or
 
(b)
is or was, at the request of the Company, serving as a director, officer or liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise.
 
17
 
100
The Company may only indemnify a person if the person acted honestly and in good faith with a view to the best interests of the Company and, in the case of criminal proceedings, the person had no reasonable cause to believe that his conduct was unlawful.
 
101
The decision of the directors as to whether the person acted honestly and in good faith and with a view to the best interests of the Company and as to whether the person had no reasonable cause to believe that his conduct was unlawful is, in the absence of fraud, sufficient for the purposes of these Articles, unless a question of law is involved.
 
102
The termination of any proceedings by any judgment, order, settlement, conviction or the entering of a nolle prosequi does not, by itself, create a presumption that the person did not act honestly and in good faith and with a view to the best interests of the Company or that the person had reasonable cause to believe that his conduct was unlawful.
 
103
If a person to be indemnified has been successful in defence of any proceedings referred to above, the person is entitled to be indemnified against all expenses, including legal fees, and against all judgments, fines and amounts paid in settlement and reasonably incurred by the person in connection with the proceedings.
 
104
The Company may purchase and maintain insurance in relation to any person who is or was a director, an officer or a liquidator of the Company, or who at the request of the Company is or was serving as a director, an officer or a liquidator of, or in any other capacity is or was acting for, another company or a partnership, joint venture, trust or other enterprise, against any liability asserted against the person and incurred by the person in that capacity, whether or not the Company has or would have had the power to indemnify the person against the liability as provided in these Articles.
 
SEAL
 
105
The directors shall provide for the safe custody of the common seal of the Company. The common seal when affixed to any instrument except as provided in Regulation 1, shall be witnessed by a director or officer of the Company or any other person so authorised from time to time by the directors. The directors may provide for a facsimile of the common seal and approve the signature of any director or authorised person which may be reproduced by printing or other means on any instrument and it shall have the same force and validity as if the common seal has been affixed to such instrument and the same had been signed as hereinbefore described.
 
DISTRIBUTIONS
 
106
Subject to the provisions of the Act, the directors of a Company may, by resolution, authorise a distribution by the Company at a time, and of an amount, and to any members they think fit if they are satisfied, on reasonable grounds, that the Company will, immediately after the distribution, satisfy the solvency test as stipulated in Section 56 of the Act.
 
107
Subject to the rights of the holders of shares entitled to special rights as to distributions, all distributions shall be declared and paid according to the par value of the shares in issue, excluding those shares which are held by the Company as Treasury Shares at the date of declaration of the distribution.
 
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108
The directors may, before recommending any distribution, set aside out of the profits of the Company such sums as they think proper as a reserve or reserves which shall, at their discretion, either be employed in the business of the Company or be invested in such investments as the directors may from time to time think fit.
 
109
If several persons are registered as joint holders of any share, any of them may give effectual receipt for any distribution or other monies payable on or in respect of the share.
 
110
Notice of any distribution that may have been declared shall be given to each member in manner hereinafter mentioned and all distributions unclaimed for three years after having been declared may be forfeited by the directors for the benefit of the Company.
 
111
No distribution shall bear interest against the Company.
 
COMPANY RECORDS
 
112
The Company shall keep records that:
 
(a)
a re sufficient to show and explain the Company's transactions; and
 
(b)
will, at any time, enable the financial position of the Company to be determined with reasonable accuracy.
 
113
T he Company shall keep:
 
(a)  
minutes of all meetings of -
 
 
(i)
directors,
 
members,
 
committees of directors, and
 
committees of members;
 
(b)
copies of all resolutions consented to by -
 
 
(i)
directors,
 
(ii)
members,
 
(iii)
committees of directors, and
 
(iv)
committees of members.
 
(c)
an imprint of the common seal at the registered office of the Company.
 
114
T he Company shall keep the following records at the office of its registered agent or at such other place or places, within or outside the British Virgin Islands, as the directors may determine:
 
(a)
minutes of meetings and resolutions of members and of classes of members maintained in accordance with Regulation 113 ; and
 
(b)
minutes of meetings and resolutions of directors and committees of directors maintained in accordance with Regulation 113 .
 
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115
T he Company shall keep the following documents at the office of its registered agent:
 
(a)
t he Memorandum of Association and Articles of the Company;
 
(b)
t he Register of Members maintained in accordance with Regulation 118 or a copy of the Register of Members;
 
(c)
the register of directors maintained in accordance with Regulation 117 or a copy of the register of directors;
 
(d)
copies of all notices and other documents filed by the Company in the previous ten years; and
 
(e)
a copy of the register of charges kept by the Company pursuant to Section 162(1) of the Act.
 
116 (a)
W here the Company keeps a copy of the Register of Members or the register of directors at the office of its registered agent, it shall:
 
(i)
within 15 days of any change in the register, notify the registered agent, in writing, of the change; and
 
(ii)
provide the registered agent with a written record of the physical address of the place or places at which the original Register of Members or the original register of directors is kept.
 
 
(b)
Where the place at which the original Register of Members or the original register of directors is changed, the Company shall provide the registered agent with the physical address of the new location of the records within 14 days of the change of location.
 
117
T he Company shall keep a register to be known as a register of directors containing the names and addresses of the persons who are directors of the Company, the date on which each person whose name is entered in the register was appointed as a director of the Company, the date on which each person named as a director ceased to be a director of the Company, and such other information as may be prescribed.
 
118
The Company shall maintain an accurate and complete Register of Members showing the full names and addresses of all persons holding registered shares in the Company, the number of each class and series of registered shares held by such person, the date on which the name of each member was entered in the Register of Members and where applicable, the date such person ceased to hold any registered shares in the Company.
 
119
The records, documents and registers required by Regulations 112 to 118 inclusive shall be open to the inspection of the directors at all times.
 
120
The directors shall from time to time determine whether and to what extent and at what times and places and under what conditions the records, documents and registers of the Company or any of them shall be open to the inspection of members not being directors, and no member (not being a director) shall have any right of inspecting any records, documents or registers of the Company except as conferred by the Act or authorised by resolution of the directors.
 
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ACCOUNTS AND AUDIT
 
121
The directors shall cause to be prepared periodically a profit and loss account and a balance sheet. The profit and loss account and balance sheet shall be drawn up so as to give respectively a true and fair view of the profit and loss of the Company for the financial period and a true and fair view of the state of affairs of the Company as at the end of the financial period.
 
122
The Company’s accounts shall be audited by an independent auditor at least once every year.
 
123
The independent auditor shall be appointed by the Audit Committee and shall hold office until the Audit Committee appoint another independent auditor.
 
124
The remuneration of the auditor shall be fixed by the Audit Committee.
 
125
The auditor shall examine each profit and loss account and balance sheet required to be served on every member of the Company or laid before a meeting of the members of the Company and shall state in a written report whether or not:
 
(a)
in their opinion the profit and loss account and balance sheet give a true and fair view respectively of the profit and loss for the period covered by the accounts, and of the state of affairs of the Company at the end of that period; and
 
(b)
all the information and explanations required by the auditors have been obtained.
 
126
The report of the auditor shall be annexed to the accounts and shall be read at the meeting of members at which the accounts are laid before the Company or shall be served on the members.
 
127
Every auditor of the Company shall have a right of access at all times to the books of account and vouchers of the Company, and shall be entitled to require from the directors and officers of the Company such information and explanations as he thinks necessary for the performance of the duties of the auditors.
 
NOTICE
 
128
Any notice, information or written statement to be given by the Company to members may be served in the case of members holding registered shares in any way by which it can reasonably be expected to reach each member or by mail addressed to each member at the address shown in the share register.
 
129
Any summons, notice, order, document, process, information or written statement to be served on the Company may be served by leaving it, or by sending it by registered mail addressed to the Company, at its registered office, or by leaving it with, or by sending it by registered mail to, the registered agent of the Company.
 
130
Service of any summons, notice, circlet, document, process, information of written statement to be served on the Company may be proved by showing that the summons, notice, order, document, process, information or written statement was delivered to the registered office or the registered agent of the Company or that it was mailed in such time as to admit to its being delivered to the registered office or the registered agent of the Company in the normal course of delivery within the period prescribed for service and was correctly addressed and the postage was prepaid.
 
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PENSION AND SUPERANNUATION FUND
 
131
The directors may establish and maintain or procure the establishment and maintenance of any non-contributory or contributory pension or superannuation funds for the benefit of, and give or procure the giving of donations, gratuities, pensions, allowances or emoluments to any persons who are or were at any time in the employment or service of the Company or any company which is a subsidiary of the Company or is allied to or associated with the Company or with any such subsidiary, or who are or were at any time directors or officers of the Company or of any such other company as aforesaid or who hold or held any salaried employment or office in the Company or such other company, or any persons in whose welfare the Company or any such other company as aforesaid is, or has been at any time, interested, and to the wives, widows, families and dependents of any such persons, and make payments for or towards the insurance of such persons as aforesaid, and may do any of the matters aforesaid either alone or in conjunction with any such other company as aforesaid. A director holding any such employment or office shall be entitled to participate in and retain for his own benefit any such donation, gratuity, pension, allowance or emolument.
 
WINDING UP
 
132
The Company may be voluntarily liquidated under Part XII of the Act if it has no liabilities and it is able to pay its debts as they become due. If the Company shall be wound up, the liquidator may, in accordance with a resolution of members, divide amongst the members in specie or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for such purpose set such value as he deems fair upon any such property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may vest the whole or any part of such assets in trustees upon such trust for the benefit of the contributors as the liquidator shall think fit, but so that no member shall be compelled to accept any shares or other securities whereon there is any liability.
 
CONTINUATION
 
133
The Company may by resolution of members or by a resolution passed unanimously by all directors of the Company continue as a company incorporated under the laws of a jurisdiction outside the British Virgin Islands in the manner provided under those laws.
 
FINANCIAL YEAR
 
134
The financial year of the Company shall be prescribed by the Board and may, from time to time, be changed by it.
 
 
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We, Maples Finance BVI Limited of P.O. Box 173, Kingston Chambers, Road Town, Tortola, British Virgin Islands in our capacity as registered agent for the Company hereby apply to the Registrar for the re-registration of the Company this [   ] day of [     ] 2006.
 
 
 
A pplicant to re-Register
 

 
________________________________
[           ]
Authorised Signatory
Maples Finance BVI Limited

23
EXHIBIT 4.2

ORIGIN AGRITECH LIMITED
2005 PERFORMANCE EQUITY PLAN
EMPLOYEE SHARE OPTION AGREEMENT
 
THIS EMPLOYEE SHARE OPTION AGREEMENT (this “ Option Agreement ”) dated _____________________ by and between Origin Agritech Limited , an international business company formed under the laws of the British Virgin Islands (the “ Corporation ”), and ___________________________ (the “ Grantee ”) evidences the share option (the “Option” ) granted by the Corporation to the Grantee as to the number of the Corporation’s ordinary shares (“ Common Shares ”) first set forth below.
 
Number of Common Shares : 1   _______                 Award Date: __________________
 
Exercise Price per Common Share : 1 $________   Expiration Date: 1, 2   _____________
 
Type of Option   (check one) :
Nonqualified Option     [____]
Incentive Stock Option     [____]
 
Vesting 1,2 The Option shall become vested as to 20% of the total number of Common Shares subject to the Option on the one year anniversary of the Award Date. The remaining 80% of the total number of Common Shares subject to the Option shall vest in 16 substantially equal quarterly installments, with the first installment vesting on the last day of the third month after the month in which the Award Date occurs and an additional installment vesting on the last day of each of the 15 three-month periods thereafter .
 
The Option is granted under the Chardan China Acquisition Corp. 2005 Performance Equity Plan, which became the Origin Agritech Limited 2005 Performance Equity Plan (the “ Plan ”) by operation of law under the terms of the merger of Chardan China Acquisition Corp. with and into the Corporation. The Option is subject to the Terms and Conditions of Employee Share Options (the “ Terms ”) attached to this Option Agreement (incorporated herein by this reference) and to the Plan. The Option has been granted to the Grantee in addition to, and not in lieu of, any other form of compensation otherwise payable or to be paid to the Grantee. Capitalized terms are defined in the Plan if not defined herein. The parties agree to the terms of the Option set forth herein. The Grantee acknowledges receipt of a copy of the Terms and the Plan, specifically acknowledges and agrees to Section 1 of the Terms, and agrees to maintain in confidence all information provided to him/her in connection with the Option.
 
“GRANTEE”
 
 
______________________________________
Signature
 
 
______________________________________
Print Name
 
 
_________________________________
Address
 
 
ORIGIN AGRITECH LIMITED
 
 
By:__________________________________
 
Print Name:___________________________
 
Title:________________________________
1
Subject to adjustment under the Plan.
2
Subject to early termination under Section 5 of the Terms and the Plan.
 
 
 
 
 
 
CONSENT OF SPOUSE
(optional)
 
In consideration of the Corporation’s execution of this Option Agreement, the undersigned spouse of the Grantee agrees to be bound by all of the terms and provisions hereof and of the Plan.
 
            
Signature of Spouse   Date
 
 
 
 
 
 
TERMS AND CONDITIONS OF EMPLOYEE SHARE OPTION
 
1.
Satisfaction of All Rights to Equity .  
 
The Option is in complete satisfaction of any and all rights that the Grantee may have (under an employment, consulting, or other written or oral agreement with the Corporation or any of its affiliates, or otherwise) to receive (1) options or share awards with respect to the securities of the Corporation or any of its affiliates, and/or (2) any other equity or derivative security in or with respect to the Corporation or any of its affiliates. This Option Agreement supersedes the terms of all prior understandings and agreements, written or oral, of the parties with respect to such matters. The Grantee shall have no further rights or benefits under any prior agreement conveying any right with respect to any security or derivative security in or with respect to the Corporation or any of its affiliates. The foregoing notwithstanding, this Section 1 shall not adversely affect the Grantee’s rights under any prior option or share award agreement under the Plan (provided such agreement is expressly labeled as an option or share award agreement under the Plan and is similar in form to this Option Agreement) which has been signed by an authorized officer of the Corporation.
 
2.
Vesting; Limits on Exercise .
 
The Option shall vest and become exercisable in percentage installments of the aggregate number of Common Shares subject to the Option as set forth on the cover page of this Option Agreement. The Option may be exercised only to the extent the Option is vested and exercisable.
 
 
·
Cumulative Exercisability . To the extent that the Option is vested and exercisable, the Grantee has the right to exercise the Option (to the extent not previously exercised), and such right shall continue, until the expiration or earlier termination of the Option.
 
 
·
No Fractional Shares . Fractional Common Share interests shall be disregarded, but may be cumulated subject to the Plan.
 
 
·
Minimum Exercise . No fewer than 100 Common Shares (subject to adjustment under Section 3.2 of the Plan) may be purchased at any one time, unless the number purchased is the total number at the time exercisable under the Option.
 
 
·
ISO Value Limit . If the Option is designated as an Incentive Stock Option (an “ ISO ”), as indicated on the cover page of this Option Agreement, and if the aggregate fair market value of the shares with respect to which ISOs (whether granted under the Option or otherwise) first become exercisable by the Grantee in any calendar year exceeds $100,000, as measured on the applicable Award Dates, taking into account both Common Shares subject to ISOs under the Plan and shares subject to ISOs under all other plans of the Company (or any parent or predecessor corporation to the extent required by and within the meaning of Section 422 of the Code and the regulations promulgated thereunder), such options shall be treated as nonqualified share options. In reducing the number of options treated as ISOs to meet the $100,000 limit, the
 

 
 
 

most recently granted options shall be reduced first. To the extent a reduction of simultaneously granted options is necessary to meet the $100,000 limit, the Board or the Committee may, in the manner and to the extent permitted by law, designate which Common Shares are to be treated as shares acquired pursuant to the exercise of an ISO. Any participant who exercises an ISO shall give prompt written notice to the Corporation of any sale or other transfer of the Common Shares acquired on such exercise if the sale or other transfer occurs within (a) one year after the exercise date of the Option, or (b) two years after the grant date of the Option.
 
3.
Continuance of Employment/Service Required; No Employment/Service Commitment .
 
The vesting schedule requires continued employment or service through each applicable vesting date as a condition to the vesting of the applicable installment of the Option and the rights and benefits under this Option Agreement. Employment or service for only a portion of the vesting period, even if a substantial portion, will not entitle the Grantee to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of employment or services as provided in Section 5 below or under the Plan.
 
Nothing contained in this Option Agreement or the Plan constitutes a continued employment or service commitment by the Corporation or any of its Subsidiaries, affects the Grantee’s status, if he or she is an employee, as an employee at will who is subject to termination without cause, confers upon the Grantee any right to remain employed by or in service to the Corporation or any Subsidiary, interferes in any way with the right of the Corporation or any Subsidiary at any time to terminate such employment or service, or affects the right of the Corporation or any Subsidiary to increase or decrease the Grantee’s other compensation.
 
4.
Method of Exercise of Option .
 
The Option shall be exercisable by the delivery to the Secretary of the Corporation (or such other person as the Committee may require pursuant to such administrative exercise procedures as the Committee may implement from time to time) of:
 
 
·
an executed Option Exercise and Common Share Purchase Agreement (stating the number of Common Shares to be purchased pursuant to the Option) in substantially the form attached hereto as Exhibit A or such other form as the Committee may require from time to time (the “ Exercise Agreement ”);
 
 
·
payment in full for the Exercise Price of the shares to be purchased, in cash or by electronic funds transfer to the Corporation, or by certified or cashier’s check payable to the order of the Corporation subject to such specific procedures or directions as the Committee may establish;
 
 
·
any written statements or agreements required in connection with fulfilling the obligations of the Corporation pursuant to Section 13.10 of the Plan; and
 
 
·
satisfaction of the tax withholding provisions of Section 13.6 of the Plan.
 

 
 
 

The Committee also may, but is not required to, authorize a non-cash payment alternative specified below at or prior to the time of exercise. In which case, the Exercise Price and/or applicable withholding taxes, to the extent so authorized, may be paid in full or in part by delivery to the Corporation of:
 
 
·
Common Shares already owned by the Grantee, valued at their Fair Market Value on the date prior to the exercise date, provided , however , that any shares acquired directly from the Corporation (upon exercise of an option or otherwise) must have been owned by the Grantee for at least six (6) months before the date of such exercise; and/or
 
 
·
if the Common Shares are then registered under the Exchange Act and listed or quoted on a recognized national securities exchange or in the NASDAQ National Market Quotation System, irrevocable instructions to a broker to, upon exercise of the Option, promptly sell a sufficient number of Common Shares acquired upon exercise of the Option and deliver to the Corporation the amount necessary to pay the Exercise Price (and, if applicable, the amount of any related tax withholding obligations).
 
An Option will qualify as an ISO only if it meets all of the applicable requirements of the Code. If the Option is designated as an ISO, the Option may be rendered a Nonqualified Option if the Committee permits the use of one or more of the non-cash payment alternatives referenced above.
 
5.
Early Termination of Option .
 
5.1   Possible Termination of Option upon Change in Control. The Option is subject to termination in connection with a Change in Control Event or certain similar reorganization events.
 
5.2   Termination of Option upon a Termination of Grantee’s Employment or Services. Subject to earlier termination on the Expiration Date of the Option or pursuant to Section 5.1 above, if the Grantee ceases to be employed by or ceases to provide services to the Corporation or a Subsidiary (other than in the capacity as a member of the board of directors of the Corporation as provided below), the following rules shall apply (the last day that the Grantee is employed by or provides services to the Corporation or a Subsidiary is referred to as the Grantee’s “ Severance Date ”):
 
 
·
other than as expressly provided below in this Section 5.2, (a) the Grantee will have until the date that is 30 days after his or her Severance Date to exercise the Option (or portion thereof) to the extent that it was vested on the Severance Date, (b) the Option, to the extent not vested on the Severance Date, shall terminate on the Severance Date, and (c) the Option, to the extent exercisable for the 30-day period following the Severance Date and not exercised during such period, shall terminate at the close of business on the last day of the 30-day period;
 
 
·
if the termination of the Grantee’s employment is the result of the Grantee’s voluntary Retirement (as defined below and other than a termination by the
 

 
 
 

Corporation or a Subsidiary for cause as provided below), then (a) the Grantee will have until the date that is 3 years after his or her Severance Date to exercise the Option (or portion thereof) to the extent that it was vested on the Severance Date, (b) the Option, to the extent not vested on the Severance Date, shall terminate on the Severance Date, and (c) the Option, to the extent exercisable for the 3-year period following the Severance Date and not exercised during such period, shall terminate at the close of business on the last day of the 3-year period;
 
 
·
if the termination of the Grantee’s employment is the result of the Grantee’s death or Disability (as defined below), then (a) the Grantee (or his beneficiary or personal representative, as the case may be) will have until the earlier of the date that is 1 year after the Grantee’s Severance Date or until the expiration of the dated term of such Stock Option to exercise the Option, (b) the Option, to the extent not vested on the Severance Date, shall terminate on the Severance Date, and (c) the Option, to the extent exercisable for the 1-year period following the Severance Date and not exercised during such period, shall terminate at the close of business on the last day of the 1-year period;
 
 
·
if the termination of the Grantee’s employment is the result of a termination by the Corporation or a Subsidiary for Cause (as defined below), the Option (whether vested or not) shall terminate on the Severance Date.
 
In the event a Grantee who is appointed by the holders of the preferred shares of the Corporation to serve on the board of directors of the Corporation (the “ Board ”) terminates his service to the Corporation (other than in connection with a Change in Control Event or certain similar reorganization events), the Option shall not be subject to Section 5.2 herein but shall be subject to accelerated vesting in accordance with Section 10 of the Plan.
 
For purposes of the Option, “Disability” means a permanent disability (within the meaning of Section 22(e)(3) of the Code or as otherwise determined by the Administrator). For purposes of the Option, “Retirement” means a termination of employment by the Grantee that occurs upon or after the Grantee’s attainment of age 65 and in accordance with the retirement policies of the Corporation (or the Subsidiary that employs the Grantee) then in effect. For purposes of the Option, “Cause” means that the Grantee: (a) has been repeatedly negligent in the discharge of his or her duties to the Corporation or a Subsidiary or has refused to perform stated or assigned duties (other than by reason of a disability or analogous condition); (b) has been dishonest or committed or engaged in an act of theft, embezzlement or fraud, a breach of confidentiality, an unauthorized disclosure or use of inside information, customer lists, trade secrets or other confidential information; (c)   has breached a fiduciary duty, or violated any other duty, law, rule, regulation or policy of the company or an affiliate; (d) has been convicted of, or plead guilty or nolo contendere to, a felony or misdemeanor (other than minor traffic violations or similar offenses); (e) has materially breached any of the provisions of any agreement with the Corporation or a Subsidiary; (f) has engaged in unfair competition with, or otherwise acted intentionally in a manner injurious to the reputation, business or assets of, the Corporation or a Subsidiary; or   has improperly induced a vendor or customer to break or terminate any contract with the Corporation or a Subsidiary or induced a principal for whom the Corporation or a Subsidiary acts as agent to terminate such agency relationship.
 

 
 
 

In all events the Option is subject to earlier termination on the Expiration Date of the Option or as contemplated by Section 5.1. The Committee shall be the sole judge of whether the Grantee continues to render employment or services for purposes of this Option Agreement.
 
6.
Non-Transferability .
 
The Option and any other rights of the Grantee under this Option Agreement or the Plan are nontransferable and exercisable only by the Grantee, except as set forth in Section 5.2(e) of the Plan. Any Common Shares issued on exercise of the Option are subject to substantial restrictions on transfer, and are subject to other rights in favor of the Corporation as set forth herein and in the Exercise Agreement.
 
7.
Securities Law Compliance .
 
The Grantee acknowledges that the Option and the Common Shares are not being registered under the Securities Act, based, in part, in reliance upon an exemption from registration under Securities and Exchange Commission Rule 701 promulgated under the Securities Act of 1933, and a comparable exemption from qualification under applicable state securities laws, as each may be amended from time to time. The Grantee, by executing this Option Agreement, hereby makes the following representations to the Corporation and acknowledges that the Corporation’s reliance on federal and state securities law exemptions from registration and qualification is predicated, in substantial part, upon the accuracy of these representations:

 
·
The Grantee is acquiring the Option and, if and when he/she exercises the Option, will acquire the Common Shares solely for the Grantee’s own account, for investment purposes only, and not with a view to or an intent to sell, or to offer for resale in connection with any unregistered distribution, all or any portion of the Common Shares within the meaning of the Securities Act, or other applicable state securities laws.

 
·
The Grantee has had an opportunity to ask questions and receive answers from the Corporation regarding the terms and conditions of the Option and the restrictions imposed on any Common Shares purchased upon exercise of the Option. The Grantee has been furnished with, and/or has access to, such information as he or she considers necessary or appropriate for deciding whether to exercise the Option and purchase Common Shares. However, in evaluating the merits and risks of an investment in the Common Shares, the Grantee has and will rely upon the advice of his/her own legal counsel, tax advisors, and/or investment advisors.

 
·
The Grantee is aware that the Option may be of no practical value, that any value it may have depends on its vesting and exercisability as well as an increase in the Fair Market Value of the underlying Common Shares to an amount in excess of the Exercise Price, and that any investment in common shares of a closely held corporation such as the Corporation is non-marketable, non-transferable and could require capital to be invested for an indefinite period of time, possibly without return, and at substantial risk of loss.

 
 
 

·
The Grantee understands that any Common Shares acquired on exercise of the Option will be characterized as “restricted securities” under the federal securities laws, and that, under such laws and applicable regulations, such securities may be resold without registration under the Securities Act only in certain limited circumstances, including in accordance with the conditions of Rule 144 promulgated under the Securities Act, as presently in effect, with which the Grantee is familiar.

 
·
The Grantee has read and understands the restrictions and limitations set forth in the Plan, this Option Agreement (including these Terms), which are imposed on the Option and any Common Shares which may be acquired upon exercise of the Option.

 
·
At no time was an oral representation made to the Grantee relating to the Option or the purchase of Common Shares and the Grantee was not presented with or solicited by any promotional meeting or material relating to the Option or the Common Share.

8.
Lock-Up Agreement.  
 
Grantee may not (nor may any permitted transferee), directly or indirectly, offer, sell or transfer or dispose of any of the Common Shares acquired upon exercise of the Option or any interest therein (or agree to do any thereof) (collectively, a “ Transfer ”) during the period commencing as of 14 days prior to and ending one year, or such lesser period of time as the relevant underwriters may permit, after the effective date of a registration statement covering any public offering of the Corporation’s securities of which the Grantee has notice (The term “Grantee” includes, where the context so requires, any permitted direct or indirect transferee of the Grantee.) The Grantee shall agree and consent to the entry of stop transfer instructions with the Corporation’s transfer agent against the Transfer of the Corporation’s securities beneficially owned by the Grantee and shall conform the limitations hereunder by agreement with and for the benefit of the relevant underwriters by a lock-up agreement or other agreement in customary form. Notwithstanding anything else herein to the contrary, this Section 8 shall not be construed so as to prohibit the Grantee from participating in a registration or a public offering of the Common Shares with respect to any shares which he or she may hold at that time, provided, however, that such participation shall be at the sole discretion of the Board.

9.
Notices .  
 
Any notice to be given under the terms of this Option Agreement shall be in writing and addressed to the Corporation at its principal office to the attention of the Secretary, and to the Grantee at the address last reflected on the Corporation’s payroll records, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be given only when received, but if the Grantee is no longer employed by the Corporation or a Subsidiary, shall be deemed to have been duly given five business days after the date mailed in accordance with the foregoing provisions of this Section 9.
 
10.
Plan .  
 
The Option and all rights of the Grantee under this Option Agreement are subject to, and the Grantee agrees to be bound by, all of the terms and conditions of the Plan, incorporated
 

 
 
 

herein by this reference.   In the event of a conflict or inconsistency between the terms and conditions of this Option Agreement and of the Plan, the terms and conditions of the Plan shall govern. The Grantee agrees to be bound by the terms of the Plan and this Option Agreement (including these Terms). The Grantee acknowledges having read and understanding the Plan and this Option Agreement. Unless otherwise expressly provided in other sections of this Option Agreement, provisions of the Plan that confer discretionary authority on the Board or the Committee do not and shall not be deemed to create any rights in the Grantee unless such rights are expressly set forth herein or are otherwise in the sole discretion of the Board or the Committee so conferred by appropriate action of the Board or the Committee under the Plan after the date hereof.
 
11.
Entire Agreement .  
 
This Option Agreement (including these Terms) and the Plan together constitute the entire agreement and supersede all prior understandings and agreements, written or oral, of the parties hereto with respect to the subject matter hereof. The Plan and this Option Agreement may be amended pursuant to Section 11 of the Plan. Such amendment must be in writing and signed by the Corporation. The Corporation may, however, unilaterally waive any provision hereof in writing to the extent such waiver does not adversely affect the interests of the Grantee hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof.
 
12.
Governing Law; Limited Rights; Severability .  
 
12.1   British Virgin Islands Laws; Construction. This Option Agreement and the Exercise Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without regard to conflict of law principles thereunder. The terms of the Option grant have resulted from the negotiations of the parties and each of the parties has had an opportunity to obtain and consult with its own counsel. The language of all parts of the Plan, this Option Agreement (including these Terms) and the Exercise Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against either of the parties.  
 
12.2   Limited Rights. Except as otherwise expressly authorized by the Committee or the Plan, a participant shall not be entitled to any privilege of share ownership as to any Common Shares not actually delivered to and held of record by the participant. No adjustment will be made for dividends or other rights as a shareholder for which a record date is prior to such date of delivery. The existence of the Plan, this award agreement and the awards granted hereunder shall not limit, affect or restrict in any way the right or power of the Board or the shareholders of the Corporation to make or authorize: (a) any adjustment, recapitalization, reorganization or other change in the capital structure or business of the Corporation or any subsidiary, (b) any merger, amalgamation, consolidation or change in the ownership of the Corporation or any subsidiary, (c) any issue of bonds, debentures, capital, preferred or prior preference share ahead of or affecting the capital share (or the rights thereof) of the Corporation or any subsidiary, (d) any dissolution or liquidation of the Corporation or any subsidiary, (e) any sale or transfer of all or any part of the assets or business of the Corporation or any subsidiary, or (f) any other corporate act or proceeding by the Corporation or any subsidiary. No participant, beneficiary or
 

 
 
 

any other person shall have any claim under any award or award agreement against any member of the Board or the Committee, or the Corporation or any employees, officers or agents of the Corporation or any subsidiary, as a result of any such action.
 
12.3   Severability . If the arbitrator selected in accordance with Section 13.2 or a court of competent jurisdiction determines that any portion of this Option Agreement, the Plan, or the Exercise Agreement is in violation of any statute or public policy, then only the portions of this Option Agreement, the Plan, or the Exercise Agreement, as applicable, which violate such statute or public policy shall be stricken, and all portions of this Option Agreement, the Plan, and the Exercise Agreement which do not violate any statute or public policy shall continue in full force and effect. Furthermore, it is the parties’ intent that any court order striking any portion of this Option Agreement, the Plan, and/or the Exercise Agreement should modify the stricken terms as narrowly as possible to give as much effect as possible to the intentions of the parties hereunder.
 
13.
Arbitration .  
 
13.1   Any dispute, controversy or claim arising out of or in connection with or relating to this Option Agreement, or the interpretation, breach, termination or validity hereof, shall be resolved through arbitration. A dispute may be submitted to arbitration upon the request of either party with written notice to the other (the “ Notice ”). The arbitration shall be conducted in Hong Kong under the auspices of the Hong Kong International Arbitration Centre (the “ Centre ”). There shall be three (3) arbitrators. Each party shall nominate one (1) arbitrator within thirty (30) days after the delivery of the Notice to the other party. The appointment of party nominated arbitrators shall be confirmed by the Centre. Both arbitrators shall agree on the third arbitrator within thirty (30) days of their confirmation by the Centre. Should either party fail to appoint an arbitrator or should the two arbitrators fail within thirty (30) days to reach agreement on the third arbitrator, such arbitrator shall be appointed by the Secretary General of the Centre.
 
13.2   The arbitration proceedings shall be conducted in English. The arbitration tribunal shall apply the UNCITRAL Arbitration Rules as administered by the Centre at the time of the arbitration. However, if such rules conflict with the provisions of this Section 13.2, including the provisions concerning the appointment of an arbitrator(s), the provisions of this Section 13.2 shall prevail.  
 
13.3   The arbitrators shall decide any dispute submitted by the parties strictly in accordance with the substantive laws of the State of Delaware and shall not apply any other substantive law.
 
13.4   Each party shall cooperate with the other in making full disclosure of and providing complete access to all information and documents requested by the other in connection with such arbitration proceedings, subject only to any confidentiality obligations binding on such party.
 
13.5   The costs of arbitration shall be borne by the losing party, unless otherwise determined by the arbitration tribunal.
 

 
 
 

13.6   When any dispute occurs and when any dispute is under arbitration, except for the matters in dispute, the parties shall continue to fulfill their respective obligations and shall be entitled to exercise their rights under this Agreement.
 
13.7   The award of the arbitration tribunal shall be final and binding upon the parties, and the prevailing party may apply to a court of competent jurisdiction for enforcement of such award.
 
14.
Shareholder Approval .  
 
Notwithstanding anything else contained herein to the contrary, the Option and all rights of the Grantee under this Option Agreement are subject to approval of the Plan by the Corporation’s shareholders (such approval to be obtained in accordance with the terms of the Plan, the Corporation’s Memorandum and Articles of Association, and applicable law) within 12 months after the Effective Date of the Plan.
 
15.
Effect of this Agreement .  
 
This Option Agreement shall be assumed by, be binding upon and inure to the benefit of any successor or successors to the Corporation.
 
16.
Counterparts .  
 
This Option Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.
 
17.
Section Headings .  
 
The section headings of this Option Agreement are for convenience of reference only and shall not be deemed to alter or affect any provision hereof.
 
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EXHIBIT A
 
ORIGIN AGRITECH LIMITED
2005 PERFORMANCE EQUITY PLAN
OPTION EXERCISE AND COMMON SHARE PURCHASE AGREEMENT
 
The undersigned (the “ Purchaser ”) hereby irrevocably elects to exercise his/her right, evidenced by that certain Option Agreement dated as of ____________________ (the “ Option Agreement ”) under the Origin Agritech Limited 2005 Performance Equity Plan (the “ Plan ” ), as follows:
 
 
·
the Purchaser hereby irrevocably elects to purchase __________________ Common Shares (the “ Shares ”), of Origin Agritech Limited, an international business company formed under the laws of the British Virgin Islands (the “ Corporation ”), and
 
 
·
such purchase shall be at the price of $__________________ per share, for an aggregate amount of $__________________ (subject to applicable withholding taxes pursuant to Section 13.6 of the Plan).
 
Capitalized terms are defined in the Plan if not defined herein.

1.   Delivery of Share Certificate . The Purchaser requests that a certificate representing the Shares be registered to Purchaser and delivered to: _______________________ _____________________________________________________________________________.

2.   Investment Representations . The Purchaser acknowledges that the sale of the Shares by the Purchaser is restricted by Securities and Exchange Commission Rule 701. The Purchaser hereby affirms as made as of the date hereof the representations in Section 7 of the “Terms and Conditions of Option” (which are attached to and a part of the Option Agreement, the “ Terms ”) and such representations are incorporated herein by this reference. The Purchaser represents that he/she has no need for liquidity in this investment, has the ability to bear the economic risk of this investment, and can afford a complete loss of the purchase price for the Shares.
 
The Purchaser acknowledges receipt of the Corporation’s condensed consolidated financial information.
 
3.   Limitation on Disposition and Other Restrictions . The Shares are subject to and the Purchaser hereby agrees to the following terms and conditions of the sale of the Shares to the Purchaser:
 
 
·
any transfer of the Shares must comply with the restrictions on transfer set forth in Section 5.2(e) of the Plan and all applicable laws as set forth in Section 13.10 of the Plan;
 
 
·
the Shares are subject to, and following any otherwise permitted transfer of the Shares, the Shares shall remain subject to and the transferee shall be bound by, the lock-up provisions set forth in Section 8 of the Terms, the foregoing provisions of this Section 3 and the arbitration provisions of Section 13 of the Terms; and
 
 
·
as a condition to any otherwise permitted transfer of the Shares, the Corporation may require the transferee to execute a written agreement, in a form acceptable to the
 

 
 
 
 

Committee, that the transferee acknowledges and agrees to the foregoing terms and restrictions imposed on the Shares.
 
4.   Plan and Option Agreement . The Purchaser acknowledges that all of his/her rights are subject to, and the Purchaser agrees to be bound by, all of the terms and conditions of the Plan and the Option Agreement (including the Terms), both of which are incorporated herein by this reference. If a conflict or inconsistency between the terms and conditions of this Option Exercise and Common Share Purchase Agreement and of the Plan or the Option Agreement shall arise, the terms and conditions of the Plan and/or the Option Agreement shall govern. The Purchaser acknowledges receipt of a copy of all documents referenced herein (including the Terms and a disclosure statement) and acknowledges reading and understanding these documents and having an opportunity to ask any questions that he/she may have had about them. Any controversy or claim arising out of or relating to this Option Exercise and Common Share Purchase Agreement shall be submitted to arbitration in accordance with Section 13.2 of the Terms, and the laws of the State of Delaware shall apply as provided in Section 12.1 of the Terms.
 
5.   Entire Agreement . This Option Exercise and Common Share Purchase Agreement, the Option Agreement (including the Terms), and the Plan together constitute the entire agreement and supersede all prior understandings and agreements, written or oral, of the parties hereto with respect to the subject matter hereof. The Plan, the Option Agreement and this Option Exercise and Common Share Purchase Agreement may be amended pursuant to Section 11of the Plan. Such amendment must be in writing and signed by the Corporation. The Corporation may, however, unilaterally waive any provision hereof or of the Option Agreement in writing to the extent such waiver does not adversely affect the interests of the Grantee hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof.
 
6.   Notice of Sale of ISO Shares . If the Shares are being acquired upon exercise of an Option intended to qualify as an Incentive Stock Option, the Purchaser agrees that, upon any sale or other transfer of the Shares within either one year of the date that they are acquired by the Purchaser or two years after the Award Date set forth in the Option Agreement, the Purchaser shall provide the notice required under Section 2 (“ISO Value Limit”) of the Terms.
 
“PURCHASER”
 
_________________________________
Signature
 
_________________________________
Print Name
 
_________________________________
Date
ACCEPTED BY:
ORIGIN AGRITECH LIMITED,
an international business company formed under the laws of the British Virgin Island
 
By:__________________________________
 
Its:__________________________________
 
 

 



EXHIBIT 4.16
Equity Transfer Agreement

This Equity Transfer Agreement (the “Agreement”) is made by and between the following parties in Beijing as of January 16 th 2006.

Transferor:
Legal Representative:
Address:

Transferee: Beijing Origin Seed Joint Stock Limited Company (“Beijing Origin”)
Legal Representative: Han Gengchen
Address: 2E201, Zhongguancun Development Building, No.12 Shangdi Information Road, Haidian District, Beijing

Whereas:
1.
Beijing Origin is a joint-stock company with legal personality and established in accordance with the laws of PRC in Beijing, with the registered capital of RMB100,000,000;.
2.
Denong Zhengcheng Seed Co., Ltd. (“Denong Zhengcheng”) is a limited company with legal personality and established in accordance with the laws of PRC in Chengdu, with the registered capital of RMB 80,000,000;
3.
Transferor, a Chinese citizen [or a PRC legal entity] is the legal owner of X% share of Denong Zhengcheng; and
4.
In compliance with this Agreement, Transferor agrees to transfer and Beijing Origin agrees to purchase Transferor’s X% share in Denong Zhengcheng.

Therefore, through friendly negotiations between Transferor and Beijing Origin, the following agreements have been reached in respect of the said share transfer hereof:

Article 1   Share transfer

In accordance with the terms and conditions hereof, Transferor agrees to transfer its X% share (the “target share”) in Denong Zhengcheng to Beijing Origin as the legal owner, and Beijing Origin agrees to accept the transfer.

Article 2   Transfer consideration

Transferor and Beijing Origin acknowledge that the total payment of the X% target share in Denong Zhengcheng held by Transferor is RMB[●].
 
 
 
 

Article 3   Payment method
 
Beijing Origin shall pay the transfer price of RMB[●] in full to Transferor before March 31 st , 2006, upon the variation registration with the relevant administration of industry and commerce authority in respect of the change of the ownership of the target share from Transferor to Beijing Origin.

Article 4   Transfer of rights, responsibilities and risks

Upon the settlement day, Beijing Origin shall be the holder of the target shares and have full rights to the target share.

Article 5   Representations, warranties and commitments of Transferor

Transferor has the full rights to dispose of the target share. On the settlement day, The target share is legally and fully owned by Transferor, and there are no mortgage, pledge, lien and the other third party rights over it, no liabilities or other potential responsibilities, ,and no lawsuit, arbitration and dispute against it. Upon the settlement day, Beijing Origin shall be the holder of the target share and have full rights to the target share.

Article 6   Share repurchase

If Beijing Origin or its affiliates and natural person purchase 42.42% shares of Denong Zhengcheng held by Denong Seed Technology Co., Ltd. by bid or contract, Transferor is entitled to repurchase X% or less shares of Denong Zhengcheng held by Beijing Origin within 30 days following such purchase. The price of the X% shares is RMB [●]. If the proportion is less than X%, the price shall decrease pro rata. Transferor shall pay the full transfer price to Beijing Origin within 60 days following the settlement of the target shares at industry and commerce office.

Article 7   Confidentiality

The two parties of this agreement shall keep confidential of Denong Zhengcheng so involved in this transaction and the commercial data of two parties, except for disclosure required by laws and regulations and regulatory authorities.

Article 8   Force majeure

If any party can not perform this agreement because of earthquake, fire, war and otherwise unpredictable, inevitable and insuperable events, the liabilities for breach of contract can be exempted, but the claiming party must notice the other party within a reasonable period of time following the force majeure, and take necessary measures to reduce the losses.

 
 
 

Article 9   Liabilities for breach of contract

9.1
It is a event of default if Transferor breaches any statement, representations and warranties in this agreement. If there is any loss caused by breach of contract, Transferor shall compensate Beijing Origin.
9.2
When there is actual loss because any party to this Agreement does not fulfill partial or full obligations under this Agreement, the defaulting party shall compensate the damages adequately.
9.3
If Beijing Origin fails to pay Transferor the transfer price according to the deadline and amount mentioned in Article 3, Beijing Origin shall pay defaulting fines of 5% of the payable moneys starting from the overdue date monthly. Transferor is entitled to terminate the Agreement, and restore to the status before the share transfer.
9.4
If Transferor fails to pay Beijing Origin the transfer price according to the deadline and amount mentioned in Article 6, Transferor shall pay defaulting fines of 5% of the payable moneys starting from the overdue date monthly. Beijing Origin is entitled to terminate the Agreement, and restore to the status before the share transfer.

Article 10   Relevant tax and cost

All the tax and cost caused by the share transfer in this Agreement shall be assumed in compliance with laws and administrative regulations, or assumed by parties to this Agreement equally if the laws and administrative regulations are silent..

Article 11   Applicable law and dispute settlement

11.1
The conclusion, effectiveness, interpretation, performance and dispute settlement of this agreement shall be governed by the laws of the PRC.
11.2
Any disputes arising from this Agreement or the performance of this Agreement shall be solved by parties through consultation, the failing of which shall entitle any party to file law suits to the People’s court having jurisdiction. Unless the laws otherwise provides, the legal fees and other relevant costs shall be assumed by the losing party.

Article 12   Counterparts

This Agreement is made in four originals, each of Transferor and Beijing Origin holding one, with one filed at Denong Zhengcheng and industrial and commercial administration office individually. Each original shall have the same legal effect.

Article 13   Miscellaneous

13.1
The two parties shall take other steps and sign the documents to fulfill the

 
 
 

share transfer stated in this Agreement.
 
13.2
Transferor shall assist Beijing Origin to submit all documents relating to the share transfer to the industrial and commercial administration office for Denong Zhengcheng for settlement of the said shares.
13.3
This Agreement is signed in Beijing between Transferor and Beijing Origin as of the day set forth on the first page.


Transferor:  
Legal Representative:


Transferee: Beijing Origin Seed Joint Stock Limited Company  
Legal Representative: Han Gengchen
 

EXHIBIT 4.17
EQUITY TRANSFER AGREEMENT
 
This EQUITY TRANSFER AGREEMENT ( hereinafter referred to as “ This Agreement ”) is entered into as of 6 th December 2005 in Gong Zhuling by and between:
 
Transferor: Jilin Academy of Agriculture Science
Address: No.303 West Kemao Street, Gong Zhuling, Ji Lin
Legal representative: Yue Derong
 
Transferee: Beijing Origin Seed Joint Stock Limited Company
Address: 2E201, Zhongguancun Development Building, No.12 Shangdi Information Road, Haidian District, Beijing
Legal representative: Han Gengchen
 
(The Transferor and the Transferee hereto are individually referred to as “ a Party ” or “ each Party ”, and collectively “ Parties ”)
 
Whereas
 
(1)
Until the date of the Agreement is signed, the Transferor legally owns the 71.81% equity of Jilin Jinong High Technology Development Joint Stock Limited Company, totally 46.50 million shares.
 
(2)
The Transferor is willing to transfer the 23% equity of Jilin Jinong High Technology Development Joint Stock Limited Company to the Transferee in accordance with the conditions of this Agreement; the Transferee is willing to accept the 23% equity of Jilin Jinong High Technology Development Joint Stock Limited Company from the Transferee in accordance with the conditions of this Agreement. Totally 14.49 million shares are transferred and each share is evaluated of RMB1.51 by an authorized department, totally worth RMB21,879,900.
 
In accordance with the Company Law of the People’s Republic of China ( “PRC” or “China” ), Contract Law of PRC and other relevant laws and regulations, , t hrough friendly consultations, the Parties reaches the following agreements in respect of the equity transfer of Jilin Jinong High Technology Development Joint Stock Limited Company:
 
Article 1       D efinition
 
In this Agreement, unless the context otherwise requires, the terms hereof shall have the following meanings:
 
(1)
“This Agreement” means the text of this Agreement and attachments.
 
 
 
 
 
 
(2)
“Jinong Hitech” means Jilin Jinong High Technology Development Joint Stock Limited Company.
 
(3)
“Equity transfer” means the activity that the Transferor according to this Agreement, is going to transfer the legally held 23% equity of Jinong Hitech to the Transferee.
 
(4)
“Target equity” means the 23% equity of Jinong Hitech which the Transferor is going to transfer to the Transferee.
 
(5)
“Transfer price” means the amount which the Transferee shall pay the Transferor according to Article 3 of this Agreement.
 
(6)
“Execution date” means the date when this Agreement is dully signed indicated in this agreement.
 
(7)
“Effective date” means the date when all conditions are accomplished provided by this agreement.
 
(8)
“Settlement” means the Transferor changes the name of the owner in a register of all Target equity to the name of the transferee, and Jinong Hitech goes through the procedure for all the shareholder changing.
 
(9)
“Settlement date” means the date when the Transferor has changed the name of the owner in a register of all Target equity to the name of the transferee, and Jinong Hitech has completed the procedure for all the shareholder changing.
 
(10)
“Working day” means any day except for Saturdays, Sundays and other bank holidays provided or authorized by the laws.
 
(11)
“RMB” means legal currency of PRC.
 
Article 2       Equity Transfer
 
2.1 Subject to the terms and conditions of this Agreement, the Transferor hereby agrees to transfer 23% equity of Jinong Hitech to the transferee; the Transferee, subject to the terms and conditions of this Agreement, agrees to accept the 23% equity of Jinong Hitech.
 
2.2 After the date of settlement, the transferee will be the legal shareholder of the 23% equity of Jinong Hitech. All the rights and obligations of the Transferor shall be transferred to the Transferee.
 
Article 3       Equity Transfer Price and Payment Method
 
3.1 The parties agree that the target equity price is based on the evaluated net asset of Jinong Hitech. According to each share worth net asset RMB1.51, the target equity
 
 
 
 
 
totally is 14.49 million shares, and transfer price is RMB21,879,900.
 
3.2 This equity transfer is a transfer with rights. Up to the norm evaluation date, target equity and the profit from former annual interests will be accounted into the total net asset at the same time.
 
3.3 The parties unanimously agree that the Transferee shall pay the transfer price above mentioned in a lump sum; within 15 days upon this Agreement comes into force, the Transferee shall pay the Transferor RMB21,879,900.
 
Article 4       Rights and Obligations of the Transferor
 
4.1 The Transferor is entitled to legally transfer the target equity.
 
4.2 The Transferor legally holds the target equity, with full rights to deal with them and independent rights to have interests. Target equity is free from any mortgage, any contingent liabilities or any potential responsibilities, as well as any disputes, arbitrations and litigations against it and not subject to any privileged rights and similar rights.
 
4.3 The Transferor has provided the Transferee with true, all-around and correct financial account documents, legal documents and other necessary documents about the assets, debts and contingent liabilities. There is no fact, which is related to Jinong Hitech and might have serious material effects to Jinong Hitech and has not been disclosed to the Transferee. Any representations or warranties in this Agreement from the Transferor including any documents provided for the Transferee do no contain any false representation in respect of material facts, also without omission of any material facts that might lead to misunderstanding for the representation.
 
4.4 Unless it is necessary for the ordinary operation of Jinong Hitech from the execution date of this Agreement to the settlement date the Transferor cannot do anything which has unfavorable influence to the assets, business and future development of Jinong Hitech without the prior written consent of the Transferee.
 
4.5 The Transferor warrants that it has not signed any contracts or agreements which conflict with this Agreement, and that it will not transfer the rights and obligations under this Agreement to any third party. During the period from the execution date to the settlement date of this Agreement, the Transferor warrants that it will not have any business contact with any other third parties in terms of transferring, mortgaging and trusteeship, or never sign letter of intent, contract and understanding memorandum or any kind of legally binding documents which conflict with target equity transfer or include articles forbidding or limiting target equity transfer.
 
4.6 The Transferor agrees to take all necessary actions to timely accomplish the signing and all legal documents needed for this Agreement, and to fulfill the arranged procedures related to equity transfer hereof.
 
 
 
 
 
Article 5       Rights and Obligations of the Transferee
 
5.1 The Transferee is entitled to accept the target equity.
 
5.2 The Transferee pays the equity transfer price timely and in a full amount according to this Agreement.
 
5.3 The Transferee has not signed any contracts or agreements which conflict with this Agreement, and warranties that it will not transfer the rights and obligations hereunder to any third party.
 
5.4 During the period from the execution date to the settlement date of this Agreement, the Transferee warrants that it will not have any business contact with any other third parties in terms of material matters which conflict with equity transfer, or sign letter of intent, contract and understanding memorandum or any kind of legally binding documents.
 
5.5 The Transferee agrees to take all necessary actions to timely accomplish the signing and all legal documents needed for this Agreement, and to complete the procedures related to equity transfer in this Agreement.
 
Article 6       Settlement
 
6.1 After this agreement is signed, the Transferor is responsible for applying for approval from the relevant authority of State-owned Asset Supervision and Administration before March 10, 2006. After this agreement becomes effective, the Transferor shall assist the Transferee to go through the registration procedure of shareholder changing before March 10, 2006, including amending Articles of Association of Jinong Hitech according to this equity transfer.
 
6.2 The parties agree that, upon the effectiveness of this Agreement, the Transferor shall urge one director to resign. Meanwhile, the Transferee shall nominate a new director candidate to replace such director who has resigned. The Transferor shall assist Jinong Hitech to hold the shareholders’ meeting and complete the reelection of the board of directors in time upon the effectiveness of this Agreement. The Transferor is also responsible for registering the changes of the board or directors and the equity transfer with the relevant authority of the administration of industry and commerce.
 
Article 7       Periodical Responsibilities
 
The parties agree that all losses or profits occurring to Jinong Hitech, from the norm evaluation date to the settlement date shall be assumed by the Transferee.
 
 
 
 
 
Article 8       Liabilities for Breach
 
The parties hereto must strictly abide by the provisions of this Agreement, and any Party who do not comply with any provisions hereof constitutes a breach. The non-defaulting Party has the right to terminate this Agreement and claim compensation for all economic losses caused by the breaching Party, but the compensation shall not exceed the losses arising from its breach which the breaching Party have foresee or should foresee when such party signs this Agreement.
 
Article 9       Force Majeure  
 
9.1 “Force Majeure” means all the events, occuring after this agreement becomes effective, which the parties can’t control and foresee or can not avoid although foreseeable, and which prevent any party from performing this Agreement partly or wholly. Force Majeure events include but not limited to acts of God, war, policy adjustment, changes of laws and other significant events or accidentals.
 
9.2 If Force Majeure event occurs, the Party that can’t implement this agreement shall take all reasonable actions to eliminate or reduce the impact of Force Majeure event and inform the other Party without any delay in the most convenient way and provide detailed written report about the Force Majeure event within 15 days. The parties shall, based on the impact of Force Majeure, decide whether terminate the agreement or defer the implementation of this Agreement, or partly or wholly exempt the prevented party from performing its obligation hereof.
 
Article 10       Disputes Settlement and Applicable Laws
 
10.1 Any dispute arising from or in connection with this Agreement shall be resolved through fri endly consultations by the Parties. If such consultations fails, the Parties have the right to submit the dispute to the competent court. In the course of dispute settlement, except the dispute, the Parties shall continue to perform the provisions of this Agreement.
 
10.2 The execution, validity, interpretation, performance, dispute resolution are governed by the laws of PRC.
 
Article 11       Effectiveness
 
This Agreement, upon the execution by the legal representatives or his authorized representatives of the Parties, shall come into force together with the Asset Restructuring Agreement executed by the Parties, Jilin Jinong High Technology
 
 
 
 
 
Development Joint Stock Limited Company and Jinlin Changrong Hign Tchnology Seed Co., Ltd..
 
Article 12       Confidentiality
 
The Parties hereto shall strictly maintain the confidentiality of the consultation, execution course and provisions of this Agreement, as well as all information, documents, data etc. of the other sides obtained during the performance of this Agreement (collectively referred to as “the Confidential Information”). Unless it is compulsory provided by laws, regulations or government, any Party shall not, in the form of act or omission, disclose the Confidential Information to the third party other than the persons with the right to know including persons or professional consultants etc. participating in the equity transfer.
 
Article 13       Variation and Amendment
 
13.1 Any variation to this Agreement shall be made through consultations between the Parties and come into force only after a written amendment has been signed by all Parties. This Agreement shall remain effective, if the amendment cannot be reached. Without execution by each Party, any amendment, interpretation or waive to any provision herein is invalid.
 
13.2 Each Party may execute supplementary agreements in respect of the matters related to this Agreement and it shall have the same legal effects as this Agreement.
 
Article 14       Termination of this Agreeme nt
 
14.1 This Agreement is terminated by the reasons as follows:
 
(1)
The parties reach a mutual consent in writing;
 
(2)
One Party breaches any of its obligations under this Agreement, and then the non-defaulting Party has given written notice to such defaulting Party. During a period of third (30) days after receipt of such notice, such breach is not cured;
 
(3)
One Party’s representation or warranties is false or incorrect;
 
(4)
This Agreement becomes invalid or been unable to put into effect or been announced to be invalid or been unable to put into effect, or authorized institutions demand to amend any provisions in this Agreement, but any Party cannot accept the amendment; and
 
 
 
 
 

(5)
As mentioned in Article 9 any of the Force Majeure event occurs or the results seriously influence one Party to fulfill this Agreement, but each Party cannot find any reasonable solutions during a period (30 days) after the Force Majeure event occurs.
 
14.2 If affairs provided in (1), (4) and (5) of the above Article occur, any Party has rights to give written notice to the other Party to terminate this Agreement; if affairs provided in (2) and (3) of the above Article occur, the non-defaulting Party solely has the rights to give written notice to the other Party to terminate this Agreement.
 
14.3 The notice becomes effective after 15 days when the notice terminating this Agreement is delivered to the Party who shall receive the notice.
 
14.4 If this Agreement is terminated in the reasons of this Article,
 
each Party should return any Target Equity or consideration which is gained from the other Party by fulfilling this Agreement.
 
the defaulting Party shall pay the other Party for any damages caused by the default; if each Party is in default, it shall assume its respective liabilities according to the extent of its default.
 
14.5 This article entitles each Party to terminate this Agreement, which shall not prejudice any rights or remedies hereunder to the Party who bring the termination of this Agreement.
 
Article 15       Miscellaneous
 
15.1 If any of the provisions hereof becomes invalid, illegal or unenforceable in accordance with any laws and regulations, all the other provisions hereof remain effective. In the case that any of the provisions hereof becomes invalid, illegal or unenforceable, the parties in this Agreement shall conduct faithful consultations and amend this Agreement. The Parties shall achieve the intended purpose as far as possible in an acceptable way, and avoid the influence from invalidity, illegality and unenforceability in utmost.
 
15.2 This Agreement is the entire agreement between the Parties hereto regarding the subject matter hereof, and constitutes the manifestation of unanimous intention of all Parties together with any appendix. This Agreement shall supersede any prior oral or written intention, communication, understanding and so forth in respect of any proposed transaction hereof made before the execution date of this Agreement.
 
15.3 The headings of the sections have been added for convenience only and shall not affect the meaning and construction of this Agreement.
 
15.4 This Agreement shall be made in Chinese in 4 originals, and each Party holds two. The Parties shall sign a counterpart of this Agreement, and each counterpart shall
 
 
 
 
 
have the same legal effects as the originals.
 

 
[The remainder of this page is left intentionally blank.]
 
 
 
 
 
Jilin Agriculture Science College
 
Legal or authorized representatives:
 

Beijing Origin Seed Joint Stock Limited Company
 
Legal or authorized representatives:
 
 
 
 

 
EXHIBIT 4.18
Equity Transfer Agreement

The Parties enter into this Agreement in Beijing on December 28, 2004:

Transferor:
China National Center for Biotechnology Development (hereinafter referred to as “Party A”)
Legal representative:
Wang Hongguang
Address:
Second No. 7 Zao Jun Miao
  Haidian District
  Beijing

Transferee:
Beijing Origin Seed Joint Stock Limited (hereinafter referred to as “Party B”)
Legal representative:
Han Gengchen
Address:
2E201
Zhongguancun Development Building
NO.12 Shangdi Information Road
Haidian District
Beijing

Whereas:

1.
Party B is a limited liability company duly organized in Beijing under the laws of China and has its independent legal personality. Its registered capital is one hundred million Renminbi;
2.
Shenzhen Biocentury Transgene Technology Co.,Ltd (hereinafter referred to as “Biocentury Co.”) is a limited liability company duly organized in Shenzhen under the laws of China and has its independent legal personality. Its registered capital is eighty million Renminbi;
3.
Party A invested eight million Renminbi in Biocentury Co. and legally owns 10% interest in the registered capital of Biocentury Co.; and
4.
Pursuant to the provisions of this Agreement, Party A agrees to transfer and Party B agrees to purchase Party A’s 7% interest in the registered capital of Biocentury Co..

Party A and Party B, through friendly consultation, enter into the following agreement in respect of the share transfer hereof:

Article 1   SHARE TRANSFER

Pursuant to the provisions and conditions of this Agreement, Party A agrees to transfer

 
 
 

its 7% interest in the registered capital of Biocentury Co. (hereinafter referred to as “target shares”) to Party B in capacity of the owner of such shares hereof; Party B agrees to purchase the target shares.

Article 2   CONSIDERATION

Party A and Party B agree that Party A transfer 7% interest in the registered capital of Biocentury Co. to Party B at the price of RMB five million six hundred thousand (5,600,000).

Article 3   PAYMENT

Party B shall pay the total amount of the transferred share at the price of RMB one million six hundred thousand (1,600,000) within 10 days of which the registration of industry and commerce is modified for the title of the target shares being transferred from Party A to Party B.

Article 4   RIGHT, RESPONSIBILITY AND RISK’S TRANSFER

From the date of which the registration of industry and commerce is modified for the title of the target shares being transferred from Party A to Party B (hereinafter referred to as “transfer date”), Party B will be the entitled party of the target shares and enjoy the full right of the target shares.

Article 5   REPRESENTATIONS, WARRANTIES AND COVENANTS OF PARTY A

Party A has full right of disposing to the target shares and the target shares are not limited by any preemptive rights or other similar rights. The target shares are fully owned by the Party A legally and free and clear of all mortgages, charges, liens and the third party’s interest; there is neither any debt or potential liability attached to the target shares nor any litigation, arbitration or dispute subject to the target shares. Party B will entitle full right of the target shares as the owner of the target shares on the transfer date.

Article 6   CONFIDENTIALITY

T he Parties shall hold in strict confidence, unless compelled to disclose by requirements of supervision and administrative authorities or by requirements of laws or administration regulations, to commercial documents in connection with the transactions contemplated by this Agreement.
 
 
 
 

Article 7   FORCE MAJEURE
 
In case any provision of this Agreement cannot be performed by any party of this Agreement because of unforeseeable, unavoidable, insurmountable events, such as earthquake, fire and war, liability shall be exempted; however, such party shall promptly notify the other party so as to mitigate losses that might be inflicted on that party within a reasonable period of time.

Article 8   LIABILITY FOR BREACH OF CONTRACT

8.1
If Party A violates or fails to perform its representations, warranties or covenants, it shall be liable for the breach of agreement and shall indemnify Party B for all its losses.

8.2
Any of the Parties hereto that violates or fails to perform its part or whole duties or obligations under this Agreement shall be liable for the breach of agreement and shall indemnify the non-defaulting party hereto for all its losses.

8.3
If Party B fails to make its payment as the time limit and the amount specified in Article 3, Party B shall pay to Party A a fine amounting to 5 ‰ of the sum payable by Party B per month from the first day of such breach. If such default exceeds three (3) months, Party A has the right to terminate this Agreement and investigate Party B’s liabilities for breach of agreement according to Clause 8.2 hereto.

Article 9   TAX

A ll taxes and fees arising from the share transfer hereunder shall be processed in accordance with the relevant provisions of the laws and regulations; in case there is no relevant provision which could be applied, the taxes and/or fees shall be borne by Party A and Party B equally.

Article 10   APPLICABLE LAW AND DISPUTE RESOLUTION

10.1
The conclusion, effectiveness, interpretation and performance of this Agreement and settlement of disputes in connection with this Agreement shall be governed by the laws of the People’s Republic of China (“China”).

10.2
Any dispute arising out of this Agreement or from its performance shall be resolved through friendly consultation between the Parties. If the dispute cannot be resolved through consultation, then any Party can submit the dispute to the court with corresponding jurisdiction. Otherwise determined by the court, the litigation fees and other fees relevant to the litigation shall be borne by the losing party.
 
 
 
 
 
 
Article 11   COUNTERPARTS
 
T his Agreement is executed in quadruplicate. Each Party hereto shall hold one (1) counterpart. One counterpart shall be kept by Biocentury Co. for record and the other shall be submitted to the Industry and Commerce Administrative authorities for record. Each copy shall have the same effect.

Article 12   MISCELLANEOUS

12.1
Parties shall go through other necessary procedures and execute other necessary documents for the share transfer hereunder.

12.2
Party A shall assist and cooperate with Party B to submit all documents relevant to the share transfer hereunder to the original Industry and Commerce registration department of Biocentury Co. and go through the procedure of modification of the registration in the Industry and Commerce Administration authorities.

12.3
This Agreement is executed as of the date set forth on the first page between Party A and Party B in Beijing.
 
Transferor: China National Center for Biotechnology Development
Legal Representative:

 
Transferee: Beijing Origin Seed Joint Stock Limited
Legal Representative:
 
 
 
 
 
Equity Transfer Payment Agreement

The Parties enter into this Agreement in Beijing on May 26, 2005:

Transferor:
China National Center for Biotechnology Development (hereinafter referred to as “Party A”)
Legal Representative:
Wang Hongguang
Address:
Second No. 7 Zao Jun Miao
Haidian District
Beijing

Transferee:
Beijing Origin Seed Joint Stock Limited (hereinafter referred to as “Party B”)
Legal Representative:
Han Gengchen
Address:
2E201
Zhongguancun Development Building
No.12 Shangdi Information Road
Haidian District
Beijing

Guarantor:
Beijing Biology Industry Hatch Base Company Limited (hereinafter referred to as “Party C”)
Legal Representative:
Shi Baodong
Address:
Second No. 7 Zao Jun Miao
Haidian District
Beijing

Pursuant to the Share Transfer Agreement which was entered into by and between Party A and Party B on December 28, 2004 (hereinafter referred to as “the Main Contract”), Party A agrees to transfer its 7% interest in the registered capital of Biocentury Co. (hereinafter referred to as “target shares”) to Party B at the price of RMB five million six hundred and seventy-seven thousand (5,677,000) in capacity of the owner of such shares hereof; Party B agrees to purchase the target shares; and Party C agrees to provide guarantee to Party A that Party A will fully perform and accomplish the obligations under the Main Contract and this Agreement. In consideration of the foregoing, the three Parties hereby agree as follows:

1.
EQUITY TRANSFER AND PAYMENT

Through friendly consultation, Party B agrees to pay the share transfer’s consideration at the price of RMB five million six hundred and seventy-seven thousand (5,677,000)

 
 
 

in a single payment within two (2) days of which this Agreement becomes effective.

2.
REGISTRATION PROCEDURE FOR SHARE TRANSFER AND RISK MANAGEMENT

1)
Party A and Party B shall fully cooperate and jointly process the registration modification procedure relevant to the share transfer; and
2)
If the registration modification procedure is not accomplished within 3 months or the procedure hereof is not approved by the relevant authorities, Party A shall return all of the payment which is RMB five million six hundred and seventy-seven thousand (5,677,000) to Party B within 10 working days of such instance arising.

3.
GUARANTEE

1)
The method of guarantee: jointly and several guarantee liability;
2)
Party C warrants that its guarantee liability will not be diminished or released for any order, property’s change, organization structure’s change or adjustment;
3)
Scope of guarantee: including the principal, interest, indemnity of the share transfer and litigation fee, attorney fee and other expenses for the credit’s realization; and
4)
Party C agrees and assures that in case Party A could not perform the obligations under the principle contract or this Agreement, Party C shall pay off the consideration and fees of the share transfer unconditionally and without any demur, and such payment shall be regarded as a debt of Party C to Party B.

4.
LIABILITY FOR BREACH OF CONTRACT

1)
If Party A fails to perform or cannot fully perform the obligation of returning the consideration of the share transfer under this Agreement, Party A shall pay to Party B a fine amounting to 0.5 ‰ of the sum payable by Party A per day from the first day of such breach;
2)
If Party B fails to perform or cannot fully perform the obligation of paying the consideration of the share transfer under this Agreement, Party B shall pay to Party A a fine amounting to 0.5 ‰ of the sum payable by Party B per day from the first day of such breach; and
3)
If Party C fails to perform or cannot fully perform the obligation of guarantee under this Agreement, Party C shall pay to Party B a fine amounting to 0.5 ‰ of the sum payable by Party C per day from the first day of such breach.
 
 
 
 
 
 
5.
EFFECTIVENESS
 
1)
This agreement will be effective from the date of the executions and stamps by the authorized representatives of the Parties, and will be expired from the date of the accomplishment of the obligations of the three parties.
2)
The Content of this Agreement is written by the printed words and any handwriting is void.
3)
T his Agreement is executed in three counterparts. Each Party hereto shall hold one (1) counterpart, and all counterparts are equally authentic.
 
Transferor: China National Center for Biotechnology Development
Legal Representative:

 
Transferee: Beijing Origin Seed Joint Stock Limited
Legal Representative:

 
Guarantor: Beijing Biology Industry Hatch Base Company Limited
Legal Representative:
 


EXHIBIT 4.19

CAPITAL CONTRIBUTION AGREEMENT

 
In accordance with the Company Law of the People's Republic of China and other relevant laws and regulations, Jilin Jinong High Technology Development Joint Stock Limited Company, Beijing Origin Seed Joint Stock Limited Company, Mr. Chen Wanzhong, Mr. Cai Zhuo, Mr. Cheng Shouzhi, Mr. Sheng Jidan, Ms. Li Yueying and Mr. Xu Guoan, through friendly consultation, unanimously agree to invest in establishing a limited liability company (hereinafter referred to as “the Company” or “the New Company”), and hereby enter into this Agreement, which shall be complied by each party hereto.
 
Article I   Contributors

Party A: Jilin Jinong High Technology Development Joint Stock Limited Company
Address: No. 303 West Ke Mao Street, Gong Zhuling, Jilin
Legal Representatives: Chen Wanzhong

Party B: Beijing Origin Seed Joint Stock Limited Company
Address æ 2E201, Zhongguancun Development Building 2nd flo or, NO.12 Shangdi Information Road, Haidian District, Beijing
Legal Representatives: Han Gengchen

Party C: Mr. Chen Wanzhong
ID Number: 220319540519041
Address æ 9-17, Keyan Wei, Tiebei Street, Gong Zhuling, Jilin

Party D: Mr. Caizhuo
ID Number: 220319560706081
Address æ No.6, Xinghua Wei, 2 nd Building, Tiebei Street, Gong Zhuling, Jilin

Party E: Mr. Cheng Shouzhi
ID Number: 220319530917043
Address æ 3-11, Min’an Wei, Dongsan Street, Gong Zhuling, Jilin
 
 
 
 

Party F: Mr. Sheng Jidan
ID Number: 220319600426045
Address æ 9-53, Shuguang Wei, Dongsan Street, Gong Zhuling, Jilin

Party G: Ms. Li Yueying
ID Number: 220319660815082
Address æ 6-12, Keyan Wei, Tiebei Street, Gong Zhuling, Jilin

Party H: Mr. Xu Guoan
ID Number: 220319571002043
Address æ 4-27, Min’an Wei, Dongsan Street, Gong Zhuling, Jilin

Article II   Establishment of the Limited Liability Company

2.1
The Company is temporarily named as Jinong High Technology Seed Ltd. (The name to be examined and approved by the registration authority of industry and commerce shall prevail.).

2.2
The registered address of the Company is No.1363, Caiyu Street, Jing Yuetan Tourism development Zone, Changchun, Jinlin.

2.3
The business scope of the Company includes: breeding, production, sales and services of agricultural seeds, economic crops; production, processing, and sales of agricultural fertilizer and pesticide; processing of agricultural by-products; pasture products and livestock products of lawn, flowers, gardening; export of self-manufactured products and related techniques of our company and member enterprises of our company (except those restricted to be operated by companies or prohibited to be exported by the government); import of raw and auxiliary materials, mechanical equipment, apparatus and meters, spare parts and related techniques necessary for the production and scientific research by our company and member enterprises (except those restricted to be operated by companies or prohibited to be exported by the government); processing imported materials by our company and three types of processing plus compensation trades; sale and purchase of grain and oil (direct purchase of corn and paddy in the primary market is not permitted); sale and purchase of livestock products (except the varieties restricted by the government).

2.4
The term of the Company is ____ years.
 

 
 
 
 

Article III   Registered Capital and Capital Contribution

3.1
The registered capital of the Company is RMB30,000,000. The amount and form of the contribution capital of each Party are as follows æ

Contributor
Contribution Subscribed (RMB)
Form
Proportion
Party A
10,050,000
non-monetary properties
33.5%
Party B
10,050,000
currency
33.5%
Party C
4,500,000
currency
15%
Party D
1,800,000
currency
6%
Party E
1,500,000
currency
5%
Party F
1,500,000
currency
5%
Party G
300,000
currency
1%
Party H
300,000
currency
1%

3.2
The contribution capital in non-monetary properties made by Party A mainly includes the corn seeds legitimately owned by it, and the value of which shall be assessed and evaluated by an evaluation institution approved by all Parties. The detailed list of such non-monetary properties and its related liabilities, its related qualification and title certificates are attached as Annex I.

3.3
It is acknowledged by each party that, whenever the Company is formally set up, all the profits and losses derived from the contribution capital in the non-monetary properties made by Party A as of January 1 st 2006 shall be the properties of the New Company, and such properties shall be incorporated into the financial statement of the New Company after its establishment. The relevant business qualification of Party A shall be transferred to the New Company, and Party A shall no longer be engaged in any businesses competing with the New Company.

3.4
It is acknowledged by each party that, each Party shall subscribe its respective capital in a lump sum and in full within 20 days after the execution of this Agreement. The contribution capital in currency shall be deposited in the bank account opened for the Company, and the contribution capital in
 
 
 
 
 
 
non-monetary properties shall be transferred to the Company through proper property transfer procedure. All business related to the Company shall be conveyed from Party A to the Company. The Company shall carry on such businesses, go through the necessary procedures for the changes of the principals of the contract, and execute corresponding supplementary agreements. In respect of any credits involved, the consent of the creditors shall be obtained, and in respect of any debts involved, the debtors shall be informed.

3.5
Party A agrees that the new Company has the exclusive right to use and manage the fixed assets and other properties (hereinafter referred to as “affiliated assets” and detailed list is attached as Annex II) of Party A , which is necessary to and closely connected with the operation of the contribution capital in non-monetary properties made by Party A, but not contributed to the New company free of charge during the term of the New Company. The use and maintenance of such affiliated assets shall be at the Company’s expense. In respect of the use of such affiliated assets, Party A and the New Company shall otherwise execute an agreement.

3.6
Party A agrees that the new Company has the exclusive right to use the intangible assets ø varieties rights and trademarks ÷ of Party A which are not contributed to the New Company free of charge during the term of the Company. Party A and the new Company shall otherwise sign another agreement in respect of the use of such intangible assets .  

3.7
After the contribution of each Party has been verified by the legitimate capital verification institution, Party A shall designate persons to go through the establishment registration procedure of the Company with the relevant industry and commerce authority, which is supposed to be completed prior to _____, 2006.

Article IV   Rights and Responsibilities

4.1
Each Party has the full authority to enter into this Agreement and to perform its obligation hereunder.

4.2
Each Party enjoys its shareholder’s rights and assumes its shareholder’s responsibilities in proportion to its respective contribution capital, including
 
 
 
 
 
 
proportionally sharing profits, risks and losses, and is liable for the Company’s debts to the extent of its respective capital subscribed.

4.3
Each Party shall, in accordance with the provisions of this Agreement, timely perform its obligation of contribution in full, shall be the legitimate owner of its respective contribution capital , and shall warrant that its respective contribution capital is free from any security, any contingent liabilities and any other potential liabilities, as well as any dispute, arbitration or litigation against such contribution capital, and that such contribution capital is not subject to any other privileged or similar rights.

4.4
After the establishment of the Company, each Party shall not withdraw its contribution capital, and shall assign it in accordance with the Articles of Association.

4.5
Each Party shall warrant that it has not signed any contract or agreement conflicting with this Agreement, and will not assign the rights and liabilities thereunder to any third party.

4.6
Each Party agrees to take all necessary actions to sign and obtain all legal documents necessary to implement this Agreement, and to cooperate for timely registration of the Company.

Article V   Organizational Structure

5.1
The shareholders’ meeting is the Company's authority. Any adoption of a resolution by the shareholder meeting requires affirmative votes by shareholders representing two-thirds of the voting rights.

5.2
The Company shall set up a board of directors, which shall be composed of 5 directors. Party A and Party B have the right to nominate 2 candidates respectively, and the other Parties jointly nominate 1 candidate. The chairman of the board shall be nominated by Party C and shall be an elected director; one vice-chairman shall be nominated by Party B and shall be an elected director.

5.3
The Company shall have one general manager who shall be nominated by Party B, and 5 deputy general managers nominated by Party A, B and C.
 
 
 
 
 

5.4
The Company shall set up a board of supervisors, which shall be composed of 3 supervisors. Party A and Party B have the right to nominate 1 candidate respectively, and the other Parties jointly nominate 1 candidate.

Article VI   Liabilities for Breach

6.1
Each Party shall strictly comply with this Agreement, and any non-observance of any provisions herein shall constitute a breach. The observant Party has right to terminate this Agreement and claim compensation for all its economic losses arising from such breach, but the compensation shall not exceed the possible losses of the other Parties caused by such breach which has been foreseen or ought to foreseen when the breaching-party enters into this Agreement.

6.2
Any Party, who fails to fully subscribe its capital in accordance with Article III therein, shall, from the first month after the due date, pay liquidated damages which equals to 5‰ of its payable contribution capital for each overdue month. If the contribution capital is overdue for 3 months, besides paying such aggregative liquid damages, the observant Party is entitled to terminate this Agreement and claim compensation against the breaching Party.

Article VII   Force Majeure

7.1
“Force Majeure” shall mean any event, occurring after the execution date of this Agreement, which are beyond the control of or unforeseeable to the Parties to this Agreement, or can not be avoided although it is foreseeable, and which prevent total or partial performance by either of the parties. Such events shall include but not limited to acts of God, war, policy adjustment, changes of laws, and other significant events or emergencies.

7.2
If any Party is prevented from performing its obligation hereunder as a result of the occurrence of an event of force majeure, such Party shall notify the other Parties without any delay in the most convenient way within fifteen (15) days after the occurrence of such event and shall specify in detail the event of force majeure in the written notice. Under these circumstances, the affected Party shall be obliged to take all reasonable steps to eliminate the impact of
 
 
 
 
 
 
the event of force majeure and minimize the losses caused to other Parties. The Parties shall, on the basis of the impact of the event on the implementation of this Agreement, determine whether or not to terminate or postpone this Agreement, or partly or totally exempt the affected Party from its liabilities herein.

Article VIII   Dispute Settlement and Applicable Law

8.1
Any dispute arising from or in connection with this Agreement shall be settled through friendly consultations. If such consultation fails, any Party may submit the dispute to a competent court for litigation. Except for the matter in dispute, all Parties shall continue to perform the other provisions of this Agreement during the resolution of such dispute(s).

8.2
The execution, validity, interpretation, performance and the dispute settlement in connection with this Agreement shall be governed by the laws of PRC.

Article IX   Effectiveness

9.1
This Agreement shall become effective upon the execution by the legal representative of each Party and principals or their authorized representatives.

Article X   Confidentiality

10.1
The Parties shall strictly maintain the confidentiality of the consultation, execution course and provisions of this Agreement, as well as all information, documents, data etc. of the other sides obtained during the performance of this Agreement (collectively referred to as “the Confidential Information”). Unless it is compulsory provided by laws, regulations or government, any Party shall not, in the form of act or omission, disclose the Confidential Information to the third party other than the persons with the right to know including persons or professional consultants etc. participating in the share transfer
 
 
 
 
 

Article XI   Variation, Termination and Amendment

11.1
Any variation to this Agreement shall be made through consultations and come into force only after a written amendment has been signed by all Parties. This Agreement shall remain effective, if the amendment cannot be reached. Without confirmation and execution of each Party, any amendment, interpretation or waive to any provision herein is invalid.

11.2
Based on consultations between each Party, this Agreement may be terminated in writing by each Party.

11.3
Each Party may execute supplementary agreements in respect of the matters related to this Agreement and it shall have the same legal effects as this Agreement.

Article XII   Miscellaneous  

12.1
This Agreement is the entire agreement between the Parties hereto regarding the subject matter hereof,, and constitutes the manifestation of unanimous intention of all Parties together with any appendix. This Agreement shall supersede any prior oral or written intention, communication, understanding and so forth in respect of any proposed transaction hereof made before the execution date of this Agreement. The Articles of Association made in accordance with this Agreement shall be deemed to be part of this Agreement, and if there is any conflict between them, this Agreement shall prevail or the Articles of Association may be amended in accordance with this Agreement.

12.2
The headings of the sections have been added for convenience only and shall not affect the meaning nor be interoperated this Agreement.

12.3
This Agreement shall be made in Chinese in 6 originals, and each Party holds one. Each Party may sign a counterpart of this Agreement, and each counterpart shall have the same legal effects as the originals.


[Remainder of this page is left intentionally blank.]
 

EXHIBIT 4.20
 
J oint Development Agreement on the New Variety of Corn,
Liyu No.35
 
Party A: Shi Jiazhuang Liyu Technology Development Co., Ltd
Address: No.13 Changjiang Road, Development Zone, Shi Jiazhuang
 
Party B: Beijing Origin Seed Joint Stock Limited Company
Address: No.21 Shengming Yuan Road, Changping District, Beijing
 
For the purpose of accelerating the generalization and application of new variety of corn, Liyu No.35, and through equal and friendly negotiation, the Parties agreed as follows:
 
Article One      The Purpose
 
1.  
The Parties shall jointly develop the new variety of corn, Liyu No. 35, which is selected and grown by Party A.
 
2.  
The Parties shall strengthen the generalization of the new variety, Liyu No. 35, and shall attempt to realize the objective that the aggregate generalization of the variety of Liyu No. 35 can reach 200, 000, 000 kg within 5 to 7 years.
 
Article Two      The Cooperative Mode
 
1.  
Party A shall provide parental seeds and other relevant technical materials (including the hybridized seeds of Liyu No. 35 already obtained) of Liyu No. 35, and shall be responsible for the further improvement;
 
2.  
Party B shall obtain the exclusive use right of producing and operating the new variety of corn, Liyu No. 35, by paying Party A the fees for the use right of producing and operating the variety;
 
3.  
During the term of this Agreement, should the output of Liyu No.35 of Party A is below 3,000,000 kg for 3 consecutive years (excluding when such result is caused by self-manifestation of such variety or force majeure), this Agreement shall terminate automatically;
 
4.  
When the aggregate generalization of the variety of Liyu No. 35 reaches 200, 000, 000 kg, Party A shall not terminate this Agreement unilaterally and shall provide Party B with premium;
 
 
 
 
 
 
5.  
Should Party A considers that it is of no value for it to generalize Liyu No. 35 and is not willing to generalize the variety of Liyu No.35 any more, it shall release its exclusive use right of producing and operating the new variety of corn, Liyu No. 35;
 
6.  
Party A shall be responsible for training and supervising the seed production personnel from Party B;
 
7.  
As of the effective date of this Agreement, Party A shall be fully responsible for such variety’s trial, demonstration, development, and approval application etc. and the expenses of the said actions shall be borne by Party B. Party A shall be responsible for the further improvement of the district trial (the number of national pre-trial and Hebei district trial is Lishi 2406; the participation trial number of Shanxi, Henan, Shandong is Lishi 2416; the participation trial number of Anhui is Lishi 2236), participation of which is applied for by Party A before 2006, and Party B shall provide necessary assistance; the relevant expenses incurred shall be borne by Party A.
 
Article Three      Ownership
 
1.  
Application right and the variety right of such variety and its inbred new plant variety are owned by Party A, and Party A shall not transfer the said rights to any entities or persons other than Party B; should it is necessary for Party A to transfer the said rights, Party B shall, under the same condition, have the preemptive right;
 
2.  
Should Party A is terminated due to dissolution or other reasons, the application right and variety right of such variety and its inbred new plant variety shall be disposed of by the entity who dissolves Party A.
 
Article Four      Responsibilities of Party A
 
1.  
Party A authorizes Party B to have the exclusive right to produce and manage Liyu No.35. Without Party B’s written consent, Party A shall not authorize any other third party to produce and manage such variety;
 
2.  
Party A warrants that the final approved name of such variety in all the districts of participation trial is Liyu No. 35;
 
3.  
Party A shall not, at its discretion, produce the hybridized seeds of Liyu No.35, but it may sell without repackaging the hybridized seeds of Liyu No.35 produced by Party B, subject to its compliance with the sales policy of Party B;
 
4.  
Party A shall apply for the variety right of Liyu No.35 and its inbred variety in accordance with relevant regulations in a timely manner. Provided that the new
 
 
 
 
 
 
5.  
variety right of plant is obtained, Party A shall be responsible for the payment of annual fee in accordance with the country’s relevant regulations in order to prevent the earlier termination of the protection term of the new variety right. Should the variety right becomes invalid due to Party A, Party A shall be responsible for Party B’s economic losses.
 
Article Five      Responsibilities of Party B
 
1.  
Party B shall be responsible for the trial, demonstration, development, extended -district approval, market development, production and distribution etc. of Liyu No.35; without Party A’s written consent, Party B shall not, at it’s discretion, change the name of such variety;
 
2.  
Party B shall be responsible for market research, planning and shall decide and organize the implementation of the production, processing, and sales etc. of the parental propagation and hybridized seeds;
 
3.  
When Party B makes its annual production plan, it shall consult with Party A, and only upon Party A’s written consent, such plan can be implemented;
 
4.  
Party B shall inform Party A of the specific amount of the production and sale of Liyu No.35, and Party A shall keep the said information confidential. Should the amount provided by Party B is different from the actual amount of the production and sale, Party A has the right to investigate and Party B shall provide assistance.
 
Article Six      Common Responsibilities
 
1.  
Neither Party shall, in respect of Liyu No.35, carry out any corporation with any entity or individual, transfer, or assist any third party in using it;
 
2.  
The Parties shall strictly prevent the parental seeds of Liyu No.35 and its technical materials from being disclosed, and shall together keep the parental seeds and the business confidential;
 
3.  
During the term of this Agreement, either Party shall notify the other Party of any fake or inferior commodities of their products or other conducts which constitute an infringement of their rights which come to the attention of such Party, and shall actively take effective measures;
 
4.  
The Parties hereby warrant that the undersigned who execute this Agreement on behalf of the Parties are the legal representatives or the duly authorized representatives of the Parties, and they have the authorization to execute this Agreement on behalf of the Parties.
 
 
 
 
 
 
Article Seven      Fees
 
1.  
The investment of the early breeding of Liyu No.35 is calculated RMB1,000,000 only and Party A shall provide Party B with the parental seeds and relevant materials (including the hybridized seeds already obtained) of No.35 before the end of March 2003 (the price of hybridized seeds, RMB10/kg; the price of parental inbred seeds ô RMB16/kg ). Party B shall pay Party A the said amount in a lump sum upon examination;
 
2.  
The fees for the use right of production and operation paid by Party B to Party A shall be paid in accordance with the production royalty; the royalty is RMB0.5/kg. Such amount shall be paid by Party B to Party A in a lump sum after the annual distribution season (before the end of July of the next producing year);
 
3.  
Party B shall inform Party A, in writing, of the grown area and place of such variety in the current year before the end of May of every year, and of the output at the end of March of the next year; Party A shall confirm the said information in writing;
 
4.  
Should Party A raises an objection to the output of Party B, it shall inform Party B within 10 working days upon the receipt of the written notice from Party B and have the right to examine such output; Party B shall provide active assistance. Party A shall keep the trade secret of Party B confidential. Should Party A does not raise any written objection against Party B within the said time period, Party A shall be deemed to have acknowledged the output informed by Party B.
 
Article Eight      Remedies
 
1.  
Provided that any other person produces or distributes any hybridized seeds of such variety for commercial purpose during and after the process (including but not limited to the period from the date of public notice of preliminary review to the authorization date of the variety right) of application of the variety right, in respect of Liyu No.35 and its inbred seeds, Party A shall transfer the right of recourse to Party B in writing, and shall permit Party B to claim the damages against others in the name of Party B. The proceeds shall be equally distributed between the Parties after deducting necessary expenses incurred to Party B;
 
2.  
When the aggregate generalization of the variety of Liyu No. 35 by Party B reaches 2, 000, 000, 000 kg, Party A shall provide Party B with premium and the proportion of the royalty shall be reduced from RMB0.5/kgto RMB0.4/kg.
 
Article Nine      Liabilities for Breach of Contract
 

 
 
 
 
1.
Party B shall pay Party A the fees for the variety’s use right at the stated time. Should Party B fails to pay the said amount, it shall pay Party A 0.5% overdue fine per overdue day;
 
2.
Should Party B makes any concealment in respect of the output, it shall pay Party A five times of its due profits as compensation based on the profit which is concealed;
 
3.
Should Party B fails to comply with the third paragraph of Article 2 hereof, Party A has the right to revoke Party B’s exclusive use right of production and operation of Liyu No. 35.
 
4.
Should any other person propagates such variety due to Party B’s disclosure, Party B shall assume the liabilities for breach of the Agreement. The method of computing the compensation is as follows: the amount of the compensation = average output of one acre of the grown area × the grown acreage of such other person × (the market price where Party B is located in the current year - Party B’s cost price);
 
5.
During the term of this Agreement, Party B is not allowed to authorize any other person to have the exclusive use right of the parental seeds of such variety; otherwise, Party A shall be responsible for any losses incurred and take the corresponding legal consequences.
 
 
Should Party A discloses the confidential information, or, at his discretion, permits any other person or itself to produce or manage such variety, Party A shall assume the liabilities for breach of this Agreement. The method of computing the compensation is as follows: the amount of the compensation = average output of one acre of the grown area × the grown acreage of Party A or such other person × (the market price where Party B is located in the current year - Party B’s cost price).
 
Article Ten      Amendment
 
Any amendment or supplement to this Agreement shall be made in writing and shall constitute an integral part of this Agreement.
 
Article Eleven      Governing Law and Dispute Resolution
 
1.  
This Agreement shall be governed by laws of the People’s Republic of China.
 
 
 
 
 
 
2.  
In the event of any dispute arising out of or in connection with the validity, interpretation or performance hereof, the Parties shall attempt in the first instance to resolve such dispute through friendly consultations. Should such dispute can not be resolved through consultations or either Party is not willing to resolve such dispute through consultations, such dispute may be submitted to the court where this Agreement is executed, unless otherwise determined by such court. The litigation fees shall be borne by the losing Party .
 
Article Twelve      Effectiveness and Miscellaneous
 
1.  
This Agreement shall become effective as of the date of execution and stamping by the Parties.
 
2.  
This Agreement is executed in four copies, with each Party holding two, and each copy shall have the same legal effect.
 
3.  
Either Party shall obtain a written content from the other Party before terminating this Agreement.
 
4.  
Any other issue which is not provided by this Agreement shall be resolved by the Parties through friendly consultations.
 
 
Party A: Shi Jiazhuang Liyu Technology Development Co., Ltd
 
Authorized Representative: /s/ Zhao Jinlin
 
 
March 30, 2006
 
/s/ CORPORATE SEAL
 
Party B: Beijing Origin Seed Joint Stock Limited Company
 
Authorized Representative: /s/ Huang Xilin
 
March 30, 2006
 
/s/ CORPORATE SEAL

Place of Execution: Shi Jiazhuang
 
 

EXHIBIT 4.21
 
Joint Development Agreement
 
 
This Joint Development Agreement is made and entered into on January 31, 2002 in Beijing by and between:
 
Party A: Corn Research Institution of Li County in Hebei Province
Address: 2 kilometres in the South of Li Gang, Hebei Province
 
Party B: Beijing Origin Seed Technology Development Co., Ltd
Address: No.12 Shangdi Middle Information Road, Haidian District, Beijing
 
For the purpose of accelerating the generalization and application of new variety of corn, and through equal and friendly negotiation, the Parties agreed as follows:
 
Article One       The Purpose
 
The Parties shall jointly develop the new variety of corn, Liyu No. 16, which is selected and grown by Party A.
 
Article Two       The Cooperative Mode
 
2.1
Party A shall provide parental seeds and other relevant technical materials (including the hybridized seeds of Liyu No.16 already obtained) of Liyu No.16, and shall be responsible for the further improvement;
 
2.2
Party A shall be responsible for training and supervising the seed production personnel from Party B;
 
2.3
As of the effective date of this Agreement, Party A shall be fully responsible for such variety’s trial, demonstration, development and approval application, etc.
 
Article Three       Ownership
 
3.1
Application right and the variety right of such variety and its inbred new plant variety are owned by Party A, and Party A shall not transfer the variety right and/or the application right of such variety and its inbred new plant variety to any entities or persons other than Party B;
 
3.2
Should Party A is terminated due to dissolution or other reasons, the application right and/or variety right of such variety and its inbred new plant variety shall be transferred to Party B without consideration, subject to Party B’s guarantee of the breeder’s right of authorship and other propriety interests incidental to person.
 
 
 
 
 
Article Four       Responsibilities of Party A
 
4.1
Party A authorizes Party B to have the exclusive right to produce and operate Liyu No.16. Without Party B’s written consent, Party A shall not authorize any other third party to produce and operate such variety;
 
4.2
Party A shall not, at its discretion, produce the hybridized seeds of Liyu No.16, but it may sell without repackaging the hybridized seeds of Liyu No.16 produced by Party B, subject to its compliance with the sales policy of Party B;
 
4.3
Party A shall apply for the variety right of Liyu No.16 and its inbred variety in accordance with relevant regulations in a timely manner. Provided that the new variety right of plant is obtained, Party A shall be responsible for the payment of annual fee in accordance with the relevant state regulations in order to prevent the earlier termination of the protection term of the new variety right. Should the variety right becomes invalid due to Party A, Party A shall be responsible for Party B’s economic losses.
 
Article Five       Responsibilities of Party B
 
5.1
Party B shall be responsible for the trial, demonstration, development, and approval application of Liyu No.16;
 
5.2
Party B shall be responsible for market research, planning and shall decide and organize the implementation of the production, processing and sales etc. of the parental propagation and hybridized seeds;
 
5.3
Party B shall inform Party A of the specific amount of the production and sale of Liyu No.16, and Party A shall keep the said information confidential. Should the amount provided by Party B is different from the actual amount of the production and sale, Party A has the right to investigate and Party B shall provide assistance.
 
Article Six       Common Responsibilities
 
6.1
Neither Party shall, in respect of Liyu No.16, carry out any cooperation with any entity or individual, transfer or assist any third party in using it;
 
6.2
The Parties shall strictly prevent the parental seeds of Liyu No.16 and its technical materials from being disclosed and shall together keep the parental seeds and the business secret confidential;
 
6.3
During the term of this Agreement, either Party shall notify the other Party of any fake or inferior commodities of their products or other conducts which constitute an infringement of their rights which come to the attention of such Party, and shall
 
 
 
 
 
actively take effective measures;
 
6.4
The Parties hereby warrant that the undersigned who execute this Agreement on behalf of the Parties are the legal representatives or the duly authorized representatives of the Parties, and they have the authorization to execute this Agreement on behalf of the Parties.
 
Article Seven       Fees
 
7.1
The investment of the early breeding of Liyu No.16 is calculated in RMB200,000 and Party A shall provide Party B with the parental seeds and relevant materials (including the hybridized seeds already obtained) of No.16 before the end of February 2002. Party B shall pay Party A RMB100, 000 only upon examination. It shall be otherwise agreed on the price for and relevant issues of the hybridized seeds and parental inbred seeds;
 
7.2
Should such variety can not be approved by the competent authority of the provincial level or the legal certificate of the variety right can not be obtained and such variety can not be generalized legitimately, Party A shall repay Party B the RMB100,000 paid by Party B;
 
7.3
Upon the approval of such variety and obtaining of the legal variety right, Party B shall pay Party A another RMB100,000;
 
7.4
The fees shall be counted as RMB0.4 /kg of the produced by Party B from 2002. The said settlement shall be basically made after the annual distribution season of the produced hybridized seeds (at the end of June of next producing year). However, the advance shall be properly made ahead of schedule (January of next producing year) and the specific amount shall be made through the Parties’ consultations.
 
Article Eight       Remedies
 
Provided that any other person produces or distributes any hybridized seeds of such variety for commercial purpose during and after the process (including but not limited to the period from the date of public notice of preliminary review to the authorization date of the variety right) of application of the variety right, in respect of Liyu No.16 and its inbred seeds, Party A shall transfer the right of recourse to Party B in writing and shall permit Party B to claim the damages against others in the name of Party B. The proceeds shall be equally distributed between the Parties after deducting necessary expenses incurred to Party B.
 
 
 
 
 
Article Nine   Liabilities for Breach of Contract
 
9.1
Violation of any provision of this Agreement shall constitute a breach. The Breaching Party shall be liable for the Non-breaching Party’s economic losses caused by its breach and shall compensate the Non-breaching Party for such losses and keep the Non-breaching Party undamaged;
 
9.2
Should the dispute is caused by the property rights of the variety right of Liyu No.16 and its inbred seeds, Party A shall assume full responsibilities and compensate Party B for such losses.
 
Article Ten       Amendment
 
Any amendment or supplement to this Agreement shall be made in writing and shall constitute an integral part of this Agreement.
 
Article Eleven       Governing Law and Dispute Resolution
 
11.1
This Agreement shall be governed by laws of the People’s Republic of China.
 
11.2
In the event of any dispute arising out of or in connection with the validity, interpretation or performance hereof, the Parties shall attempt in the first instance to resolve such dispute through friendly consultations. After sixty (60) days upon either Party’s notice of such dispute to the other Party, such dispute may be submitted to the court where this Agreement is executed, unless otherwise determined by such court. The litigation fees shall be borne by the losing Party .
 
Article Twelve       Effectiveness and Miscellaneous
 
12.1
This Agreement shall become effective as of the date of execution and stamping by the Parties.
 
12.2
This Agreement is executed in two copies, with each Party holding one, and each copy shall have the same legal effect.
 
12.3
Either Party shall obtain a written content from the other Party before terminating this Agreement.
 
12.4
Any other issue which is not provided by this Agreement shall be resolved by the Parties through friendly consultations.
 
12.5
This Agreement shall be duly executed by the Parties as of the date first written above in Beijing.
 
 
 
 
 
 
(No text hereof)
 
Party A: Corn Research Institution of Li County in Hebei Province
 
Representative: /s/ Zhao Jinlin
 
/s/ CORPORATE SEAL
 
Party B: Beijing Origin Seed Technology Development Limited
 
Representative: /s/ Yang Yasheng
 
/s/ CORPORATE SEAL
 
 
 

 
 

 
EXHIBIT 4.22
 
J oint Development Agreement
 
Party A: Li County Corn Research Institute
Address: 2 kilometres in the South of Li Gang, Hebei Province
 
Party B: Beijing Origin Seed Technology Development Co., Ltd
Address: No.12 Shangdi Information Road, Haidian District, Beijing
 
For the purpose of accelerating the generalization and application of new variety of corn, and through equal and friendly negotiation, the Parties agreed as follows:
 
Article One      The Purpose
 
The Parties shall jointly develop the new variety of corn, Liyu No. 26, which is selected and grown by Party A.
 
Article Two      The Cooperative Mode
 
2.1
Party A shall provide parental seeds and other relevant technical materials (including the hybridized seeds of Liyu No.26 already obtained) of Liyu No.26, and shall be responsible for the further improvement;
 
2.2
Party A shall be responsible for training and supervising the seed production personnel from Party B;
 
2.3
As of the effective date of this Agreement, Party A shall be fully responsible for such variety’s trial, demonstration, development and approval application etc. and the expenses of the district trial and approval shall be borne by Party A.
 
Article      Three Ownership
 
3.1
Application right and the variety right of such variety and its inbred new plant variety are owned by Party A, and Party A shall not transfer the said rights to any entities or persons other than Party B;
 
3.2
Should Party A is terminated due to dissolution or other reasons, the application right and variety right of such variety and its inbred new plant variety shall be transferred to Party B without consideration, subject to Party B’s guarantee of the right of authorship and the due interests of the breeder.
 
 
 
 
 
 
Article Four      Responsibilities of Party A

4.1
Party A authorizes Party B to have the exclusive right to produce and operate Liyu No.26. Without Party B’s written consent, Party A shall not authorize any other third party to produce and operate such variety;
 
4.2
Party A shall not, at its discretion, produce the hybridized seeds of Liyu No.26, but it may sell without repackaging the hybridized seeds of Liyu No.26 produced by Party B, subject to its compliance with the sales policy of Party B;
 
4.3
Party A shall apply for the variety right of Liyu No.26 and its inbred variety in accordance with relevant regulations in a timely manner. Provided that the new variety right of plant is obtained, Party A shall be responsible for the payment of annual fee in accordance with the relevant state regulations in order to prevent the earlier termination of the protection term of the new variety right. Should the variety right becomes invalid due to Party A, Party A shall be responsible for Party B’s economic losses.
 
Article Five      Responsibilities of Party B
 
5.1
Party B shall be responsible for the trial, demonstration, development, and approval application of Liyu No.26;
 
5.2
Party B shall be responsible for market research, planning and shall decide and organize the implementation of the production, processing and sales etc. of the parental propagation and hybridized seeds;
 
5.3
Party B shall inform Party A of the specific amount of the production and sale of Liyu No.26, and Party A shall keep the said information confidential. Should the amount provided by Party B is different from the actual amount of the production and sale, Party A has the right to investigate and Party B shall provide assistance.
 
Article Six      Common Responsibilities
 
6.1
Neither Party shall, in respect of Liyu No.26, carry out any cooperation with any entity or individual, transfer, or assist any third party in using it;
 
6.2
The Parties shall strictly prevent the parental seeds of Liyu No.26 and its technical materials from being disclosed and shall together keep the parental seeds and the business secret confidential;
 
6.3
During the term of this Agreement, either Party shall notify the other Party of any fake or inferior commodities of their products or other conducts which constitute an infringement of their rights which come to the attention of such Party, and shall actively take effective measures;
 
6.4
The Parties hereby warrant that the undersigned who execute this Agreement on
 
 
 
 
 
behalf of the Parties are the legal representatives or the duly authorized representatives of the Parties, and they have the authorization to execute this Agreement on behalf of the Parties.
 
Article Seven      Fees
 
7.1
The investment of the early breeding of Liyu No.26 is calculated in RMB200,000, and Party A shall provide Party B with the parental seeds and relevant materials (including the hybridized seeds already obtained) of No.26 before the end of February 2003. Party B shall pay Party A RMB100, 000 only upon examination. It shall be otherwise agreed on the price for and relevant issues of the hybridized seeds and parental inbred seeds;
 
7.2
Should such variety can not be approved by the competent authority above the provincial level, or the legal certificate of the variety right can not be obtained and such variety can not be generalized legitimately, Party A shall repay Party B the RMB100,000 paid by Party B;
 
7.3
Upon the approval of such variety and obtaining of the legal variety right, Party B shall pay Party A another RMB100,000;
 
7.4
The fees shall be counted as RMB0.4 /kg produced by Party B from 2003. The said settlement shall be basically made after the annual distribution season of the produced hybridized seeds (at the end of June of next producing year). However, the advance shall be properly made ahead of schedule (January of next producing year), and the specific amount shall be made through the Parties’ consultations.
 
Article Eight      Remedies
 
Provided that any other person produces or distributes any hybridized seeds of such variety for commercial purpose during and after the process (including but not limited to the period from the date of public notice of preliminary review to the authorization date of the variety right) of application of the variety right, in respect of Liyu No.26 and its inbred seeds, Party A shall transfer the right of recourse to Party B in writing, and shall permit Party B to claim the damages against others in the name of Party B. The proceeds shall be equally distributed between the Parties after deducting necessary expenses incurred to Party B.
 
Article Nine      Liabilities for Breach of Contract
 
9.1
Violation of any provision of this Agreement shall constitute a breach. The Breaching Party shall be liable for the Non-breaching Party’s economic losses caused by its breach and shall compensate the Non-Breaching Party for such losses and keep the Non-breaching Party undamaged;
 
 
 
 
 

9.2
Should the dispute is caused by the property rights of the variety right of Liyu No.26 and its inbred seeds, Party A shall assume full responsibilities and compensate Party B for such losses.
 
Article Ten      Amendment
 
Any amendment or supplement to this Agreement shall be made in writing and shall constitute an integral part of this Agreement.
 
Article Eleven      Effectiveness and Miscellaneous
 
11.1
This Agreement shall become effective as of the date of execution and stamping by the Parties. This Agreement is executed in two copies, with each Party holding one, and each copy shall have the same legal effect.

11.2
Either Party shall obtain a written content from the other Party before terminating this Agreement.

11.3
Any other issue which is not provided by this Agreement shall be resolved by the Parties through friendly consultations.

 

Party A: Corn Research Institution of Li County
 
 
Representative: /s/ Zhao Jinlin
 
/s/ CORPORATE SEAL
 
Party B: Beijing Origin Seed Technology Development Limited
 
Representative: /s/ Huang Xilin
 
/s/ CORPORATE SEAL
 
Place of Execution: Beijing
 
Date of Execution: January 9, 2003
 
 
 

 
EXHIBIT 4.23
 
Henan Agriculture University
and
Henan Origin Seed Technology Development Co., Ltd.

Transfer and Technical Cooperation Agreement on Upgrading of the Hybrid Corn Seed, Yuyu No.20

Henan Agriculture University (Party A) and Beijing Origin Seed Technology Development Co., Ltd., in respect of the relevant issues of the transfer and technical cooperation of upgrading of the hybrid corn seed, Yuyu No.20, through consultations, agree as follows :

I.
The Rights, Responsibilities and Obligations of Party A

1.
The intellectual property rights of upgraded Yuyu No.20 and its parental seed, Gai 221, vest in Party A.
2.
Party A shall complete the re-registration of the upgraded Yuyu No.20 and its parental seed before the end of 1999 and obtain the legal qualification for generalization.
3.
Party A agrees that Party B can take full responsibility of the production and sale of the seed of such variety and its inbred propagation and use “Origin” as the trademark of the seed from 2000; Party A shall not provide the parental seed of the hybridized variety and its grown technology to any third party.
4.
Party A may sell the seed produced by Party B, and Party B shall give Party A the 10% to 15% (the substantial discount fluctuates as the price does) discount of the uniform sale price of Party A. However, Party A shall comply with the uniform sale policy made by Party B in order to protect the market.
5.
Party A shall assist Party B in establishing experimental plantation bases outside and inside the province where it is suitable for plantation and explore the seed market.
6.
Party A shall provide Party B with technical data and guidance in respect of growing and plantation of the hybridized seed.
7.
Should Party B ceases the production and sale of the seed, Party A has the right to otherwise transfer the abovementioned rights.
8.
Party A shall provide Party B with 195kg of inbred seed of Gai221 and 500kg of the hybridized seed for demonstration in October 1999.

II.
The Rights, Responsibilities and Obligations of Party B

1.
Party B shall obtain the exclusive rights of production and general sale of the upgraded Yuyu No.20 by paying onerous use fee to Party A.
2.
Party B shall pay the onerous use fee to Party A according to plantation area at the price of RMB 20 per arce (the unchanged price in 1999). Party B shall inform Party A of the true plantation area of the year by the end of July annually and pay the onerous use fee. Should Party A raises objection to the plantation area provided by Party B, Party A has the right to carry out sample or overall examination on all the growing fields.
 
 
 
 

3.
Party B shall take the full responsibility of the production of the seed of hybridized variety and inbred propagation to ensure the quality of the seed produced and protect the interests of the user and the reputation of the variety.
4.
Party B shall respect and protect Party A’s intellectual property of the new variety and the selected breeding of its parental variety. “Parental Gai221 of Upgraded Yuyu No.20 ” is only used for the production of “Upgraded Yuyu No.20”.

III.
Liabilities for Breach of Contract

1.
Two parties shall protect the intellectual property of the new seed and its parental seed and ensure the fulfillment of the abovementioned terms. Should any party breach the contract, the other party has the right to claim economic damages.
2.
Amendments should be made by both parties for unsettled matters.
3.
This agreement comes into effect at the moment it is signed and stamped by both parties and terminates once the production of the seed ceases.


Party A: Henan Agriculture University

Representative: /s/ Yang Huiwu

/s/ CORPORATE SEAL

August 16, 1999


Party B: Henan Origin Seed Technology Development Co., Ltd.

Representative: /s/ Kang Guanghua

/s/ CORPORATE SEAL

August 16, 1999
 
EXHIBIT 4.24
 
 
 
 
 
 
 
 
 
Renminbi Capital Loan Contract
 
 
 
 
 
 
 
 
 
China Construction Bank Corporation
Beijing Branch
 
 
 
 
 
 
Borrower (hereinafter referred to as “Party A”): Beijing Origin Seed Limited.
 
Lender (hereinafter referred to as “Party B”): China Construction Bank Corporation Beijing Shangdi Sub-Branch
 
Party A has made an application to Party B for a loan and Party B agrees to advance the loan. According to relevant laws, regulations and rules, Party A and Party B, upon negotiation, enter into this Contract for their mutual compliance and performance.
 
Article 1   Amount of Money Borrowed
 
Party A borrows from Party B an amount of RMB (Say) Seventeen Million Yuan .
 
Article 2   Purpose of Money Borrowed
 
Party A will use the money borrowed for the purpose of working capital .
 
Article 3   Term of Money Borrowed
 
As provided in this Contract, the term of the money borrowed is 12 months commencing from October 21, 2005 and ending on October 13, 2006 .
 
If the commencement date of the term of the money borrowed hereunder is different from that specified in the bank remittance voucher, the date specified in the bank remittance voucher for the first advance shall prevail. The bank remittance voucher shall be an integral part of this Contract and have the same force and effect as this Contract.
 
Article 4   Interest Rate, Penalty Interest Rate, Interest Calculation and Settlement
 
1.
Interest Rate
 
The interest rate of the loan hereunder shall be a monthly interest rate at (1) below:
 
 
(1)
fixed rate of 4.65 ‰ , which rate shall remain unchanged during the term of the money borrowed;
 
 
(2)
floating rate, that is, [intentionally left blank] % [intentionally left blank] (above/below) the base interest rate and adjusted every [intentionally left blank] months from the Interest Starting Date. The interest adjustment date shall be the date corresponding to the Interest Starting Date in the month the interest is adjusted. If there is no date corresponding to the Interest Starting Date in that month, then the last day in that month shall be the interest adjustment date.
 
2.
Penalty Interest Rate
 
 
(1)
The penalty interest rate shall be a monthly interest rate.
 
 
 
 
 
 
 
(2)
If Party A fails to use the loan for the purpose specified herein, the penalty interest rate shall be at (i) below:
 
 
(i)
fixed rate of 9.3 ‰ ;
 
 
(ii)
floating rate, that is, [intentionally left blank] % above the base interest rate and adjusted every [intentionally left blank] months from the Interest Starting Date. The penalty interest adjustment date shall be the date corresponding to the Interest Starting Date in the month the penalty interest is adjusted. If there is no date corresponding to the Interest Starting Date in that month, then the last day in that month shall be the interest adjustment date.
 
 
(3)
The penalty interest for overdue loan hereunder shall be at the rate of (i) below:
 
 
(i)
fixed rate of 6.975 ‰ ;
 
 
(ii)
floating rate, that is, [intentionally left blank] % above the base interest rate and adjusted every [intentionally left blank] months from the Interest Starting Date. The penalty interest adjustment date shall be the date corresponding to the Interest Starting Date in the month the penalty interest is adjusted. If there is no date corresponding to the Interest Starting Date in that month, then the last day in that month shall be the interest adjustment date.
 
3.
The Interest Starting Date referred to in this Article means the date when the first advance made hereunder is transferred and deposited into Party A’s account.
 
The base interest rate for the first advance made hereunder shall be the interest rate for loans of same grade announced by the People’s Bank of China on the date of Interest Starting Date; thereafter, when the interest rate or penalty interest rate is adjusted pursuant to the foregoing provisions, the base interest rate shall be the interest rate for loans of same grade announced by the People’s Bank of China on the adjustment date; if no interest rate is announced by the People’s Bank of China for loans of same grade, the base interest rate shall be the inter-bank acceptable or customary interest rate for loans of same grade on the adjustment date, unless otherwise provided by the parties.  
 
4.
The interest of the loan shall be accrued from the date when the loan is deposited into Party A’s account. The interest of the loan hereunder shall be accrued on a daily basis. The daily interest rate = monthly interest rate/30 = annual interest rate/360. A compound interest shall be accrued from the following date if Party A fails to pay accrued interest when due.
 
5.
Settlement of Interest
 
 
(1)
If a fixed interest rate is applied to the loan, the interest shall be calculated and settled at the agreed interest rate. If a floating interest rate is applied to the loan, the interest shall be calculated at such interest rate as then determined at each floating period; if the interest rate changes several times within one interest settlement period, the interest accrued at each floating period shall be
 
 
 
 
 
 
first calculated and then added up on the interest settlement date as the interest accrued within such interest settlement period.
 
 
(2)
The interest shall be settled on a monthly basis for the loan hereunder and the interest settlement date shall be the 20th of every month.
 
Article 5   Advance and Use of Money Borrowed
 
1.
Conditions Precedent to the Advance of the Money Borrowed
 
 
(1)
Party B is only obligated to advance the money borrowed upon the satisfaction of the following conditions unless the same are wholly or partly waived by Party B:
 
 
i.
Party A having completed the approval, registration, delivery and other legal procedures in respect of the loan hereunder according to relevant laws and regulations;
 
 
ii.
If a security is created for this Contract, a security contract or other form of security that satisfies Party B’s requirement having become effective;
 
 
iii.
Party A having committed no event of default set forth in this Contract;
 
 
iv.
Other conditions precedent to the advance of the loan as agreed by the two Parties:
 
[intentionally left blank] .
 
 
(2)
Party B shall begin to advance the loan within five bank business days after Party A has satisfied the foregoing conditions.
 
2.
Schedule of Use of the Loan
 
(1)
October 21, 2005         amount Seventeen Million Yuan ;
 
(2)
[intentionally left blank] _____ (date)   amount [intentionally left blank] _____;
 
(3)
[intentionally left blank] ___ (date)   amount [intentionally left blank] _____;
 
(4)
[intentionally left blank] ___ (date)   amount [intentionally left blank] _____;
 
(5)
[intentionally left blank] ___ (date)   amount [intentionally left blank] _____;
 
(6)
[intentionally left blank] ___ (date)   amount [intentionally left blank] _____.
 
Article 6   Repayment
 
1.
Repayment Principles
 
Repayment made by Party A hereunder shall comply with the following principles:
 
 
 
 
 
(1)
the principle of principal repaid first and interest paid then shall be applied to the following loans: its principal amount is overdue for over 90 days; its interest is overdue for over 90 days; Party A has ceased its production and operation or project the loan involves although the loan is not matured or is overdue for less then 90 days; loans otherwise provided for by laws or regulations;
 
 
(2)
the principles of interest paid first and principal repaid then and the interest paid together with the principal shall be applied to loans other than those described in the above paragraph (1).
 
2.
Payment of Interest
 
Party A shall pay to Party B all interest accrued on the interest settlement date. The first date of payment of interest shall be the first interest settlement date after the advance of the money borrowed. All interest accrued shall be paid at the time of final repayment.
 
3.
Schedule of Repayment of Principal
 
Party A shall repay the principal of the loan as per the schedule as follows:
 
(1)
October 13, 2006         amount Seventeen Million Yuan ;
 
(2)
[intentionally left blank] ____ (date)   amount [intentionally left blank] _____;
 
(3)
[intentionally left blank] ___ (date)   amount [intentionally left blank] _____;
 
(4)
[intentionally left blank] ___ (date)   amount [intentionally left blank] _____;
 
(5)
[intentionally left blank] ___ (date)   amount [intentionally left blank] _____;
 
(6)
[intentionally left blank] ___ (date)   amount [intentionally left blank] _____.
 
4.
Method of Repayment
 
 
Prior to the repayment date provided in this Contract, Party A shall deposit into an account opened by Party B enough funds for any amount then due and such funds will be automatically transferred and paid to Party B, or, on the repayment date provided in this Contract, Party A shall transfer funds from other account for the repayment of the loan. If Party A fails to repay the loan in a timely manner, Party B shall have the right to transfer and receive any funds from the account opened by Party A at China Construction Bank’s system.
 
5.
Prepayment
 
 
(1)
Party A is only required to give Party B a prior notice for its prepayment of the interest.
 
 
(2)
Party A shall submit to Party B a written application 30 bank business days in advance for its prepayment of the principal and may prepay part or whole of the principal upon Party B’s consent.
 
 
 
 
 

If Party A prepays the principal, the interest shall be accrued based on the actual number of days the money is borrowed and at the interest rate set forth in Article 4 of this Contract.
 
If Party A prepays the principal, Party A agrees to pay to Party B liquidated damages as follows: liquidated damages = amount prepaid x number of months ahead x rate of liquidated damages. The rate of liquidated damages is 1 ‰ . In case of less than one month, it shall be deemed as one month .
 
If Party A prepays part of the principal of the loan that is to be repaid by installments, such prepayment shall be made pursuant to the repayment schedule in reverse order. After such prepayment, the interest rate set forth in this Contract shall continue to be applied to the outstanding loan.
 
Article 7   Security of Money Borrowed
 
In case of a secured loan, the form of security is 2 as follows:
 
1.
Guarantee.
 
2.
Mortgage.
 
3.
Pledge.
 
4.
Standby Letter of Credit.
 
5.
Credit Insurance.
 
6.
Others: [intentionally left blank] ___.
 
Article 8   Party A’s Right and Obligations
 
1.
Party A shall have the right to:
 
 
(1)
require Party B to advance the loan according to this Contract.
 
 
(2)
use the loan for the purpose provided in this Contract.
 
 
(3)
apply to Party B for an extension of the loan if Party A satisfies the conditions required by Party B.
 
 
(4)
require Party B to keep confidential relevant accounting information and production and operation related trade secrets provided by Party A, unless otherwise provided for by laws, regulations and rules.
 
2.
Party A shall be obligated:
 
 
(1)
to provide relevant financial and accounting materials, information on production and operation conditions as requested by Party B and be responsible for the truthfulness, completeness and validity of the materials so
 
 
 
 
 
 
provided, including without limited to, provide Party B within the first 15 bank business days of the first month of every quarter with the balance sheet and loss and profit statement (income and expenditure statement for government sponsored institute) at the end of last quarter and provide at the end of every year cash flow statement of the current year;
 
 
(2)
to use the loan for the purpose provided in this Contract without misappropriating or embezzling the money borrowed;
 
 
(3)
to actively cooperate with and voluntarily accept Party B’s inspection of and supervision over its production and operation and financial activities as well as the use of the money borrowed hereunder.
 
 
(4)
to repay the principal and interest of the loan in a timely manner according to this Contract.
 
 
(5)
Party A and its investors shall not spirit its money away or transfer its assets to escape debts owing to Party B;
 
 
(6)
not to use the assets generating from the loan hereunder to provide security for a third party without Party B’s consent before its full repayment of the interest and principal owing to Party B;
 
 
(7)
to give Party B a prior written notice and obtain Party B’s consent if Party A intends to provide security for the debts of others during the valid term of this Contract, which may affect its ability to repay the loan hereunder;
 
 
(8)
to promptly provide other security as acceptable to Party B if the guarantor hereunder is winding-up, closed, deregistered, revoked its business license, bankrupt, revoked, suffering from losses, partly or wholly deprived of corresponding ability to secure the loan hereunder, or the collateral or property pledged to secure the loan hereunder decreases in value or accidentally is damaged or lost;
 
 
(9)
to promptly notify Party B of any change in its name, legal representative (person in charge), domicile, business scope or registered capital during the valid term of this Contract.
 
 
(10)
to give Party B a 30 days prior written notice, obtain Party B’s consent and arrange for the satisfaction of and security for the debts hereunder as requested by Party B if Party A commits any of the following during the valid term of this Contract: contracting, lease, reform with the stock system, association, merger, acquisition, division, joint venture, application for suspending business for internal rectification, application for dissolution or bankruptcy, which will definitely affect Party B’s realization of its rights as a creditor of the loan;
 
 
(11)
to promptly notify Party B in writing and arrange for the satisfaction of and security for the debts hereunder as requested by Party B if Party A is winding-up, closed, deregistered, revoked its business license, or its legal representative or person in charge is engaged in illegal activities or involved in serious
 
 
 
 
 

litigation, or it experiences severe difficulties in its production and operation or its financial conditions deteriorate significantly during the valid term of this Contract, which materially and adversely affects its performance of obligations to repay the loan hereunder;
 
 
(12)
to bear all expenses with respect to this Contract and the security hereunder, such as legal fees, insurance, assessment, registration, custody, appraisal and notarization expenses.
 
Article 9   Party B’s Rights and Obligations
 
1.
Party B shall have the right to:
 
 
(1)
learn the production, operation and financial activities of Party A and require Party A to provide relevant documents, such as plan statistics, financial and accounting statements;
 
 
(2)
deduct and transfer from the account opened by Party A at China Construction Bank’s system any amount in any currency owing to Party B and payable by Party A under this Contract.
 
2.
Party B shall be obligated to:
 
 
(1)
advance the loan fully and in a timely manner as provided for in this Contract, except for any delay due to the reasons attributable to Party A;
 
 
(2)
keep confidential financial materials and production and operation related trade secrets provided by Party A, unless otherwise provided for by laws, regulations and rules.
 
Article 10   Liability for Breach of Contract
 
1.
Event of Default
 
 
(1)
Party A’s Event of Default
 
 
i.
it fails to provide true, complete and valid financial and accounting materials, production and operation conditions and other relevant materials as requested by Party B;
 
 
ii.
it fails to use the loan for the purpose agreed by the two Parties;
 
 
iii.
it fails to repay the principal and interest in a timely manner;
 
 
iv.
it refuses or prevents Party B from supervising and inspecting the use of the loan;
 
 
v.
it transfers its assets or spirits its money away to escape debts.
 
 
 
 
 
 
 
vi.
its operation and financial conditions deteriorate, it is unable to repay debts when due, or is involved or will be involved in material litigation, arbitration proceeding, or other legal dispute, which, in the opinion of Party B, may affect or has affected or impaired Party B’s rights and interests hereunder;
 
 
vii.
it incurs any other indebtedness which has affected or may affect its performance of the obligations hereunder to Party B;
 
 
viii.
it fails to discharge other debts owing to China Construction Bank;
 
 
ix.
it commits any of the followings during the valid term of this Contract: contracting, lease, merger, acquisition, joint venture, division, association, reform with the stock system and other acts that change its operation manner or operation system, which, in the opinion of Party B, may affect or has affected or impaired Party B’s rights and interests hereunder;
 
 
x.
other circumstances under which the realization of creditor’s rights will, in the opinion of Party B, definitely be affected;
 
 
xi.
it is in breach of other obligations provided in this Contract.
 
 
(2)
Party A shall be deemed to be in default if the guarantor falls into any of the following circumstances and Party A fails to provide new security as required by Party B:
 
i.
contracting, lease, merger and acquisition, joint venture, division, association, reform with the stock system, bankruptcy or revocation, which will definitely affect the guarantor’s joint and several liabilities hereunder;
 
ii.
the guarantor provides a third party with guarantee beyond its capability;
 
iii.
the guarantor is deprived or may be deprived of its ability to guarantee the loan;
 
iv.
other events of default of the guarantor provided for in the guarantee contract.
 
 
(3)
Party A shall be deemed to be in default if the mortgagor falls into any of the following circumstances and Party A fails to provide new security as required by Party B:
 
i.
the mortgagor fails to purchase and maintain a property insurance for the collateral as required by Party B or fails to take care of the insurance indemnity according to the mortgage contract after insurance accident occurs;
 
 
 
 
 
 
ii.
the mortgagor fails to take care of the damages according to the mortgage contract when the collateral is damaged, lost or decreased in value as a result of a third party’s action;
 
iii.
the mortgagor donates, transfers, leases, mortgages repeatedly, removes or otherwise disposes of the collateral without Party B’s written consent;
 
iv.
the mortgagor fails to take care of the proceeds from the disposal of the collateral according to the mortgage contract after the mortgagor disposes of the collateral upon Party B’s consent;
 
v.
the mortgagor fails to timely restore the value of the collateral or fails to provide other security as acceptable to Party B if the collateral is damaged, lost or decreased in value which will definitely affect the discharge of the debt hereunder;
 
vi.
other events of default of the mortgagor provided for in the mortgagor contract.
 
 
(4)
Party A shall be deemed to be in default if the pledgor falls into any of the following circumstances and Party A fails to provide new security as required by Party B:
 
i.
the pledgor fails to purchase and maintain a property insurance for the collateral as required by Party B or fails to take care of the insurance indemnity according to the pledge contract after insurance accident occurs;
 
ii.
the pledgor fails to take care of the damages according to the pledge contract when the collateral is damaged, lost or decreased in value as a result of a third party’s action;
 
iii.
the pledgor fails to take care of the proceeds from the disposal of the collateral according to the pledge contract after the pledgor disposes of the collateral upon Party B’s consent;
 
iv.
the pledgor fails to timely restore the value of the collateral or fails to provide other security as acceptable to Party B if the collateral is damaged, lost or decreased in value which will definitely affect the discharge of the principal and interest hereunder;
 
v.
other events of default of the pledgor provided for in the pledge contract.
 
 
(5)
Party A shall be deemed to be in default if the security contract or other form of security does not take effect or is invalid or revoked, the guarantor falls into other circumstance under which it is partly or wholly deprived of its ability to secure the loan, or the guarantor refuses to perform its guarantee obligations and Party A fails to provide new security therefor.
 
 
 
 
 
 
 
2.
Remedial Measures
 
Upon the occurrence of any of the events of default set forth in paragraph (1) to paragraph (5) hereinabove, Party B shall be entitled to one or more of the following rights:
 
 
(1)
to stop the advance of the loan, declare the immediate maturity of the loan and require Party A to repay all principal, interest and expenses hereunder whether or not due and payable.
 
 
(2)
to collect liquidated damages from Party A on the principal amount of the loan hereunder at [intentionally left blank]   ‰ .
 
 
(3)
to impose interest and compound interest on the part of the loan misappropriated by Party A at the penalty interest rate from the date the loan is not used for the purpose provided herein to the date the principal and interest are repaid in full and pursuant to the method of settlement of interest provided herein if Party A fails to use the loan for the purpose provided herein.
 
 
(4)
to impose compound interest on any overdue interest payable by Party A at the interest rate and according to the method of settlement of interest set forth in Article 4 hereof before the maturity of the loan.
 
(5)
if the loan is overdue, to impose interest and compound interest on the outstanding principal and interest payable by Party A (including the principal and interest declared by Party B to be wholly or partly due and payable) at the penalty interest rate from the date the loan is overdue to the date the principal and interest are repaid in full and according to the method of settlement of interest provided herein. The overdue loan refers to Party A’s failure to repay the loan in a timely manner or its repayment of the loan behind the repayment schedule set forth in this Contract.  
 
 
(6)
to transfer and receive any amount in any currency from the account opened by Party A at China Construction Bank’s system.
 
 
(7)
to require Party A to provide such new security as required by Party B for all debts hereunder.
 
 
(8)
to exercise rights under the security.
 
 
(9)
to terminate this Contract.
 
Article 11   Other Matters Agreed
 
1.
[intentionally left blank]                 ;
 
2.
[intentionally left blank]                 ;
 
3.
[intentionally left blank]                 ;
 
4.
[intentionally left blank]                 .
 
 
 
 
 
 
Article 12   Settlement of Dispute
 
Any dispute arising from the performance of this Contract may be settled through negotiation. If no settlement could be reached, the dispute shall be dealt with according to (1) below:
 
(1)
to bring a lawsuit at the People’s Court where Party B’s domicile is located; or
 
(2)
to submit the dispute to [intentionally left blank] Arbitration Commission (the place of arbitration is [intentionally left blank] ) for arbitration according to its arbitration rules then effective at the time of submission. The arbitration award shall be final and binding on the two Parties.
 
In the course of lawsuit or arbitration, the Parties shall continue to perform those provisions in this Contract which are not under dispute.
 
Article 13   Effectiveness of this Contract
 
This Contract shall become effective after it is signed by Party A’s legal representative (person in charge) or authorized representative and stamped with its corporate seal and signed by Party B’s person in charge or authorized representative and stamped with its corporate seal.
 
Article 14   This Contract shall be made in four counterparts.
 
Article 15   Representations
 
1.
Party A is fully aware of Party B’s business scope and scope of authority.
 
2.
Party A has perused each clause in this Contract. As requested by Party A, Party B has explained correspondingly clauses in this Contract. Party A is fully aware of and understands the meaning and corresponding legal consequences of each clause in this Contract.
 
3.
Party A has the right to sign this Contract.
 
 
Party A (corporate seal): Beijing Origin Seed Limited.
 
Legal representative (person in charge) or authorized representative (signature):
 
/s/ Gengchen Han
 
/s/ CORPORATE SEAL
 
October 17, 2005
 
 
 
 
 
Party B (corporate seal): China Construction Bank Corporation Beijing Shangdi Sub-Branch
 
Legal representative (person in charge) or authorized representative (signature):
 
/s/ Qi Xue
 
/s/ CORPORATE SEAL
 
October 20, 2005
 
 
EXHIBIT 4.25
 
 
 
 
 
 
 
 
 
Mortgage Contract
 
 
 
 
 
 
 
 
 
China Construction Bank Corporation
Beijing Branch
 
 
 
 
 
 
Contract No.: Year 2005 Zi 123010 No. 008  
   
Mortgagor (Party A): Beijing Origin Seed Limited  
Domicile: 20 Shangdi Xinxi Road, Haidian District, Beijing
Postal Code: 100085
Legal Representative (person in charge): Gengchen Han
 
Fax: 62988498
Telephone: 62989498
   
   
Mortgagee (Party B): China Construction Bank Corporation Beijing Shangdi Sub-Branch
Domicile: 28 Shangdi Xinxi Road, Haidian District, Beijing
Postal Code: 100085
Legal Representative (person in charge): Qi Xue  
Fax: 62967190
Telephone: 62967190
   
 
 
 
 
 
 
Mortgagor (hereinafter referred to as “Party A”): Beijing Origin Seed Limited.
 
Mortgagee (hereinafter referred to as “Party B”): China Construction Bank Corporation Beijing Shangdi Sub-Branch
 
In order to ensure the execution of the “ Renminbi Capital Loan Contract ” (hereinafter referred to as the “Master Contract”) between Beijing Origin Seed Limited. (hereinafter referred to as the “Debtor”) and Party B (contract no.: Year 2005 Zi 123010 No. ___) and the realization of creditor’s right of Party B, Party A desires to provide mortgage to secure the creditor’s right formed under the Master Contract between Party B and the Debtor. According to relevant laws, regulations and rules, Party A and Party B, upon negotiation, enter into this Contract for their mutual compliance and performance.
 
Article 1   Collateral
 
Party A creates a mortgage on the property described in the “Collateral Schedule” provided in Article 16 of this Contract.
 
Party A undertakes that it has the ownership of or the right to dispose of the collateral according to the laws.
 
Party A undertakes that the collateral is not subject to any ownership dispute, attachment or seizure.
 
Article 2   Scope of Security
 
The principal amount of (Say) SEVENTEEN MILLION YUAN in Renminbi (currency) and interest (including compound interest and penalty interest), liquidated damages, indemnity, relevant expenses prepaid by Party B and all expenses incurred from Party B’s realization of the creditor’s right and mortgage (including, but not limited to, litigation costs, arbitration costs, attachment costs, traveling expenses, execution expenses, assessment fees, auction fees).
 
If the Debtor fails to fulfill its obligations under the Master Contract, Party B shall have the right to require Party A directly to undertake its liability within the scope of security, regardless of any other security (including, but not limited to, guarantee, mortgage, pledge, letter of guarantee or standby letter of credit) Party B may have with respect to the creditor’s right under the Master Contract.
 
Article 3   Term of Mortgage
 
The mortgage shall continue for two years after the date the limitation of actions with respect to the secured creditor’s right expires.
 
Article 4   Changes to the Secured Master Contract
 
Party A acknowledges that Party A’s prior consent shall be deemed to have been obtained if Party B and the Debtor make changes to the clauses of the Master Contract by agreement and Party A’s liability of guarantee shall not be reduced or exempted, except for the following two circumstances:
 
(1)
extension of the term for fulfilling its obligations;
 
(2)
increase of the principal amount under the creditor’s right.
 
 
 
 
 
Article 5   Independency
 
This Contract shall be independent of the Master Contract in terms of its validity and not be affected by the invalidity of the Master Contract. If the Master Contract is determined to be invalid, then Party A shall still hold liable for the debt of the Debtor with the collateral, which debt may arise from restitution of property or compensation for losses.
 
Article 6   Custody of the Collateral
 
As long as the mortgage continues to exist, Party A shall be obligated to take proper care of the collateral, prevent it from being damaged and accept Party B’s inspection from time to time. In case of any damage to or loss of the collateral or other circumstances under which the collateral is obviously decreased in value, Party B shall be notified promptly and provided other security equivalent in value to any shortage in the collateral within 20 bank business days.
 
Article 7   Insurance of the Collateral
 
As long as the mortgage continues to exist, Party A shall take a property insurance for the collateral with such insurance type and insured amount as designated by Party B and required by relevant laws. The insurance term shall be [blank] months longer than the term required for the performance of the Master Contract. During the insurance term, Party A shall not suspend or revoke the insurance for any reasons whatsoever.
 
As long as the mortgage continues to exist, the original insurance policy shall be kept by Party B.
 
Party A shall require the insurer to identify in the insurance policy that Party B is the preferred payee (i.e., the first beneficiary) of the insurance. In case of insurance accident, the insurer shall directly remit the insurance indemnity to an account designated by Party B. If the collateral has been insured already without identifying Party B as a preferred payee, the preferred payee shall be changed to Party B.
 
Party A agrees that Party B may select any of the following methods to handle the insurance indemnity and will assist Party B in completing relevant procedures:
 
(1)
to pay off or pay off in advance the principal and interest and relevant expenses under the Master Contract;
 
(2)
to convert it into a fixed-term deposit and pledge the certificate of deposit;
 
(3)
to use it to repair the collateral and restore its value upon Party B’s consent;
 
(4)
to submit it to a third party designated by Party B;
 
(5)
to dispose of it at Party B’s own discretion after Party A provides new security as required by Party B.
 
Article 8   Third Party’s Damages
 
As long as the mortgage continues to exist, the damages shall be deposited into an account designated by Party B if the collateral is decreased in value as a result of a third party’s acts. Party A agrees that Party B may select any of the following methods to handle the damages and will assist Party B in completing relevant procedures:
 
 
 
 
 
(1)
to pay off or pay off in advance the principal and interest and relevant expenses under the Master Contract;
 
(2)
to convert it into a fixed-term deposit and pledge the certificate of deposit;
 
(3)
to use it to repair the collateral and restore its value upon Party B’s consent;
 
(4)
to submit it to a third party designated by Party B;
 
(5)
to dispose of the damages at Party B’s own discretion after Party A provides new security as required by Party B.
 
As long as the mortgage continues to exist, Party A shall provide new security acceptable to Party B if the collateral is not enough in value to pay off the principal and interest and relevant expenses under the Master Contract as a result of a third party’s acts. Any portion of the collateral that is not decreased in value shall still be used to secure the creditor’s right.
 
Article 9   Disposal of the Collateral
 
1.
As long as the mortgage continues to exist, Party A shall not donate, transfer, lease, mortgage repeatedly, remove or otherwise dispose of the collateral under this Contract without Party B’s written consent.
 
2.
As long as the mortgage continues to exist, Party A shall obtain Party B’s written consent in advance of its disposal of the collateral. Party A agrees that Party B shall have the right to select any of the following methods to handle the proceeds from the disposal of the collateral:
 
 
(1)
to pay off or pay off in advance the principal and interest and relevant expenses under the Master Contract;
 
 
(2)
to convert them into fixed-term deposit and pledge the certificate of deposit;
 
 
(3)
to submit them to a third party designated by Party B;
 
 
(4)
to dispose of the proceeds at Party B’s own discretion after Party A provides new security as required by Party B.
 
Article 10   Realization of the Mortgage
 
Party A agrees that Party B shall have the right to duly sell the collateral by action, sell off the collateral, or convert the collateral into money upon agreement, if:
 
(1)
Party B has not been paid when the term for discharging all or part of the principal or interest under the Master Contract expires;
 
(2)
other circumstances under which Party B may realize its creditor’s right in advance under the Master Contract.
 
Article 11   Breach of Contract and its Handling
 
As long as the mortgage continues to exist, Party B shall have the right to require Party A to rectify its breach, provide corresponding security and indemnify Party B against losses within a limited period and to dispose of the collateral in advance if Party A is in breach of Article 1, Article 6, Article 7, Article 8 or Article 9 hereunder.
 
Party A agrees that Party B shall have the right to select any of the following methods to handle the proceeds from the disposal of the collateral:
 
 
 
 
 
(1)
to pay off or pay off in advance the principal and interest and relevant expenses under the Master Contract;
 
(2)
to convert them into fixed-term deposit and pledge the certificate of deposit;
 
(3)
to submit them to a third party designated by Party B;
 
(4)
to dispose of the proceeds at Party B’s own discretion after Party A provides new security as required by Party B.
 
Article 12   Registration and Revocation of the Collateral
 
If the collateral shall be registered according to the laws, the two Parties shall complete the registration of the collateral with appropriate registration department upon the execution of this Contract. Party A shall, as of the date of this Contract, submit to Party B the certificate of encumbrance, original mortgage registration document and other right certificates with respect to the collateral.
 
When all debts under the Master Contract and this Contract are paid off, Party B shall promptly cancel the registration of the mortgage together with Party A.
 
Article 13   Expenses
 
Expenses with respect to assessment, notarization, insurance, registration, appraisal, custody and submission hereunder shall be borne by Party A.
 
Article 14   Other terms agreed by the two Parties:
 
1.
The Mortgagor is fully aware of the risks associated with the interest rate. If the floating interest rate is applied to the Master Contract, the Mortgagor is willing to assume such additional liability as may be increased due to the floating interest rate;
 
2.
[intentionally left blank] _______________________________________________;
 
3.
[intentionally left blank] _______________________________________________.
 
Article 15   Settlement of Dispute
 
Any dispute arising from the performance of this Contract may be settled through negotiation. If no settlement could be reached, the dispute shall be dealt with according to (1) below:
 
(1)
to bring a lawsuit to the People’s Court where Party B is located; or
 
(2)
to submit the dispute to [intentionally left blank] Arbitration Commission (the place of arbitration is [intentionally left blank] ) for arbitration according to its arbitration rules then effective at the time of submission. The arbitration award shall be final and binding on the two Parties.
 
In the course of lawsuit or arbitration, the Parties shall continue to perform those provisions in this Contract which are not under dispute.
 
Article 16   Collateral Schedule
 
The collateral schedule is as follows:
 
 
 
 
 
Collateral Schedule
 
Name of the Collateral
Title Certificate
and No.
Domicile
Value Indicated in the Invoice of the Collateral (yuan)
Assessed Value of the Collateral (yuan)
Amount of Mortgage Created for Other Creditor’s Right
(yuan)
Remarks
Plot No. 212 in the Life Science Park of Zhongguancun (construction in process)
[blank]
Life Science Park of Zhongguancun
[blank]
25,000,000
 
[blank]
[blank]
[blank]
[blank]
[blank]
[blank]
[blank]
[blank]
 
Article 17   This Contract shall become effective upon the satisfaction of the following conditions:
 
1.
This Contract is signed by Party A’s legal representative (person in charge) or authorized representative or stamped with its corporate seal (if Party A is a natural person, then only signature is required) and signed by Party B’s person in charge or authorized representative and stamped with its corporate seal.
 
2.
The collateral described in the “Collateral Schedule” hereunder is duly registered according to the laws if so required.
 
Article 18   This Contract shall be made in four counterparts.
 
Article 19   Representations
 
1.
Party A is fully aware of Party B’s business scope and scope of authority.
 
2.
Party B has perused each clause in this Contract, especially clauses in bold. As requested by Party A, Party B has explained correspondingly clauses in this Contract. Party A is fully aware of and understands the meaning and corresponding legal consequences of each clause in this Contract.
 
3.
Party A has the right to sign this Contract.
 
 
Party A (corporate seal): Beijing Origin Seed Limited
 
Legal representative (person in charge) or authorized representative (signature):
 
/s/ Gengchen Han
 
/s/ CORPORATE SEAL
 
October 17, 2005
 
 
 
 
 
Party B (corporate seal): China Construction Bank Corporation Beijing Shangdi Sub-Branch
 
Legal representative (person in charge) or authorized representative (signature):
 
/s/ Qi Xue
 
/s/ CORPORATE SEAL
 
October 20, 2005
 
 


EXHIBIT 4.26
 
Hybrid Corn Seed Sales Contract

Supplier: Beijing Origin Seed Joint Stock Company
Contract #:
Buyer:
Date:
                           
In order to promote the use of high quality and high-yield hybrid corn seeds and to establish a stable supply relationship, in accordance with the Contract law of the People’s Republic of China and the Seed Law of the People’s Republic of China and after friendly negotiation, the Supper and the Buyer hereby enter into this Contract and agree as follows:

1.
Product Name, Type, Quantity and Price
 
Name
Unit
Deposit (RMB/kg)
Total Price (RMB)
Remarks +
         
         
         
Total:
       

2.
Quality Standards:
3.
Testing and Quarantine: National Standard

 
(1)
The testing and quarantine of the seeds shall be in full compliance with the Regulation on the Testing of Agricultural Seeds.
 
(2)
Relevant Quarantine Certificate shall be provided to the Buyer when the seeds are shipped. Related cost shall be borne by the Supplier.
 
(3)
Buyer shall, within 15 days of the receipt of the shipment of the seeds, test [technical specifications] of the seeds, and shall notify Supplier of the test results in writing. Otherwise, relevant technical specifications shall be deemed satisfied.
 
(4)
Both Supplier and Buyer shall, upon Buyer’s receipt of the shipment, keep a sample of the seeds shipped, and properly store these samples in suitable conditions until the end of the first production period for use in case of any dispute.

4.
If Buyer is to accept delivery of the seeds at Supplier’s warehouse, Buyer shall inspect the type, quantity and packing of the seeds. If Buyer does not raise any question on the site of delivery, Buyer shall be deemed to have accepted such delivery. This paragraph also applies to Buyer’s agent.

5.
Time of Delivery

6.
Place of Delivery and Transportation Cost
 
 
 
 
 

7.
Packing
Packing cost shall be born by the Supplier. .

8.
Payment Method
Collection on delivery.

9.
Buyer shall remit to Supplier a deposit in the amount of ______ no later than ___________. This Contract shall become effective upon the receipt of the aforesaid deposit. If Buyer is in full compliance with the Supplier’s sales policies, including but not limited to those on pricing, sales areas, the aforesaid deposit shall be refunded to Buyer at the end of each sales season.

10.
Liability for Breach
In the event that Supplier refuses to deliver the seeds without cause or the Buyer   refuses to accept delivery without cause, the breaching Party shall pay to the other party stipulated damages in the amount 20% of the Contract price.

11.
Buyer shall be responsible for the distribution of the Origin Hybrid Corn Seeds in the _____ region and shall provide relevant service and advertising. Buyer shall also be responsible for maintaining the market order of the seeds in the ____ region.

12.
To promote the healthy development of relevant market, both Supplier and Buyer shall communicate with each other on a regular basis. While using best efforts to perform this Contract, Buyer may make a request to the Supplier to return the unsold seeds no later than ________. However, the quantity of such seeds shall not exceed 10% of the last delivery, and the packing for such seeds shall not have been opened. The cost of return shall be borne by Buyer and the place of return shall be ____. Supplier shall exam the returned seeds within 15 days of receipt of the return, and refund the relevant payment in accordance with the result of the examination.
To assist with after-sale service, Buyer shall provide Supplier its sales record.

13.
Supplier shall be liable for any direct economic losses incurred as a result of the quality of the seeds. Supplier shall not be liable for any losses cased by Buyer or any natural disaster.

14.
In case Supplier’s crops fail to generate sufficient seeds due to natural disaster and other force majeure event so that Supplier is unable to perform this contract, Supplier shall notify Buyer in writing and both parities shall have friendly consultation to solve any dispute. However ô Buyer’s nonperformance of this contract due to the causes mentioned in this provision shall not be considered as a
 
 
 
 
 
 
breach of this contract.
 
15.
Any dispute in connection with this contract shall be resolved by consultation. If no agreement can be reached through consultation, the dispute shall be submitted to adjudication by courts with jurisdiction over the dispute.

16.
Other related matters not stipulated in this contract shall be handled in accordance with the PRC law and regulations.

17.
This contract is written in two originals, and each party shall keep one original.


Supplier æ Beijing Origin Seed Joint Stock Company
Address æ
Postal Code:
Tel.
Bank account #:
Date:
Legal Representative or Authorized Representative:

Buyer æ

Address æ
Postal Code:
Tel.
Bank account #:
Date:
Legal Representative or Authorized Representative:
 

 
EXHIBIT 8.1
LIST OF SUBSIDIARIES
 
Name
 
Date of incorporation or establishment
 
Place of incorporation
(or establishment)
/operation
 
Percentage
of ownership
 
Principal
activity
                 
State Harvest Holding Limtied
 
October 6, 2004
 
British Virgin Islands
 
100%
 
Investment Holding
                 
Beijing Origin State Harvest Biotechnology Limited
 
December 1, 2004
 
Haidian District, Beijing, PRC
 
100%
 
Develop hybrid
seed technology
                 
Beijing Origin Seed Limited
 
December 26, 1997
 
Haidian District, Beijing, PRC
 
97.96%
 
Develop, produce and
distribute hybrid crop seeds
                 
Henan Origin Cotton Technology Development Limited
 
March 2, 2001
 
Zhengzhou, Henan Province, PRC
 
97.96%
 
Develop, produce and distribute hybrid crop seeds
                 
Changchun Origin Seed Technology Development Limited
 
April 29, 2003
 
Changchun, Jilin Province, PRC
 
97.96%
 
Develop, produce and distribute hybrid crop seeds
                 
Denong Zhengcheng Seed Limited
 
June 21, 2000
 
Chengdu, Sichuan Province, PRC
 
52.21%
 
Develop, produce and distribute hybrid rice, cotton and rape seeds
                 
Jilin Changrong High-tech Seed Limited
 
January 24, 2004
 
Changchun, Jilin Province, PRC
 
33.5%
 
Develop, produce and distribute hybrid crop seeds
                 
Shijiazhuang Liyu Technology Development Limited
 
July 25, 2003
 
Shijiazhuang, Hebei Province, PRC
 
30%
 
Develop new varieties of corn seeds
                 
Shenzhen Biocentury Transgene (China) Limited
 
August 19,1998
 
Shengzhen, Guangdong Province, PRC
 
15%
 
Research and develop transgenic technology
                 
                 





EXHIBIT 12.1

CERTIFICATION

I, Gengchen Han, certify that:

1.      I have reviewed this annual report on Form 20-F of Origin Agritech Limited;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.      The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)      Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(c)      Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and

5.      The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):

(a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
 
(b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.


Date: July 14, 2006

/s/ Gengchen Han
Name: Gengchen Han
Title: Chief Executive Officer
 


EXHIBIT 12.2

CERTIFICATION

I, Youqiang Wang, certify that:

1.      I have reviewed this annual report on Form 20-F of Origin Agritech Limited;

2.      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.      The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

(a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)      Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(c)      Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and

5.      The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions):

(a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and
 
(b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.


Date: July 14, 2006

/s/ Youqiang Wang
Name: Youqiang Wang
Title: Chief Financial Officer
 

EXHIBIT 13.1


ORIGIN AGRITECH LIMITED

Certification


Pursuant to 18 U.S.C. Section 1350, the undersigned, Gengchen Han, Chief Executive Officer of Origin Agritech Limited (the "Company"), hereby certifies, to his knowledge, that the Company's annual report on Form 20-F for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date: July 14, 2006
/s/ Gengchen Han
Name: Gengchen Han
Title: Chief Executive Officer


The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.
 
 
EXHIBIT 13.2


ORIGIN AGRITECH LIMITED

Certification


Pursuant to 18 U.S.C. Section 1350, the undersigned, Youqiang Wang, Chief Financial Officer of Origin Agritech Limited (the "Company"), hereby certifies, to his knowledge, that the Company's annual report on Form 20-F for the year ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
Date: July 14, 2006
/s/ Youqiang Wang
Name: Youqiang Wang
Title: Chief Financial Officer

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document.