Forward Looking Statements

The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto appearing elsewhere in this Report on Form 10-Q. The following discussion contains forward-looking statements. Our actual results may differ significantly from those projected in the forward-looking statements. Factors that may cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those discussed elsewhere in this Form10-Q and in "Risk Factors" in our December 31, 2008 Form 10-K.

Overview

Introduction

In March 2007 we, then a publicly traded company with no operations, acquired through a reverse merger all of the shares of China Organic Agriculture Limited ("COA"). COA is a holding company formed under the laws of the British Virgin Islands that then owned all of the issued and outstanding stock of Jilin Songyuan City ErMaPao Green Rice Limited ("ErMaPao"). ErMaPao is an operating company organized under the laws of China in May 2002 engaged in growing, processing and distributing rice. In addition to such activities, in early 2008 we began to engage on a limited basis in trading and the wholesale distribution of rice and other agricultural commodities.

In May 2007 we changed our name to China Organic Agriculture, Inc. As used in this report, the terms "we," "our," "Company" and "China Organic" refer to China Organic Agriculture, Inc. and its subsidiaries, and the terms "ton" and "tons" refers to metric tons, in each case, unless otherwise stated or the context requires otherwise. Since most of our business activities take place in China, our functional currency is the Renminbi, which had an average exchange rate to the US dollar of $0.1464 for the nine months ended September 30, 2009.

The acquisition of COA was accounted for as a reverse acquisition. Consequently, our financial statements included herein for dates and periods prior to the consummation of the acquisition reflect the historical financial condition, results of operations and cash flows of COA and its subsidiary, ErMaPao. Effective September 30, 2008, we sold ErMaPao to Bothven Investments Ltd. Consequently, in all financial statements contained herein, ErMaPao is treated as a "Discontinued Operation."

Operations

We commenced active operations in China upon completion of the reverse merger in March 2007 in which we acquired COA and its operating subsidiary, ErMaPao. Through ErMaPao we engaged in growing, processing and distributing rice. In addition to such activities, since early 2008 we have been engaged in trading and the wholesale distribution of rice and other agricultural commodities purchased from third parties.

In February 2008 we purchased the Bellisimo Vineyard, a 153 acre operating vineyard in Sonoma County, California. Before we acquired the Bellisimo Vineyard, it was providing Merlot, Chardonnay, and Cabernet Sauvignon grapes to local wineries for both red and white wines. We may continue to sell those grapes to local wineries or to wineries which make wines for resale in China and elsewhere in Asia.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

In June 2008 we formed a subsidiary under the laws of the British Virgin Islands to act as the importer of record in connection with our efforts to distribute wines to wholesalers in China and Asia. Management believes that demand in China is growing for premium wines and we intend to seek to import wines from the United States and other growing regions initially into China and then to other destinations in Asia. We are in the early stages of seeking to become a wine importer and this will be a new business for us. We have no experience in the distribution of wine and there can be no assurance that we will be able to successfully import wines into China.

In October 2008, we acquired all of the outstanding shares of Princeton International Investment Ltd. ("Princeton"), which owned, and was formed to facilitate our acquisition of, 60% of the outstanding shares of Dalian Baoshui District Huiming Trading Limited ("Dalian Huiming"). Dalian Huiming, founded in 2001, is headquartered in the Dalian Free Trade Zone, in Dalian City Liaoning Province, China. Dalian Huiming is engaged in grain purchasing, international and domestic trading, wholesale sales and food delivery logistic services. Dalian Huiming's activities are primarily focused on soybeans, corn and cereal crops, which are major products of the provinces located in Northeastern China. Most of Dalian Huiming's sales are to other distributors or industrial users of agricultural products and it distributes its products in many regions of China, including Liaoning Province, Jiling Province, Heilongjiang Province, Sichuan Province, Fujian Province and the cities of Beijing and Shanghai.

Dalian Huiming purchases agriculture products from independent suppliers and sells the products to buyers with which it has pre-existing relationships.

In December 2008, the Company entered a joint venture with China-based Xinbin Manchu Autonomy County East Star Wine Company Ltd. ("Xinbin"). The joint venture, Bellisimo Ice Wine, is intended to enable the Company to market premium table wines and specialty ice wines in China. The Company owns 60% of Bellisimo Ice Wine.

The Company cannot predict whether the addition of wines to its product mix will be profitable, or what proportion of the Company's business will ultimately be derived from wine production and distribution.

Principal Customers

During the nine months ended September 30 2009, the Company's principal
customers, the proceeds from sales to each of these customers and the
percentages of the Company's revenues represented by each of these customers
were as follows:


                  Customers                                    Revenues  Percentage of Company's Revenues
Shenzhen Shen Jing Da Agriculture Ltd.         $             40,344,368                 38%
Beijing Golden Valley Trading Co. Ltd.                       30,878,067                 29%
Shanghai Good Friend Trading Group, Co. Ltd                   7,963,089                 7%
Jing Yun Da Investment Co. Ltd.                               5,779,086                 5%
Beijing Li Da Long Trading Co. Ltd                            4,976,458                 5%

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

The concentration of our sales to a limited number of customers leaves us vulnerable to an adverse short-term impact on its revenues should one of these customers cease doing business or reduce the amount of business it does with us.

We obtain supplies of grain from a limited number of companies. The purchases made from each of these suppliers during the nine months ended September 30 2009, and the percentages of our business represented by each of these suppliers were as follows:

             Suppliers                              Purchases   Percentage of Company's
                                                                       Purchases
Jiling Shen Kang Long Rice Co. Ltd   $             36,723,280             45%
Heilongjiang Wuchang Littlehill                                           17%
Grain Storage Co. Ltd                              13,813,675
Heilongjiang BaoQuanLin Grain                                             8%
Transportation Co. Ltd                              6,306,508
Heilongjiang Ah City Second Grain                                         7%
Storage Co. Ltd                                     5,642,813
Heihe Aihui Grain Storage Co. Ltd                   6,067,186             7%

The limited number of companies from which we obtain inventories leaves us vulnerable to an adverse short-term impact on our revenues should one of these suppliers cease doing business or reduce the amount of business it does with us.

Competition

The competition for the purchases of grain in the open market is fierce and the barriers to entry are low. The Company competes with many larger, nationalized companies such as Jiu San Co. Ltd. and Zhong Liang Co. Ltd. Many of these companies have larger organizations and are substantially better capitalized than the Company

To date, our sales primarily have been limited to customers within the PRC and we expect that our sales will remain primarily domestic for the immediate future. The markets for our products have been experiencing increased levels of demand as China continues its recent rate of growth. Yet, as they expand, the markets for our products remain highly competitive. Our marketing strategy involves developing long term ongoing working relationships with suppliers and customers which foster mutually advantageous relationships.

Employees

As of September 1, 2009, we had employed 193 full-time employees. Approximately 40% of our employees are management and sales personnel and the balance are operational employees. None of our employees is represented by a union.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Properties

Dalian Huiming rents office space at 25 Tongxing Street Zhong Shan District, Dalian, Liaoning. This space is approximately 337 sq. meters and the annual rent is approximately $39,800. Through another subsidiary we rent space at Manhattan Building #1, Suite 1511, Dalian City, Liaoning Province. This space is approximately 300 sq meters and the annual rent is approximately $17,280

The Bellisimo Vineyard is a 153 acre operating vineyard in Sonoma County, California. There are seven buildings located on the Bellisimo Vineyard which we rent to third parties.

We acquired the Bellisimo Vineyard for $14,750,000. A portion of the purchase price, $8,515,000, was paid with funds provided by a commercial US lender which was granted a first lien on the property. The balance of the purchase price was financed with $6,216,000 loaned from a related party pursuant to an agreement providing for 4% interest per annum over a five year term and internally generated funds. During 2008 the 4% loan was swapped for equity as discussed below. The $8,515,000 mortgage is payable over twenty years with an interest rate, initially set at 7.70%, that adjusts every four years.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)

Result of Operations

The following tables present certain information from our consolidated statement
of operations for the three and nine months ended September 30, 2009 and
September 30, 2008.

                                           THREE MONTHS     THREE MONTHS
                                              ENDED            ENDED
                                            SEPTEMBER        SEPTEMBER
                                             30, 2009         30, 2008       % Change

Sales                                    $  39,656,537    $  46,454,286        -15%
Cost of sales                              (28,547,725)     (35,326,386)       -19%
Gross profit                                11,108,812       11,127,900         0%
Selling, general and administrative
expenses                                    (587,239)        (416,651)          41%
Income from operations                      10,521,573       10,711,249         -2%
Other income                                 154,774          613,133          -75%
Interest expense, net                       (108,578)         (79,570)          36%
Income from Continuing operations before
income taxes                                10,567,769       11,244,812         -6%
Provision for income taxes                 (2,753,400)      (2,773,251)         -1%
Net income from Continuing operations       7,814,369        8,471,561          -8%
Net Income from Discontinued operations:        -            1,028,074          n/m
Net Income                                  7,814,369        9,499,635         -18%
Less Income attributed to
noncontrolling interest                    (3,304,176)           -              n/m
Net Income attributable to CNOA          $  4,510,193     $  9,499,635         -53%
Basic and diluted weighted average
shares                                      73,157,232       57,655,514         27%
Basic and diluted Earnings Per Share     $     0.06       $     0.17           -65%

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)


                                            NINE MONTHS      NINE MONTHS
                                               ENDED            ENDED
                                             SEPTEMBER        SEPTEMBER
                                              30, 2009         30, 2008       % Change

Sales                                     $ 106,402,273    $  53,913,511         97%
Cost of sales                               (79,978,832)     (40,946,593)        95%
Gross profit                                 26,423,441       12,966,918        104%
Selling, general and administrative
expenses                                    (1,429,388)      (1,579,854)        -10%
Income from operations                       24,994,053       11,387,064        119%
Other income                                  837,841          701,183           19%
Interest expense, net                        (674,152)        (380,422)          77%
Income from Continuing operations before
income taxes                                 25,157,742       11,707,825        115%
Provision for income taxes                  (6,477,642)      (3,222,007)        101%
Net income from Continuing operations        18,680,100       8,485,818         120%
Net Income from Discontinued operations:         -            1,868,231          n/m
Net Income                                   18,680,100       10,354,049         80%
Less Income attributed to noncontrolling
interest                                    (7,763,626)           -              n/m
Net Income attributable to CNOA           $  10,916,474    $  10,354,049         5%
Basic and diluted weighted average
shares                                       73,157,232       53,599,214         36%
Basic and diluted Earnings Per Share      $     0.15       $     0.19           -21%

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)


Business Segment Information

We operate in two business segments, agricultural commodities, which we acquire,
trade and supply to users; and the wine industry, for which we grow grapes and
intend to act as an importer into Asia where we may also distribute wines and
ice wines.

Three months ended September 30, 2009
                                     Agricultural
                                       products         Wine production(2)       Others(1)           Total
Sales, net                          $   39,656,537                        -                -     $  39,656,537
Cost of sales                          (28,547,725 )                      -                -       (28,547,725 )
Gross profit                            11,108,812                        -                -        11,108,812
Depreciation and amortization               47,399                   50,313                -            97,712
Other income                                     -                  154,774                -           154,774
Segment profit (loss)                   10,944,524                  (38,909 )       (229,268 )      10,676,347
Total assets                            78,106,427               28,788,454                -       106,894,881
Expenditures for long term assets                -                        -                -                 -
Goodwill                            $    1,602,143                        -                -     $   1,602,143

                                    Three months ended September 30, 2008
                                     Agricultural
                                       products         Wine production(2)       Others (1)          Total
Sales, net                          $   46,454,286                        -                -     $  46,454,286
Cost of sales                          (35,291,262 )                      -                -       (35,291,262 )
Gross profit                            11,163,024                        -                -        11,163,024
Depreciation and amortization                  343                  117,397                -           117,740
Other income                                     -                  180,964                            180,964
Segment profit (loss)                   10,740,407                  (44,842 )        196,648        10,892,213
Total assets                        $   71,791,626               15,173,820                -     $  86,365,446
Expenditures for long term assets              278                        -                -               278
Goodwill                                         -                        -                -                 -

(1) Others included the warrant expenses, option expenses and CNOA corporate expenses.

(2) Other income and Segment profit (loss) of our wine segment result mainly to the Bellisimo Vineyard's rental activities.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (Continued)

                                     Nine months ended September 30, 2009
                                     Agricultural
                                       products         Wine production(2)       Others(1)           Total
Sales, net                          $  106,402,273                        -                -     $ 106,402,273
Cost of sales                          (79,978,832 )                      -                -       (79,978,832 )
Gross profit                            26,423,441                        -                -        26,423,441
Depreciation and amortization              142,205                  150,939                -           293,144
Other income                                     -                  837,841                -           837,841
Segment profit (loss)                   25,657,211                  (65,697 )       (240,380 )      25,831,894
Total assets                            78,106,427               28,788,454                -       106,894,881
Expenditures for long term assets              186                      490                -               676
Goodwill                            $    1,602,143                        -                -     $   1,602,143

                                     Nine months ended September 30, 2008
                                     Agricultural
                                       products         Wine production(2)       Others (1)          Total
Sales, net                          $   53,913,511                        -                -     $  53,913,511
Cost of sales                          (40,946,593 )                      -                -       (40,946,593 )
Gross profit                            12,966,918                        -                -        12,966,918
Depreciation and amortization                  670                  117,397                -           118,067
Other income                                     -                 (269,014 )              -          (269,014 )
Segment profit (loss)                   12,871,406                 (491,137 )       (420,053 )      11,960,216
Total assets                        $   71,791,626               15,173,820                -     $  86,365,446
Expenditures for long term assets            4,232               15,173,820                         15,178,052
Goodwill                                         -                        -                -                 -

(1) Others included the warrant expenses, option expenses and CNOA corporate expenses.
(2) Other income and Segment profit (loss) of our wine segment result mainly to the Bellisimo Vineyard's rental activities.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Sales

Sales for the three months ending September 30, 2009 totaled $39,656,537 compared to $46,454,286 for the three months ending September 30, 2008, a decrease of $6,797,749, or approximately 15%. Sales for the nine months ending September 30, 2009 totaled $106,402,273 compared to $53,913,511 for sale in the nine months ending September 30, 2008, an increase of $52,488,766 or approximately 97%. The sales decrease in the third quarter this year was due to the Company's decision to focus on higher margin sales which lowered trading volume but increased the gross margin percentage. During the nine months ending September 30, 2009, most of our sales were generated by Dalian Huiming, which was acquired in October of 2008, reflecting the Company's new initiative of purchasing grains from producers and then reselling these to retailers and wholesalers. Prior to the acquisition of Dalian Huiming, the Company's agriculture trading business was relatively small.

Gross Profit

The Company's gross profit for the three months ending September 30, 2009 was $11,108,812 (28% of revenue) compared to $11,127,900 (24% of revenue) for the three months ending September 30, 2008. The gross profit for the nine months ending September 30, 2009 was $26,423,441 (25% of revenue) compared to $12,966,918 (24% of revenue) for the nine months ending September 30, 2008. Margin improved for the three month period ended September 30, 2009 compared to that in the 2008 period due to the improvement of the price of the products sold relative to the cost that the Company paid for these products The increase in gross profit for the nine month period was attributable to our increased trading activity due to the acquisition of Dalian Huiming in October, 2008.

Selling, General and Administrative Expense

Selling, general and administrative expenses for the three and nine months ending September 30, 2009 were $587,239 and $1,429,388, reflecting an increase of $170,558 and a decrease of $150,466, respectively, from the comparable 2008 periods. The increase in expenses for the three month period ended September 2009 was due to management's undertaking efforts to develop new business opportunities.

Other Income

Other income for the nine month period ended September 30, 2009 includes $500,000 based on an agreement between the Company and Red Wine Saga Company, Ltd. ("Red Wine") effective October 1, 2008. In this agreement, the Company gave Red Wine the authority to sell red wine in Asia under the Bellisimo brand name. The agreement originally extended from October 1, 2008 through September 30, 2011 and provided for $6,000,000 to be paid in quarterly installments of $500,000. The agreement has been amended to eliminate the quarterly installments until such time as the Company begins to deliver red wine for sale under the Bellisimo brand. Other Income for the nine month period ending September 30, 2008 represents gain on debt conversion in 2008 of $432,169, and the net benefit of the sale of grapes and the rental income pertaining to the Bellisimo vineyard.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Interest Expense

Interest expenses were $108,578 and $674,152 for the three and nine month periods ending September 30, 2009, and represented increases of $29,008 and $293,730 as compared to the corresponding 2008 periods. These increases mainly result from the additional bank debt incurred to support the increased working capital needs associated with the revenue growth, particularly the increase in receivables.

Provision for Income Taxes

The Company is subject to the income tax laws of the People's Republic of China ("PRC"). The PRC's Enterprise Income Tax is now at a statutory rate of 25%. For the three and nine month periods ending September 30, 2009, the Company accrued $2,753,400 and $6,477,642 in income taxes. The effective tax rates of 26.1% and 25.7% represented by these accruals are higher than the statutory rate as expenses incurred in the US, including those pertaining to the Bellisimo Vineyard, are not deductible for PRC tax purposes

Discontinued Operations

The following table summarizes the operating results of the discontinued
operations of ErMaPao for the three months and nine months ended September 30,
2008 respectively:

                                           Three Months       Nine Months
                                              Ending             Ending
                                           September 30,     September 30,
                                               2008               2008
Sales                                      $     771,481          4,536,142
Cost of sales                                   (559,737 )       (2,977,670 )
Gross profit                                     211,744          1,558,472
Operating expenses                               (86,925 )         (314,713 )
Income from Discontinued operations
before income tax                                124,819          1,243,759
Income tax                                       (30,938 )         (309,722 )

Net Income from Discontinued operations,
net of tax                                 $      93,881            934,037

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)

Net Income; Net Income Attributable to CNOA

Net income was $7,814,369 for the three months ended September 30, 2009, compared to net income of $9,499,635 for the three months ended September 30, 2008. Net income was $18,680,100 for the nine months ended September 30, 2009, compared to net income of $10,354,049 for the comparable 2008 period. The increase in net income during the nine month period was largely due to the acquisition of Dalian Huiming. As the Company acquired only 60% of Dalian Huiming, however, 40% of the net income from Dalian Huiming was recorded as Income attributed to noncontrolling interest. Thus, net income attributable to CNOA was $4,510,193 for the three months ended September 30, 2009 and $10,916,474 for nine months ended September 30, 2009.

Liquidity and Capital Resources
. . .