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UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION

FORM 10

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: September 30, 2006

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________

Commission File Number: 000-49608

CHINA AGRITECH, INC.

|Delaware                            | 75-2955368                   
|----------------------------------- | -----------------------------
|(State
    or other jurisdiction of | (I.R.S.
    Empl. Ident. No.)
|incorporation or organization)      |                              

|                                                                                      
|--------------------------------------------------------------------------------------
|A# Room 0706-0707, The Spaces
    International Center,                               
|No. 8 Dongdaqiao Road,                                                                
|Chaoyang District, Beijing                                                            
|People's Republic of China, 100020                                                    
|(Address of principal executive offices, Zip Code)                                    
|                                                                                      
|(86) 10-58702123                                                                      
|(Registrant's telephone number, including
    area code)                              
|                                                                                      
|N/A                                                                                   
|(Former name, former address and former
    fiscal year, if changed since last report)

Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

Yes X        
No ___

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

Large accelerated filer ___        
Accelerated filer ___        
Non-accelerated filer X

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

The number of shares outstanding of
each of the issuer's classes of common equity, as of November 10, 2006 is as
follows:

|Class of Securities            | Shares Outstanding
|------------------------------ | ------------------
|Common Stock, $0.001 par value | 19,143,615        

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PART I 
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.

|CHINA AGRITECH, INC. AND SUBSIDIARIES                                                                          
|---------------------------------------------------------------------------------------------------------------
|CONSOLIDATED BALANCE SHEET AS OF
    SEPTEMBER 30, 2006                                                        
|(UNAUDITED)                                                                                                    
|                                                                                                               
|ASSETS                                                                                                         
|Current Assets                                                                                                 
|Cash and cash
    equivalents                                                                                  
|Restricted cash                                                                                                
|Accounts receivable,
    net                                                                                   
|Inventories                                                                                                    
|Advances to suppliers                                                                                          
|Prepayments and other
    receivables                                                                          
|                                                                                                               
|Total Current
    Assets                                                                                       
|                                                                                                               
|Property, plant and
    equipment, net                                                                         
|                                                                                                               
|Total Assets                                                                                                   
|                                                                                                               
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                           
|                                                                                                               
|Current Liabilities                                                                                            
|Accounts payable                                                                                               
|Accrued liabilities
    and other payables                                                                     
|Amount due to a
    director                                                                                   
|Income taxes payable                                                                                           
|                                                                                                               
|Total Current
    Liabilities                                                                                  
|                                                                                                               
|Minority Interests                                                                                             
|                                                                                                               
|Commitments                                                                                                    
|                                                                                                               
|Stockholders' Equity                                                                                           
|Common stock, $0.001
    par value, 100,000,000 shares authorized, 19,143,615 shares issued and
    outstanding
|Additional paid-in
    capital                                                                                 
|Statutory reserves                                                                                             
|Accumulated other
    comprehensive income                                                                     
|Retained earnings                                                                                              
|                                                                                                               
|Total Stockholders' Equity                                                                                     
|                                                                                                               
|Total Liabilities
    and Stockholders' Equity                                                                 
|                                                                                                               
|The accompanying notes are an integral part of these
    condensed consolidated financial statements.          

1

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CHINA AGRITECH, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS 
FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2006 AND 2005 
(UNAUDITED)

|                                                                                                      |   | September 30, |   | September 30,
|----------------------------------------------------------------------------------------------------- | - | ------------- | - | -------------
|                                                                                                      |   | 2006          |   | 2005         
|Net revenue                                                                                           | $ | 7,601,819     | $ | 5,760,407    
|Cost of revenue                                                                                       |   | (3,589,872)   |   | (3,197,088)  
|Gross profit                                                                                          |   | 4,011,947     |   | 2,563,319    
|Operating expenses                                                                                    |   |               |   |              
|Selling expenses                                                                                      |   | (679,211)     |   | (771,690)    
|Operating and administrative
    expenses                                                             |   | (1,076,929)   |   | (652,407)    
|Total operating expenses                                                                              |   | (1,756,140)   |   | (1,424,097)  
|Income from operations                                                                                |   | 2,255,807     |   | 1,139,222    
|Other income (expense)                                                                                |   |               |   |              
|Other (expense) income                                                                                |   | (6,854)       |   | 51           
|Finance costs                                                                                         |   | (11,654)      |   | (410)        
|Total other expenses                                                                                  |   | (18,508)      |   | (359)        
|Income before income taxes                                                                            |   | 2,237,299     |   | 1,138,863    
|Provision for income taxes                                                                            |   | (938,523)     |   | (493,846)    
|Income before minority
    interests                                                                  |   | 1,298,776     |   | 645,017      
|Minority interests                                                                                    |   | (190,550)     |   | (119,542)    
|Net income                                                                                            |   | 1,108,226     |   | 525,475      
|Other comprehensive income                                                                            |   |               |   |              
|Foreign currency translation
    adjustment                                                           |   | 455,463       |   | -            
|Comprehensive income                                                                                  | $ | 1,563,689     | $ | 525,475      
|Basic weighted average shares
    outstanding                                                         |   | 19,143,615    |   | 14,238,657   
|Basic net earnings per share                                                                          | $ | 0.06          | $ | 0.04         
|Diluted weighted average shares
    outstanding                                                       |   | 19,143,615    |   | 14,238,657   
|Diluted net earnings per share                                                                        | $ | 0.06          | $ | 0.04         
|                                                                                                      |   |               |   |              
|The accompanying notes are an integral part of these
    condensed consolidated financial statements.

2

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CHINA AGRITECH, INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH
FLOW 
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2006 AND 2005
 (UNAUDITED)

|                                                                                 |   | 2006        |   | 2005       
|-------------------------------------------------------------------------------- | - | ----------- | - | -----------
|Cash flows from
    operating activities                                         |   |             |   |            
|Net income                                                                       | $ | 4,210,356   | $ | 2,596,236  
|Adjustment to
    reconcile net income to net cash used in operating activities: |   |             |   |            
|Minority interests                                                               |   | 647,688     |   | 473,326    
|Stock compensation expenses                                                      |   | 2,398       |   | -          
|Depreciation                                                                     |   | 90,471      |   | 49,767     
|Changes in operating
    assets and liabilities:                                 |   |             |   |            
|(Increase) decrease in current assets                                            |   |             |   |            
|Due from shareholders                                                            |   | (439,351)   |   | (23,234)   
|Advance/repayment from related parties                                           |   | (162,996)   |   | (33,662)   
|Accounts receivable, net                                                         |   | (8,454,017) |   | (5,950,513)
|Restricted cash                                                                  |   | 95,598      |   | -          
|Prepayment and other receivable                                                  |   | 139,423     |   | (22,328)   
|Inventories                                                                      |   | (822,746)   |   | 64,355     
|Advances to suppliers                                                            |   | 643,490     |   | -          
|(Decrease) increase in:                                                          |   |             |   |            
|Accounts payable                                                                 |   | 1,450,674   |   | 2,226,871  
|Accrued liabilities and other payables                                           |   | 130,554     |   | 394,276    
|Income tax payable                                                               |   | 458,853     |   | 152,607    
|Due to shareholders                                                              |   | -           |   | (499,031)  
|Due to related parties                                                           |   | -           |   | (575,994)  
|                                                                                 |   |             |   |            
|Net cash used in operating activities                                            |   | (2,009,605) |   | (1,147,324)
|                                                                                 |   |             |   |            
|Cash flows from
    investing activities                                         |   |             |   |            
|Cash acquired from reverse acquisition of Tailong                                |   | -           |   | 185,635    
|Purchase of property, plant and equipment                                        |   | (1,267,032) |   | (528)      
|                                                                                 |   |             |   |            
|Net cash provided by (used in) investing
    activities                          |   | (1,267,032) |   | 185,107    
|                                                                                 |   |             |   |            
|Cash flows from
    financing activities                                         |   |             |   |            
|Capital contributed                                                              |   | 11,081,575  |   | 1,350,000  

3

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|CHINA AGRITECH, INC. AND SUBSIDIARIES                                                                
|-----------------------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF CASH FLOW                                                                 
|FOR THE NINE MONTH PERIODS ENDED
    SEPTEMBER 30, 2006 AND 2005                                     
|(UNAUDITED)                                                                                          
|                                                                                                     
|                                                                                                     
|                                                                                                     
|Net increase in
    cash and cash equivalents                                                        
|                                                                                                     
|Effect of exchange
    rate change on cash and cash equivalent                                       
|                                                                                                     
|Cash and cash
    equivalents at beginning of period                                                 
|                                                                                                     
|Cash and cash
    equivalents at end of period                                                       
|                                                                                                     
|Supplementary
    disclosures of cash flow information:                                              
|Income taxes paid                                                                                    
|Cash from issue of common stock placed in escrow
    account                                         
|                                                                                                     
|The accompanying notes are an integral part of these
    condensed consolidated financial statements.



4

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CHINA AGRITECH, INC. AND SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 
(Unaudited)
1.ORGANIZATION AND
DESCRIPTION OF BUSINESS

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

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

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

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

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

Tailong was incorporated on October 27, 2003 under the laws
of Hong Kong. On October 9, 2004, Tailong acquired 90% of Pacific Dragon, which
conducts Tailong's only business operation. Pacific Dragon is a foreign
investment joint venture and was incorporated in the PRC on May 20, 1994.
Pacific Dragon is classified as a Foreign Investment Enterprise ("FIE") in the
PRC and is subject to the FIE laws of the PRC. Its legal structure is similar to
a limited liability company organized under state laws in the United States. The
Articles of Association provide for a term of 15 years with registered capital
of $500,000. Pacific Dragon engages in the business of manufacturing and
marketing a series of organic liquid compound fertilizers. These products are
marketed and sold to farmers in 11 provinces of China. Pacific Dragon conducts
ongoing research and development to enhance concentration of the organic liquid
compound fertilizer and lower the manufacturing cost. The principal researchers
in Pacific Dragon are Liu Shuhua and Liu Kangde. Our major products include "LvLingBao
II", LvLingBao III" and "Tailong I".

Prior to the acquisition of Tailong, the Company was a
non-operating public shell corporation. Pursuant to Securities and Exchange
Commission rules, the merger or acquisition of a private operating company into
a non-operating public shell corporation with nominal net assets is considered a
capital transaction in substance, rather than a business combination.
Accordingly, for accounting purposes, the transaction has been treated as a
reverse acquisition and a recapitalization, and pro-forma information is not
presented. Transaction costs incurred in the reverse acquisition have been
charged to expense.

5

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1. ORGANIZATION AND DESCRIPTION OF BUSINESS (CONT'D)

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

On July 6, 2006 our new factory Anhui Agritech Agricultural
Development Co. Ltd. ("Anhui Agritech") was set up in Anhui province. The new
facility serves Anhui, Hubei, and Henan provinces. The Company has already
established 10 regional sales centers in these three provinces.

On September 20, 2006 our new factory Agritech Fertilizer
Company Limited ("Beijing Agritech") was set up in Beijing. This facility serves
as the primary syrup concentrate production center, converting factory and
research and development institute. The Company already has nine regional sales
centers established in this region.

2.     BASIS OF PRESENTATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited financial statements of the
Company have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission ("SEC") for interim financial information.
Accordingly, they do not include all of the information required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the interim periods are not necessarily indicative of the results
for any future period. These statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the fiscal year
ended December 31, 2005. The results of the nine month period ended September
30, 2006 are not necessarily indicative of the results to be expected for the
full fiscal year ending December 31, 2006.

a.     Principle of consolidation

The accompanying consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiary, Tailong, and its 90% owned subsidiary, Pacific Dragon, and its
wholly-owned subsidiary Agritech Fertilizer Company Limited ("Beijing Agritech"),
and its wholly-owned subsidiary Anhui Agritech Agricultural Development Co. Ltd.
("Anhui Agritech") (collectively "the Company"). All significant inter-company
accounts and transactions have been eliminated in consolidation.

b.     Use of estimates

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

c.     Cash and cash equivalents

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

d.     Accounts receivable

The Company's policy is to maintain
reserves for potential credit losses on accounts receivable. Management reviews
the composition of accounts receivable and analyzes historical bad debts,
customer concentrations, customer credit worthiness, current economic trends and
changes in customer payment patterns to evaluate the adequacy of these reserves.
The Company had accounts receivable of $17,259,379, net of allowance of
$728,916, as of September 30, 2006.

6

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e.     Advances to suppliers

The Company advances to certain
vendors for purchase of its material. The advances to suppliers amounted to
$1,466,190 as of September 30, 2006.

f.     Inventories

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

g.     Property, plant and equipment

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

Depreciation for financial reporting
purposes is provided using the straight-line method over the estimated useful
lives of the assets: 5 to 10 years for plant and machinery; 5 to 7 years for
office equipment; and 3 to 5 years for motor vehicles.

h.     Impairment

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

The Company tests long-lived assets,
including property, plant and equipment and intangible assets subject to
periodic amortization, for recoverability at least annually or more frequently
upon the occurrence of an event or when circumstances indicate that the net
carrying amount is greater than its fair value. Assets are grouped and evaluated
at the lowest level for their identifiable cash flows that are largely
independent of the cash flows of other groups of assets. The Company considers
historical performance and future estimated results in its evaluation of
potential impairment and then compares the carrying amount of the asset to the
future estimated cash flows expected to result from the use of the asset. If the
carrying amount of the asset exceeds estimated expected undiscounted future cash
flows, the Company measures the amount of impairment by comparing the carrying
amount of the asset to its fair value. The estimation of fair value is generally
measured by discounting expected future cash flows as the rate the Company
utilizes to evaluate potential investments. The Company estimates fair value
based on the information available in making whatever estimates, judgments and
projections are considered necessary. There was no impairment of long-lived
assets in the nine month periods ended September 30, 2006 and 2005.

i.     Revenue recognition

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

7

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

j.     Advertising costs

The Company expenses the cost of
advertising as incurred or, as appropriate, the first time the advertising takes
place. Advertising costs for the nine month periods ended September 30, 2006 and
2005 were $446,983 and $422,270, respectively. Advertising costs for the three
month periods ended September 30, 2006 and 2005 were $119,606 and $182,012,
respectively.

k.     Income taxes

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

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

l.     Foreign currency translation

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

8

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2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONT'D)
m.     Fair values of financial instruments
Statement of Financial Accounting
Standard No. 107, "Disclosures about Fair Value of Financial Instruments",
requires that the Company disclose estimated fair values of financial
instruments.
The Company's financial instruments
primarily consist of cash and cash equivalents, accounts receivable, other
receivables, advances to suppliers, accounts payable, other payable, tax
payable, and related party advances and borrowings.
As of the balance sheet dates, the
estimated fair values of the financial instruments were not materially different
from their carrying values as presented on the balance sheet. This is attributed
to the short maturities of the instruments and that interest rates on the
borrowings approximate those that would have been available for loans of similar
remaining maturity and risk profile at respective balance sheet dates.
n.     Earning per share (EPS)
Earnings per share is calculated in
accordance with the Statement of Financial Accounting Standards No. 128 ("SFAS
No. 128"), "Earnings per share". SFAS No. 128 superseded Accounting Principles
Board ("APB") Opinion No.15 ("APB 15"). Earnings per share for all periods
presented has been restated to reflect the adoption of SFAS No. 128. Basic
earnings per share is based upon the weighted average number of common shares
outstanding. Diluted earnings per share is based on the assumption that all
dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.
o.     Segment reporting
Statement of Financial Accounting
Standards No. 131 ("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 consolidated financial statements as the Company operates in one
reportable business segment, that being the manufacture and marketing of
fertilizers in China.
p.     Statement of cash flows
In accordance with Statement of
Financial Accounting Standards No. 95, "Statement of Cash Flows," cash flows
from the Company's operations are calculated based upon the local currencies. As
a result, amounts related to assets and liabilities reported on the statement of
cash flows may not necessarily agree with changes in the corresponding balances
on the balance sheet.
92.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONT'D)
q.     Recent accounting pronouncements
In December 2004, the FASB issued
FASB Statement No. 123R, "Share-Based Payment, an Amendment of FASB Statement
No. 123" ("FAS No. 123R"). FAS No. 123R requires companies to recognize in the
statement of operations the grant-date fair value of stock options and other
equity-based compensation issued to employees. FAS No. 123R is effective
beginning in the Company's second quarter of fiscal 2006. The Company does not
expect the adoption of FAS No. 123R to have a material impact on its
consolidated financial position, results of operations or cash flows.
In May 2005, the FASB issued FASB
Statement No. 154, "Accounting Changes and Error Corrections - a replacement of
APB Opinion No. 20 and FASB Statement No. 3". This statement replaces APB
Opinion No. 20, "Accounting Changes", and FASB Statement No. 3, "Reporting
Accounting Changes in Interim Financial Statements", and changes the
requirements for the accounting for and reporting of a change in accounting
principle. This statement applies to all voluntary changes in accounting
principle. It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition
provisions. This statement is effective for accounting changes and correction of
errors made in fiscal years beginning after December 15, 2005. Management
believes the adoption of this pronouncement will not have a material effect on
our consolidated financial statements.
In June 2005, the FASB ratified the
Emerging Issues Task Force ("EITF") consensus to amend EITF No. 96-16,
"Investor's Accounting for an Investee When the Investor Has a Majority of the
Voting Interest but the Minority Shareholders Have Certain Approval or Veto
Rights". The EITF agreed to amend the Protective Rights section of this
consensus, as well as Example of Exhibit 96-16A, to be consistent with the
consensus reached in Issue No. 04-5, "Determining Whether a General Partner, or
the General Partners as a Group, Controls a Limited Partnership or Similarly
Entity When the Limited Partners Have Certain Rights." The provisions of this
amendment should be applied prospectively to new investments and to investment
agreements that are modified after June 29, 2005. Management believes the
adoption of this pronouncement will not have a material effect on our
consolidated financial statements.
In June 2005, the EITF reached
consensus on Issue No. 05-6, "Determining the Amortization Period for Leasehold
Improvements" ("EITF 05-6.") EITF 05-6 provides guidance on determining the
amortization period for leasehold improvements acquired in a business
combination or acquired subsequent to lease inception. The guidance in EITF 05-6
will be applied prospectively and is effective for periods beginning after June
29, 2005. EITF 05-6 is not expected to have a material effect on its
consolidated financial position or results of operations.
In February 2006, FASB issued SFAS
No. 155, "Accounting for Certain Hybrid Financial Instruments" ("SFAS No. 155").
SFAS No. 155 amends SFAS No 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"), and SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
140"). SFAS No. 155 permits fair value remeasurement for any hybrid financial
instrument that contains an embedded derivative that otherwise would require
bifurcation, clarifies which interest-only strips and principal-only strips are
not subject to the requirements of SFAS No. 133, establishes a requirement to
evaluate interest in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial instruments that contain
an embedded derivative requiring bifurcation, clarifies that concentrations of
credit risk in the form of subordination are not embedded derivatives, and
amends SFAS No. 140 to eliminate the prohibition on the qualifying
special-purpose entity from holding a derivative financial instrument that
pertains to a beneficial interest other than another derivative financial
instrument. This statement is effective for all financial instruments acquired
or issued after the beginning of the Company's first fiscal year that begins
after September 15, 2006. The Company has not evaluated the impact of this
pronouncement on its financial statements.
In March 2006 FASB issued SFAS No.
156 "Accounting for Servicing of Financial Assets" ("SFAS No.156"). This
Statement amends SFAS Statement No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities", with respect to the
accounting for separately recognized servicing assets and servicing liabilities.
102.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONT'D)
q.     Recent Accounting Pronouncements (cont'd)
This Statement:
1.    
Requires an entity to recognize a servicing asset or servicing liability each
time it undertakes an obligation to service a financial asset by entering into a
servicing contract.
2.    
Requires all separately recognized servicing assets and servicing liabilities to
be initially measured at fair value, if practicable.
3.    
Permits an entity to choose 'Amortization Method' or "Fair Value Measurement
Method" for each class of separately recognized servicing assets and servicing
liabilities.
4.    
At its initial adoption, permits a one-time reclassification of
available-for-sale securities to trading securities by entities with recognized
servicing rights, without calling into question the treatment of other
available-for-sale securities under Statement 115, provided that the
available-for-sale securities are identified in some manner as offsetting the
entity's exposure to changes in fair value of servicing assets or servicing
liabilities that a servicer elects to subsequently measure at fair value.
5.    
Requires separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial position and
additional disclosures for all separately recognized servicing assets and
servicing liabilities. An entity should adopt this Statement as of the beginning
of its first fiscal year that begins after September 15, 2006. Management
believes that this statement will not have a significant impact on the financial
statements.
In September 2006, FASB issued SFAS
157, "Fair Value Measurements". This Statement defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles (GAAP),
and expands disclosures about fair value measurements. This Statement applies
under other accounting pronouncements that require or permit fair value
measurements, the Board having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute.
Accordingly, this Statement does not require any new fair value measurements.
However, for some entities, the application of this Statement will change
current practice. This Statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007, and interim periods within
those fiscal years. The management is currently evaluating the effect of this
pronouncement on financial statements.
In September 2006, FASB issued SFAS
158 "Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans-an amendment of FASB Statements No. 87, 88, 106, and 132(R)". This
Statement improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other
than a multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income of a business entity or
changes in unrestricted net assets of a not-for-profit organization. This
Statement also improves financial reporting by requiring an employer to measure
the funded status of a plan as of the date of its year-end statement of
financial position, with limited exceptions. An employer with publicly traded
equity securities is required to initially recognize the funded status of a
defined benefit postretirement plan and to provide the required disclosures as
of the end of the fiscal year ending after December 15, 2006. An employer
without publicly traded equity securities is required to recognize the funded
status of a defined benefit postretirement plan and to provide the required
disclosures as of the end of the fiscal year ending after June 15, 2007.
However, an employer without publicly traded equity securities is required to
disclose the following information in the notes to financial statements for a
fiscal year ending after December 15, 2006, but before June 16, 2007, unless it
has applied the recognition provisions of this Statement in preparing those
financial statements. The requirement to measure plan assets and benefit
obligations as of the date of the employer's fiscal year-end statement of
financial position is effective for fiscal years ending after December 15, 2008.
The management is currently evaluating the effect of this pronouncement on
financial statements.
11
r.     Reclassifications
Certain prior period amounts have
been reclassified to conform to the current period presentation.
3. RESTRICTED CASH

Proceeds amounting to $1,350,000 from the issuance of shares
during the year 2005 were deposited in an escrow account. The purchase price was
to be released from escrow. In accordance with the terms of the stock purchase
agreement, $600,000 of the proceeds was kept in a trust account for a certain
corporate communication program. At September 30, 2006, the Company had $178,345
in this account for the corporate communication program.
4. INVENTORIES

Inventories consist of the following as of September 30,
2006:

|Raw materials     | $ | 389,861
|----------------- | - | -------
|Packing materials |   | 79,379 
|Finished goods    |   | 438,341
|                  | $ | 907,581

5.

Prepayments and other receivables consist of the following as of September
30, 2006:

|Prepaid expense and
    others for normal business purpose | $ | 238,379
|---------------------------------------------------------- | - | -------

6.

The amount due to a director represents the director
remuneration to a director, which was unsecured, non-interest bearing and had no
fixed repayment date. As of September 30, 2006, amount due to a director
amounted to $20,588.

7.

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

|Manufacturing
    machinery        | $ | 1,580,026
|---------------------------------- | - | ---------
|Leasehold improvements             |   | 164      
|Office equipment                   |   | 224,080  
|Motor vehicles                     |   | 286,002  
|Construction-in-progress           |   | 612,592  
|                                   |   | 2,702,864
|Less: Accumulated
    depreciation |   | (431,858)
|                                   |   |          
|                                   | $ | 2,271,006

Depreciation expense for the nine month periods ended
September 30, 2006 and 2005 were $90,471 and $77,385, respectively.

8.

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

12

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The Company is subject to PRC Enterprise Income Tax at a rate
of 33% on the net income. The income tax expenses for the nine month periods
ended September 30, 2006 and 2005 are $3,188,858 and $2,331,309, respectively.
The income tax expenses for the three month periods ended September 30, 2006 and
2005 are $938,523 and $493,846, respectively.

No provision for deferred tax (benefit) has been made for the
PRC tax jurisdiction as no significant deferred tax liabilities or assets
existed as of either September 30, 2006 or 2005.

9.     EARNINGS PER SHARE

Basic and diluted earnings per share for the nine month and
three month periods ended September 30, 2006 and 2005 were determined by
dividing net income for the years by the basic and diluted weighted average
number of common shares outstanding.

10.    RELATED PARTY TRANSACTIONS

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

The Company's PRC subsidiary, Pacific Dragon, has entered
into a tenancy agreement with Harbin Yinlong Enterprise Co. Ltd. ("Yinlong"),
the joint venture partners holding 10% equity interest in Pacific Dragon to
lease two factory plants and one office building with a total floor area of
7,018 square meters for a term of 10 years from January 1, 2004 to December 31,
2013 at an annual rent of RMB 1,200,000 (equivalent to $144,578). The tenancy
agreement was revised by increasing the annual rent to RMB 3,600,000 (equivalent
to $442,800) effective from July 1, 2005. During the nine month period ended
September 30, 2006, the Company paid RMB 2,700,000 (equivalent to $337,230) to
Yinlong.

11.    MINORITY INTERESTS

The amount represents the ownership by the minority
shareholder, Harbin Yinlong Enterprise Co., Ltd., a related party of the
Company, of an interest in Pacific Dragon, a 90% subsidiary.

12.    CURRENT VULNERABILITY DUE TO CERTAIN
CONCENTRATIONS

Pacific Dragon, Anhui Agritech, and Beijing Agritech'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.

Pacific Dragon, Anhui Agritech, and Beijing Agritech'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 others, the political,
economic and legal environments and foreign currency exchange. The operations'results may be adversely affected by changes in governmental policies with
respect to laws and regulations, anti-inflationary measures, currency conversion
and remittance abroad, and rates and methods of taxation, among other things.

13.    COMMON STOCK AND ADDITIONAL PAID-IN
CAPITAL

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

13

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14. STOCK OPTIONS

The Company adopted SFAS No. 123R under the
modified-prospective transition method on January 1, 2006. SFAS No. 123R
requires companies to measure and recognize the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value. Share-based compensation recognized under the modified-prospective
transition method of SFAS No. 123R includes share-based compensation based on
the grant-date fair value determined in accordance with the original provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123")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 prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", and allowed under the original provisions of SFAS No. 123. Prior to
the adoption of SFAS No. 123R, the Company accounted for our stock option plans
using the intrinsic value method in accordance with the provisions of APB
Opinion No. 25 and related interpretations.

Primarily as a result of adopting SFAS No. 123R, the Company
recognized $2,398 and $0 in share-based compensation expense for the nine month
period ended September 30, 2006 and 2005, respectively. There was no stock
options issued in year 2005. The impact of this share-based compensation expense
on the Company's basic and diluted earnings per share was $0.00 per share. The
fair value of our stock options was estimated using the Black-Scholes option
pricing model.

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

|                                    |                         | Weighted             |                        
|----------------------------------- | ----------------------- | -------------------- | -----------------------
|                                    |                         | Average
    Exercise | Aggregate
    Intrinsic
|                                    | Options
    outstanding | Price                | Value                  
|Outstanding, December
    31, 2005  | 0                       | $0.00                | $0.00                  
|Granted                             | 12,500                  | $3.50                | $0.00                  
|Forfeited                           | -                       | -                    | -                      
|Exercised                           | -                       | -                    | -                      
|Outstanding, September
    30, 2006 | 12,500                  | $3.50                | $0.00                  

Following is a summary of the status of options outstanding at September 30,
2006:

|Outstanding Options |        |                  | Exercisable Options
|------------------- | ------ | ---------------- | -------------------
|                    |        | Average          |                    
|                    |        | Remaining        | Average            
|Exercise Price      | Number | Contractual Life | Exercise Price     
|$3.50               | 12,500 | 4.50             | $3.50              

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      | 4.05%         
|-------------------------------- | --------------
|Expected life of the
    options | 5.00
    years
|Expected volatility              | 80%           
|Expected dividend
    yield      | 0             

15.     STATUTORY RESERVES

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

14

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

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

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

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

In accordance with the PRC Company Law, the Company has
allocated 10% of its net income to surplus. The amount included in the statutory
reserves as of September 30, 2006 amounted to $1,667,085.

The Company established a reserve for the annual contribution
of 5% of net income to the common welfare fund. The amount included in the
statutory reserves as of September 30, 2006 amounted to $833,542.



15

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

Special Note Regarding Forward Looking Statements column

This Quarterly Report on Form 10-Q, including the following
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contains forward-looking statements that are based on the beliefs
of China Agritech's management, and involves risks and uncertainties, as well as
assumptions, that, if they ever materialize or prove incorrect, could cause the
results of the Company to differ materially from those expressed or implied by
such forward-looking statements. The words "believe," "expect," "anticipate,"
"projects," "targets," "optimistic," "intend," "aim," "will" or similar
expressions are intended to identify forward-looking statements. All statements
other than statements of historical fact are statements that could be deemed
forward-looking statements, including statements regarding new and existing
products, technologies and opportunities; statements regarding market and
industry segment growth and demand and acceptance of new and existing products;
any projections of sales, earnings, revenue, margins or other financial items;
any statements of the plans, strategies and objectives of management for future
operations; any statements regarding future economic conditions or performance;
uncertainties related to conducting business in China; any statements of belief
or intention; any of the factors mentioned in the "Risk Factors" section of this
Form 10-Q; and any statements of assumptions underlying any of the foregoing.
The Company assumes no obligation and does not intend to update these
forward-looking statements, except as required by law.

Except as otherwise indicated by the context, references in
this report to "China Agritech," "we," "us," or "our," are references to the
combined business of China Agritech, Inc. and its wholly-owned subsidiary, China
Tailong Holdings Company Limited, along with China Tailong Holdings Company
Limited's 90% owned subsidiary Pacific Dragon Fertilizers Co., Ltd. References
to "Tailong" are references to China Tailong Holdings Company Limited and
references to "Pacific Dragon" are references to Pacific Dragon Fertilizers Co.,
Ltd. References to "China" or "PRC" are references to "People's Republic of
China." References to "RMB" are to Renminbi, the legal currency of China, and
all references to "$" are to the dollar, the legal currency of the United
States.

OVERVIEW

China Agritech is a holding company whose direct and indirect
subsidiaries, primarily Tailong and its subsidiary, Pacific Dragon, manufacture
and sell organic liquid compound fertilizers and related products which are made
from the combination of organic elements, inorganic elements, microelements and
other active and stimulative agents.

Our main products include "LvLingBao II," "LvLingBao III," "Tailong
I" and other customized, crop specific fertilizers which are tailored to
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, resistance and the utilization rate of basic fertility; and
increase efficacy along with neutral or acidic pesticides. Our products can be
applied by our customers on a widespread basis through large scale spraying
operation by machine or aircraft.

16

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China is the principal market for our products. Our products
are primarily sold to farmers in 12 provinces in China, including Heilongjiang,
Hebei, Liaoning, Jilin, Shandong, Inner Mongolia, Henan, Sichuan, Guangdong,
Xinjiang, Yunnan and Guizhou. In 2005, we had annual production capacity of
approximately 5,000 metric tons of organic liquid compound fertilizers. Our
revenues are derived primarily from the sale of our organic liquid compound
fertilizer products to our customers.

Recent Developments

On July 6, 2006 our new factory in Anhui province started
production. The new facility serves China's Anhui, Hubei, and Henan provinces,
which account for approximately 15% of total arable land and 23% of total annual
fertilizer use in China. China Agritech has already established 10 regional
sales centers in these three provinces. The Anhui factory has an initial
capacity of 2,000 metric tons per year.

On September 20, 2006 our new factory in Beijing opened. This
facility serves as the primary syrup concentrate production center, converting
factory and research and development institute. The syrup production center has
capacity for 5,000 metric tons per year, and is expected to supply each of the
new regional facilities we plan to open over the next several years. The
converting factory, which is where the fertilizer formulas are customized to the
local region and plants, has capacity for 2,000 metric tons per year and will
serve Hebei, Shandong and Shanxi provinces. This region comprises 19.5 million
hectares, or 15%, of China's arable land and uses 8.5 million metric tons, or
18%, of the total fertilizer used in China each year. China Agritech already has
nine regional sales centers established in this region.

The relocation of our R&D center to Beijing is designed to
enhance China Agritech's reputation as a national company in China. We believe
that the new location allows for better communication with important government
agencies, such as the Ministry of Agriculture, which should help expedite
expansion throughout China and support our Research and Development initiatives.

We plan to open additional converting facilities in Xinjiang
and Chongqing by year-end. Once all four facilities are operational, we will
have capacity for 13,000 metric tons per year, a 160% increase in capacity from
the end of 2005. Every 1,000 metric tons of additional converting capacity
equates to approximately $7.0 million in potential annual sales.

We have also initiated efforts to sell our products on the
global market. On June 1, 2006, we entered into a distribution contract with KDK
Co., Ltd. ("KDK") through which we appointed KDK as distributor of our Tailong "Luse
Shengji" liquid organic compound fertilizers ("Products") in the Kyrgyz
Republic. On the same day, we entered into a distribution contract with Aheqi,
Co., Ltd. ("Aheqi") through which we appointed Aheqi as distributor of our
Products in the Russia Republic. Pursuant to the distribution contracts, KDK and
Aheqi must respectively meet a 150-ton sales target of Products.

17

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The functional currency of the Company is Chinese Renminbi,
the PRC's official currency. Until July 21, 2005, RMB had been pegged to US$ at
the rate of RMB8.28: US$1.00. On July 21, 2005, the PRC government reformed the
exchange rate system into a managed floating exchange rate system based on
market supply and demand with reference to a basket of currencies.

Our Company History

We were originally incorporated on January 5, 1925 in the State of Nevada
under the name Argyle Mining Company. Our name has been changed several times
over the years and our current name is China Agritech, Inc. We had no active
business operations during the period from 1986 until February 3, 2005, at which
time we completed a reverse acquisition transaction with Tailong in which we
acquired all of the issued and outstanding securities of Tailong from its
stockholders in exchange for 10,606,158 shares of our common stock.

Industry Wide Trends that are Relevant to Our Business

The fertilizer industry in China is in the process of rapid
and continuous development. China is the largest producer, importer and consumer
of fertilizers in the world. Total consumption of fertilizers is expected to
increase over the next decade and we believe this trend will impact favorably on
the demand for our products and will result in growth in sales of fertilizers
and increased revenue for us.

Another trend that affects our industry is the growing demand
for compound fertilizers. The percentage of compound fertilizer consumption to
total fertilizer consumption in China rose from 2% in 1980 to 26% in 2004. We
anticipate continued growth in demand for liquid compound fertilizers and
believe our revenue will grow because of the continued increase in demand.

The Chinese government is providing legal and economic
incentives to foster the development of the agriculture industry and encourage
companies in the agriculture sector to become bigger and build name recognition.
We plan to utilize the policy support to expand our operations in various parts
of China and to improve our name recognition in the market.

Competition

China is the world's largest consumer of fertilizers and we
believe that the prospects for continued growth are positive. Our experience is
that the compound fertilizer industry in China is highly fragmented, consisting
of numerous smaller regional manufacturers and larger, domestic and
international competitors.

We compete with approximately 300 small-sized Chinese
fertilizer manufacturers. The number of small fertilizer manufacturers and
companies selling fertilizer products increases and decreases from time to time.
The smaller competitors in the fertilizer industry with whom we
compete typically manufacture
and market liquid compound fertilizers with annual output of less than 1,000
metric tons. We believe that most of the smaller fertilizer producers in China
do not utilize national brand name recognition as a basis for promoting their
products. Also, due to economies of scale, we believe that these smaller
producers are generally less cost effective, have lower quality control and
minimal product development capabilities. In addition, most of their products
consist of single or dual chemical nutrients, which we believe are generally
less effective at boosting the growth of plants as compared to our organic
liquid compound fertilizers.

18

---

Another group of competitors consists of international
fertilizer producers and trading companies that import fertilizers into China.
Imported fertilizer products range from fertilizers with a single chemical
element, such as urea, phosphate and potash, to standard Nitrogen, phosphor and
kalium compound fertilizers. The quality of imported fertilizers is generally
higher and more stable than fertilizers, like ours, which are produced in China.
Due to tariffs, duties and license fees imposed on imported fertilizer products
and high shipping and transportation expenses, however, we believe that imported
fertilizers are generally less price competitive than Chinese fertilizer
products. In addition, the Chinese government imposes an annual quota on
fertilizer products that can be imported into China. China is expected to open
its retail and wholesale fertilizer markets to non-Chinese companies by December
11, 2006. Because fertilizer products usually need to be specifically formulated
for local plant, soil and climate conditions, we believe that there are not many
foreign competitors in our selected markets that are capable of producing
customized fertilizers that compete with our products. Nevertheless, as a result
of the opening of the fertilizer market to foreign producers, the amount of
fertilizer imported to China will rise significantly and we expect to face more
competition from non-Chinese fertilizer manufacturers.Results of operations
Three Months Ended September 30, 2006 Compared to Three Months
Ended September 30, 2005.The following table summarizes the results of our operations
during the three month period ended September 30, 2006 and 2005 and provides
information regarding the dollar and percentage increase or (decrease) from the
2005 fiscal period to the 2006 fiscal period:
19
All amounts, other than percentages, in millions of U.S.
dollars

|                  | 3 Month      | 3 Month      |            |             
|----------------- | ------------ | ------------ | ---------- | ------------
|                  | Period Ended | Period Ended | Increase   | % Increase  
|Item              | on 9/30/06   | on 9/30/05   | (Decrease) | (% Decrease)
|Net Revenue       | 7.6          | 5.8          | 1.8        | 32.0%       
|Cost of Revenue   | (3.6)        | (3.2)        | 0.4        | 12.3%       
|Selling Expenses  | (0.7)        | (0.8)        | (0.1)      | (12.0%)     
|Operating and     |              |              |            |             
|Administrative    |              |              |            |             
|Expenses          | (1.1)        | (0.7)        | 0.4        | 65.1%       
|Income From       |              |              |            |             
|Operations        | 2.3          | 1.1          | 1.1        | 98.0%       
|Other Income      |              |              |            |             
|(Expenses)        | (0.0)        | (0.0)        | 0.0        | 0           
|Income Tax        | (0.9)        | (0.5)        | 0.4        | 90.0%       
|Minority Interest | (0.2)        | (0.1)        | 0.1        | 59.4%       
|Net income        | 1.1          | 0.5          | 0.6        | 110.9%      

Net Revenue

Our net revenue for the three months ended
September 30, 2006 amounted to $7,601,819, which is approximately $1,841,412 or
32% more than that of the same period ended on September 30, 2005, in which we
had revenue of $5,760,407. The increase in net revenue is mainly attributable to
the change of delivery time as well as improvement of product mix. In 2005, some
orders that had historically been delivered in the third quarter were delivered
earlier in the second quarter of 2005, while in 2006, this did not happen. In
addition, we increased the sales of Tailong I, which has a higher selling price
than our other products, from 37 tons in the third quarter of 2005 to 330 tons
in the third quarter of 2006.

Cost of Revenue

Our cost of revenue, which consists of raw materials, direct
labor and manufacturing overhead expenses, was $3,589,872 for the three month
period ended September 30, 2006, an increase of $392,784 or 12.3%, as compared
to $3,197,088 for the three month period ended September 30, 2005. The increase
was primarily due to an increase in sales of our fertilizer products which
required us to purchase more raw materials. The
percentage of the cost of revenue to the total revenues was 47.2% and 55.5% for
the three month periods ended on September 30, 2006 and 2005, respectively, a
decrease of approximately 8.3%. This was primarily due to reduced material cost
as a result of improved production cost control measures, as well as increased
sales of higher margin products.

Selling Expenses

Our selling expenses, which consist primarily
of sales commission, advertising and promotion expenses, freight charges and
related compensation, were $679,211 for the three month period ended September
30, 2006, as compared to $771,690 for the same period ended September 30, 2005,
a decrease of $92,479 or approximately 12%. The decrease was primarily
attributable to reduced sales related travel and promotion expenses in Harbin.

20

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Operating and Administrative Expenses

Our operating and administrative expenses, which consist
primarily of rental expenses, related salaries, business development,
depreciation and traveling expenses, legal and professional expenses, were
$1,076,929 for the three month period ended September 30, 2006, as compared to
$652,407 for the same period ended September 30, 2005, an increase of $424,522
or approximately 65.1%. The increase was mainly attributable to the start up
costs associated with our new branch offices, as well as the accrued certain bad
debt allowance in Pacific Dragon.

Environmental Laws Compliance Costs

We incurred no cost for environmental compliance for the three
month period ended September 30, 2006 and 2005.

Income From Operations

Income from operations was $2,255,807 for the three month
period ended September 30, 2006, as compared to $1,139,222 for the same period
ended September 30, 2005, an increase of $1,116,585 or approximately 98.0%. The
increase was mainly attributable to better product mix and improved cost
control.

Other Income and Expenses

Total other expenses were $18,508 for the three month period
ended September 30, 2006, as compared to $359 for the same period ended
September 30, 2005.

Income Taxes

Our Chinese subsidiaries are taxed at a rate of 33% of
assessable profit. We incurred income taxes of $938,523 for the three month
period ended on September 30, 2006. This is an increase of $444,677 or 90.0%
from the taxes we incurred in the three month period ended September 30, 2005,
which were $493,846. We incurred more taxes in the three months ended September
30, 2006 mostly because of the higher income in the three month period ended on
September 30, 2006 compared to 2005.

Minority Interest

Our financial statements reflect an adjustment to our
consolidated group net income equal to $190,550 and $119,542 for the three month
period ended September 30, 2006 and 2005, respectively, reflecting the minority
interest held by Yinlong Industrial Co. Ltd. in our subsidiary Pacific Dragon.

21

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Foreign Currency Translation Gains

We had a foreign currency translation gain of $455,468 for the
three month period ended September 30, 2006 as compared with a foreign currency
translation gain of $0 in the same period ended September 30, 2005. On July 21,
2005, China reformed its foreign currency exchange policy, revalued the RMB by
2.1 percent and allowed RMB to appreciate as much as 0.3% per day against the
U.S. dollar. As a result, we implemented different exchange rates in translating
RMB into U.S. dollars in our financial statements for the three month period
ended September 30, 2006. The exchange rates of RMB1:US$ 0.1265 and RMB1:US$
0.1249 were implemented in calculating the total assets/liabilities and
statement of income, respectively. This results in a $455,463 increase in the
foreign currency translation gain for the three month period ended September 30,
2006 as compared with $0 for the three month period ended September 30, 2005.

Net Income

We earned net income of $1,108,226 for the three month period
ended September 30, 2006. This is an increase of $582,751 or approximately
110.9% from the same period ended September 30, 2005 which had a net income of
$525,475. This increase is mainly attributable to increased sales and gross
margin.

Nine Months Ended September 30, 2006 Compared to Nine Months Ended September
30, 2005.

The following table summarizes the results of our operations
during the nine month period ended September 30, 2006 and 2005 and provides
information regarding the dollar and percentage increase or (decrease) from the
2005 fiscal period to the 2006 fiscal period:

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

|                  | 9 Month      | 9 Month      |            |             
|----------------- | ------------ | ------------ | ---------- | ------------
|                  | Period Ended | Period Ended | Increase   | % Increase  
|Item              | on 9/30/06   | on 9/30/05   | (Decrease) | (% Decrease)
|Net Revenue       | 23.5         | 20.9         | 2.6        | 12.4%       
|Cost of Revenue   | (11.3)       | (11.1)       | 0.2        | 1.8%        
|Selling Expenses  | (1.8)        | (2.2)        | (0.3)      | (14.4%)     
|Operating and     |              |              |            |             
|Administrative    |              |              |            |             
|Expenses          | (2.3)        | (2.3)        | 0.0        | 0.6%        
|Income From       |              |              |            |             
|Operations        | 8.1          | 5.4          | 2.7        | 49.7%       
|Other Income      |              |              |            |             
|(Expenses)        | (0.0)        | (0.0)        | 0.0        | 0           
|Income Tax        | (3.2)        | (2.3)        | 0.9        | 36.8%       
|Minority Interest | (0.6)        | (0.5)        | 0.2        | 36.8%       
|Net Income        | 4.2          | 2.6          | 1.6        | 62.2%       

22

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Net Revenue

Our net revenue for the nine months ended September 30, 2006
amounted to $23,522,609, which is approximately $2,592,156 or 12.4% more than
that of the same period ended on September 30, 2005, in which we had revenue of
$20,930,453. The increase in sales revenue is mainly attributable to the
expansion of our customer base, as well as improvement in product mix.

Cost of Revenue

Our cost of revenue, which consists of raw materials, direct
labor and manufacturing overhead expenses, was $11,307,639 for the nine month
period ended September 30, 2006, an increase of $200,934 or 1.8%, as compared to
$11,106,705 for the nine month period ended September 30, 2005. The increase was
primarily due to an increase in sales of our fertilizer products which required
us to purchase more raw materials. The percentage
of the cost of sales to the total revenues are 48.1% and 53.1% for the nine
month periods ended on September 30, 2006 and 2005, respectively, a decrease of
approximately 5%. This was primarily due to reduced material cost as a result of
improved production cost control measures, reduced outsourcing of packaging as
compared to the same period of 2005, and increased sales of higher margin
products.

Selling Expenses

Our selling expenses, which consist primarily of sales
commission, advertising and promotion expenses, freight charges and related
compensation, were $1,840,740 for the nine month period ended September 30,
2006, as compared to $2,150,488 for the same period ended September 30, 2005, a
decrease of $309,748 or approximately 14.4%. The decrease was primarily
attributable to reduced sales related travel and promotion expenses in Pacific
Dragon, which more than offset the increased selling expenses in our new
factories.

Operating and Administrative Expenses

Our general and administrative expenses, which consist
primarily of rental expenses, related salaries, business development,
depreciation and traveling expenses, legal and professional expenses, were
$2,286,372 for the nine month period ended September 30, 2006, as compared to
$2,272,042 for the same period ended September 30, 2005, an increase of $14,330
or approximately 0.6%. The increase was mainly attributable to additional
expenses related to the company's expansion.

Environmental Laws Compliance Costs

We incurred no cost for environmental compliance for the nine
month period ended September 30, 2006 and 2005.

Income From Operations

Income from operations was $8,087,858 for the nine month
period ended September 30, 2006, as compared to $5,401,218 for the same period
ended September 30, 2005, an increase of $2,686,640 or approximately 49.7%. The
increase was mainly attributable to increased sales revenue, more efficient
production cost control, and reduced selling expenses in established markets.]

23

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Other Income and Expenses

Total other expenses was $40,956 for the nine month period
ended September 30, 2006, as compared to $347 for the same period ended
September 30, 2005.

Income Taxes

Our Chinese subsidiaries are taxed at a rate of 33% of
assessable profit. We incurred income taxes of $3,188,858 for the nine month
period ended on September 30, 2006. This is an increase of $857,549 or 36.8%
from the taxes we incurred for the same period in 2005, which were $2,331,309.
We paid more taxes in the nine months ended September 30, 2006 mostly because of
the higher income in the nine month period ended on September 30, 2006 compared
to 2005.

Minority Interest

Our financial statements reflect an adjustment to our
consolidated group net income equal to $647,688 and $473,326 for the nine month
period ended September 30, 2006 and 2005, respectively, reflecting the minority
interest held by Yinlong Industrial Co. Ltd. in our subsidiary Pacific Dragon.

Foreign Currency Translation Gains

We had a foreign currency translation gain of $367,329 for the
nine month period ended September 30, 2006 as compared with the foreign currency
translation gain of $0 in the same period ended September 30, 2005. On July 21,
2005, China reformed its foreign currency exchange policy, revalued the RMB by
2.1 percent and allowed RMB to appreciate as much as 0.3%per day against the
U.S. dollar. As a result, we implemented different exchange rates in translating
RMB into U.S. dollars in our financial statements for the nine month period
ended September 30, 2006. The exchange rates of RMB1:US$ 0.1265 and RMB1:US$
0.1249 were implemented in calculating the total assets/liabilities and
statement of income, respectively. This results in a $367,329 increase in the
foreign currency translation gain for the nine month period ended September 30,
2006 from $0 in the same periods in 2005.

Net Income

We earned net income of $4,210,356 for the nine month period
ended September 30, 2006. This is an increase of $1,614,120 or approximately
62.2% from the same period ended September 30, 2005 which had a net income of
$2,596,236. This increase is mainly attributable to the increase of sales
revenue, more efficient production cost control, and reduced selling expenses in
established markets.

24

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Liquidity and capital resources

As of September 30, 2006, we had cash and cash equivalents of $8,134,284,
among which $178,345 is restricted cash. The following table provides detailed
information about our net cash flow for all financial statement periods
presented in this report.

|                                   | Cash Flow (in thousands)
|---------------------------------- | ------------------------
|                                   |                         
|                                   | Nine Months Ended       
|                                   | September 30,           
|                                   |                         
|                                   | 2006                    
|                                   |                         
|                                   |                         
|Net cash provided
    by (used in) |                         
|operating
    activities           | $
    (2,009,605)       
|Net cash provided
    by (used in) |                         
|investing
    activities           | $
    (1,267,032)       
|Net cash provided
    by (used in) |                         
|financing
    activities           | $
    11,081,575        
|Net cash flow                      | $
    7,804,938         

Operating Activities

Net cash used in operating activities was $2.0 million for the
nine month period ended September 30, 2006 which is an increase of $0.9 million
from the $1.1 million net cash used in operating activities for the same period
in 2005. The increase was mainly due to growing accounts receivable in Pacific
Dragon and inventory in newly established companies.

Investing Activities

Our main uses of cash for investing activities are payments
for the acquisition of property, plant and equipment.

Net cash used in investing activities in the nine month period
ended September 30, 2006 was $1.3 million, which is primarily due to setting up
new factories in Anhui and Beijing.

Financing Activities

Net cash provided by financing activities in
the nine month period ended September 30, 2006 totaled $11.1 million as compared
to $1.4 million provided by financing activities in the same period of 2005.

In fiscal year 2005, we raised a total of $1,350,000 from the
sale of 590,283 (before the 1-for-1.14 forward stock split) and 235,516 (after
the 1-for-1.14 forward stock split) shares of our common stock through private
placement transactions. In accordance with the terms of the stock purchase
agreement, $600,000 of the proceeds was kept in a trust account and earmarked
for certain corporate communication and investor relations programs. As of
September 30, 2006, the Company still had $178,345 in this account for the
corporate communication program.

On January 13, 2006, we sold 4,800,000 shares of our common
stock to 22 investors for a total of $12,000,000 in a private placement
transaction.

25

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Our current assets were $28,184,158 and our current
liabilities were $2,835,195 as of September 30, 2006, which results in a current
ratio of approximately 9.9. Our total stockholders' equity as of September 30,
2006 was $25,701,117. We had no bank loans or other interest bearing borrowings
as of September 30, 2006.

We believe that our currently available working capital will
be sufficient to maintain our operations at our current levels for the next
twelve months. As of September 30, 2006, we did not have any material
commitments for capital expenditures.

Critical accounting policies

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

- 



26

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Impairment: The Company applies the provisions of
  Statement of Financial Accounting Standard No. 144, "Accounting for the
  Impairment or Disposal of Long-Lived Assets" ("FAS No. 144"), issued by the
  Financial Accounting Standards Board ("FASB"). FAS No. 144 requires that
  long-lived assets be reviewed for impairment whenever events or changes in
  circumstances indicate that the carrying amount of an asset may not be
  recoverable through the estimated undiscounted cash flows expected to result
  from the use and eventual disposition of the assets. Whenever any such
  impairment exists, an impairment loss will be recognized for the amount by
  which the carrying value exceeds the fair value. The Company tests long-lived
  assets, including property, plant and equipment and intangible assets subject
  to periodic amortization, for recoverability at least annually or more
  frequently upon the occurrence of an event or when circumstances indicate that
  the net carrying amount is greater than its fair value. Assets are grouped and
  evaluated at the lowest level for their identifiable cash flows that are
  largely independent of the cash flows of other groups of assets. The Company
  considers historical performance and future estimated results in its
  evaluation of potential impairment and then compares the carrying amount of
  the asset to the future estimated cash flows expected to result from the use
  of the asset. If the carrying amount of the asset exceeds estimated expected
  undiscounted future cash flows, the Company measures the amount of impairment
  by comparing the carrying amount of the asset to its fair value. The
  estimation of fair value is generally measured by discounting expected future
  cash flows as the rate the Company utilizes to evaluate potential investments.
  The Company estimates fair value based on the information available in making
  whatever estimates, judgments and projections are considered necessary. There
  was no impairment of long-lived assets in the nine month periods ended
  September 30, 2006 and 2005.

> The Company's revenue consists of invoiced value of goods,
>   net of a value-added tax ("VAT"). No product return or sales discount
>   allowance is made as products delivered and accepted by customers are normally
>   not returnable and sales discount is normally not granted after products are
>   delivered.
>   Foreign Currency Translation: The Company uses
>   the U.S. dollar ("U.S. dollars") for financial reporting purposes. The
>   Company's subsidiaries maintain their books and records in their functional
>   currency, being the primary currency of the economic environment in which
>   their operations are conducted. In general, for consolidation purposes, the
>   Company translates the subsidiaries' assets and liabilities into U.S. dollars
>   using the applicable exchange rates prevailing at the balance sheet date, and
>   the statement of income is translated at average exchange rates during the
>   reporting period. Gain or loss on foreign currency transactions are reflected
>   on the income statement. Gain or loss on financial statement translation from
>   foreign currency are recorded as a separate component in the equity section of
>   the balance sheet, as component of comprehensive income. The functional
>   currency of the Company is Chinese RMB.

27

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangement.
Inflation

We believe that inflation has not had a material impact on our results of
operations for the three month period ended September 30, 2006 and 2005.
Seasonality

We may experience seasonal variations in our future revenues and our
operating costs due to seasonality. Our sales revenue is generally higher from
March to September than the rest of the season.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK

Interest Rate Risk

We had no bank loans or other interest bearing borrowings as of September 30,
2006; therefore, we are not exposed to interest rate risk.

Foreign Exchange Risk

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

Inflation

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

28

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ITEM 4. CONTROLS AND PROCEDURES

Our management, with the participation of our Chief Executive
Officer and President, Yu Chang, and our chief financial officer, Lijun Peng,
evaluated the effectiveness of our disclosure controls and procedures as of the
end of the period covered by this Report. The term "disclosure controls and
procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act
of 1934, as amended (the "Exchange Act") means controls and other procedures of
a company that are designed to ensure that information required to be disclosed
by a company in the reports, such as this Form 10-Q, that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by a company in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the company's management, including its principal executive and principal
financial officers, as appropriate to allow timely decisions regarding required
disclosure. Management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures.
Based on that evaluation, Mr. Chang and Ms. Peng concluded that as of September
30, 2006, our disclosure controls and procedures were effective to satisfy the
objectives for which they are intended.

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

PART II 
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors previously
disclosed in our Annual Report on Form 10-KSB for the year ended December 31,
2005.

29

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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

None.
ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

EXHIBITS.

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

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

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

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

30

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SIGNATURES

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

DATED: November 14, 2006

| | CHINA AGRITECH, INC.               
| | -----------------------------------
| |                                    
| |                                    
| | By: /s/ Lijun Peng                 
| |                                    
| | Lijun Peng                         
| | Chief Financial Officer            
| | (On behalf of the Registrant and as
| | Principal Financial Officer)       

31

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EXHIBIT INDEX

|Exhibit |                                                                                                                                                                         
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  | Description                                                                                                                                                             
|        |                                                                                                                                                                         
|31.1    | Certification of
    Principal Executive Officer filed pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                   
|        |                                                                                                                                                                         
|31.2    | Certification of
    Principal Financial Officer filed pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.                                                   
|        |                                                                                                                                                                         
|32.1    | Certification of
    Principal Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|        |                                                                                                                                                                         
|32.2    | Certification of
    Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|        |                                                                                                                                                                         

32

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