**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**


(Mark
      One)





xQUARTERLY
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the
      quarterly period ended: September 30, 2007





oTRANSITION
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





Commission
      File Number: 000-49608





**CHINA
      AGRITECH, INC.**


(Exact
      name of small business issuer as specified in its charter)





Delaware
            75-2955368(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification No.)








Room
      301
      No. 11 Building No. 1 Zone of Future Business Center,


1 st Street
      of Wuliqiao Road , Chaoyang District, Beijing 100024


People's
      Republic of China


(Address
      of principal executive offices, Zip Code)





(86)
      10-59621278


(Registrant's
      telephone number, including area code)





N/A


(Former
      name, former address and former fiscal year, if changed since last
      report)





Indicate
      by check mark whether the registrant (1) has 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 larger accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of "accelerated
      filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
      one):


Large
      accelerated filer o                  Accelerated
      filer o              Non-accelerated
      filer 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





The
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of November 13, 2007, is as follows:





**Class
                of Securities**
            **Shares
                Outstanding**Common
                Stock, $0.001 par value
            24,699,615








**PART
      I.**





**FINANCIAL
      INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS.**

















1





**CHINA
      AGRITECH, INC.**


**CONSOLIDATED
      BALANCE SHEETS**





**September
                30, 2007**
            
            **December
                31, 2006****(UNAUDITED)****ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            13,697,914
            
            $
            6,430,009Restricted
                cash
            
            
            37,302
            
            
            100,028Account
                held in escrow account
            
            
            2,000,000
            
            
            -Accounts
                receivable, net
            
            
            30,172,419
            
            
            12,239,073Inventories
            
            
            5,802,349
            
            
            1,322,244Advances
                to suppliers
            
            
            488,244
            
            
            8,038,974Prepayments
                and other receivables
            
            
            493,136
            
            
            382,463**Total
                Current Assets**
            
            
            52,691,363
            
            
            28,512,791**Property,
                Plant, And Equipment, Net**
            
            
            3,717,358
            
            
            2,514,123**Total
                Assets**
            
            $
            56,408,721
            
            $
            31,026,914**LIABILITIES
                AND SHAREHOLDERS' EQUITY****Current
                Liabilities**Accounts
                payable
            
            $
            241,599
            
            $
            108,886Accrued
                liabilities and other payables
            
            
            1,976,851
            
            
            871,495Amount
                due to related parties
            
            
            22,545
            
            
            954Taxes
                payable
            
            
            2,190,866
            
            
            1,028,885**Total
                Current Liabilities**
            
            
            4,431,861
            
            
            2,010,220**Minority
                Interests**
            
            
            3,153,402
            
            
            2,160,575**Commitments**
            
            
            
            
            
            -**Stockholders'
                Equity**Common
                stocks; $0.001 par value, 100,000,000 shares authorized, 24,699.615
                shares
                issued and outstanding as of September 30, 2007 and 19,143,615 shares
                issued and outstanding as of December 31, 2006
            
            
            24,700
            
            
            19,144Additional
                paid in capital
            
            
            26,149,455
            
            
            12,619,049Statutory
                reserve
            
            
            3,987,261
            
            
            2,790,916Accumulated
                other comprehensive income
            
            
            1,955,716
            
            
            601,288Retained
                earnings
            
            
            16,706,326
            
            
            10,825,722**Total
                Stockholders' Equity**
            
            
            48,823,458
            
            
            26,856,119**Total
                Liabilities and Stockholders' Equity**
            
            $
            56,408,721
            
            $
            31,026,914





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


2




**CHINA
      AGRITECH, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      INCOME STATEMENTS**


**FOR
      THE THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND
      2006**


**(UNAUDITED)**





**THREE
                MONTH PERIODS**
              **ENDED
                SEPTEMBER 30,**
            
            **NINE
                MONTH PERIODS**
              **ENDED
                SEPTEMBER 30,****2007**
            
            **2006**
            
            **2007**
            
            **2006****Net
                sales**
            
            $
            11,595,798
            
            $
            7,601,819
            
            $
            30,074,430
            
            $
            23,522,609**Cost
                of sales**
            
            
            (5,415,761
            )
            
            (3,589,872
            )
            
            (13,631,864
            )
            
            (11,307,639
            )**Gross
                profit**
            
            
            6,180,038
            
            
            4,011,947
            
            
            16,442,566
            
            
            12,214,970**Operating
                expenses**Selling
                expenses
            
            
            (824,695
            )
            
            (679,211
            )
            
            (2,229,481
            )
            
            (1,840,740
            )General
                and administrative expenses
            
            
            (736,424
            )
            
            (1,076,929
            )
            
            (1,748,581
            )
            
            (2,286,372
            )**Total
                operating expenses**
            
            
            (1,561,119
            )
            
            (1,756,140
            )
            
            (3,978,062
            )
            
            (4,127,112
            )**Income
                from operations**
            
            
            4,618,918
            
            
            2,255,807
            
            
            12,464,504
            
            
            8,087,858**Other
                expense**Other
                expenses
            
            
            (78,298
            )
            
            (6,854
            )
            
            (46,417
            )
            
            (39,143
            )Finance
                expenses
            
            
            (1,211
            )
            
            (11,654
            )
            
            (3,137
            )
            
            (1,813
            )**Total
                other expense**
            
            
            (79,509
            )
            
            (18,508
            )
            
            (49,554
            )
            
            (40,956
            )**Income
                before income taxes and minority interest**
            
            
            4,539,410
            
            
            2,237,299
            
            
            12,414,950
            
            
            8,046,902**Provision
                for income taxes**
            
            
            (1,648,340
            )
            
            (938,523
            )
            
            (4,452,532
            )
            
            (3,188,858
            )**Income
                before minority interests**
            
            
            2,891,070
            
            
            1,298,776
            
            
            7,962,418
            
            
            4,858,044**Minority
                interests**
            
            
            (333,392
            )
            
            (190,550
            )
            
            (885,469
            )
            
            (647,688
            )**Net
                income**
            
            
            2,557,677
            
            
            1,108,226
            
            
            7,076,949
            
            
            4,210,356**Other
                comprehensive income**Foreign
                currency translation adjustment
            
            
            522,655
            
            
            455,463
            
            
            1,354,428
            
            
            367,329**Comprehensive
                income**
            
            $
            3,080,333
            
            $
            1,563,689
            
            $
            8,431,377
            
            $
            4,577,685**Basic
                weighted average shares outstanding**
            
            
            24,397,658
            
            
            19,143,615
            
            
            20,914,208
            
            
            18,614,203**Basic
                net earnings per share**
            
            $
            0.10
            
            $
            0.06
            
            $
            0.34
            
            $
            0.23**Diluted
                weighted average shares outstanding**
            
            
            24,436,550
            
            
            19,143,615
            
            
            20,954,725
            
            
            18,614,203**Diluted
                net earning per shares**
            
            
            0.10
            
            
            0.06
            
            
            0.34
            
            
            0.23





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


3





**CHINA
      AGRITECH, INC. AND ITS SUBSIDIARIES**


**CONSOLIDATED
      STATEMENT OF CASH FLOWS**


**FOR
      THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND 2006**


**(UNAUDITED)**





**2007**
            
            **2006****Cash
                flows from operating activities:**Net
                income
            
            $
            7,076,949
            
            $
            4,210,356Adjustments
                to reconcile net income to net cashused
                in operating activities:Stock
                based compensation
            
            
            51,484
            
            
            2,398Minority
                Interest
            
            
            885,469
            
            
            647,688Depreciation
            
            
            259,542
            
            
            90,471Provision
                for doubtful debts
            
            
            -
            
            
            -Decrease
                (increase) in current assets:Restricted
                cash
            
            
            62,944
            
            
            95,598Accounts
                receivable
            
            
            (17,070,111
            )
            
            (439,351
            )Other
                receivable
            
            
            (66,012
            )
            
            (8,454,017
            )Inventory
            
            
            (4,033,019
            )
            
            139,423Advances
                to suppliers
            
            
            7,717,799
            
            
            (822,746
            )Prepaid
                expenses
            
            
            (86,176
            )
            
            643,490Advances
                from shareholders
            
            
            22,507
            
            
            (162,996
            )Increase
                (decrease) in current liabilities:Accounts
                payable
            
            
            (157,478
            )
            
            1,450,674Other
                payable
            
            
            736,890Tax
                payable
            
            
            1,096,563
            
            
            458,853Accrued
                expenses
            
            
            313,970
            
            
            130,554Net
                cash used in operating activities
            
            
            (3,188,677
            )
            
            (2,009,605
            )**Cash
                flows from investing activities:**Acquisition
                of property & equipment
            
            
            (1,459,705
            )
            
            (1,267,032
            )Construction
                in progress
            
            
            (3,009
            )
            
            -Net
                cash used in investing activities
            
            
            (1,462,714
            )
            
            (1,267,032
            )**Cash
                flows from financing activities:**Amount
                held in escrow account
            
            
            (2,000,000
            )
            
            -Issuance
                of shares for cash
            
            
            13,484,478
            
            
            11,081,575Net
                cash provided by financing activities
            
            
            11,484,478
            
            
            11,081,575**Effect
                of exchange rate change on cash and cash
                equivalents**
            
            
            428,879
            
            
            79,523**Net
                increase in cash and cash equivalents**
            
            
            7,261,965
            
            
            7,884,461**Cash
                and cash equivalents, beginning of year**
            
            
            6,430,009
            
            
            249,823**Cash
                and cash equivalents, end of year**
            
            $
            13,691,974
            
            $
            8,134,284**Supplement
                disclosure of cash flow information:**Interest
                expense paid
            
            $
            -
            
            $
            -Income
                taxes paid
            
            $
            3,595,008
            
            $
            2,823,332





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


4





CHINA
      AGRITECH, INC. AND SUBSIDIARIES


NOTES
      TO
      UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





**1.**
            **ORGANIZATION
                AND DESCRIPTION OF
                BUSINESS**





China
      Agritech, Inc. (the "Company") was originally incorporated on January 5, 1925
      under the laws of the State of Nevada as Argyle Mining Company for the
      development of mining claims. Throughout our existence we have changed our
      business model several times, and conducted no substantive business from 1986
      until February 2005 as discussed below.





On
      August
      10, 2004, we merged with and into a newly formed wholly-owned Delaware
      subsidiary of the same name for the purpose of changing our corporate domicile
      from Nevada to Delaware.





We
      have
      experienced several corporate name changes as follows: Argyle Corporation in
      January 1960, Basic Empire in November 1963, Basic Empire Corp in December
      1976
      and China Agritech, Inc. in May 2005.





On
      December 25, 2004, the Company, China Tailong Holdings Company Limited
      ("Tailong"), and the stockholders of Tailong (the "Tailong stockholders")
      entered into the Agreement and Plan of Reorganization ("Reorganization
      Agreement"), as amended and such reorganization became effective on February
      3,
      2005. The Reorganization Agreement provided for the acquisition by the Company
      from the Tailong stockholders of all of the issued and outstanding Tailong
      shares in exchange for 10,606,158 shares of newly issued restricted common
      stock
      of the Company, whereby the Tailong stockholders obtained control of the Company
      and in this connection, Tailong became a wholly-owned subsidiary of the
      Company.





As
      a
      result of the acquisition of Tailong, the Company became a fertilizer
      manufacturer and now conducts operations in the People's Republic of China
      (the
      "PRC") through its wholly-owned subsidiary, Tailong and Tailong's 90% owned
      subsidiary, Pacific Dragon Fertilizers Co. Ltd. ("Pacific Dragon").





Tailong
      was incorporated on October 27, 2003 under the laws of Hong Kong. On October
      9,
      2004, Tailong acquired 90% of Pacific Dragon, which conducts Tailong's only
      business operation. Pacific Dragon is a Sino-foreign joint invested enterprise
      foreign investment joint venture and was incorporated in the PRC on May 20,
      1994. Pacific Dragon is classified as a Foreign Invested Enterprise ("FIE")
      in
      the PRC and is subject to the FIE laws of the PRC. Its legal structure is
      similar to a limited liability company organized under state laws in the United
      States. The Articles of Associations provide for a term of 15 years with
      registered capital of $500,000. Pacific Dragon engages in the business of
      manufacturing and marketing a series of organic liquid compound fertilizers.
      These products are marketed and sold to farmers in several provinces of China.
      Pacific Dragon conducts ongoing research and development to enhance
      concentration of the organic liquid compound fertilizer and lower the
      manufacturing cost. Our major products include "LvLingBao II", LvLingBao III",
      "LvLingBao IV", "Tailong I” and “Green Vitality”.





Prior
      to
      the acquisition of Tailong, the Company was a non-operating public shell
      corporation. Pursuant to Securities and Exchange Commission rules, the merger
      or
      acquisition of a private operating company into a non-operating public shell
      corporation with nominal net assets is considered a capital transaction in
      substance, rather than a business combination. Accordingly, for accounting
      purposes, the transaction has been treated as a reverse acquisition and a
      recapitalization. Transaction costs incurred in the reverse acquisition have
      been charged to expense.


5


**1.**
            **ORGANIZATION
                AND DESCRIPTION OF BUSINESS****(CONT’D)**





On
      April
      21, 2005, the Company filed a Form Definitive 14C - Information Statement
      pursuant to Section 14(c) of the Securities Exchange Act of 1934 giving notice
      that the Company received written consents in lieu of a meeting from the holders
      of a majority of the Company's issued and outstanding common stock of a proposal
      to amend and restate the Company's Certificate of Incorporation (the
      "Restatement") to effect, among other things, a forward stock split whereby
      each
      share of issued and outstanding common stock is converted into 1.14 shares
      of
      the Company's common stock. The Form Definitive 14C became effective on May
      12,
      2005 when the Company filed its amended and restated Certificate of
      Incorporation with the Secretary of the State of Delaware. The effect of this
      action is reflected in the Company's financial statements as of the first day
      of
      the first period presented.





On
      June
      29, 2006, the Company established a wholly owned subsidiary, Anhui Agritech
      Agriculture Development Limited“Anhui Agritech Development Co. Ltd.” (“Anhui
      Agritech”). Anhui Agritech engages in the business of manufacturing and
      marketing in series of organic liquid compound fertilizers.





On
      November 1, 2006, the Company and the stockholders of CAI Investment, Inc (the
      “CAI stockholders”) entered into an equity transfer agreement. The CAI
      stockholders transferred 100% equity interest in CAI Investment, Inc. (“CAI”) to
      the Company in exchange for USD1,000.





Prior
      to
      the equity transfer, CAI established a wholly owned subsidiary, Agritech
      Fertilizer Limited (“Beijing Agritech Fertilizer”). Beijing Agritech Fertilizer
      engages in the business of manufacturing and marketing in series of organic
      liquid compound fertilizers.





**2.**
            **BASIS
                OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
                POLICIES**





The
      accompanying unaudited financial statements of the Company have been prepared
      in
      accordance with generally accepted accounting principles for interim financial
      information. Accordingly, they do not include all of the information required
      by
      generally accepted accounting principles for complete financial statements.
      In
      the opinion of management, all adjustments (consisting of normal recurring
      adjustments) considered necessary for a fair presentation have been included.
      Operating results for the interim periods are not necessarily indicative of
      the
      results for any future period. These statements should be read in conjunction
      with the Company's audited financial statements and notes thereto for the fiscal
      year ended December 31, 2006. The results of the nine month period ended
      September 30, 2007 are not necessarily indicative of the results to be expected
      for the full fiscal year ending December 31, 2007.





a. Principle
      of consolidation





The
      accompanying consolidated financial statements include the accounts of the
      Company and its wholly-owned subsidiaries, CAI Investment Inc. and its wholly
      owned operating subsidiary, Beijing Agritech, Anhui Agritech, Tailong and its
      90% owned subsidiary, Pacific Dragon (collectively "the Company"). All
      significant inter-company accounts and transactions have been eliminated in
      consolidation.





b. Use
      of
      estimates





The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States of America requires
      management to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the consolidated financial statements and the amount of revenues
      and
      expenses during the reporting periods. Management makes these estimates using
      the best information available at the time the estimates are made. However,
      actual results could differ materially from those results.





c. Cash
      and cash equivalents


6





For
      Statement of Cash Flows purposes, the Company considers all cash on hand and
      in
      banks, including accounts in book overdraft positions, certificates of deposit
      and other highly-liquid investments with maturities of three months or less,
      when purchased, to be cash and cash equivalents.





d. Accounts
      receivable





The
      Company's policy is to maintain reserves for potential credit losses on accounts
      receivable. Management reviews the composition of accounts receivable and
      analyzes historical bad debts, customer concentrations, customer
      creditworthiness, current economic trends and changes in customer payment
      patterns to evaluate the adequacy of these reserves. The Company gives most
      clients an extended credit policy for one year. As of September 30, 2007 and
      December 31, 2006, the Company had accounts receivable of $30,172,419
      and $12,239,073 ,
      net of
      allowance of $106,053 and $170,236 respectively.





e. Advances
      to suppliers





The
      Company advances to certain vendors for purchase of its material. As of
      September 30, 2007 and December 31, 2006, the advances to suppliers amounted
      to
      $488,244 and $8,038,974, respectively.





f. Inventories





Inventories
      are valued at the lower of cost (determined on a weighted average basis) or
      net
      realizable value. The management compares the cost of inventories with the
      net
      realizable value and an allowance is made for writing down the inventories
      to
      their net realizable value, if lower than the cost.





g. Property,
      plant and equipment





Property,
      plant and equipment are recorded at cost. Gains or losses on disposals are
      reflected as gain or loss in the year of disposal. The cost of improvements
      that
      extend the life of plant, property, and equipment are capitalized. These
      capitalized costs may include structural improvements, equipment, and fixtures.
      All ordinary repair and maintenance costs are expensed as incurred.





Depreciation
      for financial reporting purposes is provided using the straight-line method
      over
      the estimated useful lives of the assets: 5 to 15 years for machinery; 3 to
      5
      years for leasehold improvement, 5 to 10 years for office equipment; and 3
      to 5
      years for motor vehicles.





h. Impairment





The
      Company applies the provisions of Statement of Financial Accounting Standard
      No.
      144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
      No.
      144"), issued by the Financial Accounting Standards Board ("FASB"). FAS No.
      144
      requires that long-lived assets be reviewed for impairment whenever events
      or
      changes in circumstances indicate that the carrying amount of an asset may
      not
      be recoverable through the estimated undiscounted cash flows expected to result
      from the use and eventual disposition of the assets. Whenever any such
      impairment exists, an impairment loss will be recognized for the amount by
      which
      the carrying value exceeds the fair value.





The
      Company tests long-lived assets, including property, plant and equipment and
      intangible assets subject to periodic amortization, for recoverability at least
      annually or more frequently upon the occurrence of an event or when
      circumstances indicate that the net carrying amount is greater than its fair
      value. Assets are grouped and evaluated at the lowest level for their
      identifiable cash flows that are largely independent of the cash flows of other
      groups of assets. The Company considers historical performance and future
      estimated results in its evaluation of potential impairment and then compares
      the carrying amount of the asset to the future estimated cash flows expected
      to
      result from the use of the asset. If the carrying amount of the asset exceeds
      estimated expected undiscounted future cash flows, the Company measures the
      amount of impairment by comparing the carrying amount of the asset to its fair
      value. The estimation of fair value is generally measured by discounting
      expected future cash flows as the rate the Company utilizes to evaluate
      potential investments. The Company estimates fair value based on the information
      available in making whatever estimates, judgments and projections are considered
      necessary. There was no impairment of long-lived assets for the nine months
      ended September 30, 2007 and 2006.


7





i. Revenue
      recognition





The
      Company's revenue recognition policies are in compliance with Staff accounting
      bulletin (SAB) 104. Sales revenue is recognized at the date of shipment to
      customers when a formal arrangement exists, the price is fixed or determinable,
      the delivery is completed, no other significant obligations of the Company
      exist
      and collectibility is reasonably assured. Payments received before all of the
      relevant criteria for revenue recognition are satisfied are recorded as unearned
      revenue.





The
      Company's revenue consists of invoiced value of goods, net of a value-added
      tax
      (VAT). No product return or sales discount allowance is made as products
      delivered and accepted by customers are normally not returnable and sales
      discount is normally not granted after products are delivered.





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (CONT’D)**





j. Advertising
      costs





The
      Company expenses the cost of advertising as incurred or, as appropriate, the
      first time the advertising takes place. Advertising costs for the three months
      ended September 30, 2007 and 2006 were $111,619 and $119,606 Advertising costs
      for the nine months ended September 30, 2007 and 2006 were $303,393 and
      $446,983, respectively.





k. Income
      taxes





The
      Company accounts for income taxes using an asset and liability approach which
      allows for the recognition and measurement of deferred tax assets based upon
      the
      likelihood of realization of tax benefits in future years. Under the asset
      and
      liability approach, deferred taxes are provided for the net tax effects of
      temporary differences between the carrying amounts of assets and liabilities
      for
      financial reporting purposes and the amounts used for income tax purposes.
      A
      valuation allowance is provided for deferred tax assets if it is more likely
      than not these items will either expire before the Company is able to realize
      their benefits, or that future deductibility is uncertain.





The
      Company records a valuation allowance for deferred tax assets, if any, based
      on
      its estimates of its future taxable income as well as its tax planning
      strategies when it is more likely than not that a portion or all of its deferred
      tax assets will not be realized. If the Company is able to utilize more of
      its
      deferred tax assets than the net amount previously recorded when unanticipated
      events occur, an adjustment to deferred tax assets would increase the Company
      net income when those events occur. The Company does not have any significant
      deferred tax asset or liabilities in the PRC tax jurisdiction.





l. Foreign
      currency translation





The
      Company uses the United States dollar ("U.S. dollars" or “US$”) for financial
      reporting purposes. The Company's subsidiaries maintain their books and records
      in their functional currency, being the primary currency of the economic
      environment in which their operations are conducted. In general, for
      consolidation purposes, the Company translates the subsidiaries' assets and
      liabilities into U.S. dollars using the applicable exchange rates prevailing
      at
      the balance sheet date, and the statement of income is translated at average
      exchange rates during the reporting period. Gain or loss on foreign currency
      transactions are reflected on the income statement. Gain or loss on financial
      statement translation from foreign currency is recorded as a separate component
      in the equity section of the balance sheet, as a component of comprehensive
      income. The functional currency of the Company is Chinese Renminbi.


8





In
      particular, Renminbi ("RMB"), the PRC's official currency, is the functional
      currency of Pacific Dragon. Until July 21, 2005, RMB had been pegged to US$
      at
      the rate of RMB8.28: US$1.00. On July 21, 2005, the PRC government reformed
      the
      exchange rate system into a managed floating exchange rate system based on
      market supply and demand with reference to a basket of currencies. In addition,
      the exchange rate of RMB to US$ was adjusted to RMB8.11: US$1.00 as of July
      21,
      2005. The People's Bank of China announces the closing price of a foreign
      currency such as US$ traded against RMB in the inter-bank foreign exchange
      market after the closing of the market on each working day, which will become
      the unified exchange rate for the trading against RMB on the following working
      day. The daily trading price of US$ against RMB in the inter-bank foreign
      exchange market is allowed to float within a band of 0.3% around the unified
      exchange rate published by the People's Bank of China. This quotation of
      exchange rates does not imply free convertibility of RMB to other foreign
      currencies. All foreign exchange transactions continue to take place either
      through the Bank of China or other banks authorized to buy and sell foreign
      currencies at the exchange rates quoted by the People's Bank of China. Approval
      of foreign currency payments by the Bank of China or other institutions required
      submitting a payment application form together with invoices, shipping documents
      and signed contracts.





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (CONT’D)**





m. Fair
      values of financial instruments





Statement
      of Financial Accounting Standard No. 107, "Disclosures about Fair Value of
      Financial Instruments", requires that the Company disclose estimated fair values
      of financial instruments.





The
      Company's financial instruments primarily consist of cash and cash equivalents,
      accounts receivable, other receivables, advances to suppliers, accounts payable,
      other payable, tax payable, and related party advances and
      borrowings.





As
      of the
      balance sheet dates, the estimated fair values of the financial instruments
      were
      not materially different from their carrying values as presented on the balance
      sheet. This is attributed to the short maturities of the instruments and that
      interest rates on the borrowings approximate those that would have been
      available for loans of similar remaining maturity and risk profile at respective
      balance sheet dates.





n. Earning
      per share (EPS)





Earnings
      per share is calculated in accordance with the Statement of financial accounting
      standards No. 128 (SFAS No. 128), “Earnings per share”. SFAS No. 128 superseded
      Accounting Principles Board Opinion No.15 (APB 15). Earnings per share for
      all
      periods presented has been restated to reflect the adoption of SFAS No. 128.
      Basic earnings per share is based upon the weighted average number of common
      shares outstanding. Diluted earnings per share is based on the assumption that
      all dilutive convertible shares and stock options were converted or exercised.
      Dilution is computed by applying the treasury stock method. Under this method,
      options and warrants are assumed to be exercised at the beginning of the period
      (or at the time of issuance, if later), and as if funds obtained thereby were
      used to purchase common stock at the average market price during the
      period.





Basic
      and
      diluted earning per share were $0.34 and $0.23 for the nine months ended
      September 30, 2007 and 2006 and $0.10 and $0.06 for the three months ended
      September 30, 2007 and 2006.





o. Segment
      reporting





Statement
      of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About
      Segments of an Enterprise and Related Information" requires use of the
      "management approach" model for segment reporting. The management approach
      model
      is based on the way a company's management organizes segments within the company
      for making operating decisions and assessing performance. Reportable segments
      are based on products and services, geography, legal structure, management
      structure, or any other manner in which management disaggregates a
      company.


9





SFAS
      No.
      131 has no effect on the Company's consolidated financial statements as the
      Company operates in one reportable business segment - manufacture and marketing
      of fertilizers in China.





p. Statement
      of cash flows





In
      accordance with Statement of Financial Accounting Standards No. 95, "Statement
      of Cash Flows," cash flows from the Company's operations is calculated based
      upon the local currencies. 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.





q. Recent
      Accounting Pronouncements (cont’d)





In
      September 2006, FASB issued SFAS 157 ‘Fair Value Measurements’. This Statement
      defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles (“GAAP”), and expands disclosures about
      fair value measurements. This Statement applies under other accounting
      pronouncements that require or permit fair value measurements, the Board having
      previously concluded in those accounting pronouncements that fair value is
      the
      relevant measurement attribute. Accordingly, this Statement does not require
      any
      new fair value measurements. However, for some entities, the application of
      this
      Statement will change current practice. This Statement is effective for
      financial statements issued for fiscal years beginning after November 15, 2007,
      and interim periods within those fiscal years. The management is currently
      evaluating the effect of this pronouncement on the consolidated financial
      statements.





In
      September 2006, FASB issued SFAS 158 ‘Employers’ Accounting for Defined Benefit
      Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87,
      88, 106, and 132(R)’ This Statement improves financial reporting by requiring an
      employer to recognize the over funded or under funded status of a defined
      benefit postretirement plan (other than a multiemployer plan) as an asset or
      liability in its statement of financial position and to recognize changes in
      that funded status in the year in which the changes occur through comprehensive
      income of a business entity or changes in unrestricted net assets of a
      not-for-profit organization. This Statement also improves financial reporting
      by
      requiring an employer to measure the funded status of a plan as of the date
      of
      its year-end statement of financial position, with limited exceptions. An
      employer with publicly traded equity securities is required to initially
      recognize the funded status of a defined benefit postretirement plan and to
      provide the required disclosures as of the end of the fiscal year ending after
      December 15, 2006. An employer without publicly traded equity securities is
      required to recognize the funded status of a defined benefit postretirement
      plan
      and to provide the required disclosures as of the end of the fiscal year ending
      after June 15, 2007. However, an employer without publicly traded equity
      securities is required to disclose the following information in the notes to
      financial statements for a fiscal year ending after December 15, 2006, but
      before June 16, 2007, unless it has applied the recognition provisions of this
      Statement in preparing those financial statements:





1.
      A
      brief description of the provisions of this Statement


2.
      The
      date that adoption is required


3.
      The
      date the employer plans to adopt the recognition provisions of this Statement,
      if earlier.





The
      requirement to measure plan assets and benefit obligations as of the date of
      the
      employer’s fiscal year-end statement of financial position is effective for
      fiscal years ending after December 15, 2008. The management is currently
      evaluating the effect of this pronouncement on the consolidated financial
      statements.





In
      February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal
      years beginning after November 15, 2007. Early adoption is


10





**2.**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (CONT’D)**





permitted
      subject to specific requirements outlined in the new Statement. Therefore,
      calendar-year companies may be able to adopt FAS 159 for their first quarter
      2007 financial statements.





The
      new
      Statement allows entities to choose, at specified election dates, to measure
      eligible financial assets and liabilities at fair value that are not otherwise
      required to be measured at fair value. If a company elects the fair value option
      for an eligible item, changes in that item's fair value in subsequent reporting
      periods must be recognized in current earnings. FAS 159 also establishes
      presentation and disclosure requirements designed to draw comparison between
      entities that elect different measurement attributes for similar assets and
      liabilities.





r. Reclassifications





Certain
      prior period amounts have been reclassified to conform to the current period
      presentation.





**3.**
            **RESTRICTED
                CASH**





Proceeds
      amounting to $1,350,000 from the issuance of shares during 2005 were deposited
      in an escrow account. The purchase price was to be released from escrow. In
      accordance with the terms of the stock purchase agreement, $600,000 of the
      proceeds was kept in a trust account for a certain corporate communication
      program. The balances were $37,302 and $100,028 as of September 30, 2007 and
      December 31, 2006, respectively.





**4.**
            **INVENTORIES**





Inventories
      consist of the following as of September 30, 2007 and December 31, 2006:





September
                30
            
            December
                312007
            
            2006(Unaudited)Raw
                Materials
            
            $
            4,375,939
            
            $
            483,100Packing
                Materials
            
            
            189,766
            
            
            46,133Finished
                goods
            
            
            1,236,644
            
            
            791,380Work
                in progress
            
            
            -
            
            
            1,631$
            5,802,349
            
            $
            1,322,244





**5.**
            **PREPAYMENTS
                AND OTHER RECEIVABLE**





As
      of
      September 30, 2007 and December 31, 2006, prepayments and other receivable
      amounted to $493,136 and $382,463, respectively. Prepayments and other
      receivable include mainly prepaid rent, advanced travel expenses to employees.
      As of December 31, 2006, prepayments and other receivable includes mainly
      prepaid rent, prepaid advertising expenses, and advanced travel expenses to
      employees.





**6.**
            **PROPERTY,
                PLANT AND EQUIPMENT**





Property,
      plant and equipment consist of the following as of September 30, 2007 and
      December 31, 2006:


11





September
                30
            
            December
                312007
            
            2006(Unaudited)Manufacturing
                machinery
            
            $
            3,686,170
            
            $
            2,388,716Leasehold
                improvement
            
            
            61,887
            
            
            57,706Office
                equipment
            
            
            203,696
            
            
            228,172Motor
                vehicles
            
            
            525,119
            
            
            342,570Construction
                in progress
            
            
            3,073
            
            
            -$
            4,479,945
            
            $
            3,017,164Less:
                Accumulated Depreciation
            
            
            (762,587
            )
            
            (503,041
            )3,717,358
            
            
            2,514,123





Depreciation
      expenses for the three months ended September 30, 2007 and 2006 were $92,550
      and
      $35,695. Depreciation expenses for the nine months ended September 30, 2007
      and
      2006 were $259,542 and $90,471, respectively.





**7.**
            **AMOUNTS
                DUE TO RELATED PARTIES**





The
      amounts due to related parties were the advances to the Company’s officers and
      shareholders, and were unsecured, non-interest bearing and due on demand.
      Amounts due to related parties were $ 22,545 and
      $954 as of September 30, 2007 and December 31, 2006, respectively.





**8.**
            **ACCRUED
                LIABILITIES AND OTHER
                PAYABLES**





Accrued
      expenses and other payables of the following as of September 30, 2007 and
      December 31, 2006:





September
                30
            
            December
                312007
            
            2006(Unaudited)Accrued
                commission payable
            
            $
            843,666
            
            $
            577,571Accrued
                professional expense
            
            
            -
            
            
            90,000Other
                accrued expense
            
            
            213,776
            
            
            17,678Vendor
                deposit
            
            
            -
            
            
            148,395Others
                payable
            
            
            919,409
            
            
            37,851$
            1,976,851
            
            $
            871,495





12


**9.**
            **TAXES
                PAYABLES**




Taxes
      payables consist of the following as of September 30, 2007 and December 31,
      2006:




September
                30
              2007
              (Unaudited)
            
            December
                31
              2006Income
                tax payable
            
            $
            1,738,240
            
            $
            880,716VAT
                tax payable
            
            
            440,579
            
            
            144,641Individual
                tax payable
            
            
            497
            
            
            1,002Others
            
            
            11,500
            
            
            2,526$
            2,190,866
            
            $
            1,028,885





**10.**
            **INCOME
                TAXES**





The
      Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
      the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns. Under this method, deferred income taxes are recognized for the
      tax
      consequences in future years of differences between the tax bases of assets
      and
      liabilities and their financial reporting amounts at each period end based
      on
      enacted tax laws and statutory tax rates applicable to the periods in which
      the
      differences are expected to affect taxable income. Valuation allowances are
      established, when necessary, to reduce deferred tax assets to the amount
      expected to be realized. At September 30, 2007 and 2006, there was no
      significant book to tax differences.





Local
      PRC income tax





The
      Company is governed by the Income Tax Law of the PRC concerning Chinese
      registered limited liability companies. Under the Income Tax Laws of the PRC,
      Chinese enterprises are generally subject to an income tax at an effective
      rate
      of 33% (30% state income taxes plus 3% local income taxes) on income reported
      in
      the statutory financial statements after appropriate tax adjustments, unless
      the
      enterprise is located in a specially designated region for which more favorable
      effective tax rates are applicable. The provision for income taxes for the
      three
      and nine months ended September 30, 2007 and 2006 consisted of the
      following:


Three
                    months ended September 30,
                
                Nine
                    months ended September 30,2007
                
                2006
                
                2007
                
                2006(Unaudited)
                
                (Unaudited)
                
                (Unaudited)
                
                (Unaudited)Provision
                    for China income and local tax
                
                $
                1,644,396
                
                $
                938,523
                
                $
                4,404,190
                
                $
                3,188,858Deferred
                    taxes for China
                
                
                -
                
                
                -
                
                
                -
                
                
                -Provision
                    for US income and local tax
                
                
                3,944
                
                
                -
                
                
                48,342
                
                
                -Total
                    provision for income taxes
                
                $
                1,648,340
                
                $
                938,523
                
                $
                4,452,532
                
                $
                3,188,858





The
      following table reconciles the U.S. statutory rates to the Company’s effective
      tax rate at September 30,


13


2007
              
              2006(Unaudited)
              
              (Unaudited)Tax
                  at statutory rate
              34%
              
              34%Foreign
                  tax rate difference
              -1%
              
              -1%Net
                  operating loss in other tax
                jurisdiction
                  for where no benefit is
                realized
              3%
              
              6%36%
              
              39%





Beginning
      January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace the
      existing laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises
      (“FIEs”). The new standard EIT rate of 25% will replace the 33% rate currently
      applicable to both DES and FIEs. The two years tax exemption, three years 50%
      tax reduction tax holiday for production-oriented FIEs will be eliminated.
      The
      Company is currently evaluating the effect of the new EIT law will have on
      its
      financial position.





**11.**
            **MINORITY
                INTEREST**





The
      amounts of $3,153,402 and $2,160,575, as of September 30, 2007 and December
      31,
      2006, represent the 10% interest of our minority shareholder, Harbin Yinlong
      Enterprise Co., Ltd., a related party of the Company, in Pacific
      Dragon.





**12.**
            **CURRENT
                VULNERABILITY DUE TO CERTAIN
                CONCENTRATIONS**





Pacific
      Dragon's operations are all carried out in the PRC. Accordingly, Pacific
      Dragon's business, financial condition and results of operations may be
      influenced by the political, economic and legal environments in the PRC, and
      by
      the general state of the PRC's economy.





Pacific
      Dragon's operations in the PRC are subject to specific considerations and
      significant risks not typically associated with companies in the North America
      and Western Europe. These include risks associated with, among others, the
      political, economic and legal environments and foreign currency exchange.
      Pacific Dragon's results may be adversely affected by changes in governmental
      policies with respect to laws and regulations, anti-inflationary measures,
      currency conversion and remittance abroad, and rates and methods of taxation,
      among other things.





**13.**
            **MAJOR
                CUSTOMERS AND VENDORS**





There
      were no major customers which accounted for more than 10% of the total net
      revenue for the nine months ended September 30, 2007 and 2006.





Four
      vendors provided approximately 80% of the Company’s raw materials for the nine
      months ended September 30, 2007 with each vendor individually accounting for
      about 29%, 20%, 19% and 12%. Three vendors provided 76% of the Company’s dollar
      value of raw materials for the year ended December 31, 2006 with each
      individually accounting for about 34%, 27% and 15%. The Company had $57,054
      and
      $74,785 accounts payable to these vendors as of September 30, 2007 and December
      31, 2006, respectively.





The
      Company extends credit to its customers based upon its assessment of their
      credit worthiness and generally does not require collateral. Credit losses
      have
      not been significant.





**14.**
            **STOCKHOLDERS’
                EQUITY AND AMOUNT HELD IN ESCROW
                ACCCOUNT**





14


On
      January 13, 2006, the Company entered into a stock purchase agreement for the
      sale of 4,800,000 shares of the Company's common stock for $2.50 per share
      for a
      total of $12,000,000. The proceeds have been received in March,
      2006. **** The
      direct costs related to this stock sale, including legal and professional fees,
      were deducted from the related proceeds and the net amount in excess of par
      value was recorded as additional paid-in capital.





On
      July
      5, 2007, the Company issued and sold 5,556,000 shares of our Company’s common
      stock for $2.70 per share for a purchase price, in the aggregate, of $15,001,200
      which was completed on July 5, 2007. The direct costs related to this stock
      sale, including legal and professional fees, were deducted from the related
      proceeds and the net amount in excess of par value was recorded as additional
      paid-in capital. $2,000,000 was held in escrow account as of September 30,
      2007.





**15.**
            **STOCK
                OPTIONS AND WARRANTS**





The
      Company adopted SFAS No. 123 (Revised 2004), *Share
      Based Payment* ("SFAS
      No. 123R"), under the modified-prospective transition method on
      January 1, 2006. SFAS No. 123R requires companies to measure and
      recognize the cost of employee services received in exchange for an award of
      equity instruments based on the grant-date fair value. Share-based compensation
      recognized under the modified-prospective transition method of SFAS
      No. 123R includes share-based compensation based on the grant-date fair
      value determined in accordance with the original provisions of SFAS
      No. 123, *Accounting
      for Stock-Based Compensation,* for
      all
      share-based payments granted prior to and not yet vested as of January 1,
      2006 and share-based compensation based on the grant-date fair-value determined
      in accordance with SFAS No. 123R for all share-based payments granted after
      January 1, 2006. SFAS No. 123R eliminates the ability to account for
      the award of these instruments under the intrinsic value method proscribed
      by
      Accounting Principles Board ("APB") Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      allowed under the original provisions of SFAS No. 123. Prior to the
      adoption of SFAS No. 123R, the Company accounted for our stock option plans
      using the intrinsic value method in accordance with the provisions of APB
      Opinion No. 25 and related interpretations.





Primarily
      as a result of adopting SFAS No. 123R, the Company recognized $51,484 and
      $1,817 in share-based compensation expense for the nine months ended September
      30, 2007 and 2006. The Company recognized $49,086 and $0 in share-based
      compensation expenses for the three months ended September 30, 2007 and 2006.
      The impact of this share-based compensation expense on the Company's basic
      and
      diluted earnings per share was $0.00 per share. The fair value of our stock
      options was estimated using the Black-Scholes option pricing model.





Options





On
      May
      10, 2006, the Company granted an unrelated party 12,500 stock options vesting
      over 5 years proportionately.  The option exercise price is $3.50. The fair
      value of the shares at the time of granting of the options was
      $3.00.





The
      assumptions used in calculating the fair value of options granted using the
      Black-Scholes option- pricing model are as follows:





Risk-free
                interest rate
            6.0%Expected
                life of the options
            5.00
                yearsExpected
                volatility
            80%Expected
                dividend yield
            0





Following
      is a summary of the stock option activity:


15




Options
              outstanding
            
            Weighted
                Average
              Exercise
                Price
            
            Aggregate
                Intrinsic
              ValueOutstanding,
                December 31, 2006
            12,500
            
            $3.50
            
            $0.00Granted
            -
            
            -
            
            $0.00Forfeited
            -
            
            -
            
            -Exercised
            -
            
            -
            
            -Outstanding,
                September 30, 2007
            12,500
            
            $3.50
            
            $0.00





Following
      is a summary of the status of options outstanding at September 30,
      2007:





Outstanding
                Options
            Exercisable
                OptionsExercise
                Price
            Number
            Average
              Remaining
              Contractual
                Life
            Average
              Exercise
                Price
            Number
            Average
                Exercise
              Price$3.50
            12,500
            3.625
            $3.50
            3,438
            $3.50




Warrants







On
      July
      5, 2007, the Company granted an unrelated party 388,920 warrants vesting over
      5
      years proportionately.  The warrants exercise price is $2.70. The fair
      value of the shares at the time of granting of the warrants was
      $3.22.





The
      assumptions used in calculating the fair value of warrants granted using the
      Black-Scholes option- pricing model are as follows:





Risk-free
                interest rate
            4.05%Expected
                life of the options
            5.00
                yearsExpected
                volatility
            95%Expected
                dividend yield
            0





Following
      is a summary of the stock option activity:





Warrants
              outstanding
            
            Weighted
              Average
                Exercise
              Price
            
            Aggregate
                Intrinsic
              ValueOutstanding,
                December 31, 2006
            0
            
            $0.00
            
            $0.00Granted
            388,920
            
            $2.70
            
            $0.00Forfeited
            -
            
            -
            
            -Exercised
            -
            
            -
            
            -Outstanding,
                September 30, 2007
            388,920
            
            $2.70
            
            $0.00





Following
      is a summary of the status of warrants outstanding at September 30,
      2007:





Outstanding
                Warrants
            Exercisable
                WarrantsExercise
                Price
            Number
            Average
                Remaining
              Contractual
                Life
            Average
                Exercise
              Price
            Number
            Average
                Exercise
              Price$2.70
            388,920
            4.833
            $2.70
            12,964
            $2.70




16




**16.**
            **STATUTORY
                RESERVES**





As
      stipulated by the Company Law of the People's Republic of China, net income
      after taxation can only be distributed as dividends after appropriation has
      been
      made for the following:





i)
      Making
      up cumulative prior years' losses, if any;





ii)
      Allocations to the "Statutory surplus reserve" of at least 10% of income after
      tax, as determined under PRC accounting rules and regulations, until the fund
      amounts to 50% of the Company's registered capital;





iii)
      Allocations of 5-10% of income after tax, as determined under PRC accounting
      rules and regulations, to the Company's "Statutory common welfare fund", which
      is established for the purpose of providing employee facilities and other
      collective benefits to the Company's employees; and





iv)
      Allocations to the discretionary surplus reserve, if approved in the
      shareholders' general meeting.





In
      accordance with the Chinese Company Law, the Company has allocated 10% of its
      net income to surplus. The amount included in the statutory reserves as of
      September 30, 2007 and 2006 amounted to $2,658,174 and $1,860,610,
      respectively.





The
      Company established a reserve for the annual contribution of 5% of net income
      to
      the common welfare fund. The amount included in the statutory reserves as of
      September 30, 2007 and 2006 amounted to $1,329,087 and $930,306,
      respectively.





**17.**
            **RELATED
                PARTY TRANSACTIONS AND COMMITMENTS AND
                LEASES**





On
      January 6, 2005, Pacific Dragon entered into a License Agreement with Mr. Chang
      Yu, director of the Company. Under this License Agreement, Mr. Chang Yu
      authorized Pacific Dragon to use the know-how in manufacturing organic liquid
      compound fertilizer owned by him for free until December 31, 2009.





The
      Company's PRC subsidiary, Pacific Dragon, has entered into a tenancy agreement
      with Harbin Yinlong Enterprise Co. Ltd. ("Harbin Yinlong"), the joint venture
      partners holding 10% equity interest in Pacific Dragon to lease two factory
      plants and one office building with a total floor area of 7,018 sq. meters
      for a
      term of 10 years from January 1, 2004 to December 31, 2013 at an annual rent
      of
      RMB 1,200,000 (equivalent to $144,578). The tenancy agreement was revised by
      increasing the annual rent to RMB 3,600,000 (equivalent to $442,800) effective
      from July 1, 2005. During the three months ended September 30, 2007 and 2006,
      the Company paid RMB 900,000 (equivalent to $111,043) to Harbin Yinlong. During
      the nine months ended September 30, 2007 and 2006, the Company paid RMB
      2,700,000 (equivalent to $333,129) Harbin Yinlong.





The
      Company incurred rent expenses $518,296 and $465,830 for the nine-month periods
      ended September 30, 2007 and 2006 and $180,538 and $155,276 for the three-month
      periods ended September 30, 2007 and 2006. The rent expenses for the next five
      years after September 30, 2007 are as follows:





Year
                2007
            
            $
            11,833Year
                2008
            
            
            515,690Year
                2009
            
            
            498,274Year
                2010
            
            
            494,433Year
                2011
            
            
            494,433Year
                2012 and thereafter
            
            
            998,666$
            3,013,330





17


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





***Special
      Note Regarding Forward Looking Statements***





This
      report contains forward-looking statements and information relating to China
      Agritech, Inc., that are based on the beliefs of our management as well as
      assumptions made by and information currently available to us. When used in
      this
      report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“plan” and similar expressions, as they relate to us or our management, are
      intended to identify forward-looking statements. These statements reflect our
      current view concerning future events and are subject to risks, uncertainties
      and assumptions, including among many others: a general economic downturn;
      a
      downturn in the securities markets; Securities and Exchange Commission
      regulations which affect trading in the securities of "penny stocks," and other
      risks and uncertainties. Should any of these risks or uncertainties materialize,
      or should underlying assumptions prove incorrect, actual results may vary
      materially from those described in this report as anticipated, estimated or
      expected.




All
      statements other than statements of historical fact are statements that could
      be
      deemed forward-looking statements, including statements regarding new and
      existing products, technologies and opportunities; statements regarding market
      and industry segment growth and demand and acceptance of new and existing
      products; any projections of sales, earnings, revenue, margins or other
      financial items; any statements of the plans, strategies and objectives of
      management for future operations; any statements regarding future economic
      conditions or performance; uncertainties related to conducting business in
      China; any statements of belief or intention; any of the factors mentioned
      in
      the "Risk Factors" section of the Company’s Form 10-K originally filed with the
      SEC on April 2, 2007, as amended; and any statements or assumptions underlying
      any of the foregoing.  We assume no obligation and do not intend to update
      these forward-looking statements, except as required by law.





Except
      as
      otherwise indicated by the context, references in this Report to the “Company,”
“China Agritech,” “we,” “us” or “our” are references to the combined business of
      China Agritech, Inc. and its consolidated subsidiaries.  References to
      "Tailong" are references to our wholly-owned subsidiary, China Tailong Holdings
      Company Limited, references to "Pacific Dragon" are references to Tailong’s 90%
      owned subsidiary, Pacific Dragon Fertilizers Co. Ltd., references to “CAI” are
      to our wholly owned subsidiary, CAI Investment Inc., references to “Beijing
      Agritech” are to our wholly-owned indirect subsidiary, Beijing Agritech
      Fertilizer Ltd. and references to Anhui Agritech are to our wholly-owned
      subsidiary, Anhui Agritech Development Co. Ltd. References to "China" or "PRC"
      are references to the People's Republic of China.  References to "RMB" are
      to Renminbi, the legal currency of China, and all references to "$" and dollar
      are to the U.S. dollar, the legal currency of the United States.





**Our
      Business**





China
      Agritech is a holding company whose direct and indirect subsidiaries manufacture
      and sell organic liquid compound fertilizers and related agricultural products.
      Our business operations are primarily conducted through our direct and indirect
      subsidiaries, primarily Anhui Agritech, Beijing Agritech, Tailong and Tailong’s
      subsidiary, Pacific Dragon. Our revenues are derived primarily from the sale
      of
      our organic liquid compound fertilizers and related agricultural products to
      our
      customers.





Our
      main
      products include “LvLingBao III,” “LvLingBao IV,” “Tailong I,” and “Green
      Vitality” and other customized, crop specific fertilizers that are tailored to
      our customers' specific requirements.  Our products promote photosynthesis,
      root system growth and transmission of nutrients to seeds; equilibrate
      absorption of nutrients and speed a plant's maturity; eliminate the damage
      of
      harmful radicals to plants and increase protein and vitamin content levels;
      accelerate the accumulation of photosynthesis materials and cell concentration;
      increase reservation ability to resist the drought, resistance and the
      utilization rate of basic fertility; and foster the development of plant life
      along with neutral or acidic pesticides. Our products can be applied on a
      widespread basis via spraying by machine or aircraft. Our products have been
      recognized for their quality and effective by leading industry associations
      and have
      been certified by the PRC government at the national level, which is an
      endorsement of the effectiveness of the products in all regions of
      China.


18





China
      is
      the principal market for our products, which are primarily sold to farmers
      in
      several provinces in China: Heilongjiang, Hebei, Liaoning, Jilin, Shandong,
      Inner Mongolia, Henan, Sichuan, Guangdong, Xinjiang, Yunnan, Guizhou, Hainan
      and
      Jiangsu. In 2007, we estimate that our annual production capacity of
      approximately 13,000 **** metric
      tons of organic liquid compound fertilizers.





**Overview
      of Third Fiscal Quarter of 2007**





During
      the third fiscal quarter of 2007, we continued to grow in customer base. During
      the second quarter of 2007, sales during the second quarter of 2007 were
      approximately 3.6% lower than sales during the second quarter of 2006, while
      sales for the period ended September 30, 2007 were 27.9% higher than sales
      during the same period in 2006.  The
      Company’s consolidated balance sheet as of September 30, 2007 included current
      assets of $52,691,363 and total assets of $56,408,721. The Company had no
      long-term debt during the second quarter of 2007 or at September 30,
      2007.





We
      have
      made progress in expanding our operations through our recently formed Anhui
      Agritech and Beijing Agritech operating subsidiaries, which we expect will
      contribute to our financial results in second half of 2007. Anhui Agritech
      operates our recently constructed facility in the Anhui province that began
      operations in the first quarter of 2007. Anhui Agritech manufactures and sells
      our fertilizer products to customers in the Anhui, Hubei, and Henan provinces
      of
      China. Beijing Agritech supervises our Beijing operations, which serve as a
      research and development center and our primary syrup production center and
      converting factory. Our Beijing Agritech operations commenced business in first
      quarter of 2007. We expect that our Anhui Agritech and Beijing Agritech
      operating subsidiaries will contribute to our financial results during the
      2007
      fiscal year.





On
      June
      29, 2007, we entered into a Securities Purchase Agreement with accredited
      investors pursuant to which we issued and sold 5,556,000 shares of our Company’s
      common stock equalling 29.02% of the issued and outstanding capital stock of
      the
      Company, for a purchase price, in the aggregate, of $15,001,200
      or  $2.70
      per share. In connection with this financing transaction, we agreed to file
      a
      resale registration statement with the U.S. Securities and Exchange Commission
      to register for the shares sold in this financing transaction as well as shares
      sold in previous financing transactions.





Also
      in connection
      with this financing transaction, 1,124,564 shares of China Agritech’s common
      stock which are beneficially owned by the company’s Chairman, President and
      Chief Executive Officer, Mr. Yu Chang, have been placed into an escrow account
      as part of a "make good” obligation. The “make good” provision stipulates that
      in the event that China Agritech’s after-tax net income for fiscal year 2007 is
      less than $8.35 million, the escrowed shares will be distributed pro-rata to
      investors who participated in the private placement. If China Agritech’s
      after-tax net income for the fiscal year 2007 exceeds $8.35 million, the
      escrowed shares will be returned to Mr. Chang.





China
      Agritech intends to use the majority of the proceeds to add organic granular
      fertilizer to its product lines and construct a granular fertilizer line in
      each
      of its new factories, located in Hebei, Beijing, Heilongjiang, Anhui, Chongqing
      and Xinjiang. China Agritech will use approximately $6.0 million for the
      purchase and installation of new equipment, approximately $3.0 million for
      the
      initial purchase of raw materials and the balance will be used for working
      capital and financing expenses.





**Recent
      Developments Affecting Our Business**





On
      March
      16, 2007, the National People’s Congress of the PRC determined to adopt a new
      corporate income tax law in its fifth plenary session. The new corporate income
      tax law unifies the application scope, tax rate, tax deduction and preferential
      policy for both domestic and foreign-invested enterprises and will become
      effective on January 1, 2008. Under the new corporate income tax law, we expect
      the applicable income tax rate for our PRC subsidiaries is subject to change.
      However, we do not anticipate any material adverse effect on our financial
      condition or results of operations as a result of any such change.


19





**Results
      of Operations**





**Comparison
      of Three Months Ended September 30, 2007 and September 30,
      2006.**





The
      following table summarizes the results of our operations during the three-month
      periods ended September 30, 2007 and 2006 and provides information regarding
      the
      dollar and percentage increase or (decrease) from the 2006 fiscal period to
      the
      2007 fiscal period:





**(All
      amounts, other than percentages, in millions of U.S.
      dollars)**





**3
                Month Period**
              **Ended**
              **9/30/07**
            **3
                Month Period**
              **Ended**
              **9/30/06**
            **Dollar
                ($)**
              **Increase**
              **(Decrease)**
            **Percentage
                (%)**
              **Increase**
              **(Decrease)**Net
                Revenue
            11.6
            7.6
            4.0
            52.5Cost
                of Revenue
            (5.4)
            (3.6)
            1.8
            50.8Gross
                Profit
            6.2
            4.0
            2.1
            54.0Selling
                Expenses
            (0.8)
            (0.7)
            0.1
            21.4Operating
                and Administrative Expenses
            (0.7)
            (1.1)
            (0.4)
            (31.6)Income
                From Operations
            4.6
            2.2
            2.4
            104.8Other
                Income (Expenses)
            (0.1)
            -
            0.1
            -Income
                Tax
            (1.6)
            (0.9)
            0.7
            75.6Minority
                Interest
            (0.3)
            (0.2)
            0.1
            75.0Foreign
                Currency Translation Gains
            0.5
            0.4
            0.1
            14.8Net
                income
            2.6
            1.1
            1.5
            130.8




***Net
      Revenue*** .
      Our net
      revenue is generated from sales of our fertilizer products. Net revenue for
      the
      three months ended September 30, 2007 amounted to $11,595,798, which is
      approximately $3,994,000or 52.5% higher than that of the same period ended
      on
      September 30, 2006, where we had revenue of $7,601,819. The **** increase **** in
      net
      revenue is mainly attributable to addition of new distributor in northern China
      which contributed approximately 499 metric tons of liquid fertilizer to our
      sales for a total dollar increase of approximately $3 million. Revenue
      contribution from the Beijing and Anhui facilities was 9%, up 72% from the
      second quarter of 2007.





***Costs
      of Revenue*** .
      Our
      costs of revenue are primarily comprised of the cost of our raw materials,
      direct labor and manufacturing overhead expenses. Our costs of revenue were
      $5,415,761 for the three-month period ended September 30, 2007, an increase
      of
      $1,825,889 or 50.8%, as compared to $ 3,589,872 for
      the
      three-month period ended September 30, 2006. The percentages of the costs of
      revenue to total revenues was 46.7% and 47.2% for the three-month periods ended
      on September 30, 2007 and 2006, respectively. **** The **** lower
      cost of revenue as a percentage of sales was a result of a slight reduction
      in
      packaging cost.





***Gross
      Profit*** **.** Our
      gross profit is equal to the difference between our sales revenue and our cost
      of goods sold. Our gross profit increased $2,168,091 to $6,180,038 for the
      three
      months ended September 30, 2007 from $4,011,947 for the same period in 2006,
      in
      which our cost of goods sold was $3,589,872 million. Gross profit as a
      percentage of net revenues was 54.7% for the nine months ended September 30,
      2007, as compared to 51.9% during the same period in 2006. The increase in
      gross
      profit as a percentage of revenues was due to reduced packing material
      cost.





***Selling
      Expenses*** .
      Our
      selling expenses consist primarily of sales commission, advertising and
      promotion expenses, freight charges and related compensation. Selling expenses
      were $824,695 for the three-month period ended September 30, 2007, as compared
      to $ 679,211 for
      the
      same period ended September 30, 2006, an increase of $145,484 or approximately
      21.4%. The increase was primarily attributable to the additional selling and
      marketing expenses incurred for the new plants for Anhui Agritech and Beijing
      Agritech and higher sales.





***Operating
      and Administrative Expenses.*** Our
      operating and administrative expenses consist primarily of rental expenses,
      related salaries, business development, depreciation and traveling expenses,
      legal and professional expenses. Operating and administrative expenses were
      $736,424for the three-month period ended September 30, 2007, as compared to
      $1,076,929 for the same period ended September 30, 2006, a decrease of
      $340,505or approximately 31.6%. Higher admistrative expenses for the three
      month
      period ended September 2006 was attributed to start-up costs associated with
      the
      new factories and headquarters and accrual of certain bad debt allowances in
      2006 which did not occur in third quarter 2007.


20





***Environmental
      Laws Compliance Costs.*** We
      incurred no cost for environmental compliance for the three-month periods ended
      September 30, 2007 and 2006.





***Income
      From Operations.*** Income
      from operations was $4,618,918 for the three month period ended September 30,
      2007, as compared to $2,255,807 for the same period ended September 30, 2006,
      an
      increase of $2,363,111 or approximately 104.8%. The increase was primarily
      attributable to the higher sales achieved and lower administrative expenses
      incurred.





***Other
      Income (Expenses).*** Our
      other expenses was $79,509 for the three-month period ended September 30, 2007,
      as compared to other expenses of $18,508 for the same period ended September
      30,
      2006.





***Income
      taxes*** .
      Our
      Chinese subsidiaries are taxed at a rate of 33% of assessable profit. We
      incurred income taxes of $1,648,340 for the three month period ended on
      September 30, 2007. This is an increase of $709,817 or 75.6% from the taxes
      we
      incurred in the three month period ended September 30, 2006, which was $938,523.
      We paid more taxes in the three months ended September 30, 2007 mostly because
      of the higher income during this period as compared to the three months ended
      September 30, 2006.





***Minority
      interest*** .
      Our
      financial statements reflect an adjustment to our consolidated group net income
      equal to $333,392 and $190,550 for the three-month periods ended September
      30,
      2007 and 2006, respectively, reflecting the minority interest held by Yinlong
      Industrial Co. Ltd. in our subsidiary Pacific Dragon. The increase in the
      minority interest adjustment is due to the increase in the group net
      income.





***Foreign
      Currency Translation Gains*** .
      We had
      a foreign currency translation gain of $522,655 for the three-month period
      ended
      September 30, 2007 as compared to $455,468 for the three-month period ended
      September 30, 2006. On July 21, 2005, China reformed its foreign currency
      exchange policy, revalued the Renminbi by 2.1 percent and allowed Renminbi
      to
      appreciate as much as 0.3 percent per day against the U.S. dollar. As a result,
      we implemented different exchange rates in translating Renminbi into U.S. dollar
      in our financial statements for the three-month period ended September 30,
      2007.
      The exchange rates of RMB1: US$0.1334 and RMB1:US$0.1306 were implemented in
      calculating the total assets/liabilities and statement of income, respectively.
      This resulted in a $67,192 increase in the foreign currency translation gain
      for
      the three-month period ended September 30, 2007 as compared with the three-month
      period ended September 30, 2006.





***Net
      Income*** .
      We
      earned net income of $2,557,677 for the three month period ended September
      30,
      2007. This is an increase of $1,449,451or approximately 130.8% from the same
      period ended September 30, 2006 which had a net income of $1,108,226. The
      increase in the net income was attributable to higher sales achieved and lower
      administrative expenses for the three month period ended September 30,
      2007.








**Comparison
      of Nine months Ended September 30, 2007 and September 30,
      2006.**





The
      following table summarizes the results of our operations during the nine-month
      periods ended September 30, 2007 and 2006 and provides information regarding
      the
      dollar and percentage increase or (decrease) from the 2006 fiscal period to
      the
      2007 fiscal period:


21





**(All
      amounts, other than percentages, in millions of U.S.
      dollars)**





**9
                Month Period**
              **Ended**
              **9/30/07**
            **9
                Month Period**
              **Ended**
              **9/30/06**
            **Dollar
                ($)**
              **Increase**
              **(Decrease)**
            **Percentage
                (%)**
              **Increase**
              **(Decrease)**Net
                Revenue
            30.1
            23.5
            6.6
            27.9Cost
                of Revenue
            (13.6)
            (11.3)
            2.3
            20.6Gross
                Profit
            16.4
            12.2
            4.2
            34.6Selling
                Expenses
            (2.2)
            (1.8)
            0.4
            21.1Operating
                and Administrative Expenses
            (1.7)
            (2.3)
            (0.6)
            (23.5)Income
                From Operations
            12.5
            8.1
            4.4
            54.1Other
                Income (Expenses)
            -
            -
            -
            -Income
                Tax
            (4.5)
            (3.2)
            1.3
            39.6Minority
                Interest
            (0.9)
            (0.6)
            0.3
            36.7Foreign
                Currency Translation Gains
            1.3
            0.4
            0.9
            268.7Net
                income
            7.1
            4.2
            2.9
            68.1




***Net
      Revenue.*** Our net
      revenue for the nine months ended September 30, 2007 amounted to $30,074,430,
      which is approximately $6,551,821 or 27.9% more than that of the same period
      ended on September 30, 2006, where we had revenue of $23,522,609. The increase
      in the net revenue is mainly attributed to the expansion of our customer base
      from our new and existing plants discussed above.





***Cost
      of revenue*** .
      Our
      cost of revenue was $13,631,864 for the nine-month period ended September 30,
      2007, an increase of $2,324,225 or 20.6%, as compared to $11,307,639 for the
      nine-month period ended September 30, 2006. The percentage of the cost of sales
      to the total revenues are 45.3% and 48.1% for the nine-month periods ended
      on
      September 30, 2007 and 2006, respectively, a decrease of approximately2.8%.
      This
      change was primarily the result of the reduced packing material
      cost.





***Selling
      Expenses*** .
      Our
      selling expenses were $2,229,481 for the nine-month period ended September
      30,
      2007, as compared to $1,840,740 for the same period ended September 30, 2006,
      an
      increase of $388,741 or approximately 21.1%, due to the selling and marketing
      expenses incurred for the new plants and higher sales.





***Operating
      and Administrative Expenses*** .
      Our
      general and administrative expenses were $1,748,581 for the nine-month period
      ended September 30, 2007, as compared to $2,286,372 for the same period ended
      September 30, 2006, a decrease of $537,791 or approximately 23.5%. Higher
      administrative expenses for the nine-month period ended September 30, 2006
      was
      primarily due to accrual of bad debts allowances in 2006 and start up cost
      associated with the new factories and headquarters.





***Environmental
      Laws Compliance Costs*** .
      We
      incurred no cost for environmental compliance for the nine month periods ended
      September 30, 2007 and 2006.





***Income
      From Operations*** .
      Income
      from operations was $12,464,504 for the nine-month period ended September 30,
      2007, as compared to $8,087,858 for the same period ended September 30, 2006,
      an
      increase of $4,376,646 or approximately 54.1%. This increase was primarily
      attributable to higher net revenue and gross profit achieved..





***Other
      Income (Expenses).*** Our
      other expenses was $49,554 for the nine-month period ended September 30, 2007,
      as compared to other expenses of $40,956 for the same period ended September
      30,
      2006.





***Income
      taxes*** .
      We
      incurred income taxes of $4,452,532 for the nine-month period ended on September
      30, 2007. This is an increase of $1,263,674 or 39.6% from the taxes we incurred
      for the same period in 2006, which were $3,188,858. We paid more taxes in the
      nine months ended September 30, 2007 mostly because of our higher income during
      the nine-month period ended on September 30, 2007 than the comparable period
      in
      2006.





***Minority
      interest*** .
      Our
      financial statements reflect an adjustment to our consolidated group net income
      equal to $885,469 and $647,688 **** for
      the
      nine-month periods ended September 30, 2007 and 2006, respectively, reflecting
      the minority interest held by Yinlong Industrial Co. Ltd. in our subsidiary
      Pacific Dragon.





***Foreign
      Currency Translation Gains*** .
      We had
      a foreign currency translation gain of $1,354,428 for the nine-month period
      ended September 30, 2007 as compared to $367,329 for the nine-month period
      ended
      September 30, 2006. This increase is a result of a $987,099 increase in the
      foreign currency translation gain for the nine-month period ended September
      30,
      2007 from $367,329 for the nine-month period ended September 30,
      2006.


22





***Net
      Income*** .
      We
      earned net income of $7,076,949 for the nine-month period ended September 30,
      2007. This is an increase of $2,866,593 or approximately 68.1% from our net
      income during the same period ended September 30, 2006 of $4,210,356. The
      increase in net income was mainly attributable to higher net revenue and lower
      administrative expenses as discussed above.





**Liquidity
      and Capital Resources**





As
      of
      September 30, 2007, we had cash and cash equivalents of 13,697,914****and
      restricted cash of $37,302. Our current assets were $52,691,363 and our
      current liabilities were $4,431,861 as of September 30, 2007, which results
      in a
      current ratio of approximately 12x. Our total stockholders’ equity as of
      September 30, 2007 was $48,823,458. We had no bank loans or other interest
      bearing borrowings as of September 30, 2007.





Cash
                Flows (in thousands of U.S. Dollars)Nine
                months Ended September 30,2007
            2006Net
                cash provided by (used in) operating activities
            (3,188,677)
            (2,009,605)Net
                cash provided by (used in) investing activities
            (1,462,714)
            (1,267,032)Net
                cash provided (used in) by financing activities
            11,484,478
            11,081,575Net
                cash inflow (outflow)
            428,879
            79,523





In
      fiscal
      year 2005, we raised a total of $1,350,000 from the sale of 590,283 (before
      the
      1-for-1.14 forward stock split) and 235,516 (after the 1-for-1.14 forward stock
      split) shares of our common stock through private placement transactions. In
      accordance with the terms of the stock purchase agreement, $600,000 of the
      proceeds from the private placement transactions was kept in a trust account
      and
      been earmarked for a certain corporate communication program. As of September
      30, 2007, the Company still had $37,302 in this account for the corporate
      communication program.





On
      July
      5, 2007, we raised a total of approximately $15,000,000 from the sale of
      5,556,000 shares of our common stock through a private placement transaction.
      In
      accordance with the terms of the private placement, $2,000,000 of the proceeds
      from the private placement transactions were kept in a trust account and will
      be
      released when we hire a new CFO and modify our board of directors in accordance
      with the terms of the private placement documents. As of September 30, 2007,
      all
      $2,000,000 remained in escrow.





**Operating
      Activities** :





Net
      cash
      used in operating activities was $3.2 million for the nine-month period ended
      September 30, 2007 which is an increase of $1.2 million from the $2.0 million
      net cash used in operating activities for the same period in 2006. The increase
      is mainly due to increase in the accounts receivable and inventory as a result
      of the increase in customer base from the newly established plants





**Investing
      Activities** :





Our
      main
      uses of cash for investing activities are payments for the acquisition of
      property, plant and equipment and construction in progress for the new plant
      and
      equipments for Anhui Agritech and Beijing Agritech.





Net
      cash
      used in investing activities in the nine-month period ended September 30, 2007
      was $1,462,714 which is an increase of $195,682 from net cash used for investing
      activities of $1,267,032 in the same period of 2006 due to an acquisition of
      property, plant and equipment.





**Financing
      Activities:**





Net
      cash
      provided by financing activities in the nine-month period ended September 30,
      2007 totaled $11,484,478 as compared to $11,081,575 provided by financing
      activities in the same period of 2006. The increase of the cash provided by
      financing activities was mainly attributable to the fact that we engaged in
      capital raising activities on July 5, 2007 as explained below.


23




On
      July
      5, 2007, we sold 5,556,000 shares of our common stock to 20 investors for a
      total of approximately $15,000,000 in a private placement
      transaction.





Our
      debt
      to equity ratio was 0% as of September 30, 2007 as we have no bank loans or
      other borrowings.





We
      believe that our currently available working capital will be sufficient to
      maintain our operations at our current levels for the next twelve months. As
      of
      September 30, 2007, we did not have any material commitments for capital
      expenditures.





**Critical
      Accounting Policies**





The
      preparation of financial statements in conformity with U.S. GAAP requires our
      management to make assumptions, estimates and judgments that affect the amounts
      reported in the financial statements, including the notes thereto, and related
      disclosures of commitments and contingencies, if any.  We consider our
      critical accounting policies to be those that require the more significant
      judgments and estimates in the preparation of financial statements, including
      the following:





***•***
            ***Use
                of Estimates***.
                 The preparation of consolidated financial statements in conformity
                with accounting principles generally accepted in the United States
                of
                America requires management to make estimates and assumptions that
                affect
                the reported amounts of assets and liabilities and disclosure of
                contingent assets and liabilities at the date of the consolidated
                financial statements and the amount of revenues and expenses during
                the
                reporting periods. Management makes these estimates using the best
                information available at the time the estimates are made. However,
                actual
                results could differ materially from those
                results.





***•***
            ***Accounts
                Receivable***.
                 Our policy is to maintain reserves for potential credit losses on
                accounts receivable. Management reviews the composition of accounts
                receivable and analyzes historical bad debts, customer concentrations,
                customer credit worthiness, current economic trends and changes in
                customer payment patterns to evaluate the adequacy of these reserves.
                We
                had accounts receivable of $30,172,419 and $12,239,073, net of allowance
                of $106,000 and $170,236 as of September 30, 2007 and December 31,
                2006,
                respectively.





***•***
            ***Advances
                to suppliers***.
                 We permit advances to certain vendors for purchase of our material.
                The advances to suppliers amounted to $488,244 and $8,038,974 as
                of
                September 30, 2007 and December 31, 2006,
                respectively.





***•***
            ***Inventories***.
                 Inventories are valued at the lower of cost (determined on a
                first-in first-out basis) or net realizable value. Our management
                compares
                the cost of inventories with the net realizable value and an allowance
                is
                made for writing down the inventories to their net realizable value,
                if
                lower than the cost.





***•***
            ***Impairment***.
                 We apply the provisions of Statement of Financial Accounting
                Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived
                Assets" ("FAS No. 144"), issued by the Financial Accounting Standards
                Board ("FASB"). FAS No. 144 requires that long-lived assets be reviewed
                for impairment whenever events or changes in circumstances indicate
                that
                the carrying amount of an asset may not be recoverable through the
                estimated undiscounted cash flows expected to result from the use
                and
                eventual disposition of the assets. Whenever any such impairment
                exists,
                an impairment loss will be recognized for the amount by which the
                carrying
                value exceeds the fair value.





We
      test long-lived assets, including property, plant and equipment and intangible
      assets subject to periodic amortization, for recoverability at least annually
      or
      more frequently upon the occurrence of an event or when circumstances indicate
      that the net carrying amount is greater than its fair value. Assets are grouped
      and evaluated at the lowest level for their identifiable cash flows that are
      largely independent of the cash flows of other groups of assets. We consider
      historical performance and future estimated results in our evaluation of
      potential impairment and then compares the carrying amount of the asset to
      the
      future estimated cash flows expected to result from the use of the asset. If
      the
      carrying amount of the asset exceeds estimated expected undiscounted future
      cash
      flows, we measure the amount of impairment by comparing the carrying amount
      of
      the asset to its fair value. The estimation of fair value is generally measured
      by discounting expected future cash flows as the rate we utilize to evaluate
      potential investments. We estimate fair value based on the information available
      in making whatever estimates, judgments and projections are considered
      necessary. There was no impairment of long-lived assets as of the nine months
      periods ended September 30, 2007 and 2006.


24





***•***
            ***Revenue
                Recognition***.
                 Our revenue recognition policies are in compliance with Staff
                Accounting Bulletin 104. Sales revenue is recognized at the date
                of
                shipment to customers when a formal arrangement exists, the price
                is fixed
                or determinable, the delivery is completed, no other significant
                obligations of our company exist and collectibility is reasonably
                assured.
                Payments received before all of the relevant criteria for revenue
                recognition are satisfied are recorded as unearned revenue. Our revenue
                consists of invoiced value of goods, net of a value-added tax (“VAT”). No
                product return or sales discount allowance is made as products delivered
                and accepted by customers are normally not returnable and sales discounts
                are normally not granted after products are
                delivered.





***•***
            ***Foreign
                currency translation***.
                We use U.S. dollars for financial reporting purposes. Our subsidiaries
                maintain their books and records in their functional currency, being
                the
                primary currency of the economic environment in which their operations
                are
                conducted. In general, for consolidation purposes, we translate the
                subsidiaries' assets and liabilities into U.S. dollars using the
                applicable exchange rates prevailing at the balance sheet date, and
                the
                statement of income is translated at average exchange rates during
                the
                reporting period. Gain or loss on foreign currency transactions are
                reflected on the income statement. Gain or loss on financial statement
                translation from foreign currency are recorded as a separate component
                in
                the equity section of the balance sheet, as component of comprehensive
                income. The functional currency of our Company is Chinese
                Renminbi.





In
      particular, Renminbi is the functional currency of our operating subsidiary
      Pacific Dragon. Until July 21, 2005, RMB had been pegged to the U.S. dollar
      at
      the rate of RMB 8.28 : $1.00. On July 21, 2005, the PRC government reformed
      the
      exchange rate system into a managed floating exchange rate system based on
      market supply and demand with reference to a basket of currencies. In addition,
      the exchange rate of RMB to U.S. dollars was adjusted to RMB 8.11 : $1.00 as
      of
      July 21, 2005. The People's Bank of China announces the closing price of a
      foreign currency such as U.S. dollar traded against RMB in the inter-bank
      foreign exchange market after the closing of the market on each working day,
      which will become the unified exchange rate for the trading against RMB on
      the
      following working day. The daily trading price of U.S. dollars against RMB
      in
      the inter-bank foreign exchange market is allowed to float within a band of
      0.3%
      around the unified exchange rate published by the People's Bank of China. This
      quotation of exchange rates does not imply free convertibility of RMB to other
      foreign currencies. All foreign exchange transactions continue to take place
      either through the People’s Bank of China or other banks authorized to buy and
      sell foreign currencies at the exchange rates quoted by the People's Bank of
      China. Approval of foreign currency payments by the People’s Bank of China or
      other institutions required submitting a payment application form together
      with
      invoices, shipping documents and signed contracts.





**Off-Balance
      Sheet Arrangements**





We
      do not
      have any off-balance sheet arrangements.





**Seasonality**





We
      may
      experience seasonal variations in our future revenues and our operating costs
      due to seasonality, however, we do not believe that these variations will be
      material. However, demand for our organic liquid compound fertilizer products
      fluctuates significantly with weather conditions, which may delay the
      application of the fertilizer or render it unnecessary thereby reducing demand
      for our products.





**ITEM
      3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
      RISK**





***Interest
      Rate Risk***


25





We
      had no
      bank loans or other interest bearing borrowings as of September 30, 2007;
      therefore, we are not exposed to interest rate risk.





***Foreign
      Exchange Risk***





While
      our
      reporting currency is the U.S. dollar, all of our consolidated revenues and
      consolidated costs and expenses are denominated in RMB.  All of our assets
      are denominated in RMB except for cash.  As a result, we are exposed to
      foreign exchange risk as our revenues and results of operations may be affected
      by fluctuations in the exchange rate between U.S. dollars and RMB.  If the
      RMB depreciates against the U.S. dollar, the value of our RMB revenues, earnings
      and assets as expressed in our U.S. dollar financial statements will decline.
       We have not entered into any hedging transactions in an effort to reduce
      our exposure to foreign exchange risk.





***Inflation***





Inflationary
      factors such as increases in the cost of our product and overhead costs may
      adversely affect our operating results.  Although we do not believe that
      inflation has had a material impact on our financial position or results of
      operations to date, a high rate of inflation in the future may have an adverse
      effect on our ability to maintain current levels of gross margin and selling,
      general and administrative expenses as a percentage of net revenues if the
      selling prices of our products do not increase with these increased
      costs.





**ITEMS
      4 AND 4T. CONTROLS AND PROCEDURES**





Our
      management, with the participation of our Chairman, Chief Executive Officer
      and
      President, Yu Chang, and our chief financial officer, Lijun Peng, evaluated
      the
      effectiveness of our disclosure controls and procedures as of the end of the
      period covered by this Report. The term “disclosure controls and procedures,” as
      defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934, as
      amended (the “Exchange Act”) means controls and other procedures of a company
      that are designed to ensure that information required to be disclosed by a
      company in the reports, such as this Form 10-Q, that it files or submits under
      the Exchange Act is recorded, processed, summarized and reported within the
      time
      periods specified in the SEC’s rules and forms. Disclosure controls and
      procedures include, without limitation, controls and procedures designed to
      ensure that information required to be disclosed by a company in the reports
      that it files or submits under the Exchange Act is accumulated and communicated
      to the company’s management, including its principal executive and principal
      financial officers, as appropriate to allow timely decisions regarding required
      disclosure.  Management recognizes that any controls and procedures, no
      matter how well designed and operated, can provide only reasonable assurance
      of
      achieving their objectives and management necessarily applies its judgment
      in
      evaluating the cost-benefit relationship of possible controls and procedures.
       Based on that evaluation, Mr. Chang and Ms. Peng concluded that as of
      September 30, 2007, our disclosure controls and procedures were effective to
      satisfy the objectives for which they are intended.





Our
      disclosure controls and procedures have been designed to provide reasonable
      assurance of achieving our objectives. Our chief executive officer and our
      chief
      financial officer have concluded that our disclosure controls and procedures
      are
      effective to provide reasonable assurance that our internal control objectives
      are met.





There
      were no changes in our internal controls over financial reporting identified
      in
      connection with the evaluation performed that occurred during the quarter
      covered by this report that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial reporting.





**PART
      II.  OTHER INFORMATION**





**ITEM
      1.  LEGAL PROCEEDINGS**





From
      time
      to time,  we may become  involved in various  lawsuits  and
      legal proceedings which arise in the ordinary course of business.  However,
      litigation is subject to inherent  uncertainties,  and an adverse
 result in these or other matters  may  arise  from
 time to time  that may harm our  business.  We are
      currently not aware of any such legal proceedings or claims that we believe
      will
      have a material adverse affect on our business, financial condition or operating
      results.


26





**ITEM
      1A.  RISK FACTORS**





There
      have been no material changes to the risk factors disclosed in Item 1A of
      Part 1 in our annual report on Form 10-K for the year ended
      December 31, 2006.





**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**





Other
      than the private placement financing transaction that closed on July 5, 2007,
      where we sold 5,556,000 shares of our common stock to 20 investors for a total
      of approximately $15,000,000, there were no unregistered sales of equity
      securities by the Company during the nine-month period ended September 30,
      2007.





Information
      regarding the July 5, 2007 financing transaction and copies of the transaction
      documents can by found in the Company’s Current Report on Form 8-K filed with
      the U.S. Securities and Exchange Commission on July 6, 2007.





**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**





EXHIBITS.





31.1
            Certification
                of Principal Executive Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.





31.2
            Certification
                of Principal Financial Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.





32.1
            Certification
                of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
                1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002.





32.2
            Certification
                of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
                1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002.





27


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.





DATED:
      November 14, 2007





**CHINA
                AGRITECH, INC.**/s/
                Lijun PengLijun
                PengChief
                Financial Officer(On
                behalf of the Registrant and asPrincipal
                Financial Officer)











28


EXHIBIT
      INDEX





Exhibit


Number
            Description





31.1
            Certification
                of Principal Executive Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.





31.2
            Certification
                of Principal Financial Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.





32.1
            Certification
                of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
                1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002.





32.2
            Certification
                of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
                1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002.











29