China Organic Agriculture Announces Third Quarter 2008 Financial Results

China Organic Agriculture, Inc. (OTCBB: CNOA), a growth-driven agricultural products company, today announced its operating results for the third quarter and nine months ended September 30, 2008.

Net sales for the third quarter of 2008 were $47.2 million, increasing 111% compared to $22.4 million for the comparable quarter of 2007. For the nine months ended September 30, 2008 net sales were $58.4 million, increasing 103% compared to $28.8 million for the nine months ended September 30, 2007. China Organic had net income of $8.3 for the third quarter of 2008, compared to net income of $7.2 million for the third quarter of 2007. Earnings per share maintained its level of $0.14 per diluted share compared with the third quarter of 2007 as a result of a proportionate increase in the weighted average number of shares between the two periods.

"Due to the timing of the harvest season, the third and fourth quarters are historically China Organic’s most impressive. This year we did not disappoint,” said Jinsong Li, Chief Executive Officer of China Organic Agriculture. "With revenue of topping $47 million in the third quarter, we more than doubled our sales over the comparable period in 2007. The fact that 98% of third quarter revenue came from China Organic’s relatively new, but fast-growing Ankang subsidiary is a substantial achievement.”

Third Quarter and First Nine Months Highlights

Net sales for the three months ended September 30, 2008 increased 111% to $47.2 million compared to $22.4 million for the three months ended September 30, 2007. For the nine months ended September 30, 2008, net sales increased 103% to $58.4 million compared to $28.8 million for the nine months ended September 30, 2007. These increases in total sales are attributable to the Company’s expansion of its distribution operations into the resale of rice through CNOA’s Ankang segment. In the third quarter of 2008, approximately $46.5 million of total sales was generated by the Company’s new initiative of purchasing rice from other rice producers and then selling it to retailers and wholesalers.

For the nine months ending September 30, 2008, the Ankang segment recorded $53.9 million of sales. As the Ankang segment was established in 2008, there were no comparable sales in 2007.

The ErMaPao segment had a significant decrease in sales of both green and organic rice this quarter, which together declined to $0.8 million as compared to $22.4 million in the third quarter of 2007, reflecting the shift of the Company’s primary focus to the trading opportunities in the agricultural industry and also increased amount of competition from other rice producers.

ErMaPao’s sales for the nine months ending September 30, 2008 totaled $4.5 million compared to $28.8 million for the nine months ending September 30, 2007. This decrease of $24.3 million, or approximately 84.8%, is due to the same factors noted regarding ErMaPao’s third quarter sales reduction.

The Bellisimo Vineyard did not generate revenue from grape sales during the quarter or nine months ended September 30, since harvest had not yet occurred. Grapes were reported as being picked in October this year, therefore sales will be reflected in the fourth quarter financial results.

Gross profit for the three months ended September 30, 2008, increased to $11.3 million as compared to $7.5 million for the same period in 2007, reflecting the increased level of sales. The gross profit margin for the third quarter was 24%, a decrease from 34% realized in the comparable quarter in 2007. The decrease in the gross profit margin is due to the lower profit margin on Ankang's trading activity, which did not exist in the 2007 period.

Selling, general and administrative expenses for the third quarter in 2008 totaled $0.6 million or approximately 1.3% of sales, compared to $0.3 million or approximately 1.4% of sales for the third quarter in 2007. This increase largely resulted from the amortization of warrant expenses, as well as increased professional fees for financial and legal services as well as Vineyard expenses.

According to the People’s Republic of China’s ("PRC”) new tax policy effective January 1, 2008, the Company no longer benefits from its previous exemption and is now taxed at the statutory Enterprise Income Tax rate of 25%. The effective tax rate represented by CNOA’s tax accruals are higher than the statutory rate since expenses incurred in the US, including those pertaining to the Bellisimo Vineyard, are not deductible for PRC tax purposes.

Net income for the three months ended September 30, 2008, was $8.3 million compared to $7.2 million for the same period in 2007. This increase was due to the large influx in revenue from CNOA’s Ankang subsidiary, which more than compensated for increases in general and administrative costs, as well as the implementation of a tax provision in 2008.

Recent Events

On October 15, 2008, the Company accepted the resignation of Huizhi Xiao as Chairman and Director of the Company, and appointed as his successor in both capacities the Company's Chief Executive Officer, Jinsong Li.

On October 22, 2008, the Company signed an agreement to acquire the trademark "Xiaoxinganling," an organic brand name in China's northeast, along with the distribution channel of several premium food products including soybeans, kidney beans and mushrooms.

On October 31, 2008, the Company completed the acquisition of Dalian Huiming Industry, Ltd. The Company acquired 60% of Dalian Huiming for $10.6 million in an all cash transaction.

Mr. Li concluded, "With the finalization of Dalian Huiming and our successful acquisition of the ‘Xiaoxinganling’ brand name, China Organic will diversify into a variety of different agricultural products including soybeans, corn, mushrooms and kidney beans. The fourth quarter will bring together these multiple revenue streams as we integrate them into our operations. China Organic will continue to increase value for our shareholders as we strive to be one of the foremost leaders in premium and natural food products in China and Asia’s agricultural industry.”

About China Organic Agriculture

China Organic Agriculture is an active trader of agricultural products in China. The Company's high-growth business plan is designed to enable it to capitalize effectively on China's burgeoning economy and expanding class of consumers with the ability to acquire upscale products. The Company has developed an extensive distribution network throughout many of China's major cities, including Beijing, Shanghai and Nanjing, and is positioned to leverage those networks to establish broad distribution of a number of agricultural, food and related premium products. The Company has experienced significant growth since its inception in 2002 and has implemented a number of strategic initiatives to expand sales and revenues. For more information, please visit: www.chinaorganicagriculture.com.

FORWARD-LOOKING STATEMENTS: This document includes forward-looking statements. Forward-looking statements include, but are not limited to, statements concerning future acquisitions, estimates of, and increases in, production, cash flows and values, statements relating to the continued advancement of China Organic Agriculture’s products and other statements which are not historical facts. When used in this document, the words such as "could," "plan," "estimate," "expect," "intend," "may," and similar expressions are forward-looking statements. Although China Organic Agriculture Inc. believes that its expectations reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements include, but are not limited to, those set forth in our reports filed with the Securities and Exchange Commission, together with the risks discussed in our press releases and other communications to shareholders issued by us from time to time, such as our ability to raise capital as and when required, the availability of raw products and other supplies, competition, the costs of goods, government regulations, and political and economic factors in the People's Republic of China in which our subsidiaries operate.