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Project Shaanxi
Due Diligence Report – UPDATE 3
September 2, 2010 Strictly Private and Confidential

2
 TABLE OF CONTENTS

SCOPE AND PROCESS.........................................................................................................................................4

SECTION 1 - BACKGROUND ................................................................................................................................5

SECTION 2 - KEY ISSUES.....................................................................................................................................6

SECTION 3 - RECOMMENDATION .....................................................................................................................21

APPENDIX ONE - CONTRACT ............................................................................................................................22

APPENDIX TWO - INFORMATION SOURCES ...................................................................................................23

APPENDIX THREE - SITE VISIT PHOTOS..........................................................................................................24

3
Scope and Process

For the purpose of this report, we visited CGA’s greenhouse facilities located near Xi’an, Shaanxi province,
as well as its manufacturing plant in Yangling, Shaanxi, followed by telephone calls and discussions with
Due diligence process management. We had discussions with, and obtained information from other employees, customers,
suppliers and competitors of CGA, as well as industry analysts, experts and consultants.

Our information was obtained primarily from 3rd party sources known by us to be reliable, the management of
CGA, SEC filings, together with other information obtained through our conversations with CGA employees,
Access to information
customers and other public sources.

CGA engaged an accounting firm, Kabani & Company, Inc, to perform an audit of the consolidated financial
External auditor statements for FY08 and FY09, and reviews of the FY10 Q1, Q2, Q3 financial statements on which our
analysis was based.

We have not carried out anything in the nature of an audit nor, unless explicitly stated, have we subjected
financial or other information contained in this report to checking or verification procedures. Accordingly, we
assume no responsibility and make no representations with respect to the accuracy or completeness of the
Significant scope matters
information in our report. The sufficiency of the work we performed is solely the addressee’s responsibility
and we make no representations regarding the sufficiency of our work either for the purpose for which this
report has been requested or for any other purpose.

Management Per your request, we have not shown a draft of this report to the management of CGA nor have we
representations discussed with them the findings and conclusions we submitted in this report.

4
Section 1
Background

PLEASE SEE OUR ORIGINAL REPORT DATED JUNE 7, 2010

5
Section 2
Key Issues

6
CGA management continues to be unable to explain large discrepancies between the
VAT payables presented in their audited financials filed with the SEC and records
obtained from the PRC State Administration of Taxation
Background/Methodology

Chinese companies report and pay VAT and corporate income taxes to the State Administration of Taxation (SAT), the equivalent
of the IRS in the United States. To conduct our investigation we obtained certified copies of CGA Jinong’s SAT payment records
from 3rd party sources known by us to be reliable. SAT records are the only reliable and definitive source of tax payment records in
China.

On yesterday’s conference call, CEO Tao Li confirmed our assertion that CGA is exempt from paying VAT on most of its products.
He said the exemption was granted on September 1, 2009. He also stated that the VAT accrued on CGA’s balance sheet filed with
the SEC was all paid to the SAT and that the records we obtained were “incomplete”.

Of course we disagree and insist that the records we obtained are in fact correct. We have found no evidence that CGA’s
subsidiaries have ever paid any material amount of VAT. Nor has CGA offered any such proof of paying VAT.

1) Value Added Tax (VAT). CGA’s quarterly and annual audited financial statements filed with the SEC on forms 10-Q and 10-K
disclose VAT payable at the end of each period. These amounts according to PRC law are payable within 30 days. Few if any
extensions are granted and late penalties are severe. The following table summarizes these amounts.

Date 2010.3.31 2009.12.31 2009.9.30 2009.6.30 2009.3.31 2008.12.31 2008.9.30 2008.6.30

VAT Payable $12,073 $4,536 $2,191,772 $1,216,191 $582,925 $1,009,242 $5,476,791 $4,495,140

As the table above shows, CGA historically accrued large VAT payables up until September 2009 after which management claimed
they received an exemption in accordance with SAT 2008 Taxation Notice #56, “Exemption of VAT for Organic Fertilizer Products”.
However, the large historical accruals were in fact never paid according to SAT records of CGA’s main subsidiary, Shaanxi
TechTeam Jinong Humic Acid Product Co., Ltd. (“Jinong”):1

1
Original tax records from PRC State Administration of Taxation in Appendix Two at the end of this report.
 SAT Tax record SEC filings
Tax period VAT payment Date VAT Payable
2010.4 ¥127,976 2010.3.31 $12,073
2010.3 ¥120,906
2010.2 ¥3,784
2010.1 ¥0 2009.12.31 $4,536
2009.12 ¥19,536
2009.11 ¥0
2009.10 ¥41,291 2009.9.30 $2,191,772
2009.9 ¥16,329
2009.8 ¥14,921
2009.7 ¥35,539 2009.6.30 $1,216,191
2009.6 ¥11,869
2009.5 ¥23,761
2009.4 ¥0 2009.3.31 $582,925
2009.3 ¥8,337
2009.2 ¥0
2009.1 ¥0 2008.12.31 $1,009,242
2008.12 ¥0
2008.11 ¥4,630
2008.10 ¥4,467 2008.9.30 $5,476,791
2008.9 ¥4,453
2008.8 ¥17,623
2008.7 ¥13,577 2008.6.30 $4,495,140
Total ¥469,000
Total $67,971 Total $14,988,670

According to SAT records, from July 2008 through April 2010 Jinong paid VAT of only 469,000 RMB (about $67,971). This small
amount is completely inconsistent with the large amounts reported on CGA’s balance sheet each quarter as shown above. The
difference is nearly $15 million (assuming each quarter ending balance payable was in fact paid according to the regulation, which
only gives companies 30 days to pay before serious penalties are applied). We have repeatedly asked CGA management to
provide an accounting of this huge shortfall. Where did these funds go? To date management has refused to respond other than
stating on their conference call that the records we obtained were “incomplete”.

8
2) Corporate Income Tax. CGA’s annual audited financial statements filed with the SEC on form 10-K disclose income tax paid.
Based on the cumulative amounts disclosed in the quarterly 10-Q cash flow statements we calculated the amount of income tax
paid in calendar year 2009 on a cash basis to be as follows:

Fiscal Period Income Tax Paid

Q2E 12.31.09 $-
Q1E 9.30.09 $-
Q4E 6.30.09 $(621,367)
Q3E 3.31.09 $3,355,719
2009 Total $2,734,352

However, according to SAT records there is no record of Jinong paying corporate income tax in 2009.2 There are several troubling
implications:

• If indeed Jinong did not pay income tax in 2009 as indicated by the SAT record then the net profit of $17,208,332 of the
fertilizer division (Jinong) reported in its SEC filings as shown below must be significantly overstated.

Fiscal Period Jinong Net Income

Q2E 12.31.09 $4,213,250
Q1E 9.30.09 $5,159,879
Q4E 6.30.09 $4,369,862
Q3E 3.31.09 $3,465,341
Total $17,208,332

• If Jinong did not pay the $2,734,352 tax as reported, then according to PRC law the failure to pay is a serious criminal
offense with significant penalties.

2
Ibid.
9
• If Jinong did not pay the $2,734,352 tax as reported, where did these funds go? Management to date has completely
refused to respond to this question other than stating on their conference call that the records we obtained are
incomplete.

10
The actual cost of the September 2009 Hu County 88 acre greenhouse land purchase
was indeed less than ¼ the price CGA reported in its SEC filings and to investors in
yesterday’s conference call
Background
Yesterday, CEO Tao Li claimed on the conference call that the evidence we collected regarding the greenhouse land purchase
was, similar to the tax records, “incomplete”. He asserted that in addition to our well-documented costs there was another 54.8
million RMB land use rights transfer payment to an undisclosed SOE. Tao Li did not offer any proof of this payment nor do we think
any valid proof exists. From a review of the extensive evidence and PRC law:

1. It is clearly stated in the land use right transfer agreement that CGA subsidiary Yuxing (Yuxing) acquired the land use right from
Hu County government's Land and Resource Bureau. There is no possibility of payment made to a 3rd party. The agreement is
titled "State-Owned Land Use Right Transfer Agreement" and it clearly stated the seller is the Land and Resource Bureau of Hu
County, Xi'an, Shaanxi. In the Notice of Approval of the Land Use Right Sale issued by Hu County People's Government, file
number - Notice #16 (2009), it is clearly stated that, on April 3rd 2009, the local government had already taken back the ownership
of the Land Use Right that was subsequently sold to Yuxing. The document also indicated the land use right was granted to Yuxing
by the Hu County government according to the 26th and 60th meeting by its standing committee. There clearly was no 3rd party
involved in this transaction.

2. The same notice clearly pointed out the specified usage of the land is for agriculture (农田). Agricultural use land is much lower
price than industrial use land. In fact the “comparable” prices quoted by CGA management on the conference call were for land
sold for industrial purposes, a much higher cost use. We are preparing a table of real comparable sales and will circulate in a
subsequent update.

3. The designated receipts issued for the payment in the sale each indicate the seller is the government, not the farm that
previously owned the land.

4. Calculation of the Deed Tax does not support management’s inflated claim because regardless of whether the land use right was
purchased from a 3rd party or the government, deed taxes are required to be calculated and paid based on total sale price. In this
case, the deed tax receipt and proof of completion from the Land and Resource Bureau shows the 3% deed tax is applied only to
the RMB17.35M recorded purchase price not the RMB73.2M inflated purchase price claimed by CGA management.

11
5. Finally, the sale price of the land use right was the result of an appraisal by a 3rd party appraisal firm and approved by the Land
and Resource Bureau. In the official Confirmation Report of Land Appraisal issued by the Land and Resource Bureau
(confirmation file #14 dated August 5, 2009), the bureau acknowledged the appraised value of RMB17.33M properly reflects the
real value of the land.

We therefore strongly continue to believe that multiple government agencies records accurately and correctly show the
actual purchase price was only RMB 17.35 million or $2,540,433.

The government agency that granted the land use right was the Land & Resources Bureau (LRB) in Hu County, the local branch of
the Ministry of Land and Resources of the PRC government. An overview of the key functions and responsibilities of the LRB can
be found on its website13. For the purpose of verifying the purchase cost of land use rights, we obtained a number of official
documents from the LRB including the following14:

a. A written, stamped confirmation report (Hu County LRB confirmation [2009] #14) issued by the Land Resource Bureau of Hu County
for the valuation of the land, showing an appraised value of RMB 17,338,684 for the land.
b. Land Use Right Certificate issued and stamped by Hu County People’s Government and LRB.
c. Land Use Right Transfer Agreement provided by Hu County LRB, showing a transfer price of RMB 5,201,605.29. The agreement
was signed by Xi’an Yuxing Agricultural Science and Technology Development Co., Ltd.
d. Land Compensation Agreement provided by the Land Resource Bureau of County Hu, which is signed with Xi’an Yuxing Agricultural
Science and Technology Development Co., Ltd, outlining the compensation cost needed to pay for the acquisition of the land and its
attached assets of RMB 12,149,554.
e. Three receipts showing the total purchase price of the land use right, totaling RMB 17,351,159.29. The receipts are issued and
stamped by Agricultural Tax Collection Office of Hu County.
f. The deed tax invoice provided by the LRB of Hu County. This invoice shows the actual sales price of RMB 17,351,159.29 for this
land use right.
g. Notice of Approval of the Land Use Right Sale issued by Hu County People’s Government, file number – Notice #16 (2009)

13
Ministry of Land and Resources of People’s Republic of China website: http://www.mlr.gov.cn/mlrenglish/about/mission/.
14
Original documents are attached in Appendix Two at the end of the report.

12
A direct comparison of the land cost disclosed by CGA and the government records reveals:

CGA disclosed purchase price Government records Discrepancy

$10,721,805 RMB 17.35 million or $2,540,433 $8,181,372

In this case, the overwhelming evidence strongly contradicts CGA’s disclosed purchase price. The difference of $8,181,372 cannot
be account for. CGA management has still not provided any valid explanation or proof otherwise. And seriously, 88 Chinese acres
(“mu”) equals about 14.5 U.S. acres or 5.9 hectares of farmland. Who has ever paid over $1.8 million per hectare for undeveloped
farmland? Where did the money really go?

13
Large discrepancies in revenues and net income reported in CGA’s filings with the SEC
compared to those reported to its local State Administration of Industry and Commerce
(SAIC) have not been explained by Management
On yesterday’s conference call, CEO Tao Li and CFO Ken Ren asserted that the amounts reported to the SEC are correct and that
all the SAIC records are “incomplete”. This combined with all the other claims by management that their PRC records are
supposedly “incomplete” is nonsense. We remind investors that management signed off on all these records and has yet to offer
any additional records to supplement those we collected from reliable sources. We clearly do not believe such records exist,
though management might certainly be trying to create some right now in response to our repeated challenges.

The State Administration of Industry and Commerce is the official regulatory agency of private businesses in China. Its function is
similar to the Commerce Department in the United States. Each year companies are required by law to submit their financial
statements to their local branch of the SAIC.

For the purpose of verifying CGA’s reported revenues and net income, we obtained the Annual Joint Inspection Reports for 2007
and 2008 from the local SAIC branch in the city of Xi’an. The reports are stamped by both SAIC and Jinong, as well as signed by
CGA’s Chairman, Mr. Tao Li15.

Comparison  of  Jinong  Revenue  and  Net  Income  reported  to  SEC  and  SAIC  
  Calendar  Year  2007   Calendar  Year  2008  
  SEC   SAIC   Variance   SEC   SAIC   Variance  
  USD   USD   RMB   USD   USD   USD   RMB   USD  
Revenue    $14,790,590     $6,646,166   ¥50,218,096   122.54%    $22,896,632      $7,793,689     ¥55,078,779   193.78%  
Net  Income    $7,054,892     $1,116,664   ¥8,437,454   531.78%    $9,700,758      $1,273,983     ¥9,003,364   661.45%  
Exchange  rates  used  to  translate  the  revenues/net  incomes  are  7.56  in  2007  and  7.07  in  2008.  

As shown in the table above, Jinong’s Sales and Net Income figures reported in CGA’s SEC filings are dramatically higher than the
amounts Jinong reported to the SAIC. For 2008, the Net Income variance is over six times (661%). Considering CGA Chairman Li
signed both SEC and SAIC filings, we question how such a large discrepancy could exist without his express approval.

15
Original SAIC Annual Joint Inspection Report submitted by Jinong, including the annual financial statements in 2007 and 2008.

14
We are uncomfortable with the company’s selection of Kabani & Company as auditor
We find it quite unusual for an NYSE listed company with more than $250 million market capitalization not to have a “Big Four” or at
least a top ten ranked accounting firm as its auditor. A list of current/past Chinese clients of Kabani & Company screened from
SEC filings is shown below. From the table, the only considerable sized client Kabani audits (measured by daily dollar trading
volume) is L&L Energy (NASDAQ: LLEN), a company that recently upgraded to NASDAQ. At worst, Kabani used to audit a
company called Bodisen Biotech Inc (OTCBB: BBCZ), another Chinese organic fertilizer company whose stock went from $10 to
$0.57. Curiously, both Bodisen and CGA’s factories are located in the same small town of Yangling in the Yang Ling Agriculture
High-tech Demonstration Zone. However, we could find no connection between the companies. Given the large amount of cash it
has raised in the past and currently has on hand, CGA could easily afford the engagement of a “Big Four” auditor. So we question
why CGA has waited so long?

Ticker Name Price Volume Dollar Volume

LLEN L & L Energy, Inc. $11.34 816,200 $9,255,708
FFHL Fuwei Films (Holdings) Co., Ltd $1.38 37,457 $51,690
SGTI.OB SHENGTAI PHARMACEUTICAL, INC. $1.43 12,855 $18,382
CVDT.OB CHINA VOIP & DIGITAL $0.47 21,650 $10,175
BBCZ.OB Bodisen Biotech Inc $0.62 14,786 $9,463
ORS Orsus Xelent Technolgies, Inc. $0.24 29,486 $7,076
SRRY.OB Sancon Resources Recovery Inc $0.36 6,300 $2,268
AMGY.PK American Metal & Technology, Inc $0.19 317 $60
TONJ.OB TONGJI HEALTHCARE GP $0.21 172 $36
ARUZ.OB AURASOUND INC $1.80 14 $25
AWSH.OB AMERICAN WENSHEN STL $1.01 15 $15
CYXN.OB CHINA YONGXIN PHARMA $3.86 0 $-
SGLA.OB SINO GREEN LAND CORP $0.30 0 $-
CVPH.OB CHINA VITUP HEALTH $1.06 0 $-
NTYN.OB NEW TAOHUAYUAN CULTR $0.01 0 $-
HXTH.PK HXT HLDGS INC $1.08 0 $-
HRCT.OB HARTCOURT COS INC $- - $-

15
The acquisition price CGA paid for Beijing Gufeng was too high. CFO Ken Ren
admitted Gufeng’s 2009 earnings quality was low. Gufeng’s audited financials
completely contradict its results filed with the PRC State Administration of Industry and
Commerce (SAIC)
Background
In the 8-K filed with the SEC on July 7 2010, CGA disclosed the details of its acquisition of Beijing Gufeng Chemical Products Co.,
Ltd. (Gufeng). According to the 8-K, CGA acquired 100% of the equity interests in Gufeng for a combination of RMB 60 million
(approximately $8.8 million) in cash plus the issuance of 2,275,931 shares of CGA common stock to Gufeng shareholders. Based
on the closing stock price of $10.81 on August 13, 2010 the total purchase price was $33.38 million. However, the extra $14.7
million advanced to Gufeng to cover its working capital shortfall brings the total cost of the acquisition to $48 million.

CGA appears to be significantly overpaying for this acquisition

1. Gufeng net assets are worth far less than the purchase price

CGA disclosed Gufeng has fertilizer production capacity of 300,000 metric tons/year with a current utilization rate of 60%. Our
survey of fertilizer industry experts concluded that the cost to construct a brand new state of the art facility of similar capacity
should not exceed $15 million. In the latest audited financial statements of Gufeng disclosed in the 8-K/A on August 13, 2010,
Gufeng had Plant, Property and Equipment of $10,127,221 as of March 31, 2010, an amount less than 1/3 of the reported
purchase price. After deducting all Liabilities from Total Assets, the net asset value of Gufeng is merely $4.2 million, meaning
approximately $29 million of the purchase price will be allocated to “goodwill”.

In addition, Gufeng’s financial position prior to the acquisition was very weak judging from the lack of cash resources on the
balance sheet and lack of cash flow historically. In fact, CGA’s July 7th 8-K admitted CGA will:

“…contribute RMB 100 million (approximately $ 14.7 million) to Gufeng following the Closing Date for working
capital.”

16
Accounting for this $14.7 million additional cash advance from CGA to make up Gufeng’s working capital shortfall, the total
acquisition cost rises to $48 million. Considering the less-than-stellar historical performance of Gufeng and the fact that the same
management team is going to stay to manage the business, we failed to see any reason to pay a premium price for Gufeng.

2. Gufeng’s audited financials are of low quality and are inconsistent with SAIC records

According to the Income Statements disclosed in the 8-K/A on August 13 2010, Gufeng had a net loss of $2,946,701 in 2008
and a net income of $3,755,409 in 2009, with its revenue growing 30% year over year. However, the financial statements filed
with SAIC show very little profit made in calendar years 2007-2008 and Gufeng actually had a loss of RMB 7.98 million in 2009,
as shown in the table below.

Beijing Gufeng Financial Information

Unit: RMB '000
Source SAIC Audited Financials*
Calendar Year 2007 2008 2009 2007 2008 2009
Revenue 296,485 340,568 177,997 N/A 281,795 369,000
Net Profit 182 131 (7,980) N/A (20,097) 25,649
*Audited financials provided by CGA were converted with the exchange rate of 6.82 in 2008 and 6.83 in 2009.

We obtained Gufeng’s original annual financial statements filed with the SAIC directly from local SAIC branch in Beijing. The
document was stamped by the company and also signed by Gufeng’s CEO Qingxin Jiang and financial manager Cunxin Guo.21

21
Original Beijing Gufeng’s financial statements filed with the SAIC and signed by CEO QingXin Jiang

17
Another sign of low earnings quality is the unusually large changes in Inventory and Unearned Revenue between 2008 and 2009:

18
When companies delay or hold off the recognition of revenues, Inventory and Unearned Revenue tend to go up. When
revenues are subsequently recognized on the Income Statements, the Inventory becomes Cost of Revenue and Unearned
Revenue becomes Revenue. In Gufeng’s case, this is evidenced by the record high levels of Inventory and Unearned Revenue
on the 2008 year-end Balance Sheet followed by sharp decreases of $11.88 million in Inventory and $13.62 million in Unearned
revenue at 2009 year-end. Furthermore, Gufeng moved from stable operating cash flow of $3.8 million in 2008 to a total lack of
operating cash flow in 2009.

In sharp contrast, most Shanghai and Shenzhen listed fertilizer companies reported significantly better results in 2008 than
2009 (see the table below).

19
 2008 Operating Income 2009 Operating Income
Ticker Company Year over Year Change
RMB 000 RMB 000

000792 盐湖钾肥 2,671,789 2,050,988 -23%

000830 鲁西化工 316,781 160,550 -49%
600423 柳化股份 102,628 19,594 -81%
000731 四川美丰 226,204 92,529 -59%
002170 芭田股份 66,618 5,218 -92%
000912 泸天化 468,647 59,239 -87%
600227 赤天化 190,737 166,931 -12%

When queried on yesterday’s conference call, CFO Ken Ren agreed that Gufeng’s 2009 earnings quality was “low”. So we ask:
Did Gufeng intentionally shift some revenue from 2008 to 2009? How does Gufeng explain the opposing trends in earnings and
cash flow from 2008 to 2009? What value can investors place on these low quality earnings? Most importantly, why would CGA
pay such a huge purchase price and where is this money really going? To date management has provided no meaningful
response.

Finally, what was the point of acquiring Gufeng when CGA's own facility is at merely 40% utilization? And why is management,
in addition to retooling Gufeng, spending $7 million to add another 200k tons per annum production line? And if it only costs $7
million to build 200ktpa capacity why did they value Gufeng’s existing, admittedly outdated, 300ktpa plant at $33M purchase
price +$14.7M working capital infusion?

20
Section 3
Recommendations

CONFIDENTIAL

21
Appendix One
Contract

CONFIDENTIAL

22
Appendix Two
Information Sources

Please access using the Dropbox folder instructions provided separately.

23
Appendix Three
Site Visit Photos

Please access using the Dropbox folder instructions provided separately.

24