- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended September 30, 2008

o	TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
	for the transition period from ____________ to ________________

Commission File No. 333-52472

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

(Name of Small Business Issuer in its Charter)

Delaware	58-2258912
(State or Other Jurisdiction of incorporation or organization)	(I.R.S. Employer I.D. No.)

238 Jianxindong Street, Laizhou, Shandong Province, People’s Republic of China

(Address of Principal Executive Offices)

Issuer's Telephone Number: 86 0535-2212279

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant is a large accelerate filer, an accelerate filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer	o		Smaller reporting company	x

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

Number of shares of common stock outstanding as of November 12, 2008: 70,001,200

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report contains forward-looking statements, which are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans to,” “estimates,” “projects,” or similar expressions. These forward-looking statements represent Management’s belief as to the future of Shandong Zhouyuan Seed and Nursery Co. Ltd. Whether those beliefs become reality will depend on many factors that are not under Management’s control. Many risks and uncertainties exist that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors That May Affect Future Results.” Readers are cautioned not to place undue reliance on these forward-looking statements. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements.

PART 1—FINANCIAL INFORMATION

Item 1. Financial Statements

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30,			December 31,
	2008			2007
	(unaudited)			(Audited)
ASSETS
Current Assets:
Cash and cash equivalents	$	189,258		$	11,345
Accounts receivable, net (Note 5)		32,171			18,380
Inventory (Note 6)		172,541			183,600
Other receivable		15,813			17,144

Contract security deposit (Note 15)		137,241			-
Advance to suppliers		32,603			113,063
Total Current Assets		579,627			343,532

Property, Plant, and Equipment, net (Note 7)		1,863,149			1,827,528

Other Assets
Land use right, net (Note 8)		473,857			452,067
Acquired plant variety protections, net (Note 9)		468,079			545,417
Receivable from sale of land use right		348,324			326,465
Total Other Assets		1,290,260			1,323,949

Total Assets	$	3,733,036		$	3,495,009

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank loans (Note 11)	$	1,251,623		$	1,449,255
Short-term loans		20,452			37,238
Accounts payable and accrued expenses		366,483			522,151
Pension and employee benefit payable		250,676			252,137
Taxes payable		133,099			124,748
Interest payable		400,771			315,579
Deferred revenue		37,135			49,729
Court judgment payable (Note 14)		220,310			208,217
Due to employees		48,669			34,526
Due to an officer		117,848			-
Customer security deposit		93,037			89,591
Total Current Liabilities		2,940,103			3,083,171

Minority Interest		416,695			248,020

Stockholders' Equity:
Preferred stock, $0.001 par value, 5,000,000 shares authorized; none issued and outstanding as of September 30, 2008 and December 31, 2007		-			-
Common stock, $0.001 par value, 150,000,000 shares authorized; 70,001,635 shares issued and outstanding as of September 30, 2008 and December 31, 2007		70,002			70,002
Additional paid-in capital		3,144,237			3,144,237
Accumulated deficiency		(2,795,880	)		(2,636,401	)
Deferred compensation		(154,000	)		(497,000	)
Accumulated other comprehensive income		111,879			82,980
Stockholders' Equity		376,238			163,818

Total Liabilities and Stockholders' Equity	$	3,733,036		$	3,495,009

See Notes to Consolidated Financial Statements

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
Revenues
Sale of seeds	$	91,712		$	152,215		$	901,403		$	611,564
Total revenue		91,712			152,215			901,403			611,564

Cost of good sold
Cost of seeds sold		56,633			101,957			608,832			457,149
Amortization of plant variety protections		37,948			34,370			111,518			101,684
Total cost of sales		94,581			136,327			720,350			558,833

Gross Profit		(2,869	)		15,888			181,053			52,731

Governmental subsidy for one plant variety protection		-			-			552,092			-

Operating Expenses
Selling expenses		7,664			4,462			22,365			16,670
Payroll		15,551			15,622			47,110			56,960

Pension and employee benefit		(11,634	)		8,197			4,772			24,469
Depreciation expenses		28,828			26,663			86,409			78,055

Amortization of land use rights		2,825			2,559			8,303			7,571
Office expenses		36,171			4,595			73,980			14,518
Consultant fees		114,333			114,334			343,000			228,667
Travel and entertainment		5,108			5,221			23,859			18,815
Judgment expense		4,031			2,687			12,093			204,187

Other general and administrative		939			13,271			20,521			41,943
Total Operating Expenses		203,816			197,611			642,412			691,855

(Loss) from Operations		(206,685	)		(181,723	)		90,733			(639,124	)

Other Income (Expenses)
Interest income		4,188			2,579			13,258			14,690
Interest expenses		(47,457	)		(47,684	)		(138,280	)		(136,477	)
Other income (expenses)		3,659			24,338			9,151			18,442
Total other income (expenses)		(39,610	)		(20,767	)		(115,871	)		(103,345	)

(Loss) before provision for Income Tax		(246,295	)		(202,490	)		(25,138	)		(742,469	)

Provision for Income Tax		-			-			-			-

(Loss) before Minority Interest		(246,295	)		(202,490	)		(25,138	)		(742,469	)

Minority Interest		43,864			34,680			(134,341	)		132,200

Net (loss)		(202,431	)		(167,810	)		(159,479	)		(610,269	)

Other Comprehensive Income (Loss) Effects of Foreign Currency Conversion		(7,755	)		7,295			28,899			20,200

Comprehensive Income (Loss)	$	(210,186	)	$	(160,515	)	$	(130,580	)	$	(590,069	)

Basic and fully diluted earnings (loss) per share	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.01	)

Weighted average shares outstanding		70,001,635			66,999,401			70,001,635			66,999,401

See Notes to Consolidated Financial Statements.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Nine Months Ended
	September 30,
	2008			2007
	(unaudited)			(unaudited)
Operating Activities

Net income (loss)	$	(159,479	)	$	(610,269	)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Minority interest		134,341			(132,200	)
Depreciation		86,409			78,055
Amortization of land use rights and plant variety protections		119,821			109,255
Amortization of costs of common stocks issued for consultant service		343,000			228,667
Increase in court judgment payable		12,093			204,187
Changes in operating assets and liabilities:
(Increase)/Decrease in accounts receivable		(12,250	)		(1,151	)
(Increase)/Decrease in inventory		22,227			73,063
(Increase)/Decrease in other receivable		2,365			(3,118	)
(Increase)/Decrease in advance to suppliers		85,246			(5,383	)
(Increase)/Decrease in contract security deposit		(133,344	)		-
(Increase)/Decrease in judgment receivable		-			29,486
Increase/(Decrease) in accounts payable and accrued expenses		(183,901	)		61,414
Increase/(Decrease) in pension and employee benefit payable		(17,187	)		17,949
Increase/(Decrease) in taxes payable		313			4,400
Increase/(Decrease) in interest payable		63,038			124,004
Increase/(Decrease) in deferred revenue		(15,346	)		(17,631	)
Increase/(Decrease) in customer security deposit		(2,256	)		944
Net cash provided (used) by operating activities		345,090			161,672

Investing Activities

Purchase of fixed assets		(741	)		(86,089	)
Net cash (used) by investing activities		(741	)		(86,089	)

Financing Activities

Payback of bank loans		(282,652	)		(92,219	)
Short-term loans		(18,638	)		-
Loans from an officer		114,502			-
Loans from employees		11,582			-
Payback of loans from employees		-			(2,805	)
Net cash provided (used) by financing activities		(175,206	)		(95,024	)

Increase (decrease) in cash		169,143			(19,441	)
Effects of exchange rates on cash		8,770			23,819
Cash at beginning of period		11,345			2,600
Cash at end of period	$	189,258		$	6,978

Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during year for:
Interest	$	(76,929	)	$	(18,111	)
Income taxes	$	-		$	-

See Notes to Consolidated Financial Statements.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 1-BASIS OF PRESENTATION

The consolidated financial statements of Shandong Zhouyuan Seed and Nursery Co., Ltd. ( the "Company"), included herein were prepared, without audit, pursuant to rules and regulations of the Securities and Exchange Commission. Because certain information and notes normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America were condensed or omitted pursuant to such rules and regulations, these financial statements should be read in conjunction with the financial statements and notes thereto included in the audited financial statements of the Company as included in the Company's Form 10-KSB for the year ended December 31, 2007.

Note 2-ORGANIZATION AND OPERATIONS

Shandong Zhouyuan Seed and Nursery Co., Ltd.. f/k/a Pingchuan Pharmaceuticals, Inc. (“Pingchuan”) was organized under the laws of the State of North Carolina on July 20, 1996. The Company currently engages in the business of development, production and distribution of hybrid crop seeds in the People's Republic of China ("PRC'), through its whole owned subsidiary, Infolink Pacific Limited ("Infolink").

On January 30, 2007, Pingchuan issued to Mr. Wang, Zhigang and Ms. You, Li 55,000,000 shares of its capital stock in exchange for all of the capital stock of Infolink.

Infolink was incorporated on September 28, 2006 in British Virgin Islands (“BVI”) under the BVI Business Companies Act, 2004, for the purpose of seeking and consummating a merger or acquisition with a business entity organized as a private corporation, partnership, or sole proprietorship as defined by Statement of Financial Accounting Standards (SFAS) No. 7.

On October 18, 2006, Mr. Li Han Xun and Ms. You Li (collectively the "Trustees"), both of whom are citizens of the People's Republic of China ("PRC") and owned a 60% equity ownership interest in Shandong Zhouyuan Seed and Nursery Co., Ltd. ( "Zhouyuan" ), executed Trust and Indemnity Agreements with Infolink, pursuant which the Trustees assigned to Infolink all of the beneficial interest in the Trustee's equity ownership interest in Zhouyuan. These arrangements have been undertaken solely to satisfy PRC regulations, which prohibits foreign companies from owning or operating the business of sale and development of crop seeds in PRC.

Through the agreements described in the preceding paragraph, Infolink is deemed a 60% beneficiary and Zhouyuan is considered to be a variable interest entity (“VIE”) under the provisions of Financial Interpretation 46 (Revised) (“FIN 46 (R)”) “Consolidation of Variable Interest Entities” issued by the Financial Accounting Standards Board (“FASB”). Under FIN 46 (R), companies are required to consolidate VIEs for which they are the primary beneficiary.

Zhouyuan was incorporated in Laizhou City, Shandong Province, PRC on October 26, 2001. Zhouyuan engages in the business of development, production and distribution of hybrid crop seeds in PRC.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 2- ORGANIZATION AND OPERATIONS (continued)

Under the Company Law of PRC, two formerly state owned companies, Laizhou Yongzhou Seed Ltd and Laizhou Agriculture Science Research and Development Ltd., were reformed and merged into one company named Laizhou Huiyuan Seed Ltd ("Huiyuan") on October 26, 2001. On December 24, 2002, Huiyuan changed its name to Shandong Zhouyuan Seed and Nursery Co., Ltd.

Zhouyuan owns 80% of Laizhou Tianzhe Seed Research and Development Ltd. ("Tianzhe"), which was incorporated in Laozhou City, Shandong Province, PRC on October 24, 2004 under the Company Law of PRC. Tianzhe engages in the research and development of crop seeds.

The merger of Pingchuan with Infolink results in a capital transaction accounted for as a reverse merger. The transaction was treated for accounting purposes as a recapitalization of the accounting acquirer (Infolink) and a reorganization of the accounting acquiree (Pingchuan). Accordingly, the historical financial statements presented prior to the merger are the historical financial statements of Infolink, which includes Infolink's variable interest entity, Zhouyuan.

On April 2, 2007, the Company changed its name to Shandong Zhouyuan Seed and Nursery Co., Ltd.

Pingchuan, Infolink, Zhouyuan, and Tianzhe are hereafter referred to as the Company.

Note 3- GOING CONCERN

As reflected in the accompanying consolidated financial statements, the Company has an accumulated deficit of $2,795,880 and working capital deficit of $2,360,476 at September 30, 2008. Additionally, the Company was in default on bank loans and interest payments, totaling $1,652,394, as of September 30, 2008. These factors raise substantial doubt about its ability to continue as a going concern. In view of the matters described above, recoverability of a major portion of the recorded asset amounts shown in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Management has taken the following steps to revise its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern. The Company is actively pursuing additional funding and a potential merger or acquisition candidate and strategic partners, which would enhance stockholders' investment. Management believes that the above actions will allow the Company to continue operations through the next fiscal year.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 4-SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP"). This basis of accounting differs from that used in the statutory accounts of the Company, which are prepared in accordance with the "Accounting Principles of China " ("PRC GAAP"). Certain accounting principles, which are stipulated by US GAAP, are not applicable in the PRC GAAP. The difference between PRC GAAP accounts of the Company and its US GAAP financial statements is immaterial.

The Company maintains its books and accounting records in PRC currency "Renminbi" ("RMB"), which is determined as the functional currency. Assets and liabilities of the Company are translated at the prevailing exchange rate at each year end. Contributed capital accounts are translated using the historical rate of exchange when capital is injected. Income statement accounts are translated at the average rate of exchange during the year. Translation adjustments arising from the use of different exchange rates from period to period are include in the cumulative translation adjustment account in shareholders' equity. Gain and losses resulting from foreign currency transactions are included in operations.

Translation adjustments resulting from this process are included in accumulated other comprehensive income (loss) in the consolidated statement of shareholders’ equity and amounted to $111,879 as of September 30, 2008, as compared to $82,980 as of December 31, 2007. The balance sheet amounts with the exception of equity at September 30, 2008 were translated at 6.85 RMB to $1.00 USD as compared to 7.31 RMB at December 31, 2007. The equity accounts were stated at their historical rate. The average translation rates applied to income statement accounts for the nine months ended September 30, 2008 and 2007 were 7.00 RMB and 7.68 RMB, respectively.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results when ultimately realized could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 4-SIGNIFICANT ACCOUNTING POLICIES (continued)

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The Company extends unsecured credit to its customers in the ordinary course of business but mitigates the associated risks by performing credit checks and actively pursuing past due accounts. An allowance for doubtful accounts is established and determined based on managements' assessment of known requirements, aging of receivables, payment history, the customer's current credit worthiness, and the economic environment. Recoveries of balances previously written off are also reflected in this allowance

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.

Fair Value of Financial Instruments

The carrying value of financial instruments including cash and cash equivalents, receivables, accounts payable and accrued expenses, approximates their fair value due to the relatively short-term nature of these instruments.

Advance to Suppliers

The Company purchases seeds from the suppliers throughout the operating cycle. The majority of the seeds is purchased from the growers from the end of November through the following February. Pursuant to some purchase contracts, the Company may advance certain amount of purchase price to growers.

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 First-In-First-Out (FIFO) method.

Impairment of Long-life Assets

Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 4-SIGNIFICANT ACCOUNTING POLICIES (continued)

Property, Plant and Equipment

Property, plant and equipment are carried at cost. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized.

When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition.

Depreciation is calculated on a straight-line basis over the estimated useful life of the assets. The percentages or depreciable life applied are:

Property and plant	30 years
Machines and equipment	7 years
Office equipment	5 years
Motor vehicles	5 years

Land Use Right

All land belongs to the State in PRC. Enterprises and individuals can pay the State a fee to obtain a right to use a piece of land for commercial purpose or residential purpose for a period of 50 years or 70 years, respectively. The right of land usage can be sold, purchased, and exchange in the market.

The Company obtained the right to use a piece of land at which its headquarter building is located for a period of 50 years, from December 30, 1998 to December 30, 2045, and a piece of land at which its packing facilities and warehouse are located for a period of 50 years from September 10, 2003 to September 10, 2053. We amortize the cost of these and usage rights over a period of 50 years, using straight-line method with no residual value.

Acquired Plant Variety Protections, 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 10 years and recorded in cost of revenues.

Short-term Loans

Short-term loans are temporally loans from third parties to finance the Company’s operation due to lack of cash resources. These loans are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand. Cash flows from these activities are classified as cash flows from financing activates.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 4-SIGNIFICANT ACCOUNTING POLICIES (continued)

Due to Employees

Due to employees are temporally short-term loans from our employees to finance the Company’s operation due to lack of cash resources. These loans are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand. Cash flows from these activities are classified as cash flows from financing activates.

Due to An Officer

Due to an officer are temporally short-term loans from Mr. Zhigang Wang, CEO of the Company, to finance the Company’s operation. These loans are unsecured, non-interest bearing and have no fixed terms of repayment, therefore, deemed payable on demand. Cash flows from these activities are classified as cash flows from financing activates.

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

Governmental subsidy for one plant variety protection

In February 2008, Zhouyuan received governmental subsidy of $552,092 (RMB 3,950,000) for one of its plant variety protections, named H8723, which is a wheat variety and was cultivated by one of Zhouyuan's predecessor, Laizhou Agriculture Science Research and Development Ltd.

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. The Research and development cost was immaterial for the Company for the nine months ended September 30, 2008 and 2007, respectively, and was included into general and administration expenses.

Advertising Costs

Advertising costs are expensed as incurred and included as part of selling and marketing expenses. Advertising expenses were $5,535 and $1,625 for the nine months ended September 30, 2008 and 2007, respectively.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 4- SIGNIFICANT ACCOUNTING POLICIES (continued)

Pension and Employee Benefits

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.

In September 2008, the Company received a notice from local government agency regarding its pension liability. Based on the balance on the notice, the Company adjusted its pension expenses payable and pension expenses for the nine months ended September 31, 2008. The total provisions for employee benefits and pension were $4,772 and $24,496 for the nine months ended September 30, 2008 and 2007, respectively.

Statutory Reserves

Pursuant to the laws applicable to the PRC, PRC entities are required to make appropriations to three non-distributable reserve funds, the statutory surplus reserve, statutory public welfare fund, and discretionary surplus reserve, based on after-tax net earnings as determined in accordance with the PRC GAAP. Appropriation to the statutory surplus reserve should be at least 10% of the after-tax net earnings until the reserve is equal to 50% of the Company's registered capital. Appropriation to the statutory public welfare fund is 10% of the after-tax net earnings. The statutory public welfare fund is established for the purpose of providing employee facilities and other collective benefits to the employees and is non-distributable other than in liquidation. No appropriations to the discretionary surplus reserve are made at the discretion of the Board of Directors. The statutory surplus reserve fund and statutory public welfare fund are included into retained earnings in the balance sheet presented. Since the Company has been accumulating deficiency, no such reserve funds have been made.

Income Taxes

The Company accounts for income taxes in interim periods as required by Accounting Principles Board Opinion No. 28 "Interim Financial Reporting" and as interpreted by FASB Interpretation No. 18, "Accounting for Income Taxes in Interim Periods". The Company has determined an estimated annual effect tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during the Company's fiscal year to its best current estimate.

The estimated annual effective tax rate is applied to the year-to-date ordinary income (or loss) at the end of the interim period.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 4-SIGNIFICANT ACCOUNTING POLICIES (continued)

Earnings (Loss) Per Share

The Company reports earnings per share in accordance with the provisions of SFAS No. 128, “Earnings Per Share.” SFAS No. 128 requires presentation of basic and diluted earnings per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There are no potentially dilutive securities for the nine months ended September 30, 2008 and 2007, respectively.

Comprehensive Income

Statement of Financial Accounting Standards (SFAS) No. 130, “Reporting Comprehensive Income,” establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income, as presented in the accompanying statement of changes in shareholders' equity consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.

Segment Reporting

SFAS No. 131 “Disclosures about Segments of an Enterprise and Related Information” establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organization structure as well as information about geographical areas, business segments and major customers in financial statements. The Company currently plans on operating in one principal business segment. Therefore, segment disclosure is not presented.

Related Parties

For the purposes of these financial statements, parties are considered to be related to the Company if the Company has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Company and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 4-SIGNIFICANT ACCOUNTING POLICIES (continued)

Reverse Stock Split

Effective on January 2, 2007, the Company filed with the Secretary of State of the State of North Carolina Articles of Amendment to its Articles of Incorporation. The amendment effected a reverse stock split of the Company's common stock in the ratio of 1:6. The number of common stocks issued and outstanding immediately after the reverse stock split was 12,001,635, including an addition of 2,234 shares for rounding up fractional shares. All share and per share information included in these consolidated financial statements have been adjusted to reflect this reverse stock split.

Statement of Cash Flows

In accordance with SFAS No. 95, “Statement of Cash Flows,” cash flows from the Company’s operations is calculated based upon the functional currency. As a result, amounts related to assets and liabilities reported on the statement of cash flows may not necessarily agree with changes in the corresponding balances on the balance sheet.

Recent Accounting Pronouncements

In June 2008, the Financial Accounting Standards Board (“FASB”) issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 concludes that unvested share-based payment awards that contain rights to receive non-forfeitable dividends or dividend equivalents are participating securities, and thus, should be included in the two-class method of computing earnings per share (“EPS”). FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Early application of EITF 03-6-1 is prohibited. It also requires that all prior-period EPS data be adjusted retrospectively. We have not yet determined the effect, if any, of the adoption of this statement on our financial condition or results of operations.

In April 2008, the FASB issued Staff Position FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS 142-3”) which amends the factors an entity should consider in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS No. 142, Goodwill and Other Intangible Assets (“FAS No. 142”). FSP FAS 142-3 applies to intangible assets that are acquired individually or with a group of assets and intangible assets acquired in both business combinations and asset acquisitions. It removes a provision under FAS No. 142, requiring an entity to consider whether a contractual renewal or extension clause can be accomplished without substantial cost or material modifications of the existing terms and conditions associated with the asset. Instead, FSP FAS 142-3 requires that an entity consider its own experience in renewing similar arrangements. An entity would consider market participant assumptions regarding renewal if no such relevant experience exists. FSP FAS 142-3 is effective for year ends beginning after December 15, 2008 with early adoption prohibited. We have not yet determined the effect, if any, of the adoption of this statement on our financial condition or results of operations.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 4-SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements (continued)

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities”. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company is currently evaluating the impact of adopting SFAS 161 on its consolidated financial statements.

In December 2007, the FASB issued Statements of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”) and No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment to ARB No. 51” (“SFAS 160”). Both SFAS 141R and SFAS 160 are to be adopted effective January 1, 2009. SFAS 141R requires the application of several new or modified accounting concepts that, due to their complexity, could introduce a degree of volatility in periods subsequent to a material business combination. SFAS 141R requires that all business combinations result in assets and liabilities acquired being recorded at their fair value, with limited exceptions. Other areas related to business combinations that will require changes from current GAAP include: contingent consideration, acquisition costs, contingencies, restructuring costs, in process research and development and income taxes, among others. SFAS 160 will primarily impact the presentation of minority or noncontrolling interests within the Balance Sheet and Statement of Operations as well as the accounting for transactions with noncontrolling interest holders. The Management does not expect that the adoption of SFAS No. 141 (revised 2007) and SFAS No. 160 would have a material effect on the Company’s financial position and results of operations.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 5- ACCOUNTS RECEIVABLE

Accounts receivable consists of the following:

	September 30,			December 31,
	2008			2007
	(unaudited)

Accounts receivable	$	259,045		$	278,713
less: Allowance for bad debt		(226,874	)		(260,333	)
Accounts receivable, net	$	32,171		$	18,380

We use indirect method to write off accounts receivable. The bad debt expenses was $0 and $0 for the nine months ended September 30, 2008 and 2007, respectively.

Note 6-INVENTORIES

Inventories consist of following:

	September 30,		December 31,
	2008		2007
	(unaudited)

Finished goods	$	112,058	$	121,923
Supply and packing materials		60,483		61,677
	$	172,541	$	183,600

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 7-PROPERTY AND EQUIPMENT

The following is a summary of property, plant and equipment-at cost, less accumulated depreciation:

	September 30,			December 31,
	2008			2007
	(unaudited)

Property and plant	$	2,079,481		$	1,948,984
Machines and equipment		202,772			189,391
Office equipment		19,766			17,801
Motor vehicles		104,797			98,222
Total		2,406,816			2,254,398

Less: Accumulated depreciation		(543,667	)		(426,870	)

Total	$	1,863,149		$	1,827,528

Depreciation expense charged to operations was $86,409 and $78,055 for the nine months ended September 30, 2008 and 2007, respectively.

Note 8- LAND USE RIGHT

The following is a summary of land use right, less amortization:

	September 30,			December 31,
	2008			2007
	(unaudited)

Land use right	$	527,349		$	494,255
less: Amortization		(53,492	)		(42,188	)
Accounts receivable, net	$	473,857		$	452,067

Amortization expense charged to operations was $8,303 and $7,571 for the nine months ended September 30, 2008 and 2007, respectively.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 9-ACQUIRED PLANT VARIETY PROTECTIONS

The following is a summary of acquired seed patents, less amortization:

	September 30,			December 31,
	2008			2007
	(unaudited)

Acquired plant variety protections	$	1,518,095		$	1,422,826
less: Amortization		(1,050,016	)		(877,409	)
Accounts receivable, net	$	468,079		$	545,417

Amortization expense charged to operations was $111,518 and $101,684 for the nine months ended September 30, 2008 and 2007, respectively.

Note 10-COMMON STOCK

On January 18, 2007, The Company entered into a Share Exchange Agreement with Mr. Wang, Zhigang and Ms. You, Li, who are the shareholders of Infolink, pursuant which the Company will issue to Messrs. Wang and You 55,000,000 (330,000,000 pre-split) shares of its common stock in exchange for all of the capital stock of Infolink. Since this transaction was treated for accounting purposes as a capital transaction and reverse merger, the issuance of 33,000,000 shares of common has been report in 2006, as if it had happened in the earliest period presented in these consolidated financial statements.

On April 5,2007, the Company engaged a consultant for an eighteen-month period ended October 4, 2008. The terms of the agreement are for the consultant to receive 800,000 shares of common stock valued at $0.28 per share, totaling $224,000, which will be amortized over the beneficial period. The consultant assists the Company in establish two distribution centers in the Center Region, PRC.

On April 5,2007, the Company engaged another consultant for a twenty-four-month period ended April 4, 2009. The terms of the agreement are for the consultant to receive 1,200,000 shares of common stock valued at $0.28 per share, totaling $336,000, which will be amortized over the beneficial period. The consultant assists the Company in website design, building, maintenance, and hosting.

On April 5,2007, the Company engaged another consultant for a twenty-four-month period ended April 4, 2009. The terms of the agreement are for the consultant to receive 1,000,000 shares of common stock valued at $0.28 per share, totaling $280,000, which will be amortized over the beneficial period. The consultant assists the Company in establish two distribution centers in the Southwest Region, PRC.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 11-BANK LOANS

Bank loans consist of the following as of September 30, 2008:

Loan

Annual

Financial Institutions

Amount

Duration

Interest Rate

Collateral

Agricultural Bank of China

598,095

04/21/04—04/21/05

6.903

Headquarter Building and land usage right

Agricultural Bank of China

583,507

11/26/04—11/26/05

7.488

Guaranteed by a real estate development company

Agricultural Bank of China

70,021

11/26/04—11/26/05

7.488

Guaranteed by a real estate development company

1,251,623

*	The Company defaulted on these bank loans, totally $1,251,623 , as of September 30, 2008. The Company also defaulted on bank loan interest payments of $400,771 as of September 30, 2008.

In 2004, the Company sold the usage right of a piece of land, which the Company used to secure its bank loans, to a real estate development company. The real estate company agreed to guarantee these bank loans.

Interest expense for these bank loans was $136,820 and $134,468 for the nine months ended September, 2008 and 2007, respectively.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 12-RECEIVABLE FROM SALE OF LAND USE RIGHT

In 2004, the Company sold land use rights to a real estate development company for $1,228,858. The real estate development company owes the Company $309,025 as of December 31, 2004. The parties agreed that the real estate development company would pay interest annually at 7.488% on $126,817 (RMB 1,000,000) of the $309,025 and the rest of the balance bears no interest. As the currency exchange rate changes, the balance shown on the balance sheet changes as indicated in the following:

The receivable from sale of land use right consists of the following:

	September 30,		December 31,
	2008		2007
	(unaudited)

Balance bearing interest at 7.488%	$	145,877	$	136,722
Balance bearing no interest		202,447		189,743
	$	348,324	$	326,465

Note 13- COMMITMENTS AND CONTINGENCIES

The Company faces a number of risks and challenges not typically associated with companies in North America and Western Europe, since its assets exist solely in the PRC, and its revenues are derived from its operations therein. The PRC is a developing country with an early stage market economic system, overshadowed by the state. Its political and economic systems are very different from the more developed countries and are in a state of change. The PRC also faces many social, economic and political challenges that may produce major shocks and instabilities and even crises, in both its domestic arena and in its relationships with other countries, including the United States. Such shocks, instabilities and crises may in turn significantly and negatively affect the Company's performance.

Note 14-LITIGATION

On August 1, 2006 Greentree Financial Group, Inc. ("Greentree"), a former consultant to a subsidiary of the Company, filed a breach of contract complaint in the Superior Court in Mecklenberg County, North Carolina for non payment of contractual obligations for 2004 and 2005. The claim is for $49,000 in cash and $40,000 worth of stock as compensatory damages or $80,000 in liquidated damages. The Company failed to appear to the Court, and the Court rendered a judgment, which orders the Company to pay the plaintiff a sum of $201,500, with interest thereon at the rate of 8.000% per annum from the date of Entry of the Judgment until paid; and for the costs of this action, in full, to be taxed by the Clerk. The Company is currently in settlement discussions with GreenTree financial Group regarding the default judgment rendered against the Company and expects to reach a resolution soon.

SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2008 UNAUDITED

Note 15-CONTRACT SECURITY DEPOSIT

On March 18, 2008, the Company executed an acquisition agreement with Henan Zhongyi Seed and Nursery Co., Ltd.("Henan Zhongyi"), pursuant to which the Zhouyuan will acquire 51% equity ownership interest of Henan Zhongyi. Zhouyuan paid $80,036 (RMB 550,000) to security this contract. Zhouyuan is currently negotiating with the majority shareholders of Henan Zhongyi to finalize the acquisition terms. However, there is no guarantee the parties will be able close the due.

On April 11, 2008, the Company executed an acquisition agreement with Sichuan Huaxia Seed and Nursery Co., Ltd.("Sichuan Huaxia"), pursuant to which the Zhouyuan will acquire 51% equity ownership interest of Sichuan Huaxia. Zhouyuan paid $56,871 (RMB 390,800) to security this contract. Zhouyuan is currently negotiating with the majority shareholders of Sichuan Huaxia to finalize the acquisition terms. However, there is no guarantee the parties will be able close the due.

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

Shandong Zhouyuan Seed and Nursery Co., Ltd. (“Zhouyuan”) through its consolidated subsidiary, Shandong Zhouyuan Seed and Nursery Co., Ltd., a company formed under the laws of the People’s Republic of China, is engaged in the business of developing, distributing and selling agricultural seeds in China.

The Company was originally incorporated in the State of North Carolina on July 20, 1996 under the name “Great Land Development Co.” In 2000 Great Land Development Co. changed its name to “Xenicent, Inc.” In 2004 Xenicent, Inc. changed its name to “Pingchuan Pharmaceutical, Inc.” In 2007 Pingchuan changed its name to “Shandong Zhouyuan Seed and Nursery Company, Ltd.” As Great Land Development Co. the Company was in the business of real estate consulting and purchasing and reselling vacant tracts of land, primarily in the North Carolina area. In 2002, the Company acquired a majority interest in Giantek Technology Corporation ("Giantek"), a Taiwanese corporation that manufactured and distributed Light Emitting Diode (LED) display systems. In 2003, the Company terminated its relationship with Giantek and agreed to transfer all of the Company’s interest in Giantek back to its former controlling shareholders. Thereafter the Company existed as a “shell company,” but not a “blank check” company, under regulations promulgated by the SEC and had no business operations and only nominal assets until 2004 when the Company entered into a plan of exchange with Heilongjiang Pingchuan Yi Liao Qi Xie You Xian Gong Si, a corporation organized and validly existing under the laws of the People’s Republic of China. The plan of exchange was consummated on August 11, 2004 and the Company changed its name to “Pingchuan Pharmaceutical, Inc.” Pingchuan was engaged in the business of providing integrated operational management services for a related medical company, Harbin Pingchuan Yao Ye Gu Fen You Xian Gong Si, a corporation validly organized and existing under the laws of the People’s Republic of China (“Gu Fen”). In February 2007, the Company consummated the merger of Infolink Pacific Limited into a wholly-owned subsidiary of the Company (the “Merger”) and changed its state of incorporation from North Carolina to Delaware. See “The Merger” below. In connection with the Merger, the Company changed its name from “Pingchuan Pharmaceutical, Inc.” to “Shandong Zhouyuan Seed and Nursery Company, Ltd.” Unless the context otherwise requires, the term “Company” as used herein collectively refers to Shandong Zhouyuan and its wholly-owned subsidiaries and consolidated entities, including Infolink Pacific Limited and Shandong Zhouyuan Seed and Nursery Co., Ltd., a PRC company.

The Common Stock of the Company is quoted on the Over-the-Counter Bulletin Board under the symbol “SZSN.OB.” See, “Part II, Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchasers of Equity Securities.”

The Company’s executive offices are located at 238 Jianxindong Street, Laizhou, Shandong Province, Peoples Republic of China. The Company may be contacted by telephone at 011 86 451-8271-3712, and its website is www.chinaseedcorp.com.

Subsidiaries and Joint Ventures

The diagram below illustrates the current corporate structure of the Company and its subsidiaries (“we,” “our,” “us,” or the “Company”):

InfoLink Pacific Limited

Infolink was incorporated on September 28, 2006 in British Virgin Islands (“BVI”) under the BVI Business Companies Act, 2004 by Li Han Xun and You Li, for the purpose of seeking and consummating a merger or acquisition with a business entity organized as a private corporation, partnership, or sole proprietorship as defined by Statement of Financial Accounting Standards (SFAS) No. 7.

In October 2006 Li Han Xun and You Li, the record shareholders of the PRC Subsidiary, entered into Trust and Indemnity Agreements with Infolink pursuant to which Mr. Li and Ms. You assigned to Infolink all of the benefits of ownership of 60% of the total equity interests in the PRC Subsidiary. In addition, Mr. Li and Ms. You agreed to vote on shareholder matters as directed by Infolink. Finally, the Declaration of Trust signed by Mr. Li and Ms. You contains their undertaking to assign the shares of the PRC Subsidiary to Infolink at any time upon Infolink’s request.

Shandong Zhouyuan Seed and Nursery Co., Ltd.

Shandong Zhouyuan Seed and Nursery Co., Ltd., a People’s Republic of China company was organized on October 26, 2001 under the laws of the People’s Republic of China (the “PRC Subsidiary” or “Zhouyuan”) by Li Han Xun and You Li, who are the record shareholders of the PRC Subsidiary. The PRC Subsidiary was created from the merger of two formerly state owned companies, Laizhou Yongzhou Seed Ltd and Laizhou Agriculture Science Research and Development Ltd., which were reformed and merged into one company named Laizhou Huiyuan Seed Ltd. ("Huiyuan") on October 26, 2001. On December 24, 2002, Huiyuan changed its name to Shandong Zhouyuan Seed and Nursery Co., Ltd. Since its formation in 2001, the PRC Subsidiary has worked closely with government agencies, particularly the state Science and Technology Commission, to develop improved hybrid seed strains. The PRC Subsidiary now ranks as one of the top three seed producers in the LaiZhou District, which is known as the “Seed Valley of China.”

The Merger

On January 18, 2007, the Company entered into a Share Exchange Agreement with Infolink Pacific Limited pursuant to which the Company issued 55,000,000 shares of its common stock to Li Han Xun and You Li in exchange for all of the issued and outstanding capital stock of Infolink and Infolink became a wholly-owned subsidiary of the Company.

Subsequently the Parent Corporation terminated the pharmaceutical consulting business that had been carried by its subsidiary, Heilongjiang Pingchuan Yi Liao Qi Xie You Xian Gong Si. On April 2, 2007, the Parent Corporation changed its name to “Shandong Zhouyuan Seed and Nursery Co., Ltd.”

The merger of the Company with Infolink was accounted for as a reverse merger and the transaction was treated for accounting purposes as a recapitalization of the accounting acquirer (Infolink) and a reorganization of the accounting acquiree (the Company). Accordingly, the historical financial statements presented prior to the merger are the historical financial statements of Infolink, which includes the PRC Subsidiary.

In addition, under U.S. accounting rules, as a result of the obligations of the parties under the Trust and Indemnity Agreements described above, Infolink is deemed to be a 60% beneficiary of the PRC Subsidiary and the financial results of the PRC Subsidiary may be consolidated with the financial results of the Company under Financial Interpretation 46 (Revised) "Consolidation of Variable Interest Entities" issued by the Financial Accounting Standards Board ("FASB").

On April 2, 2007, the Company changed its name to Shandong Zhouyuan Seed and Nursery Co., Ltd.

Production

Zhouyuan currently has approval from several provincial governments to market a wide variety of seeds. Its primary product is corn seed, including both corn intended for forage and corn with a high starch content for use in industrial food production. In addition, Zhouyuan currently markets varieties of wheat seeds and cabbage seeds.

Among Zhouyuan’s most popular products are:

·		Corn - Huiyaun 20. This summer sowing seed achieved first place among 33 competitors in a productivity test conducted in the Zhong District and second place in a competition held in Anhui Province.
·		Corn - White Prince. This white corn has a high gluten content that gives it a particularly attractive taste. Zhouyuan is able to sell these seeds for almost four times the market price of standard corn seeds.
·		Corn - Select Yeden 5. This corn is valued in difficult climates because it is especially resistant to disease and collapse.
·		Corn - Spring Queen. In only 65 days (compared to the standard 95 - 115 days) this seed produces a high yield of corn (approx. 24,000 kg. per acre) with a particularly good taste. Because of these benefits, Zhouyuan prices this seed at nine times the price of conventional corn seeds.
·		Wheat - Zhouyuan 9369. This is a new variety of high quality wheat. It is rust resistance, and grows to 75 cm.

The majority of Zhouyuan’s seeds are currently produced by three independent seed growers and one municipality consisting of seven towns. These four sources dedicate 1400 to 1750 acres to growing seeds for Zhouyuan. Zhouyuan has long standing working relationships with all of its seed growers. Zhouyuan provides its growers with the patented seeds and the growers would produce the volume of seeds as required by Zhouyuan. There are no long term contractual relationships between Zhouyuan and any of its growers. Zhouyuan determines its volume requirements based on its determination of market demand and contracts the growers to produce enough seeds to meet the market demand on a seasonal basis. Zhouyuan then inspects and packages the seed for distribution wholesale.

Zhouyuan’s proprietary rights to its seeds are protected by patents, specifically six patents on its corn hybrids, one on its wheat hybrid and one on its cabbage hybrid. Zhouyuan also owns seven registered trademarks.

The Seed Industry

The People’s Republic of China contains less than 7% of the world’s cultivatable land, but 22% of the world’s population. For this reason, the government of China has placed a special focus on developing the advanced agricultural technology needed to successfully feed its population. The seed industry has been a prime beneficiary of this focus, receiving grants, tax relief and technological assistance.

Until 2000 China restricted the market of any individual seed company to the district in which it was located. The Seed Law of the People’s Republic of China, issued in 2000, eliminated that restriction. Today, there are approximately 3,700 firms marketing seeds nationwide in China. However, because the ability to have a national presence is new, the firms marketing seeds in China tend to be small, and none has significant market share. The eight largest seed companies are believed to control only about 25% of the national market.

A number of multinational companies have made inroads into the Chinese seed market, among them Monsanto, Pioneer and Sygenta. To date, however, their influence has been limited by the difficulty of marketing to the highly decentralized agricultural community in China. In addition, the multinationals primarily offer genetically-engineered seeds, which have not gained widespread acceptance in China.

Marketing

Farming in China remains a highly decentralized industry. Marketing to farmers is conducted at a local level and customer loyalty is built on personal relationships. For that reason, Zhouyuan has developed a decentralized distribution network, constituted by county-based sales representatives who report to independent retail companies located in each of the 19 Provinces and Autonomous Regions in which Zhouyuan carries on marketing operations. Zhouyuan’s internal marketing personnel are responsible for monitoring the performance of the regional sales companies and providing any assistance they require.

Government Regulation

Limitations on Foreign Ownership in the Seed Industry

Due to restriction in the People’s Republic of China on foreign investments in Chinese businesses in the seed industry, Infolink does not have direct equity ownership in Zhouyuan. Zhouyuan is owned by two PRC citizens, who hold 60% of the equity interests in Zhouyuan in trust for the benefit of the Company.

Regulation of Foreign Currency Exchange

The principal regulation governing foreign currency exchange in China is the Rules on Foreign Exchange Control (1996), as amended. Under the Rules, Renminbi is freely convertible for trade and service-related foreign exchange transactions, but not for direct investment, loan or investment outside China unless the prior approval of the State Administration for Foreign Exchange of the PRC or other relevant authorities is obtained.

Pursuant to the Rules on Foreign Exchange Control, foreign investment enterprises in China may purchase foreign currency without the approval of the State Administration for Foreign Exchange of the PRC for trade and service-related foreign exchange transactions by providing commercial documents evidencing these transactions. They may also retain foreign exchange (subject to a cap approved by the State Administration for Foreign Exchange of the PRC) to satisfy foreign exchange liabilities or to pay dividends. However, the relevant PRC government authorities may limit or eliminate the ability of foreign investment enterprises to purchase and retain foreign currencies in the future. In addition, foreign exchange transactions for direct investment, loan and investment outside China are still subject to limitations and require approvals from the State Administration for Foreign Exchange of the PRC.

Regulation of Dividend Distribution

The principal regulations governing distribution of dividends of wholly foreign-owned companies include:

·	The Foreign Investment Enterprise Law (1986), as amended; and
·	Administrative Rules under the Foreign Investment Enterprise Law (2001).

Under these regulations, foreign investment enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises in China are required to set aside at least 10% of their after-tax profits each year, if any, to fund certain reserve funds, unless such reserve funds as accumulated have reached 50% of their respective registered capital. These reserves are not distributable as cash dividends.

Regulation of Enterprise Income Law

The Enterprise Income Law (“EIT Law’) was promulgated by the National People’s Congress on March 16, 2007 to introduce a new uniform taxation regime in the PRC. Both resident and non-resident enterprises deriving income from the PRC will be subject to this EIT Law from January 1, 2008. It replaces the previous two different tax rates applied to foreign-invested enterprises and domestic enterprises by only one single income tax rate applied for all enterprises in the PRC. Under this EIT Law, except for some hi-tech enterprises which are subject to EIT rates of 15% and other very limited situation that allows EIT rates at 20%, the general applicable EIT rate in the PRC is 25%. We may not enjoy tax incentives for our further established companies in the PRC and therefore our tax advantages over domestic enterprises may be diminished.

Employees

Zhouyuan has 68 employees, all of whom are employed on a full-time basis. Its employees include 1 research scientist, 13 senior agronomists, 27 agronomists and 18 technicians.

Results of Operations

Three Months Ended September 30, 2008 Compared To Three Months Ended September 30, 2007

Revenues . Revenues for the quarter ended September 30, 2008 were $91,712 compared to $152,215 for the quarter ended September 30, 2007, a decrease of $60,503, or 40%. This decrease was due to the slow down in the economy which caused a decrease in sales.

Cost of sales . Cost of sales decreased by 31% from $136,327 for the three months ended September 30, 2007 to $94,581 for the three months ended September 30, 2008. The decrease in cost of sales resulted primarily from the decrease in sales.

Operating Expenses . Operating expenses increased by 3% from $197,611 for the three months ended September 30, 2007 to $203,816 for the three months ended September 30, 2008. The increase in operating expenses was primarily because of an increase in office expenses and judgment expenses relating the settlement with Greentree Financial Group, Inc. In addition, the Company incurred expenses associated with developing new seed varieties.

Net Income (Loss) . Net loss increased by 21% from $167,810 for the three months ended September 30 to $202,431 for the three months ended September 30, 2008, primarily as a result of a decrease in sales during this period.

Our business operates entirely in Chinese Renminbi, but we report our results in our SEC filings in U.S. Dollars. The conversion of our accounts from RMB to Dollars results in translation adjustments, which are reported as a middle step between net income and comprehensive income. The net income or net loss is added to the retained earnings on our balance sheet; while the translation adjustment is added to a line item on our balance sheet labeled “accumulated other comprehensive income,” since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business. For the three months ended September 30, 2008 we recorded $7,755 in unrealized loss on foreign currency translation.

Nine Months Ended September 30, 2008 Compared To Nine Months Ended September 30, 2007

Revenues . Revenues for the nine months ended September 30, 2008 were $901,403 compared to $611,564 for the nine months ended September 30, 2007, an increase of $289,839, or 47%. This increase was due to an increase in sales of our seeds with plant variety protections which has a higher profit margin during the first two quarters of 2008.

Cost of sales . Cost of sales increased by 29% from $558,833 for the nine months ended September 30, 2007 to $720,350 for the nine months ended September 30, 2008. The increase in cost of sales resulted primarily from the increase in volume of seeds sold during the first two quarters of 2008.

Operating Expenses . Operating expenses decreased by 7% from $691,855 for the nine months ended September 30, 2007 to $642,412 for the nine months ended September 30, 2008. The decrease in operating expenses was primarily because the Company incurred no judgment expense for the first six months of 2008.

Net Income (Loss) . Net loss decreased by 74% from net loss of $610,269 for the nine months ended September 30, 2007 to net loss of $159,479 for the nine months ended September 30, 2008, primarily as a result of an increase in sales as described above and the government subsidy for one of our plant variety protection during the first six months on 2008.

Our business operates entirely in Chinese Renminbi, but we report our results in our SEC filings in U.S. Dollars. The conversion of our accounts from RMB to Dollars results in translation adjustments, which are reported as a middle step between net income and comprehensive income. The net income or net loss is added to the retained earnings on our balance sheet; while the translation adjustment is added to a line item on our balance sheet labeled “accumulated other comprehensive income,” since it is more reflective of changes in the relative values of U.S. and Chinese currencies than of the success of our business. For the first nine months of 2008 we recorded $28,899 in unrealized gains on foreign currency translation.

Liquidity and Capital Resources

As of September 30, 2008, total current assets were $579,627, total current liabilities were $2,940,103 and we had working capital deficit of $2,360,476. Cash at September 30, 2008 was $189,258.

As of September 30, 2008, we had only $189,258 in liquid assets, and only $32,171 in accounts receivable (net of allowance). At the same time we are in default on bank loans and interest payments totaling $1,521,623. Negotiations are ongoing with respect to a restructuring of the debt. At the same time, we cannot sustain operations for any significant period of time unless we obtain additional capital. Our efforts to attract capital are hindered, however, by our default to the Bank. The survival of our business, therefore, depends on our ability to develop a comprehensive debt relief and financing package. Unfortunately, because our operations have produced only a trickle of cash during the past two years, we can only achieve financing if we convince the investor that an investment in our company can be leveraged into a significant increase in revenues and cash flows.

In the event that we are unable to achieve a restructuring of our debt, it is likely that we will be required to sell our real property. This will have the effect of eliminating the revenue stream that we obtain by leasing a portion of the property, and will necessitate that we ourselves commence payment of lease fees. This would cause a further deterioration of our financial results.

Net cash provided by operating activities was $345,090 for the nine months ended September 30, 2008 compared to $161,672 for the nine months ended September 30, 2007. The increase is primarily related to an increase in sales during the first six months of 2008.

Net cash used in investing activities was $741 for the nine months ended September 30, 2008 compared to $86,089 for the same period in 2007.

Net cash used by financing activities was $175,206 for the nine months ended September 30, 2008 compared to $95,024 in net cash used in financing activities for the same period in 2007. The increase in net cash used is primarily due to payback of bank loans.

We believe that our business plan is sound, and that our products are marketable. With adequate capital, we believe that Zhouyuan can be prosperous and profitable. We have no assurance, however, that the necessary capital can be achieved.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

ITEM 4T. CONTROLS AND PROCEDURES

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), as of the end of the period covered by this Quarterly Report, being September 30, 2008, we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer along with our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer along with our Chief Financial Officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this Quarterly Report. There have been no significant changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.

Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

PART II - OTHER INFORMATION

Item 1 Legal Proceedings

On August 1, 2006 Greentree Financial Group, Inc. ("Greentree"), a former consultant to a subsidiary of the Company, filed a breach of contract complaint in the Superior Court in Mecklenberg County, North Carolina for non payment of contractual obligations for 2004 and 2005. The claim is for $49,000 in cash and $40,000 worth of stock as compensatory damages or $80,000 in liquidated damages. The Company failed to appear to the Court, and the Court rendered a judgment, which orders the Company to pay the plaintiff a sum of $201,500, with interest thereon at the rate of 8.000% per annum from the date of Entry of the judgment until paid; and for the costs of this action, in full, to be taxed by the Clerk. Subsequently, Greentree filed an involuntary bankruptcy petition in the U.S. Bankruptcy Court to collect on the default judgment.

On May 23, 2008, the Company entered into a Settlement Agreement and Release (the “Settlement Agreement”) with GreenTree. Pursuant to the Settlement Agreement, Greentree is entitled to receive 4,000,000 shares of the Company’s common stock from various stockholders of the Company and upon delivery of the common stock by such stockholders, Greentree agreed to file with the appropriate courts stipulation of dismissal with prejudice to dismiss the petition to collect on the default judgment and to remove the default judgment within five business days. On August 13, 2008, the Company delivered stock certificates representing 4,000,000 shares of the Company’s common stock to Greentree.

Item 1A. Risk Factors

Risk Factors That May Affect Future Results

You should carefully consider the risks described below before buying our common stock. If any of the risks described below actually occurs, that event could cause the trading price of our common stock to decline, and you could lose all or part of your investment.

There is no assurance that we will be able to generate profits from our business.

To date we have been unsuccessful in establishing a sufficient market for our seeds to assure us of profitability. In 2006 our sales were 34% lower than in 2005, and in neither year were sales at a level that could sustain profits. Although sales levels are higher in the current year than in 2007, we are still not near a revenue level at which we can be profitable. Unless we are able to obtain sufficient capital investment to permit us to expand operations, it is unlikely that we will be able to operate at a profitable level. We have no commitment from any source for financing, and there is no assurance that we will be able to obtain the necessary financing. Without financing, it is likely that our business will fail.

If we are unable to settle our bank obligations, we may lose control of our business.

We are currently in default with respect to principal and interest payments due on $1.53 million in obligations to the Agricultural Bank of China. Our current financial situation does not permit us to satisfy the debt as written. We have been in negotiations with the Bank regarding a restructuring of the debt. If those negotiations do not reach a satisfactory conclusion, we may lose the realty that we pledged to secure the debt and may face a judgment that could force us into bankruptcy.

We will be unable to compete effectively unless we maintain a technological advantage over our competitors.

The physics of seed generation has been advancing rapidly in the past forty years. Innovations in design of seeds and methods of growing seeds are constant. Our ability to compete effectively in this market will depend on our ability to stay in the vanguard of technological change. However, we compete against many larger enterprises that have considerable resources to apply to research and development. If we are unable to gain access to the latest discoveries in seeds, we will not be able to compete effectively, and our business will fail.

Our business and growth will suffer if we are unable to hire and retain key personnel that are in high demand.

Our future success depends on our ability to attract and retain highly skilled marketing personnel, chemists, manufacturing technicians and engineers. Qualified individuals are in high demand in China, and there are insufficient experienced personnel to fill the demand. Therefore we may not be able to successfully attract or retain the personnel we need to succeed.

We may have difficulty establishing adequate management and financial controls in China.

The People’s Republic of China has only recently begun to adopt the management and financial reporting concepts and practices that investors in the United States are familiar with. We may have difficulty in hiring and retaining employees in China who have the experience necessary to implement the kind of management and financial controls that are expected of a United States public company. If we cannot establish such controls, we may experience difficulty in collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet U.S. standards.

We may be unable to protect our proprietary and technology rights.

The Company's success will depend in part on its ability to protect its proprietary rights and technologies. Zhouyuan relies on a combination of patents, trademark laws, trade secrets, confidentiality provisions and other contractual provisions to protect its proprietary rights. However, these measures afford only limited protection. Zhouyuan’s failure to adequately protect its proprietary rights may adversely affect our competitive prospects. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of Zhouyuan’s products or to obtain and use trade secrets or other information that it regards as proprietary.

Zhouyuan’s means of protecting its proprietary rights in the People’s Republic of China may not be adequate. The system of laws and the enforcement of existing laws in China may not be as certain in implementation and interpretation as in the United States. The Chinese judiciary is relatively inexperienced in enforcing corporate and commercial law, leading to a higher than usual degree of uncertainty as to the outcome of any litigation. The inability to enforce or obtain a remedy for theft of our proprietary information may have a material adverse impact on our business operations.

Government regulation may hinder our ability to function efficiently .

The national, provincial and local governments in the People’s Republic of China are highly bureaucratized. The day-to-day operations of our business require frequent interaction with representatives of the Chinese government institutions in order to obtain and maintain the licenses needed to market hybrid seeds in China. The effort to obtain the registrations, licenses and permits necessary to carry out our business activities can be daunting. Significant delays can result from the need to obtain governmental approval of our activities. These delays can have an adverse effect on the profitability of our operations. In addition, compliance with regulatory requirements applicable to manufacturing operations and production may increase the cost of our operations, which would adversely affect our profitability.

We are subject to the risk of natural disasters .

Our revenue stream depends on our ability to deliver seeds at the beginning of their growing season. Our supply of seeds and their timely availability can be negated by drought, flood, storm, blight, or the other woes of farming. Any such event or a combination thereof could render us unable to meet the demands of our distribution network. This could have a long-term negative effect on our ability to grow our business, in addition to the near-term loss of income.

Capital outflow policies in China may hamper our ability to pay dividends to shareholders in the United States.

The People’s Republic of China has adopted currency and capital transfer regulations. These regulations require that we comply with complex regulations for the movement of capital. Although Chinese governmental policies were introduced in 1996 to allow the convertibility of RMB into foreign currency for current account items, conversion of RMB into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of the State Administration of Foreign Exchange. We may be unable to obtain all of the required conversion approvals for our operations, and Chinese regulatory authorities may impose greater restrictions on the convertibility of the RMB in the future. Because most of our future revenues will be in RMB, any inability to obtain the requisite approvals or any future restrictions on currency exchanges will limit our ability to pay dividends to our shareholders.

Currency fluctuations may adversely affect our operating results.

Zhouyuan generates revenues and incurs expenses and liabilities in Renminbi, the currency of the People’s Republic of China. However, as a subsidiary of the Parent Corporation, it will report its financial results in the United States in U.S. Dollars. As a result, our financial results will be subject to the effects of exchange rate fluctuations between these currencies. From time to time, the government of China may take action to stimulate the Chinese economy that will have the effect of reducing the value of Renminbi. In addition, international currency markets may cause significant adjustments to occur in the value of the Renminbi. Any such events that result in a devaluation of the Renminbi versus the U.S. Dollar will have an adverse effect on our reported results. We have not entered into agreements or purchased instruments to hedge our exchange rate risks.

We have limited business insurance coverage.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have any business liability insurance coverage for our operations. Moreover, while business disruption insurance is available, we have determined that the risks of disruption and cost of the insurance are such that we do not require it at this time. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.

The Parent Corporation is not likely to hold annual shareholder meetings in the next few years.

Management does not expect to hold annual meetings of shareholders in the next few years, due to the expense involved. The current members of the Board of Directors were appointed to that position by the previous directors. If other directors are added to the Board in the future, it is likely that the current directors will appoint them. As a result, the shareholders of the Parent Corporation will have no effective means of exercising control over the operations of the Parent Corporation or Zhouyuan.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

*Item 6.*		*Exhibits*

31.1		Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certifications pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

	SHANDONG ZHOUYUAN SEED AND NURSERY CO., LTD.

Date: November 19, 2008	By:	/s/ Wang Zhigang
	Wang Zhigang, Chief Executive Officer

	By:	/s/ Zhang Chunman
	Zhang Chunman, Chief Financial Officer