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: June 30,2009





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 3F No. 11 Building, Zhonghong
International Business Garden, Future Business Center,


Chaoyang North Road, Chaoyang District,
Beijing, China 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 filedall 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 90days. YesxNoo





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every, Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
    Yes  o  No  o





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





Large accelerated
      filero
              Accelerated fileroNon-accelerated filero
              Smaller Reporting
      Companyx


(Do not check if a smaller reporting
company)





Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
YesoNox





The number of shares
outstanding of each of the
issuer’s classes ofcommon equity, as of August 14,
2009is as
follows:





Class of
      Securities
                    
                    Shares
      OutstandingCommon Stock, $0.001 par
      value
                    
                    28,189,615





TABLE OF CONTENTS





PART I FINANCIAL
      INFORMATION
                3Item 1.
                Financial Statements.
                3Unaudited Consolidated Balance
      Sheets
                3Unaudited Consolidated Income
      Statements
                4Unaudited Consolidated Statements
      of Cash Flows
                5Notes to Unaudited Consolidated
      Financial Statements
                6Item 2.
                Management’sDiscussion and Analysis of
      Financial Condition and Results of Operations.
                21Item 3.
                Quantitative and Qualitative
      Disclosure about Market Risk
                28Item 4T
                Controls and
      Procedures
                28PART II. OTHER
      INFORMATION
                29Item 1.
                Legal Proceedings
                29Item 2.
                Unregistered Sales of Equity
      Securities and Use of Proceeds
                29Item 3.
                Defaults Upon Senior
      Securities
                29Item 4.
                Submission of Matters to a Vote of
      Security Holders
                29Item 5.
                Other
      Information
                29Item 6.
                Exhibits
                29SIGNATURES
                30


2


PART I




FINANCIAL
INFORMATION





ITEM 1. FINANCIAL
STATEMENTS.





CHINA AGRITECH, INC. AND
SUBSIDIARIES


CONSOLIDATED BALANCE SHEETSAS OF JUNE 30, 2009 AND DECEMBER 31,
2008





JUNE 30, 2009
                        
                        DECEMBER 31, 2008(Unaudited)
                        
                        (Audited)ASSETSCurrent
    AssetsCash and cash
      equivalents
                        
                        $
                        16,515,404
                        
                        
                        $
                        11,952,235Accounts receivable, net
                        
                        
                        43,657,689
                        
                        
                        
                        34,773,115Inventories
                        
                        
                        11,407,386
                        
                        
                        
                        6,452,618Advances to
      suppliers
                        
                        
                        7,932,329
                        
                        
                        
                        10,795,357Prepayments and other
      receivables
                        
                        
                        2,217,631
                        
                        
                        
                        2,484,346Total Current
      Assets
                        
                        
                        81,730,439
                        
                        
                        
                        66,457,671Property and equipment,
      net
                        
                        
                        6,357,024
                        
                        
                        
                        4,496,045Deposit for
      equipment
                        
                        
                        -
                        
                        
                        
                        749,799Construction in
      progress
                        
                        
                        829,257
                        
                        
                        
                        961,551Total
Assets
                        
                        $
                        88,916,720
                        
                        
                        $
                        72,665,066LIABILITIES
      AND STOCKHOLDERS’EQUITYCurrent
      LiabilitiesAccounts
      payable
                        
                        $
                        10,719,321
                        
                        
                        $
                        3,327,281Accrued expenses and other
      payables
                        
                        
                        2,042,611
                        
                        
                        
                        221,954Taxes
    payable
                        
                        
                        2,425,039
                        
                        
                        
                        1,388,897Total Current
      Liabilities
                        
                        
                        15,186,971
                        
                        
                        
                        4,938,132Stockholders'
      EquityChina Agritech’s stockholders’equityCommon stock; $0.001 par value,
      100,000,000 shares authorized,28,189,615 shares issued and
      outstanding
                        
                        
                        28,190
                        
                        
                        
                        24,700Additional paid in
      capital
                        
                        
                        30,558,413
                        
                        
                        
                        26,148,879Statutory reserves
                        
                        
                        6,072,132
                        
                        
                        
                        5,425,407Accumulatedothercomprehensive
      income
                        
                        
                        5,713,576
                        
                        
                        
                        5,837,917Retained
      earnings
                        
                        
                        31,357,438
                        
                        
                        
                        25,361,597Total
      China Agritech’s stockholders’ equity
                        
                        
                        73,729,749
                        
                        
                        
                        62,798,500Non-controlling interest in a
      subsidiary
                        
                        
                        -
                        
                        
                        
                        4,928,434Total shareholders’equity
                        
                        
                        73,729,749
                        
                        
                        
                        67,726,934Total Liabilities and
      Stockholders' Equity
                        
                        $
                        88,916,720
                        
                        
                        $
                        72,665,066





The accompanying notes are an integral
part of theseConsolidated
Financial Statements.


3


CHINA AGRITECH, INC. AND
SUBSIDIARIES


UNAUDITED CONSOLIDATED INCOME
STATEMENTS


FOR THE THREE MONTHS ENDED JUNE 30,
2009and 2008AND FOR THE


SIX MONTHS ENDED JUNE 30, 2009and 2008





THREE MONTHS ENDED JUNE 30,
                
                
                SIX MONTHS ENDED JUNE 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Net revenue
                
                $
                20,988,611
                
                
                $
                13,376,091
                
                
                $
                28,335,987
                
                
                $
                20,693,174Cost of
    revenue
                
                
                (12,033,792
                )
                
                
                (6,851,668
                )
                
                
                (16,012,477
                )
                
                
                (10,532,674
                )Gross
profit
                
                
                8,954,819
                
                
                
                6,524,423
                
                
                
                12,323,510
                
                
                
                10,160,500OperatingexpensesSelling
      expenses
                
                
                (624,993
                )
                
                
                (509,136
                )
                
                
                (1,030,712
                )
                
                
                (1,215,725
                )General and administrative
      expenses
                
                
                (871,838
                )
                
                
                (1,050,336
                )
                
                
                (1,855,513
                )
                
                
                (1,923,891
                )Total operating
      expenses
                
                
                (1,496,831
                )
                
                
                (1,559,472
                )
                
                
                (2,886,225
                )
                
                
                (3,139,616
                )Income from
      operations
                
                
                7,457,988
                
                
                
                4,964,951
                
                
                
                9,437,285
                
                
                
                7,020,884Other income
      (expense)Interest
    income
                
                
                3,451
                
                
                
                2,223
                
                
                
                6,024
                
                
                
                63,896Exchange gain
      (loss)
                
                
                (2,609
                )
                
                
                (180,066
                )
                
                
                (3,056
                )
                
                
                (174,839
                )Total other income
      (expense)
                
                
                842
                
                
                
                (177,843
                )
                
                
                2,968
                
                
                
                (110,943
                )Income before income taxes
                
                
                7,458,830
                
                
                
                4,787,108
                
                
                
                9,440,253
                
                
                
                6,909,941Provision for income
      taxes
                
                (1,601,958
                )
                
                
                (1,432,715
                )
                
                
                (2,316,236
                )
                
                
                (2,149,994
                )Net income
                
                
                5,856,872
                
                
                
                3,354,393
                
                
                
                7,124,017
                
                
                
                4,759,947Net income attributable to
      non-controlling interest in a subsidiary
                
                
                (267,169
                )
                
                
                (429,814
                )
                
                
                (481,452
                )
                
                
                (644,998
                )Net income attributableto China
      Agritech’s common
      stockholders
                
                
                5,589,703
                
                
                
                2,924,579
                
                
                
                6,642,565
                
                
                
                4,114,949Other comprehensive
      incomeForeign currency translation
      adjustment
                
                
                (22,528
                )
                
                
                1,796,515
                
                
                
                (124,341
                )
                
                
                3,115,178Comprehensive
      income
                
                
                5,567,175
                
                
                
                4,721,094
                
                
                
                6,518,224
                
                
                
                7,230,127Comprehensive
      income attributable to non-controlling interest in a
      subsidiary
                
                
                (8,814
                )
                
                
                (220,242
                )
                
                
                8,403
                
                
                
                (422,123
                )Comprehensive
      income
                
                $
                5,558,361
                
                
                $
                4,500,852
                
                
                $
                6,526,627
                
                
                $
                6,808,004Basic
      and diluted weighted average shares outstanding
                
                
                25,313,241
                
                
                
                24,699,615
                
                
                
                25,008,123
                
                
                
                24,699,615Basic
      and diluted net earnings per share
                
                $
                0.22
                
                
                $
                0.12
                
                
                $
                0.27
                
                
                $
                0.17





The accompanying notes are an integral
part of theseUnaudited Consolidated Financial
Statements.


4


CHINA AGRITECH, INC. AND
SUBSIDIARIES


UNAUDITEDCONSOLIDATED STATEMENTS OF CASH
FLOWS


FORSIX MONTHS ENDED JUNE 30,
2009AND 2008





JUNE30,2009
                
                
                2008Cash flows from operating
      activities:Net income
                
                $
                7,124,017
                
                
                
                4,759,947Adjustments to reconcile net
      income to net cashprovided(used)in operating
      activities:Stock based
      compensation
                
                
                2,703
                
                
                
                -Depreciation
                
                
                320,109
                
                
                
                325,033(Increase) decrease in current
      assets:Accounts
      receivable
                
                
                (8,937,538
                )
                
                
                (6,937,145
                )Inventories
                
                
                (4,967,706
                )
                
                
                (4,489,150
                )Advances to
      suppliers
                
                
                3,601,066
                
                
                
                5,855,985Prepayments and other
      receivables
                
                
                276,024
                
                
                
                (368,677
                )Increase (decrease) in current
      liabilities:Accounts
      payable
                
                
                7,467,145
                
                
                
                223,689Taxes
    payable
                
                
                1,038,862
                
                
                
                148,219Accrued expenses and other
      payable
                
                
                2,114,634
                
                
                
                (241,714
                )Net cashprovided (used)in operating
      activities
                
                
                8,039,316
                
                
                
                (723,813
                )Cash flows from investing
      activities:Acquisition of 10% interest in
      Pacific Dragon
                
                
                (1,000,000
                )
                
                
                -Acquisition of property &
      equipment
                
                
                (2,200,669
                )
                
                
                (363,305
                )Construction in
      progress
                
                
                163,161
                
                
                
                (1,794,062
                )Net cash used ininvesting
      activities
                
                
                (3,037,508
                )
                
                
                (2,157,367
                )Cash flows from financing
      activities:Net cash provided by financing
      activities
                
                
                -
                
                
                
                -Netincrease(decrease) in cash and
      cash
      equivalents
                
                
                5,001,808
                
                
                
                (2,881,180
                )Effect of exchange rate change on
      cash and cash equivalents
                
                
                (438,639
                )
                
                
                (1,583,098
                )Cash and cash equivalents, beginning of
      period
                
                
                11,952,235
                
                
                
                11,852,636Cash and cash equivalents, end of
      period
                
                $
                16,515,404
                
                
                $
                7,388,358Supplementaldisclosure of cash flow
      information:Income taxes
      paid
                
                $
                1,280,094
                
                
                $
                1,837,906Non-cash Investment and Financing
      Activity:Offset of amounts due to/from
      stockholders
                
                $
                -
                
                
                $
                330,032




The accompanying notes are an integral
part of theseUnaudited
Consolidated Financial Statements.


5


CHINA AGRITECH, INC. AND
SUBSIDIARIES


NOTES TOUNAUDITEDCONSOLIDATED FINANCIAL STATEMENTS


(UNADUITED)




1.ORGANIZATION
AND DESCRIPTION OF BUSINESS





Except as
otherwise indicated by the context, references in this Quarterly Report on Form
10-Q to the “Company”, “China Agritech”, “we”, “us” or “our” are references to
the combined business of China Agritech, Inc. and its subsidiaries.





China
Agritech, Inc. is a holding company whose direct and indirect subsidiaries
manufacture and sell organic liquid compound fertilizers; organic granular
compound fertilizers and related agricultural products. Our business operations
are primarily conducted through the following direct and indirect
subsidiaries:  Anhui Agritech Agriculture Development Limited (“Anhui
Agritech”), Beijing Agritech Fertilizer Ltd. (“Beijing Agritech”), China Tailong
Holdings Company Limited ("Tailong") and Pacific Dragon Fertilizers Co. Ltd.
("Pacific Dragon").  Our revenues are derived from the sale of our
fertilizers and related agricultural products to our customers.





We
acquired the line of business in which we now operate by entering into a
transaction with Tailong and the shareholders of Tailong pursuant to the
Reorganization Agreement (defined below) on February 3, 2005.  We were
originally incorporated on January 5, 1925, under the laws of the State of
Nevada as Argyle Mining Company. We changed our name to Argyle Corporation in
January 1960, Basic Empire in November 1963, Basic Empire Corp in December 1976
and finally to China Agritech, Inc. in May 2005. On August 10, 2004, we changed
our corporate domicile from Nevada to Delaware. Throughout our existence, we
have changed our business model several times, and conducted no substantive
business from 1986 until February 2005, when we closed the transaction pursuant
to the Reorganization Agreement.





On
December 25, 2004, we entered into the Agreement and Plan of Reorganization (the
"Reorganization Agreement"), as amended with Tailong, and the stockholders of
Tailong (the "Tailong Stockholders") We acquired all of the issued and
outstanding Tailong shares from the Tailong Stockholders in exchange for
10,606,158 shares of our newly issued restricted common stock, whereby the
Tailong Stockholders obtained control of the Company and Tailong became our
wholly-owned subsidiary.





As a
result of the acquisition we took on the business of our operating subsidiaries
and became a fertilizer manufacturer conducting operations in the People's
Republic of China (the "PRC") through Tailong and Tailong's 90% owned
subsidiary, 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 operations. Pacific Dragon is a 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 that of a limited liability company
organized under state laws in the United States.





On June
29, 2006, we established a wholly owned subsidiary, Anhui Agritech. Anhui
Agritech engages in the business of manufacturing and marketing a series of
organic liquid compound fertilizers.





On
November 1, 2006, we entered into an equity transfer agreement with stockholders
of CAI Investment, Inc (the “CAI stockholders”). The CAI stockholders
transferred 100% equity interest in CAI Investment, Inc. (“CAI”) to the Company
in exchange for $1,000.  Prior to the equity transfer, CAI established
a wholly owned subsidiary, Beijing Agritech.  Beijing Agritech engages
in the business of manufacturing and marketing a series of organic liquid
compound fertilizers.





On May
15, 2009, Tailong acquired the remaining 10% of Pacific Dragon by paying $1
million in cash and issuing 3,490,000 new shares of common stock in the
Company.  Thereafter, Pacific Dragon became the wholly foreign owned
enterprise in the PRC and is a wholly owned subsidiary of the
Company.


6


CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





2.   BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





The
unaudited consolidated financial statements were prepared in accordance with
U.S. generally accepted accounting principles (“U.S. GAAP”).  These
unaudited consolidated financial statements for interim periods are
unaudited.  In the opinion of management, the consolidated financial
statements included all adjustments, consisting only of normal, recurring
adjustments, necessary for their fair presentation.  The results
reported in these unauidted consolidated financial statements are not
necessarily indicative of the results that may be reported for the entire
year.  The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities as of the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.  The
Company regularly evaluates estimates and assumptions related to allowances for
doubtful accounts, sales returns and allowance, and inventory reserves. Although
management believes these estimates and assumptions are adequate and reasonable
under the circumstances, actual results could differ from those
estimates.  U.S. GAAP differs from that used in the statutory
financial statements of the major operating subsidiaries of the Company, which
were prepared in accordance with the relevant accounting principles and
financial reporting regulations in the PRC.  Certain accounting
principles stipulated under U.S. GAAP are not applicable in the
PRC.





Unless
otherwise noted, all references to "$" and dollar are to the United States
dollar, the legal currency of the United States.





a.  
Principles of
consolidation




The
unaudited consolidated financial statements include the accounts of China
Agritech, Inc. and all of its subsidiaries. All significant inter-company
accounts and transactions have been eliminated in consolidation.




b.  
Cash and cash
equivalents




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.




c.  
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 up to one year. 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
material.





d.  
Inventories




Inventories
are valued at the lower of cost (determined on a weighted average basis) or
market. Management compares the cost of inventories with market value and an
allowance is provided to reduce the value of inventories to their net market
value.




e.  
Advances to
suppliers




The
Company provides advances to certain vendors for purchase of its material.
Advancing of funds to vendors is common practice in China and the Company
expects to realize these advances in the form of inventory receipts within a
one-year period.




f.  
Property and
equipment




Property
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 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
and amortization 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 or shorter of the lease period for leasehold
improvement, 5 to 10 years for office equipment; and 5 to 8 years for motor
vehicles.





g.  
Construction in
Progress





Construction
in progress represents the costs incurred in connection with the construction of
buildings or new additions to the Company's plant facilities. No depreciation is
provided for construction in progress until such time as the relevant assets are
completed and are ready for their intended use.


7




CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





2.   BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont’d)





h.  
Impairment




The
Company applies the provisions of Statement of Financial Accounting Standards
(“SFAS”) No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", issued by the Financial Accounting Standards Board ("FASB"). SFAS 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 and equipment subject to
periodic amortization, for recoverability at least annually during the fourth
quarter, 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. The Company has not identified any incidence that may indicate the
carrying value of its long-lived assets may not be recoverable for six months
ended June 30, 2009 and 2008.




i. Revenue
recognition




The
Company's 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 the Company exist and
collectibility is reasonably assured.




The
Company's revenue consists of the invoiced value of goods, net of a value-added
tax (“VAT”) and marketing rebate.





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 three
months ended June 30, 2009 and 2008 were $110,241 and $203,156
respectively.  Advertising costs for six months ended June 30, 2009
and 2008 were $220,454 and $304,610 respectively.




k. Shipping and
Handling




The
Company classifies shipping cost under selling expenses. Shipping costs for
three months ended June 30, 2009 and 2008 were $250,189 and $221,249
respectively.  Shipping costs for six months ended June 30, 2009 and
2008 were $362,487 and $362,253 respectively.


8


CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





2.   BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont’d)





l. 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 tax
consequences in future years of differences between the tax basis 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.




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’s
net income. The Company does not have any significant deferred tax assets or
liabilities in the PRC tax jurisdiction.





The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (“FIN
48”), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements in accordance
with FASB Statement 109, “Accounting for Income Taxes”, and prescribes a
recognition threshold and measurement process for financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition.




Based on
our evaluation, we have concluded that there are no significant uncertain tax
positions requiring recognition in our financial statements.  We may
from time to time be assessed interest or penalties by major tax jurisdictions.
In the event we receive an assessment for interest and/or penalties, it will be
classified in the financial statements as tax expense.





m.  
Foreign currency
translation




The
Company uses the United States dollar 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. Such financial statements were translated into U.S.
dollars in accordance with SFAS No. 52, “Foreign Currency Translation.”
According to SFAS No. 52, all assets and liabilities is translated at the
current exchange rate, stockholder’s equity are translated at the historical
rates and income statement items are translated at the average exchange rate for
the period. The resulting translation adjustments are reported under other
comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive
Income,” as a component of shareholders’ equity.




n.  
Fair values of
financial instruments




SFAS 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
payables, taxes 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 to the
interest rates on the borrowings approximating those that would have been
available for loans of similar remaining maturity and risk profile at respective
balance sheet dates.


9


CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





2.   BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont’d)





p.  
Earning per share
(EPS)




Earnings
per share is calculated in accordance with the SFAS No. 128, “Earnings per
share.” 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 warrant 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.




The
following table is a reconciliation of the weighted average shares used in the
computation of basic and diluted earnings per share for the periods
presented (amounts in thousands, except per share data):





For
      three months ended June 30, 2009 and 2008
                                        
                                        2009
                                        
                                        
                                        2008Weighted
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        WeightedAverage
                                        
                                        
                                        Per
                                        
                                        
                                        
                                        
                                        
                                        Average
                                        
                                        
                                        PerIncome
                                        
                                        
                                        Shares
                                        
                                        
                                        Share
                                        
                                        
                                        Income
                                        
                                        
                                        Share
                                        
                                        
                                        SharesEarning
      per share - basicIncome
      available to common stockholders
                                        
                                        $
                                        5,590
                                        
                                        
                                        
                                        25,313
                                        
                                        
                                        $
                                        0.22
                                        
                                        
                                        $
                                        2,925
                                        
                                        
                                        
                                        24,700
                                        
                                        
                                        $
                                        0.12Effect
      of dilutive options and warrants
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —Earning
      per share - dilutedIncome
      available to common stockholders
                                        
                                        $
                                        5,590
                                        
                                        
                                        
                                        25,313
                                        
                                        
                                        $
                                        0.22
                                        
                                        
                                        $
                                        2,925
                                        
                                        
                                        
                                        24,700
                                        
                                        
                                        $
                                        0.12Effect
      of four-for-one stock reverse split
                                        
                                        $
                                        5,590
                                        
                                        
                                        
                                        6,328
                                        
                                        
                                        $
                                        0.88
                                        
                                        
                                        $
                                        2,925
                                        
                                        
                                        
                                        6,175
                                        
                                        
                                        $
                                        0.47





The
dilutive earnings per share computation for three months ended June 30, 2009
excludes options and warrants to purchase 543,920 shares of common stock
and for three months ended June 30, 2008 excludes options and warrants to
purchase 438,920 shares of common stock because the impact was
anti-dilutive.




On June
19, 2009, holders of 14,325,386 shares of our outstanding common stock, or
50.82% of the 28,189,615 outstanding shares of common stock on that date,
authorized, by written consent, an amendment to our certificate of incorporation
to effect a four-for-one reverse stock split of our common stock. Our board of
directors has not yet determined the date that the amendment to our
certificate of incorporation will be filed with the Secretary of State of the
State of Delaware. Upon the reverse stock split becoming effective, our earnings
per share – basic and diluted for three months ended June 30, 2009 and 2008
would be recalculated as mentioned above.




For
      six  months ended June 30, 2009 and 2008
                                        
                                        2009
                                        
                                        
                                        2008Weighted
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        WeightedAverage
                                        
                                        
                                        Per
                                        
                                        
                                        
                                        
                                        
                                        Average
                                        
                                        
                                        PerIncome
                                        
                                        
                                        Shares
                                        
                                        
                                        Shares
                                        
                                        
                                        Income
                                        
                                        
                                        Shares
                                        
                                        
                                        SharesEarning
      per share - basicIncome
      available to common stockholders
                                        
                                        $
                                        6,643
                                        
                                        
                                        
                                        25,008
                                        
                                        
                                        $
                                        0.27
                                        
                                        
                                        $
                                        4,115
                                        
                                        
                                        
                                        24,700
                                        
                                        
                                        $
                                        0.17Effect
      of dilutive options and warrants
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —Earning
      per share - dilutedIncome
      available to common stockholders
                                        
                                        $
                                        6,643
                                        
                                        
                                        
                                        25,008
                                        
                                        
                                        $
                                        0.27
                                        
                                        
                                        $
                                        4,115
                                        
                                        
                                        
                                        24,700
                                        
                                        
                                        $
                                        0.17Effect
      of four-for-one stock reverse split
                                        
                                        $
                                        6,643
                                        
                                        
                                        
                                        6,252
                                        
                                        
                                        $
                                        1.06
                                        
                                        
                                        $
                                        4,115
                                        
                                        
                                        
                                        6,175
                                        
                                        
                                        $
                                        0.67





The
dilutive earnings per share computation for six months ended June 30, 2009
excludes options and warrants to purchase 543,920 shares of common stock
and for six months ended June 30, 2008 excludes options and warrants to purchase
438,920 shares of common stock because the impact was
anti-dilutive.




On June
19, 2009, holders of 14,325,386 shares of our outstanding common stock, or
50.82% of the 28,189,615 outstanding shares of common stock on that date,
authorized, by written consent, an amendment to our certificate of incorporation
to effect a four-for-one reverse stock split of our common stock.  Our
board of directors has not yet determined the date that the amendment to
our certificate of incorporation will be filed with the Secretary of State of
the State of Delaware. Upon the reverse stock split becoming effective, our
earnings per share – basic and diluted for six months ended June 30, 2009 and
2008 would be recalculated as mentioned above.


10


CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





2.   BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont’d)





q.  
Segment
reporting




SFAS No.
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.




SFAS No.
131 has no effect on the Company's unaudited consolidated financial statements
as the Company operates in one reportable business segment.




r.  
Statement of cash
flows




In
accordance with SFAS No. 95, "Statement of Cash Flows," cash flows from the
Company's operations is calculated based upon the 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 sheets.





s.  
Stock-based
compensation





On
December 16, 2004, the FASB issued SFAS No. 123R, “Share-Based Payment”, which
replaces SFAS No. 123, “Accounting for Stock-Based Compensation” and supersedes
APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R
requires all share based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on
the grant date fair value of the award. The Company has adopted the
requirements of SFAS No. 123R for the fiscal year beginning on December 16, 2005
and recorded the compensation expense for all unvested stock options
existing prior to the adoption during the period





t.  
Recent Accounting
Pronouncements





Effective
January1, 2009, the Company adopted Statement of Financial Accounting Standards
No. 160 ("SFAS 160"), "Non-controlling Interests in Consolidated Financial
Statements — an amendment of ARB No. 51." SFAS 160 amends Accounting Research
Bulletin No. 51, "Consolidated Financial Statements" to establish accounting and
reporting standards for the non-controlling interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling interest in
a subsidiary, which is sometimes referred to as minority interest, is an
ownership interest in the consolidated entity that should be reported as equity
in our Consolidated Financial Statements. Among other requirements, this
Statement requires that the consolidated net income attributable to the parent
and the non-controlling interest be clearly identified and presented on the face
of the consolidated income statement. SFAS 160 was effective beginning in the
Company’s fiscal 2009. The provisions of SFAS 160 were applied prospectively,
except for the presentation and disclosure requirements, which were applied
retrospectively to all periods presented. As a result, upon the adoption of SFAS
160, the Company reclassified the “minority interest” balance previously
included in other liabilities of the Company’s Consolidated Balance Sheet to a
new component of equity. The adoption also impacted certain captions previously
used on the consolidated statement of income, largely identifying net income
including non-controlling interest and net income attributable to the Company’s
common stockholders. The adoption of SFAS 160 did not have a material impact on
the Company’s consolidated financial position or results of
operations.


11


CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





2.   BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont’d)





t. Recent Accounting
Pronouncements (Cont’d)





In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements” (“SFAS 157”), which defines fair value, establishes a framework
for measuring fair value in GAAP, and expands disclosures about fair value
measurements. SFAS 157 does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a fair value
hierarchy used to classify the source of the information. In February 2008,
the FASB deferred the effective date of SFAS 157 by one year for certain
non-financial assets and non-financial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually). On January 1, 2008, the Company adopted the
provisions of SFAS 157, except as it applies to those non-financial assets and
non-financial liabilities for which the effective date has been delayed by one
year, which the Company adopted on January 1, 2009. The adoption of SFAS 157 did
not have a material effect on the Company’s financial position or results of
operations.





The fair
value hierarchy distinguishes between assumptions based on market data
(observable inputs) and an entity’s own assumptions (unobservable inputs). The
hierarchy consists of three levels:





•
              Level
      one — Quoted market prices in active markets for identical assets or
      liabilities;•
              Level
      two — Inputs other than level one inputs that are either directly or
      indirectly observable; and•
              Level
      three — Unobservable inputs developed using estimates and assumptions,
      which are developed by the reporting entity and reflect those assumptions
      that a market participant would
use.





Determining
which category an asset or liability falls within the hierarchy requires
significant judgment. The book values of cash, accounts and other receivable,
accounts and other payables approximate their respective fair values due to the
short-term nature of these instruments. There were no assets or liabilities
measured at fair value on a non-recurring basis for six months ended June 30,
2009.





In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations. This
Statement improves the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects by establishing
principles and requirements for how the acquirer (i) recognizes and measures in
its financial statements the identifiable assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree, (ii) recognizes and
measures the goodwill acquired in the business combination or a gain from a
bargain purchase, and (iii) determines what information to disclose to enable
users of the financial statements to evaluate the nature and financial effects
of the business combination. The Company must apply prospectively SFAS No.
141(R) to business combinations for which the acquisition date is on or after
the beginning of 2009. The impact that adoption of SFAS No. 141(R) will have on
the Company’s financial condition, results of operations and cash flows is
dependent upon many factors. Such factors would include, among others, the fair
values of the assets acquired and the liabilities assumed in any applicable
business combination, the amount of any costs the Company would incur to effect
any applicable business combination, and the amount of any restructuring costs
the Company expected but was not obligated to incur as the result of any
applicable business combination. Thus, the Company cannot accurately predict the
effect SFAS No. 141(R) will have on acquisitions until such acquisitions are
consummated.





In March
2008, FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities.” SFAS No. 161 requires enhanced disclosures about an
entity’s derivative and hedging activities and thereby improves the transparency
of financial reporting. The objective of SFAS No. 161 is to provide adequate
information about how derivative and hedging activities affect an entity’s
financial position, financial performance and cash flows. SFAS No. 161 took
effect in the first quarter of fiscal 2009.The adoption of SFAS No.
161 did not have any material impact on the Company’s unaudited consolidated
financial statements.





In May
2008, FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles.” SFAS No. 162 identifies the sources of accounting principles and
the framework for selecting the principles to be used in the preparation of
financial statements of nongovernmental entities that are presented in
conformity with U.S. GAAP. SFAS No. 162 was effective 60 days following
September16.2008, the date of SEC’s order approving the Public Company
Accounting Oversight Board (“PCAOB”) amendments to AU Section 411, “The Meaning
of Present Fairly in Conformity With Generally Accepted Accounting Principles.”
The adoption of
SFAS No. 162 did not have any material impact on the Company’s unaudited
consolidated financial statements.





In May
2008, FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance
Contracts.” SFAS No. 163 requires that an insurance enterprise recognize a claim
liability prior to an event of default (insured event) when there is evidence
that credit deteriorations have occurred in an insured financial obligation.
SFAS No. 163 is effective for financial statements issued for fiscal years
beginning after December 15, 2008.  The adoption of SFAS No. 163 did
not have any material impact on the Company’s unaudited consolidated financial
statements.


12


CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





2.   BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont’d)





t. Recent Accounting
Pronouncements (Cont’d)





In April
2009, the FASB issued FASB Staff Position Financial Accounting Standard
141R-1 ("FSP FAS 141R-1"), "Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies." FSP FAS 141R-1
amends SFAS 141R to require that an acquirer recognize at fair value, at the
acquisition date, an asset acquired or a liability assumed in a business
combination that arises from a contingency if the acquisition-date fair value of
that asset or liability can be determined during the measurement period. If the
acquisition-date fair value of such an asset acquired or liability assumed
cannot be determined, the acquirer should apply the provisions of SFAS 5, "
Accounting for Contingencies" , to determine whether the contingency should be
recognized at the acquisition date or after such date. FSP FAS 141R-1 is
effective for business combinations whose acquisition date is on or after the
first reporting period beginning after December 15, 2008. Accordingly, the
Company adopted this FSP during the first quarter of 2009. The adoption of
FSP FAS 141R-1 did not have any material impact on the Company’s
unauidted consolidated financial statements.





As a
result of the recent credit crisis, on October 10, 2008, the FASB issued
FSP No. FAS 157-3, “Determining the Fair Value of a Financial Asset in a
Market That is Not Active.” This FSP clarifies the application of SFAS
No. 157 in a market that is not active. The FSP addresses how management
should consider measuring fair value when relevant observable data does not
exist. The FSP also provides guidance on how observable market information in a
market that is not active should be considered when measuring fair value, as
well as how the use of market quotes should be considered when assessing the
relevance of observable and unobservable data available to measure fair value.
This FSP is effective upon issuance, including prior periods for which financial
statements have not been issued. Revisions resulting from a change in the
valuation technique or its application will be accounted for as a change in
accounting estimate in accordance with SFAS No. 154, “Accounting Changes
and Error Corrections.” Adoption of this standard had no effect on our results
of operations, cash flows or financial position.





In April
2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1 ("FSP FAS
107-1 and APB 28-1"), "Interim Disclosures about Fair Value of Financial
Instruments." The FSP amends SFAS 107, "Disclosure about Fair Value of Financial
Instruments," and Accounting Principles Board Opinion No. 28, "Interim Financial
Reporting," to require disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements. The Company adopted this FSP during the
second quarter of 2009.  The adoption of this FSP did not have any
material impact on the Company’s unaudited consolidated financial
statements.





In April
2009, the FASB issued FASB Staff Position No. FSP FAS 115-2 and FAS 124-2 ("FSP
FAS 115-2 and FAS 124-2"), "Recognition and Presentation of Other-Than-Temporary
Impairments." The FSP amends the other-than-temporary impairment guidance in
U.S. GAAP for debt securities to make the guidance more operational and to
improve the presentation and disclosure of other-than-temporary impairments on
debt and equity securities in the financial statements. This FSP does not amend
existing recognition and measurement guidance related to other-than-temporary
impairments of equity securities.  The Company adopted this FSP during
the second quarter of 2009.  The adoption of this FSP did not have any
material impact on the Company’s unaudited consolidated financial
statements.





In April
2009, the FASB issued FASB Staff Position No. FAS 157-4 ("FSP No. FAS 157-4"),
"Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly." The FSP provides additional guidance for estimating fair value in
accordance with FASB Statement No. 157, "Fair Value Measurements”, when the
volume and level of activity for the asset or liability have significantly
decreased. This FSP also includes guidance on identifying circumstances that
indicate a transaction is not orderly. The Company is required to adopt FSP FAS
157-4 in the second quarter of 2009.  The Company adopted this FSP
during the second quarter of 2009.  The adoption of this FSP did not
have any material impact on the Company’s unaudited consolidated financial
statements.





In May
2009, the FASB issued SFAS No. 165, “Subsequent Events,” which establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. The Company evaluated subsequent events after the
balance sheet date of June 30, 2009 through the filing of this report with the
SEC on August 14, 2009.





u.  
New Accounting
Pronouncements to be adopted





In
December 2008, the FASB issued FASB Staff Position FAS 132(R)-1 (“FSP FAS
132(R)-1”), “Employers’ Disclosures about Postretirement Benefit Plan Assets.”
The FSP expands the disclosure requirements about plan assets for defined
benefit pension plans and postretirement plans. The Company is required to adopt
FSP FAS 132(R)-1 in the fourth quarter of 2009. The Company is currently
assessing the impact that this FSP may have on the disclosures in the Company’s
consolidated financial statements.


13


CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





2.   BASIS OF
PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Cont’d)





u.  
New Accounting
Pronouncements to be adopted (Cont’d)





In June
2009, FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets,
an amendment of FASB Statement No. 140.” SFAS 166 is applied to financial asset
transfers on or after the effective date, which is January 1, 2010 for the
company’s financial statements. SFAS 166 limits the circumstances in which a
financial asset may be de-recognized when the transferor has not transferred the
entire financial asset or has continuing involvement with the transferred
asset.  The concept of a qualifying special-purpose entity, which had
previously facilitated sale accounting for certain asset transfers, is removed
by SFAS 166. The company expects that SFAS 166 will not have a material effect
on its financial position or results of operations.





In June
2009, FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”
which deals with accounting for variable interest entities and is effective for
reporting periods beginning after November 15, 2009. The amendments change the
process for how an enterprise determines which party consolidates a variable
interest entity (VIE) to a primarily qualitative analysis. SFAS 167 defines the
party that consolidates the VIE (the primary beneficiary) as the party with (1)
the power to direct activities of the VIE that most significantly affect the
VIE’s economic performance and (2) the obligation to absorb losses of the VIE or
the right to receive benefits from the VIE.  Upon adoption of SFAS
167, reporting enterprises must re-consider their conclusions on whether an
entity should be consolidated and should a change result, the effect on net
assets will be recorded as a cumulative effect adjustment to retained earnings.
The company expects that adoption of SFAS 167 will not have a material effect on
its financial position or results of operations.





Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the Company’s consolidated financial
statements upon adoption.





3.   ACCOUNTS
RECEIVABLE





Accounts
receivable consist of the following as of June 30, 2009 and December 31,
2008





June
      30
                
                December
      312009
                
                2008Accounts
      receivable
                
                $
                44,105,745
                
                
                $
                35,221,721Less:
      Allowance for doubtful accounts
                
                
                (448,056
                )
                
                
                (448,606
                )$
                43,657,689
                
                
                $
                34,773,115





4.   INVENTORIES




Inventories
consist of the following as of June 30, 2009 and December 31, 2008:




June
      30
                
                
                December
      312009
                
                
                2008Raw
      Materials
                
                $
                8,659,626
                
                
                $
                4,941,787Packing
      Materials
                
                
                457,196
                
                
                
                107,053Finished
      goods
                
                
                2,290,564
                
                
                
                1,403,778$
                11,407,386
                
                
                $
                6,452,618





5.PREPAYMENTS
AND OTHER RECEIVABLES




Prepayments and other receivables
primarily include prepaid rent, prepaid advertising and advanced travel expenses
to employees.


14


CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





6.PROPERTY
AND EQUIPMENT




Property and equipment consist of the
following as of June 30, 2009 and December 31, 2008:




June 30
                
                
                December 312009
                
                
                2008Manufacturing
      machinery
                
                $
                6,280,920
                
                
                $
                4,735,761Leasehold
    improvement
                
                
                1,062,330
                
                
                
                439,341Office
      equipment
                
                
                221,809
                
                
                
                220,031Motor
    vehicles
                
                
                629,801
                
                
                
                619,1498,194,860
                
                
                
                6,014,282Less: Accumulated
      Depreciation
                
                
                (1,837,836
                )
                
                
                (1,518,237
                )$
                6,357,024
                
                
                $
                4,496,045





Depreciation expense for three months
ended June 30, 2009and2008was $167,789 and $155,960, respectively.Depreciationexpense for six months ended June 30, 2009 and
2008was $320,109 and
$325,033,
respectively.





7.CONSTRUCTION
IN PROGRESS




The construction in progress consists of
property and equipment for the organic granular compound fertilizer plants inXinjiang.





8.TAXES
PAYABLE




Taxes payable consist of the following
as of June 30, 2009 and December 31, 2008:




June 30
                
                December 312009
                
                2008Income tax
      payable
                
                $
                1,758,173
                
                
                $
                857,324VAT tax
    payable
                
                
                644,065
                
                
                
                529,313Others
                
                
                22,801
                
                
                
                2,260$
                2,425,039
                
                
                $
                1,388,897


15


CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





9.INCOME
TAXES




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 Lawsof the PRC, Chinese enterprises are
generally subject to an income tax at an effective rate of25%forthe periods ended June 30,
2009on 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 three
andsix months ended June 30,
2009and2008consisted of the
following:








Three monthsended June 30,
                
                
                Six monthsended June 30,2009
                
                
                2008
                
                
                2009
                
                
                2008Provision for China income and
      local tax
                
                $
                1,601,958
                
                
                $
                1,432,715
                
                
                $
                2,316,236
                
                
                $
                2,149,994




The following table reconciles
thestatutory
rateto the
Company’s effective tax rate at June 30,2009and 2008respectively;





2009
                
                2008Tax at statutory
      rate
                
                
                25
                %
                
                25
                %Net operating loss in other tax
      jurisdiction forwhere no benefit is
      realized
                
                
                11
                %
                
                9
                %36
                %
                
                34
                %




10.NON-CONTROLLING
INTEREST IN A SUBSIDIARY




Non-controlling
interest in a subsidiary represented the 10% interest of our minority
shareholder, Yinlong, a related party of the Company, in Pacific
Dragon.





On May
15, 2009, Tailong acquired the remaining 10% interest in Pacific Dragon from
Yinlong at total consideration of $7,980,000.  The consideration was
settled by $1 million in cash and issuance of 3,490,000 new shares of common
stock in the Company at the value of $6,980,000.  Thereafter, Pacific
Dragon became a wholly foreign owned enterprise in the PRC and a wholly owned
subsidiary of the Company.


16


CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





11.CURRENT
VULNERABILITY DUE TO CERTAIN CONCENTRATIONS





The
Company’s operations are all carried out in the PRC. Accordingly, the Company’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.




The
Company’s operations in the PRC are subject to specific considerations and
significant risks not typically associated with companies in North America and
Western Europe. These include risks associated with, among other things, the
political, economic and legal environments and foreign currency exchange. The
Company'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.





12.MAJOR
CUSTOMERS AND VENDORS




There were no major customers
thataccounted for more
than 10% of the total net
revenue forsix
monthsended June 30, 2009and2008.




Fourvendors provided approximately
68% of the Company’s raw materials forsix months ended June 30,
2009with each vendor
individuallyaccounting for
approximately 22%,20%, 15% and 11%.Four vendors provided
approximately77% of the Company’s dollar value of raw materials for six months
ended June 30, 2008with
each individually
accounting for approximately35%,21%, 11% and 10%.





13.  STOCK
OPTIONS AND WARRANTS





The
Company adopted SFAS No. 123 (Revised 2004), “Share Based Payment,” 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 stock option plans using the intrinsic
value method in accordance with the provisions of APB Opinion No. 25 and
related interpretations.




As a
result of adopting SFAS No. 123R, the Company recognized $0 and $0 in
share-based compensation expense for three months ended June 30, 2009 and 2008,
respectively.  There was no impact of this share-based compensation
expense on the Company's basic and diluted earnings per share. The fair value of
our stock options was estimated using the Black-Scholes option pricing
model





The
Company’s 2008 Equity Incentive Plan (“the Plan”) permits the grant of options,
stock appreciation rights, restricted stock, restricted stock units, and other
share-based awards as the administrator may determine for the employees,
directors and consultants of the Company.  Up to a maximum of three
million six hundred thousand (3,600,000) shares of the Company’s common stock
were available for issuance under the Plan, of which 100,000 were issuable upon
exercise of the options.  The Company believes the Plan will
promote the success of the Company’s business, advance the interests of the
Company, and attract and retain the best available personnel for positions of
substantial responsibility.  The exercise price per share with respect
to the Plan will be determined by the administrator provided that the
exercise price per share cannot be less than the fair market value of a share on
a grant date and the administrator will establish and set forth in the award
agreement the times, installments or conditions upon which the option, stock
appreciation rights, restricted stock, restricted stock units, and other
share-based awards will vest and become exercisable, which may include, among
other things, the achievement of the Company, business units and individual
goals (including, but not limited to, continued employment or
services).





For three months ended June 30, 2009,
the Company issued 5,000 stockoptions toan independent director of the
Companyfor his
directorship.


17


CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





13.STOCK
OPTIONS AND WARRANTS(Cont’d)




Options




In
connection with the appointment of the Company’s new CFO, which occurred on
October 17, 2008, the Company granted the CFO options to purchase 100,000 shares
of its common stock. The options vested immediately upon signing of the
employment contract. The exercise price of the options is $2.00 per
share.




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
                
                
                1.34
                %Expected
      life of the options
                
                1 yearExpected
      volatility
                
                
                99
                %Expected
      dividend yield
                
                
                0
                %





On May
25, 2009, the Company granted the Company’s audit chairman options to purchase
5,000 shares of its common stock. The options vested immediately upon signing of
the stock option agreement. The exercise price of the options is $1.68 per
share.




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
                
                
                0.48
                %Expected
      life of the options
                
                1 yearExpected
      volatility
                
                
                99.5
                %Expected
      dividend yield
                
                
                0
                %





Following
is a summary of the stock option activity:




Options
                          outstanding
                        
                        
                        Weighted
                          Average Exercise
                          Price
                        
                        
                        Grant Date
                          Fair
                          Market
                          Value
                          of a ShareOutstanding,
      December 31, 2006
                        
                        
                        50,000
                        
                        
                        $
                        3.50Granted
                        
                        
                        —
                        
                        
                        
                        —Forfeited
                        
                        
                        —
                        
                        
                        
                        —Exercised
                        
                        
                        —
                        
                        
                        
                        —Outstanding,
      December 31, 2007
                        
                        
                        50,000
                        
                        
                        $
                        3.50Granted
                        
                        
                        100,000
                        
                        
                        
                        2.00
                        
                        
                        $
                        0.13Forfeited
                        
                        
                        —
                        
                        
                        
                        —Exercised
                        
                        
                        —
                        
                        
                        
                        —Outstanding,
      December 31, 2008
                        
                        
                        150,000
                        
                        
                        
                        2.50Granted
                        
                        
                        5,000
                        
                        
                        
                        1.68
                        
                        
                        $
                        0.54Forfeited
                        
                        
                        —
                        
                        
                        
                        —Exercised
                        
                        
                        —
                        
                        
                        
                        —Outstanding,
      June 30, 2009
                        
                        
                        155,000
                        
                        
                        $
                        2.47


18


CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





13.   STOCK
OPTIONS AND WARRANTS (Cont’d)





Following
is a summary of the status of options outstanding at June 30, 2009:




Outstanding Options
                      
                      Exercisable OptionsExercise Price
                      
                      Number
                      
                      Average
                        Remaining
                        Contractual Life
                      
                      Average
                        Exercise Price
                      
                      
                      Number
                      
                      
                      Average
                          Remaining
                          Contractual Life$3.50
                      
                      
                      50,000
                      
                      
                      2.4
      years
                      
                      
                      $3.50
                      
                      
                      
                      50,000
                      
                      
                      
                      2.4
      years$2.00
                      
                      
                      100,000
                      
                      
                      4.8
      years
                      
                      
                      $2.00
                      
                      
                      
                      100,000
                      
                      
                      
                      4.8
      years$1.68
                      
                      
                      5,000
                      
                      
                      4.9
      years
                      
                      
                      $1.68
                      
                      
                      
                      5,000
                      
                      
                      
                      4.9
      years




Effect of
four-for-one reverse stock split:
 Outstanding Options
                        
                        Exercisable OptionsExercise Price
                        
                        Number
                        
                        
                        Exercise Price
                        
                        
                        Number$14.00
                        
                        
                        12,500
                        
                        
                        
                        $14.00
                        
                        
                        
                        12,500$8.00
                        
                        
                        25,000
                        
                        
                        
                        $8.00
                        
                        
                        
                        25,000$6.72
                        
                        
                        1,250
                        
                        
                        
                        $6.72
                        
                        
                        
                        1,250


As of
June 30, 2009, our options had no intrinsic value.





Warrants




In
connection with a private placement which occurred on July 5, 2007, the Company
granted the private placement consultant warrants to purchase 388,920 shares of
its common stock. The warrants vested immediately. The exercise price of the
warrants is $2.70 per share.




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
                
                
                5.02
                %Expected
      life of the options
                
                5
      yearsExpected
      volatility
                
                
                83
                %Expected
      dividend yield
                
                
                0
                %





Following
is a summary of the warrants activity:




Warrants
                          outstanding
                        
                        
                        Weighted
                          Average Exercise
                          Price
                        
                        
                        Grant Date
                          Fair Market
                          Value of a
                          ShareOutstanding,
      December 31, 2006
                        
                        
                        —
                        
                        
                        $
                        —Granted
                        
                        
                        388,920
                        
                        
                        $
                        2.70
                        
                        
                        $
                        2.31Forfeited
                        
                        
                        —
                        
                        
                        
                        —Exercised
                        
                        
                        —
                        
                        
                        
                        —Outstanding,
      December 31, 2007
                        
                        
                        388,920
                        
                        
                        $
                        2.70Granted
                        
                        
                        —
                        
                        
                        
                        —Forfeited
                        
                        
                        —
                        
                        
                        
                        —Exercised
                        
                        
                        —
                        
                        
                        
                        —Outstanding,
      December 31, 2008
                        
                        
                        388,920
                        
                        
                        $
                        2.70Granted
                        
                        
                        —
                        
                        
                        
                        —Forfeited
                        
                        
                        —
                        
                        
                        
                        —Exercised
                        
                        
                        —
                        
                        
                        
                        —Outstanding,
      June 30, 2009
                        
                        
                        388,920
                        
                        
                        $
                        2.70




Following
is a summary of the status of warrants outstanding at June 30,
2009:




Outstanding Warrants
                    
                    Exercisable WarrantsExercise Price
                    
                    Number
                    
                    Average
                      Remaining
                      Contractual Life
                    
                    Average
                      Exercise Price
                    
                    
                    Number
                    
                    
                    Average
                        Remaining
                        Contractual Life$2.70
                    
                    
                    388,920
                    
                    
                    3.5
      years
                    
                    
                    $2.70
                    
                    
                    
                    388,920
                    
                    
                    
                    3.5
      years








Effect of
four-for-one reverse stock split:
 Outstanding Warrants
                          
                          Exercisable WarrantsExercise Price
                          
                          Number
                          
                          
                          Exercise Price
                          
                          
                          Number$10.80
                          
                          
                          97,230
                          
                          
                          
                          $10.80
                          
                          
                          
                          97,230


As of
June 30, 2009, our warrants had no intrinsic value.


19


CHINA
AGRITECH, INC. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





14.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 collectivebenefits to the Company's employees;
and




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





In
accordance with the Company Law of the People’s Republic of China, the Company
has allocated 10% of its net income to the above-mentioned PRC statutory
reserves, which is considered appropriations of retained earnings. The amount
included in the statutory reserves as of June 30, 2009 and December 31, 2008
amounted to $6,072,132 and $5,425,407, respectively.





15.RELATED
PARTY TRANSACTIONS AND COMMITMENTS AND LEASES





The
Company continues to refine the manufacturing know-how of the product at its
expense.  On January 6, 2005, our subsidiary, Pacific Dragon, entered
into a license agreement with Mr. Yu Chang, our Chairman, Chief Executive
Officer, President and Secretary.  Under this license agreement, Mr.
Chang granted an exclusive license to Pacific Dragon for the use of know-how in
manufacturing organic liquid compound fertilizer on a royalty-free basis. 
On December 3, 2005, Mr. Chang and Pacific Dragon entered into another license
agreement pursuant to which the term of the license was extended to a permanent
license. In accordance with the Securities Purchase Agreement, dated June 29,
2007, among the Company, Mr. Chang, and the investors named therein, an
additional license agreement was entered into for the know-how mentioned above
between Mr. Chang and Pacific Dragon confirming that the license has been
extended until December 31, 2011.




The
Company's PRC subsidiary, Pacific Dragon, entered into a tenancy agreement with
a related party, Yinlong, the joint venturer who held a 10% equity interest in
Pacific Dragon at the time, 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 amended by increasing the annual rent to
RMB 3,600,000 (equivalent to $518,940) effective July 1, 2005. Yinlong is owned
and controlled by Mr. Yu Chang and Ms. Xiao Rong Teng, who is one of the
directors of the Company.





On July
2, 2007, BeijingAgritech entered into a
tenancy agreement with Ms. Xiao Rong Teng to lease an office with a total floor
area of 780 meter square for a term of 5 years from February 1, 2007 to February
1, 2012 at an annual rent of RMB 480,000 (equivalent to approximately $68,800)
effective July 2, 2007.





On
February 12, 2009, Tailong entered into a share purchase agreement with
Pacific Dragon and Yinlong and a supplemental purchase agreement among
Yinlong, Pacific Dragon, Mr. Yu Chang and Ms. Xiao Rong Teng pursuant to which
Tailong agreed to acquire Yinlong’s 10% interest in Pacific Dragon for an
aggregate purchase price of $7,980,000. Mr. Chang has an 85% equity
interest in Yinlong and Ms. Teng owns the remaining 15% equity
interest.  On May 15, Tailong entered into an amendment to the
supplemental purchase agreement among Yinlong, Pacific Dragon, Mr. Yu Chang and
Ms. Xiao Rong Teng pursuant to which Tailong amended the purchase consideration
to include a cash payment of $1,000,000 and issuance of 3,490,000 new restricted
shares of common stock in the Company for the balance consideration of
$6,790,000.  On the same date, Tailong completed the
acquisition.





According
to the requirements in paragraphs 32 to 34 of SFAS 160, “Non-controlling
Interests in Consolidated Financial Statements – an amendment of ARB No. 51”,
the Company’s change in the ownership interest in Pacific Dragon was accounted
for as equity transactions and no gain or loss was recognized in the Company’s
consolidated income statement for six month ended June 30, 2009. The carrying
amount of the non-controlling interest in Pacific Dragon was adjusted to reflect
the change in the Company’s ownership interest in Pacific Dragon. Any difference
between the fair value of the consideration paid and the amount by which the
non-controlling interest was adjusted was recognized in equity attributable to
the Company.





As of
June 30, 2009, the Company had approximately $79,000 in capital commitments for
the purchase of organic granular compound fertilizer’s production facilities for
our plant in Xinjiang.


20


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





Introductory
Note


Except as
otherwise indicated by the context, references in this Quarterly Report on Form
10-Q (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 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 dollars are to the United States dollar, the legal
currency of the United States.





Special
Note Regarding Forward Looking Statements





This
Report contains forward-looking statements and information relating to China
Agritech that are based on the beliefs of our management, as well as assumptions
made by and information currently available to us.  Such statements
should not be unduly relied upon.  When used in this Report,
forward-looking statements include, but are not limited to, the words
“anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar
expressions, as well as 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
Annual Report on Form 10-K for the year ended December 31, 2008, filed with the
U.S. Securities and Exchange Commission (the “SEC”) on March 31, 2009, and any
statements or assumptions underlying any of the foregoing.  These
statements reflect our current view concerning future events and are subject to
risks, uncertainties and assumptions.  There are important factors
that could cause actual results to vary materially from those described in this
Report as anticipated, estimated or expected, including, but not limited
to:  competition in the fertilizer industry and the impact of such
competition on pricing, revenues and margins, volatility in the securities
market due to the general economic downturn; SEC regulations which affect
trading in the securities of “penny stocks,” and other risks and
uncertainties.  Except as required by law, we assume no obligation to
update any forward-looking statements publicly, or to update the reasons actual
results could differ materially from those anticipated in any forward- looking
statements, even if new information becomes available in the
future.  Depending on the market for our stock and other conditional
tests, a specific safe harbor under the Private Securities Litigation Reform Act
of 1995 may be available.  Notwithstanding the above, Section 27A of
the Securities Act of 1933, as amended (the “Securities Act”) and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
expressly state that the safe harbor for forward-looking statements does not
apply to companies that issue penny stock.  Because we may from time
to time be considered to be an issuer of penny stock, the safe harbor for
forward-looking statements may not apply to us at certain times.





Our
Business




China
Agritech, Inc. is a holding company whose direct and indirect subsidiaries
manufacture and sell organic liquid compound fertilizers; organic granular
compound fertilizers and related agricultural products. Our business operations
are primarily conducted through the following direct and indirect
subsidiaries:  Anhui Agritech Agriculture Development Limited (“Anhui
Agritech”), Beijing Agritech Fertilizer Ltd. (“Beijing Agritech”), China Tailong
Holdings Company Limited ("Tailong") and Pacific Dragon Fertilizers Co. Ltd.
("Pacific Dragon"). Our revenues are derived primarily from the sale of our
organic fertilizer products.  We are a leading manufacturer of
fertilizer products and, more specifically, organic fertilizer products in
liquid form, in China. We have been producing organic liquid compound fertilizer
products in China since 1994.





Our main
products include “LvLingBao III,” “LvLingBao IV,” “Tailong I,” “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 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 effectiveness 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.





China is
the principal market for our products, which are primarily sold to farmers in 20
provinces in China: Hainan, Anhui, Hubei, Jiangsu, Jiangxi, Guangxi, Liaoning,
Shanxi, Heilongjiang, Hebei, Jilin, Shandong, Inner Mongolia, Henan, Sichuan,
Guangdong, Xinjiang, Yunnan, Chongqing and Guizhou.


21




We
believe that our brand reputation and ability to tailor our products to meet the
requirements of various regions of China affords us a competitive advantage. We
purchase the majority of our raw materials from suppliers located in China and
use suppliers that are located in close proximity to our manufacturing
facilities.





To
capitalize on the increased demand for our products and geographic expansion of
our sales throughout China, we organized two operating subsidiaries in 2007,
Anhui Agritech and Beijing Agritech. Our Anhui facility, which is part of Anhui
Agritech, manufactures and sells our fertilizer products to customers generally
in the Anhui, Hubei, and Henan provinces of China which are in the central and
southern areas of China. Our Beijing Agritech facility, which is part of Beijing
Agritech, is our primary research and development center, syrup production
center and converting factory and also distributes our products to the central
and southern areas of China.  Our Harbin facility, which is part of
Pacific Dragon, primarily distributes our products to the northern areas of
China.




Our
annual production capacity in 2008 was approximately 13,000 metric tons of
organic liquid compound fertilizers. In 2008, we expanded our operations to
include granular fertilizers. Our annual production capacity for granular
fertilizers as of June 30 2009 was approximately 150,000 metric tons, consisting
of 100,000 metric tons in Anhui and 50,000 metric tons in Harbin.





We plan
to further expand our annual production capacity for granular fertilizers to
approximately 200,000 metric tons by completing another 50,000 granular plant in
Xinjiang by the end of 2009.




Recent
Developments




On May
15, 2009, Tailong entered into an amendment to the supplemental purchase
agreement among Yinlong, Pacific Dragon, Mr. Yu Chang, the Company’s Chief Executive
Officer, President, Secretary and Chairman, and Ms. Xiao Rong Teng, one of
the Company’s
directors, pursuant to which Tailong amended the settlement of the purchase
consideration of 10% interest in Pacific Dragon to cash payment of $1,000,000
and issuance of 3,490,000 new restricted shares of common stock in the Company
for the balance consideration of $6,790,000.  On the same date,
Tailong completed the acquisition of 10% interest in Pacific Dragon from
Yinlong. Mr. Chang has an 85% equity interest in Yinlong and Ms. Teng owns the
remaining 15% equity interest.





During
the second quarter of 2009, our granular production facilities in Anhui (100,000
metric tons) and in Harbin (50,000 metric tons) completed their
construction.  Their production plant commenced its commercial
production in the second quarter of 2009.




Our other
50,000 granular plant in Xinjiang is expected to be completed by the end of
2009. After completion, the Company will have an annual production capacity of
approximately 200,000 metric tons for granular fertilizers.


Overview





Net
revenue during the second quarter of 2009 was approximately 56.9% higher than
net revenue (after reclassification of marketing rebate of approximately
$716,478 from selling expenses to net revenues) during the second quarter of
2008.   The Company’s unaudited consolidated balance sheet as of June 30,
2009 included current assets of $81,730,439 and total assets of $88,916,720. The
Company had no long-term debt as of June 30, 2009.


22


Results of
Operations





Comparison of Three Months Ended June
30, 2009and2008.





The following table summarizes the
results of our operations
during the three-month periodended June 30, 2009and 2008and provides information regarding the
dollar and percentage increase or (decrease) from the 2008 fiscal period to the 2009fiscal period:





(All amounts, other than percentages, in
thousandsof U.S.
dollars)





ThreeMonths
                  Ended
                  6/30/09
                
                
                Three Months
                  Ended
                  6/30/08
                
                
                Dollar($)
                  Increase
                  (Decrease)
                
                
                Percentage (%)
                  Increase
                  (Decrease)Net Revenue
                
                $
                20,989
                
                
                $
                13,376
                
                
                
                7,613
                
                
                
                56.9Cost of
    Revenue
                
                
                (12,034
                )
                
                
                (6,852
                )
                
                
                5,182
                
                
                
                75.6Gross Profit
                
                
                8,955
                
                
                
                6,524
                
                
                
                2,431
                
                
                
                37.3Selling
      Expenses
                
                
                (625
                )
                
                
                (509
                )
                
                
                116
                
                
                
                22.8Operating and Administrative
      Expenses
                
                
                (872
                )
                
                
                (1,050
                )
                
                
                (178
                )
                
                
                (17.0
                )Income From
      Operations
                
                
                7,458
                
                
                
                4,965
                
                
                
                2,493
                
                
                
                50.2Other Income
      (Expenses)
                
                
                1
                
                
                
                (178
                )
                
                
                179
                
                
                
                100.6Income Tax
                
                
                (1,602
                )
                
                
                (1,433
                )
                
                
                169
                
                
                
                11.8Net income
                
                
                5,857
                
                
                
                3,354
                
                
                
                2,503
                
                
                
                74.6Net income attributable to
      non-controlling interest ina
    subsidiary
                
                
                (267
                )
                
                
                (430
                )
                
                
                (163
                )
                
                
                (37.9
                )Net incomeattributable to common
      stockholders
                
                
                5,590
                
                
                
                2,924
                
                
                
                2,666
                
                
                
                91.2





Net
Revenue. Our net
revenuefor three months
ended June 30, 2009 amounted to $20,989,000, an increase of approximately
$7,613,000 or 56.9%, as compared to $13,376,000 for three months ended June 30,
2008.The increase wasmainly attributable tothe sale of granular
fertilizersof
approximately $7,357,000for the second quarter of 2009 whereas
there was no such sale for thesame periodof 2008.





Costs
of Revenue.Our costof revenuewas $12,034,000 for three months ended
June30, 2009, an increase
of approximately $5,182,000 or 75.6% as compared to $6,852,000 for three months
ended June 30, 2008.  Our cost of revenue wasprimarily comprised of the cost ofraw materials, direct labor and manufacturing
overhead expenses.The cost
of revenue increased because of granular fertilizer’s sales that had a higher cost of
revenue than liquid fertilizer’s sales.  Thepercentages of the costs of revenue to
total revenueswere57.3% and 51.2% for threemonths ended on June 30, 2009and 2008respectively.





Gross
Profit.Our gross profit was $8,955,000 for
three months ended June 30, 2009, an increase of approximately $2,431,000 or 37.3%, as compared to $6,524,000 for three months ended June 30, 2008.Gross profit as a percentage of net revenue was42.7% forthree months ended June 30,
2009, as compared to48.8% forthree months ended June 30,
2008.The decrease in gross profit as a
percentage of revenue was mainly due to thesale of granular fertilizers with lower
gross profit margin than liquid fertilizers.The gross profit margin of
granular fertilizers was approximately 21% for three months ended June 30, 2009
whereas the gross profit margin of liquidfertilizers was approximately 53% for three months ended June 30,
2009.





Selling
Expenses. Our selling
expenses consistedprimarily of sales commission,
advertising and promotion expenses, freight chargesand related compensation.Our selling expenses were $625,000 for
three months ended June 30
2009, as compared to $509,000 for the same period ended June 30,
2008, an increase of approximately $116,000 or22.8%.The increasewas primarily attributable
tothe sale of
granular fertilizers for the second quarter of 2009 whereas there was no such
sale for the same period of 2008.





Operating
and Administrative Expenses.Our operating and administrative expenses
consistedprimarily of rental expenses,salaries andrelatedbenefits, business development, depreciation and
travelling expenses,andlegal and professional expenses.Our general and administrative expenses
were $872,000 for three
months ended June 30, 2009, as compared to $1,050,000 for the same period ended June
30, 2008, a decrease of approximately $178,000 or17.0%.  The decrease was
attributable totighter
cost control byreducingnon-recurringlegal and professional fees.





Income
From Operations.Income from operations was about
$7,458,000 for three months ended June 30, 2009, as compared to $4,965,000 for
the same period ended June 30, 2009, an increase of approximately
$2,493,000 or 50.2%.The increasewas caused by thesuccessful salesof ournew product, granular fertilizers, that contributed
additional income from operations of approximately $1,525,000, reduced cost of
revenue of liquid fertilizers and a decrease inoperating and administrative
expenses.




23




Other
Income (Expense).Otherincome (expense)mainlyconsistsofexchange loss.Other income (expense) was
$1,000 income for three months ended June 30 2009, as compared to $178,000 loss
for the same period ended
June 30, 2008.  The loss in2008 wasresulted from the loss in exchange ofUS dollar deposits into
Chinese Yuan due to the weaker US dollar relative to Chinese Yuan in
2008.





Income
taxes.The Company’s operating subsidiaries in China are
governed bythe PRC income
tax laws and are subject to a uniform PRC enterprise income tax rate of 25% for
fiscal 2009 and 2008.  Income tax expense was $1,602,000, representing
an effective tax rate of21.5%, for three months ended June 30,
2009, as compared to $1,433,000, representing an effective tax
rate of 29.9%, for three months ended June 30, 2008.  The decrease in
the effective tax rate was primarily because one of operating subsidiaries in
China that generated net operating profit for the quarter is still
intax exemption period and not subject to
the PRC income tax for fiscal 2009.





Net
Income.Net income was $5,857,000 for three
months ended June 30, 2009.  There was an increase of approximately
$2,503,000 or 74.6%, from a net income of $3,354,000 for threemonths ended June 30, 2008.The increase was attributable tothe successful sale of
granularfertilizers, lower cost of revenue of liquid
fertilizer, lower operating and administrative expensesand lowerincome tax for the
period.





Net Income
Attributable to Non-controlling Interest in a Subsidiary. Net income
attributable to non-controlling interest in a subsidiary was approximately
$267,000 for three months ended June 30, 2009, as compared to $430,000 for the
same period ended June 30, 2008, a decrease of approximately $163,000 or
37.9%.  The decrease was due to the completion of acquisition of 10%
non-controlling interest in Pacific Dragon in May 2009 and therefore, only
two-month net income of Pacific Dragon was accounted for in the Company’s book
for the period.





Net Income
Attributable to Common Stockholders. Net income attributable to common
stockholders was $5,590,000 for three months ended June 30,
2009.  There was an increase of approximately $2,666,000 or 91.2% from
our net income attributable to common stockholders for the same period ended
June 30, 2009 of about $2,924,000 mainly due to higher net income and lower net
income attributable to non-controlling interest in a subsidiary as explained
above.


24





Comparison of Six Months Ended
June 30, 2009 and
2008.





The following table summarizes the
results of our operations during the six-month period ended June 30, 2009 and
2008 and provides information regarding the dollar and percentage increase or
(decrease) from the 2008 fiscal period to the 2009 fiscal
period:





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





Six Months
                  Ended
                  June 30,
    2009
                
                
                Six Months
                  Ended
                  June 30,
    2009
                
                
                Dollar ($)
                  Increase
                  (Decrease)
                
                
                Percentage (%)
                  Increase
                  (Decrease)Net Revenue
                
                $
                28,336
                
                
                $
                20,693
                
                
                
                7,643
                
                
                
                36.9Cost of
    Revenue
                
                
                (16,012
                )
                
                
                (10,532
                )
                
                
                5,480
                
                
                
                52.0Gross
Profit
                
                
                12,324
                
                
                
                10,161
                
                
                
                2,163
                
                
                
                21.3Selling
      Expenses
                
                
                (1,031
                )
                
                
                (1,216
                )
                
                
                (185
                )
                
                
                (15.2
                )Operating andAdministrative
      Expenses
                
                
                (1,856
                )
                
                
                (1,924
                )
                
                
                (68
                )
                
                
                (3.5
                )Income From
      Operations
                
                
                9,437
                
                
                
                7,021
                
                
                
                2,416
                
                
                
                34.4Other Income
      (Expenses)
                
                
                3
                
                
                
                (111
                )
                
                
                114
                
                
                
                102.7Income Tax
                
                
                (2,316
                )
                
                
                (2,150
                )
                
                
                166
                
                
                
                7.7Net income
                
                
                7,124
                
                
                
                4,760
                
                
                
                2,364
                
                
                
                49.7Net income attributable to
      non-controlling interest in a subsidiary
                
                
                (481
                )
                
                
                (645
                )
                
                
                (164
                )
                
                
                (25.4
                )Net income attributable to common
      stockholders
                
                
                6,643
                
                
                
                4,115
                
                
                
                2,528
                
                
                
                61.4





Net
Revenue. Our net revenue for sixmonths ended June 30, 2009amounted to $28,336,000, anincrease of approximately
$7,643,000 or 36.9%, as compared to $20,693,000 for sixmonths ended June 30,
2008.  The increase was mainly attributable to the sale of granular
fertilizers of
$7,357,000 for the six
months period ended June 30,2009 whereas there was no such sale for
the same period of 2008.





Costs
of Revenue. Ourcost of revenue was
$16,012,000 for sixmonths
ended June 30, 2009, anincrease of approximately
$5,480,000 or52.0% as compared to $10,532,000 for sixmonths ended June 30,
2008.  Our cost of revenue was primarily comprised of the cost of raw
materials, direct labor and manufacturing overhead expenses.  The cost
of revenue increased because of granular fertilizer’s sales that had a higher cost of
revenue than liquid fertilizer’s sales.  The percentages of
the costs of revenue to
total revenues were 56.5% and 50.9% for sixmonths ended on June 30, 2009 and 2008
respectively.





Gross
Profit.Our gross profit was $12,324,000 for sixmonths ended June 30, 2009, anincrease of approximately
$2,163,000 or21.3%, as compared to $10,161,000 for
sixmonths ended June 30,
2008.  Gross profit as a percentage of net revenue was 43.5% for
sixmonths ended June 30,
2009, as compared to 49.1% for sixmonths ended June 30,
2008.  The decrease in gross profit as a percentage of revenue was
mainly due to the sale of granular fertilizers withalower gross profit margin than liquid
fertilizers.  The gross profit margin of granular fertilizerswas approximately 21% for
sixmonths ended June 30,
2009 whereas the gross profit margin of liquid fertilizers was
approximately 53% for
sixmonths ended June 30,
2009.





Selling
Expenses. Our selling
expenses consisted primarily of sales commission, advertising and promotion expenses,
freight charges and related compensation.Our selling expenses were
$1,031,000 for sixmonths
ended June 30 2009, as
compared to $1,216,000 for the same period ended June 30,
2008,a decrease of
approximately $185,000or 15.2%.  The decrease was primarily
attributable to the decrease in advertising and promotion expenses by approximately
$84,000 and efficient
management of our sales network.  We cancelled the reimbursement of
travel and miscellaneous expenses for our sales representatives and as a result,
our selling expenses decreased accordingly.





Operating
and Administrative Expenses.Our operating and administrative
expenses consisted primarily of rental expenses, salaries and related benefits,
business development,depreciation and travelling expenses, and legal and professional
expenses.  Our general and administrative expenses were $1,856,000 for sixmonths ended June 30, 2009, as compared to $1,924,000 for the same period ended June 30,
2008,a decrease of
approximately $68,000 or
3.5%.  The
decrease was attributable to tighter cost control by reducing non-recurring
legaland professional
fees.





Income
From Operations.Incomefrom operations was about
$9,437,000 for sixmonths
ended June 30, 2009, as
compared to $7,021,000 for the same period ended June 30,
2009, anincrease of
approximately $2,416,000 or 34.4%. The increase was caused by the successful
saleof our new product,
granular fertilizers, that contributed additional income from operations of
approximately $1,525,000,
reduced cost of revenue of liquid fertilizers and a decrease in selling,
operating and administrative expenses.


25





Other
Income (Expense).Other
income (expense) mainly consists of exchange loss.  Other income (expense) was
$3,000 income for sixmonths ended June 30 2009, as compared to $111,000 loss for the same period ended June
30, 2008.  The
loss in 2008 wasresulted
from the loss in exchange of US dollar deposits into Chinese Yuan due to the
weaker US dollar relative to Chinese Yuan in 2008.





Income
taxes.  The
Company’s operating subsidiaries in China are
governed by the PRC income tax laws and are subject to a uniform PRC enterprise
income tax rate of 25% for fiscal 2009 and 2008.  Income tax expense was
$2,316,000,
representing an
effective tax rate of
24.5%, for sixmonths ended
June 30, 2009, as compared
to $2,150,000,
representing an effective
tax rate of 31.1%, for sixmonths ended June 30, 2008.  The decrease in the effective tax rate
was primarily because one of operating subsidiaries in China that generated netoperating profit for the
periodis still in tax
exemption period and not subject to the PRC income tax for fiscal
2009.





Net
Income. Net income was
$7,124,000 for sixmonths
ended June 30, 2009.  There was anincrease of approximately $2,364,000 or49.7%, from a net income of $4,760,000 for
sixmonths ended June 30,
2008.  The
increasewas attributable
to the successful sale of granular fertilizers, lower cost of revenue of liquid
fertilizer, lower selling, operating and administrative expenses and lower income tax
for the period.





Net Income
Attributable to Non-controlling Interest in a Subsidiary. Net income
attributable to non-controlling interest in a subsidiary was approximately
$481,000 for six months ended June 30, 2009, as compared to $645,000 for the
same period ended June 30, 2008, a decrease of approximately $164,000 or
25.4%.  The decrease was due to the completion of acquisition of 10%
non-controlling interest in Pacific Dragon in May 2009 and therefore, only
five-month net income of Pacific Dragon was accounted for in the Company’s book
for the period.





Net Income
Attributable to Common Stockholders. Net income attributable to common
stockholders was $6,643,000 for six months ended June 30, 2009.  There
was an increase of approximately $2,528,000 or 61.4% from our net income
attributable to common stockholders for the same period ended June 30, 2009 of
about $4,115,000 mainly due to higher net income and lower net income
attributable to non-controlling interest in a subsidiary as explained
above.





Liquidity and Capital
Resources





As of June 30, 2009, we had cash andcash equivalents of approximately $16.5
million. Ourcurrentassets were $81.7 millionand our current liabilities were $15.2
millionas of June 30,
2009,which results in a current ratio of approximately
5.4times. Our total
stockholders’equity asof June 30, 2009was $73,729,749. We had no bank loans or other interest
bearing borrowings as of
June 30, 2009. We believe
that our currently available workingcapital will be sufficient to maintain
our operations at our current levels for the next twelve months.As of June 30, 2009, we had
approximately $79,000 in capital commitment for the purchase of organic granular
compound fertilizer production facilities.




Cash Flows (in U.S.
Dollars)


Six Months
                  Ended June
    30,2009
                
                2008Net cashprovided(used)in operating
      activities
                
                
                8,039,316
                
                
                (723,813
                )Net cash used ininvesting
      activities
                
                
                (3,037,508
                )
                
                (2,157,367
                )Net cash provided byfinancing
      activities
                
                
                -
                
                
                -Netincrease/(decrease)in cash
                
                
                5,001,808
                
                
                (2,881,180
                )




Operating
Activities:




Net cashgenerated from operating activities was
$8,039,316 for six months ended June 30, 2009, which was an increase of
$8,763,129 , as compared to
the $723,813 net cash used in operating activities for the same period in
2008.  The increase was primarily attributable to an increase in net
income of $2,364,070, a decrease in advances to suppliers of
$2,254,919, an increase in accounts payable of $7,243,456, an increase in
accrued expenses and other payables of$2,356,348 and an increase in tax
payable of $890,643 which was offset by the increase in our accounts receivables
by $2,000,393.


26





Investing
Activities:





Net cash used in investing activities was $3,037,508 for six
months ended June 30, 2009, which was an increase of $880,141 from the
$2,157,367 net cash used in investing activities for the same period in
2008.  The increase was primarily attributable to the payment of
$1,000,000 cash for the acquisition of 10%
interest in Pacific Dragon.





Financing Activities





The Company did not have any financing
activity for the six-month period ended June 30, 2009.





Critical
Accounting Policies





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America (“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 most significant judgments and
estimates in the preparation of financial statements, including the
following:




▪
            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.





▪
            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 inventories with net realizable value, if lower than the
      cost.




▪
            Impairment.
       We apply the provisions of Statement of Financial Accounting
      Standard (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of
      Long-Lived Assets,” issued by the Financial Accounting Standards Board
      (“FASB”). SFAS 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
      estimate results in our evaluation of potential impairment and then
      compare 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.





▪
            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.




27





▪
            Foreign
      currency translation. We use U.S. dollars for financial reporting
      purposes. Our subsidiaries maintain their books and records in their
      functional currency, RMB.  It is the primary currency of the
      PRC, the economic environment in which our subsidiaries’ operations are
      conducted. In general, for consolidation purposes, we translate our
      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 is
      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 component of comprehensive
      income. The functional currency of our Company is RMB. 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 becomes 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 require 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, but 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 and thereby reducing
demand for our products.




ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.




Not
applicable to smaller reporting companies.





ITEM
4T. CONTROLS AND PROCEDURES





Disclosure
Controls and Procedures





Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness, as of June 30, 2009, of the design and
operation of our disclosure controls and procedures, as such term is defined in
Exchange Act Rules 13a-15(e) and 15d-15(e).  Based on this evaluation,
our principal executive officer and principal financial officer have concluded
that, as of such date, our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in our Exchange Act
reports is recorded, processed, summarized, and reported within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to our management, including our principal executive officer
and principal financial officer, as appropriate to allow timely decisions
regarding required disclosure.





Changes
in Internal Controls over Financial Reporting




There has
been no change in our internal control over financial reporting during the
second quarter of 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.


28


PART II.  OTHER
INFORMATION





ITEM
1.  LEGAL PROCEEDINGS





None.





ITEM
1A.  RISK FACTORS





Not
applicable to smaller reporting companies.





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




None.




ITEM
3.  DEFAULTS UPON SENIOR SECURITIES





None.





ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





On June
19, 2009, holders of 14,325,386 shares of our outstanding common stock, or
50.82% of the 28,189,615 outstanding shares of common stock on that date,
authorized, by written consent, an amendment to our certificate of incorporation
to effect a four-for-one reverse stock split of our common
stock.   The board of directors has yet to determine the date
that the amendment to the certificate of incorporation will be filed with the
Secretary of State of the State of Delaware.





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.


29


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.


CHINA
      AGRITECH, INC.Date:  August
      14 , 2009
              By:  /s/ Yu ChangYu
      ChangChief
      Executive Officer, President, Secretary and Chairman (Principal Executive
      Officer)Date:  August
      14 , 2009
              By:  /s/ Yau-Sing TangYau-Sing
      TangChief
      Financial Officer and Controller (Principal Financial
    Officer)




30





EXHIBIT
INDEX





ExhibitNumber
              Description31.1
              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.




31