**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**


(Mark
      One)





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





For
      the
      quarterly period ended: June 30, 2008





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





Commission
      File Number: 000-49608





**CHINA
      AGRITECH, INC.**


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





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




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


Chaoyang
      North Road, Chaoyang District, Beijing, China 100024


People's
      Republic of China


(Address
      of principal executive offices, Zip Code)





(86)
      10-59621278


(Registrant's
      telephone number, including area code)





N/A


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





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





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





Large
                accelerated filero
            Accelerated
                fileroNon-accelerated
                filero
            Smaller
                Reporting Companyx


(Do
      not
      check if a smaller reporting company)





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





The
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of 08/08/2008 is as follows:





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











TABLE
      OF
      CONTENTS





PART
                IFINANCIAL
                INFORMATION
            3Item
                1.
            Financial
                Statements.
            3Consolidated
                Balance Sheets
            3Consolidated
                Statements of Income and Comprehensive Income
            4Consolidated
                Statements of Cash Flows
            5Notes
                to Consolidated Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations.
            19Item
                4.
            Controls
                and Procedures
            26PART
                II.OTHER
                INFORMATION
            27Item
                1.
            Legal
                Proceedings
            27Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            28Item
                3.
            Defaults
                Upon Senior Securities
            28Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            28Item
                5.
            Other
                Information
            28Item 6.
            Exhibits
            28SIGNATURES
            29  2


**PART
      I**




**FINANCIAL
      INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS.**





**CHINA
      AGRITECH, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**





**JUNE 30, 2008****(UNAUDITED)**
            
            **DECEMBER 31, 2007****ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            7,388,358
            
            $
            11,852,636Restricted
                cash
            
            
            2,000,000
            
            
            2,000,000Accounts
                receivable, netof
                allowance for doubtful accounts of $248,285 and $227,981 at June
                30, 2008
                and December 31, 2007, respectively
            
            
            32,825,266
            
            
            22,695,039Inventories
            
            
            8,597,711
            
            
            3,508,741Advances
                to suppliers
            
            
            7,945,152
            
            
            12,343,255Prepayments
                and other receivables
            
            
            1,861,898
            
            
            1,242,694**Total
                Current Assets**
            
            
            60,618,385
            
            
            53,642,365**Construction
                in progress**
            
            
            1,794,062
            
            
            -**Property
                and equipment, net**
            
            
            3,837,229
            
            
            3,798,958**Total
                Assets**
            
            $
            66,249,676
            
            $
            57,441,323**LIABILITIES
                AND STOCKHOLDERS’S EQUITY****Current
                Liabilities**Accounts
                payable
            
            $
            278,782
            
            $
            41,146Accrued
                expenses and other payables
            
            
            1,473,042
            
            
            1,047,721Amount
                due to related parties
            
            
            -
            
            
            352,505Taxes
                payable
            
            
            2,020,356
            
            
            1,650,243**Total
                Current Liabilities**
            
            
            3,772,180
            
            
            3,091,615**Minority
                Interest**
            
            
            4,363,384
            
            
            3,465,724**Commitments**
            
            
            -
            
            
            -**Stockholders'
                Equity**Common
                stocks; $0.001 par value, 100,000,000 shares authorized,24,699,615
                shares issued and outstanding
            
            
            24,700
            
            
            24,700Additional
                paid in capital
            
            
            26,135,914
            
            
            26,135,914Statutory
                reserve
            
            
            5,182,787
            
            
            4,299,653Accumulated
                other comprehensive income
            
            
            5,693,285
            
            
            2,578,107Retained
                earnings
            
            
            21,077,426
            
            
            17,845,610**Total
                Stockholders' Equity**
            
            
            58,114,112
            
            
            50,883,984**Total
                Liabilities and Stockholders' Equity**
            
            $
            66,249,676
            
            $
            57,441,323





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





3





**CHINA
      AGRITECH, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF INCOME AND COMPREHENSIVE INCOME**


**FOR
      THE THREE MONTHS ENDED JUNE 30, 2008 and 2007 AND FOR THE**


**SIX
      MONTH PERIODS ENDED JUNE 30, 2008 and 2007**


**(UNAUDITED)**


**THREE MONTHS ENDED JUNE 30,**
              
              **SIX MONTHS ENDED JUNE 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Net
                  sales**
              
              $
              14,092,569
              
              $
              9,866,891
              
              $
              21,409,652
              
              $
              18,478,632**Cost
                  of sales**
              
              
              (6,851,668
              )
              
              (4,115,279
              )
              
              (10,532,674
              )
              
              (8,216,104
              )**Gross
                  profit**
              
              
              7,240,901
              
              
              5,751,612
              
              
              10,876,978
              
              
              10,262,528**Operating
                  expenses**Selling
                  expenses
              
              
              (1,225,614
              )
              
              (790,784
              )
              
              (1,932,203
              )
              
              (1,404,785
              )General
                  and administrative expenses
              
              
              (1,050,336
              )
              
              (464,090
              )
              
              (1,923,891
              )
              
              (1,012,157
              )**Total
                  operating expenses**
              
              
              (2,275,950
              )
              
              (1,254,874
              )
              
              (3,856,094
              )
              
              (2,416,942
              )**Income
                  from operations**
              
              
              4,964,951
              
              
              4,496,738
              
              
              7,020,884
              
              
              7,845,586**Other
                  income (expense)**Interest
                  income
              
              
              2,223
              
              
              3,986
              
              
              63,896
              
              
              31,881Exchange
                  gain (loss)
              
              
              (180,066
              )
              
              (1,718
              )
              
              (174,839
              )
              
              (1,927
              )**Total
                  other income (expense)**
              
              
              (177,843
              )
              
              2,268
              
              
              (110,943
              )
              
              29,954**Income
                  before income taxes and minority interest**
              
              
              4,787,108
              
              
              4,499,006
              
              
              6,909,941
              
              
              7,875,540**Provision
                  for income taxes**
              
              
              (1,432,715
              )
              
              (1,544,137
              )
              
              (2,149,994
              )
              
              (2,804,192
              )**Income
                  before minority interests**
              
              
              3,354,393
              
              
              2,954,869
              
              
              4,759,947
              
              
              5,071,348**Minority
                  interests**
              
              
              (429,814
              )
              
              (320,726
              )
              
              (644,998
              )
              
              (552,077
              )**Net
                  income**
              
              
              2,924,579
              
              
              2,634,143
              
              
              4,114,949
              
              
              4,519,271**Other
                  comprehensive income**Foreign
                  currency translation adjustment
              
              
              1,796,515
              
              
              327,124
              
              
              3,115,178
              
              
              831,773**Comprehensive
                  income**
              
              $
              4,721,094
              
              $
              2,961,267
              
              $
              7,230,127
              
              $
              5,351,044**Basic
                  and diluted weighted average shares outstanding**
              
              
              24,699,615
              
              
              19,143,615
              
              
              24,699,615
              
              
              19,143,615**Basic
                  and diluted net earnings per share**
              
              $
              0.12
              
              $
              0.14
              
              $
              0.17
              
              $
              0.24





Basic
      and
      diluted weighted average number of shares is the same since the effect of
      dilutive securities is anti-dilutive





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





4





**CHINA
      AGRITECH, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007**


**(UNAUDITED)**





**June
                30,****2008**
            
            **2007****Cash
                flows from operating activities:**Net income
            
            $
            4,114,949
            
            $
            4,519,271Adjustments to reconcile net income to net cash used in operating
                activities:Stock
                based compensation
            
            
            -
            
            
            2,398Minority
                interest
            
            
            644,998
            
            
            552,077Depreciation
                and amortization
            
            
            325,033
            
            
            166,992(Increase)
                decrease in current assets:Accounts
                receivable
            
            
            (10,130,226
            )
            
            (8,415,620
            )Inventories
            
            
            (5,088,970
            )
            
            (5,137,954
            )Advances
                to suppliers
            
            
            4,398,103
            
            
            5,827,972Prepayments
                and other receivable
            
            
            (619,205
            )
            
            (217,408
            )Due
                from shareholders
            
            
            -
            
            
            1,246Increase
                (decrease) in current liabilities:Accounts
                payable
            
            
            237,635
            
            
            370,903Taxes
                payable
            
            
            370,113
            
            
            840,414Accrued
                expenses and other payable
            
            
            72,817
            
            
            663,037Net
                cash used in operating activities
            
            
            (5,674,753
            )
            
            (826,672
            )**Cash
                flows from investing activities:**Acquisition
                of property & equipment
            
            
            (363,305
            )
            
            (82,499
            )Construction
                in progress
            
            
            (1,794,062
            )
            
            (1,070,974
            )Restricted
                cash
            
            
            -
            
            
            81,546Net
                cash provided by (used in) investing activities
            
            
            (2,157,367
            )
            
            (1,071,927
            )**Cash
                flows from financing activities:**Advance
                from shareholders
            
            
            -
            
            
            -Net
                cash provided by financing activities
            
            
            -
            
            
            -**Net
                (decrease) in cash and cash equivalents**
            
            
            (7,832,120
            )
            
            (1,898,599
            )**Effect
                of exchange rate change on cash and cash
                equivalents**
            
            
            3,367,842
            
            
            236,601**Cash
                and cash equivalents, beginning of year**
            
            
            11,852,636
            
            
            6,430,009**Cash
                and cash equivalents, end of year**
            
            $
            7,388,358
            
            $
            4,768,011**Supplement
                disclosure of cash flow information:**Income
                taxes paid
            
            $
            1,837,906
            
            $
            3,760,570**Noncash
                Investment and Financing Activity:**Offset
                of amounts due to/from stockholders
            
            $
            330,032
            
            $
            -




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





5





**CHINA
      AGRITECH, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS** ****


**(UNAUDITED)**




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




China
      Agritech, Inc. (the "Company" 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
      and in this connection, Tailong became a wholly-owned subsidiary of the Company.




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




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




Prior
      to
      the acquisition of Tailong, the Company was a non-operating public shell
      corporation. Pursuant to Securities and Exchange Commission rules, the merger
      or
      acquisition of a private operating company into a non-operating public shell
      corporation with nominal net assets is considered a capital transaction in
      substance, rather than a business combination. Accordingly, for accounting
      purposes, the transaction has been treated as a reverse acquisition and a
      recapitalization. Transaction costs incurred in the reverse acquisition have
      been charged to expense. On April 21, 2005, the Company filed a Form Definitive
      14C - Information Statement pursuant to Section 14(c) of the Securities Exchange
      Act of 1934 giving notice that the Company received written consents in lieu
      of
      a meeting from the holders of a majority of the Company's issued and outstanding
      common stock of a proposal to amend and restate the Company's Certificate of
      Incorporation (the "Restatement") to effect, among other things, a forward
      stock
      split whereby each share of issued and outstanding common stock is converted
      into 1.14 shares of the Company's common stock. The Form Definitive 14C became
      effective on May 12, 2005 when the Company filed its amended and restated
      Certificate of Incorporation with the Secretary of the State of Delaware. The
      effect of this action is reflected in the Company's financial statements as
      of
      the first day of the first period presented.





6





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




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




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




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




The
      financial statements of the Company and its subsidiaries are prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America (“U.S. GAAP”). These Consolidated Financial Statements for interim
      periods are unaudited. In the opinion of management, all adjustments and
      disclosures necessary for a fair presentation of these interim statements have
      been included. The results reported in these Consolidated Financial Statements
      are not necessarily indicative of the results that may be reported for the
      entire year. The accompanying consolidated financial statements have been
      prepared in accordance with the rules and regulations of the Securities and
      Exchange Commission and do not include all information and footnotes necessary
      for a complete presentation of financial statements in conformity with
      accounting principles generally accepted in the United States. These
      Consolidated Financial Statements should be read in conjunction with the
      Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
      2007, filed on March 28, 2008.




a. Principle
      of consolidation




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




b. Use
      of
      estimates




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




c. Cash
      and cash equivalents




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




d. Accounts
      receivable




The
      Company's policy is to maintain reserves for potential credit losses on accounts
      receivable. Management reviews the composition of accounts receivable and
      analyzes historical bad debts, customer concentrations, customer
      creditworthiness, current economic trends and changes in customer payment
      patterns to evaluate the adequacy of these reserves. The Company gives most
      clients an extended credit policy for one year. The Company extends credit
      to
      its customers based upon its assessment of their credit worthiness and generally
      does not require collateral. Credit losses have not been
      significant.





7




e. Advances
      to suppliers




The
      Company provides advances to certain vendors for purchase of it’s material.




f. Inventories




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




g. Property
      and equipment




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




Depreciation
      and amortization for financial reporting purposes is provided using the
      straight-line method over the estimated useful lives of the assets: 5 to 15
      years for machinery; 3 to 5 years for leasehold improvement, 5 to 10 years
      for
      office equipment; and 5 to 8 years for motor vehicles.




h. Construction
      in Progress




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




i. 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 and equipment and intangible
      assets subject to periodic amortization, for recoverability at least annually
      or
      more frequently upon the occurrence of an event or when circumstances indicate
      that the net carrying amount is greater than its fair value. Assets are grouped
      and evaluated at the lowest level for their identifiable cash flows that are
      largely independent of the cash flows of other groups of assets. The Company
      considers historical performance and future estimated results in its evaluation
      of potential impairment and then compares the carrying amount of the asset
      to
      the future estimated cash flows expected to result from the use of the asset.
      If
      the carrying amount of the asset exceeds estimated expected undiscounted future
      cash flows, the Company measures the amount of impairment by comparing the
      carrying amount of the asset to its fair value. The estimation of fair value
      is
      generally measured by discounting expected future cash flows as the rate the
      Company utilizes to evaluate potential investments. The Company estimates fair
      value based on the information available in making whatever estimates, judgments
      and projections are considered necessary. There was no impairment of long-lived
      assets for the period ended June 30, 2008 and year ended December 31,
      2007.




j. Revenue
      recognition




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





8




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




k. Advertising
      costs




The
      Company expenses the cost of advertising as incurred or, as appropriate, the
      first time the advertising takes place. Advertising costs for the three months
      ended June 30, 2008 and 2007 were $203,156 and $97,723 respectively. Advertising
      costs for the six months ended June 30, 2008 and 2007 were $304,610 and $191,774
      respectively.




l. Shipping
      and Handling




The
      Company classifies shipping cost under selling expenses. Shipping cost for
      the
      three months ended June 30, 2008 and 2007 were $221,249 and $163,222
      respectively. Shipping cost for the six months ended June 30, 2008 and 2007
      were
      $362,253 and $254,015 respectively




m. Income
      taxes




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




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




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




When
      tax
      returns are filed, it is highly certain that some positions taken would be
      sustained upon examination by the taxing authorities, while others are subject
      to uncertainty about the merits of the position taken or the amount of the
      position that would be ultimately sustained. The benefit of a tax position
      is
      recognized in the financial statements in the period during which, based on
      all
      available evidence, management believes it is more likely than not that the
      position will be sustained upon examination, including the resolution of appeals
      or litigation processes, if any. Tax positions taken are not offset or
      aggregated with other positions. Tax positions that meet the
      more-likely-than-not recognition threshold are measured as the largest amount
      of
      tax benefit that is more than 50 percent likely of being realized upon
      settlement with the applicable taxing authority. The portion of the benefits
      associated with tax positions taken that exceeds the amount measured as
      described above is reflected as a liability for unrecognized tax benefits in
      the
      accompanying balance sheet along with any associated interest and penalties
      that
      would be payable to the taxing authorities upon examination.




Interest
      and penalties associated with unrecognized tax benefits are classified as
      additional income taxes in the statement of income.





9




n. Foreign
      currency translation




The
      Company uses the United States dollar ("U.S. dollars" or “US$”) for financial
      reporting purposes. The Company's subsidiaries maintain their books and records
      in their functional currency, being the primary currency of the economic
      environment in which their operations are conducted. Such financial statements
      were translated into U.S. Dollars (USD) in accordance with Statement of
      Financial Accounts Standards (“SFAS”) No. 52, “Foreign Currency Translation”.
      According to the Statement, all assets and liabilities are translated at the
      current exchange rate, stockholder’s equity are translated at the historical
      rates and income statement items are translated at the average exchange rate
      for
      the period. The resulting translation adjustments are reported under other
      comprehensive income in accordance with SFAS No. 130, “Reporting Comprehensive
      Income” as a component of shareholders’ equity.




o. 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 payables, taxes payable, and related
      party
      advances and borrowings.




As
      of the
      balance sheet dates, the estimated fair values of the financial instruments
      were
      not materially different from their carrying values as presented on the balance
      sheet. This is attributed to the short maturities of the instruments and 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.




p. 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”. 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.




q. Segment
      reporting




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




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




r. Statement
      of cash flows




In
      accordance with Statement of Financial Accounting Standards No. 95, "Statement
      of Cash Flows," cash flows from the Company's operations is calculated based
      upon the local currencies. As a result, amounts related to assets and
      liabilities reported on the statement of cash flows may not necessarily agree
      with changes in the corresponding balances on the balance sheets.




10




s. Recent
      Accounting Pronouncements




In
      February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an amendment of FASB
      Statement No. 115" (“SFAS 159”). SFAS 159 permits companies to choose to measure
      many financial instruments and certain other items at fair value that are not
      currently required to be measured at fair value. The objective of SFAS 159
      is to
      provide opportunities to mitigate volatility in reported earnings caused by
      measuring related assets and liabilities differently, without having to apply
      hedge accounting provisions. SFAS 159 also establishes presentation and
      disclosure requirements designed to facilitate comparisons between companies
      that choose different measurement attributes for similar types of assets and
      liabilities. SFAS 159 will be effective in the first quarter of fiscal 2009.
      The
      Company is evaluating the impact that this statement will have on its
      consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements”. This Statement amends ARB 51 to establish
      accounting and reporting standards for the noncontrolling (minority) interest
      in
      a subsidiary and for the deconsolidation of a subsidiary. It clarifies that
      a
      noncontrolling interest in a subsidiary is an ownership interest in the
      consolidated entity that should be reported as equity in the consolidated
      financial statements. SFAS No. 160 is effective for the Company’s fiscal year
      beginning October 1, 2009. Management is currently evaluating the effect of
      this
      pronouncement on the consolidated financial statements.





In
      December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. This
      Statement replaces SFAS No. 141, Business Combinations. This Statement retains
      the fundamental requirements in Statement 141 that the acquisition method of
      accounting (which Statement 141 called the purchase method) be used for all
      business combinations and for an acquirer to be identified for each business
      combination. This Statement also establishes principles and requirements for
      how
      the acquirer: a) recognizes and measures in its financial statements the
      identifiable assets acquired, the liabilities assumed, and any noncontrolling
      interest in the acquiree; b) recognizes and measures the goodwill acquired
      in
      the business combination or a gain from a bargain purchase and c) determines
      what information to disclose to enable users of the financial statements to
      evaluate the nature and financial effects of the business combination. SFAS
      No.
      141(R) will apply prospectively to business combinations for which the
      acquisition date is on or after Company’s fiscal year beginning October 1, 2009.
      While the Company has not yet evaluated this statement for the impact, if any,
      that SFAS No. 141(R) will have on its consolidated financial statements, the
      Company will be required to expense costs related to any acquisitions after
      September 30, 2009.





In
      March
      2008, the
      FASB
      issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
      Activities” (“SFAS 161”). SFAS 161 requires enhanced disclosures about an
      entity’s derivative and hedging activities and thereby improves the transparency
      of financial reporting. The objective of SFAS 161 is to provide adequate
      information about how derivative and hedging activities affect an entity’s
      financial position, financial performance, and cash flows. SFAS 161 will be
      effective in the first quarter of fiscal 2009. The Company is evaluating the
      impact that this statement will have on its consolidated financial
      statements.





In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of
      accounting principles and the framework for selecting the principles to be
      used
      in the preparation of financial statements of nongovernmental entities that
      are
      presented in conformity with U.S. GAAP. SFAS 162 shall be effective 60 days
      following the SEC’s approval of the Public Company Accounting Oversight Board
      (“PCAOB”) amendments to AU Section 411, The Meaning of Present Fairly in
      Conformity With Generally Accepted Accounting Principles. The Company is
      evaluating the impact that this statement will have on its consolidated
      financial statements.





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




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




On
      July
      5, 2007, the Company issued and sold 5,556,000 shares of our Company’s common
      stock for $2.70 per share for a purchase price, in the aggregate, of
      $15,001,200. The direct costs related to this stock sale, including legal and
      professional fees, were deducted from the related proceeds and $2,000,000 was
      deposited in an escrow account. The balances held in escrow were $2,000,000
      as
      of June 30, 2008 and December 31, 2007.





11




**4.**  **INVENTORIES**




Inventories
      consist of the following as of June 30, 2008 and December 31, 2007:




June 30
            
            December 312008
            
            2007Raw
                Materials
            
            $
            6,827,223
            
            $
            2,579,210Packing
                Materials
            
            
            94,988
            
            
            37,645Finished
                goods
            
            
            1,675,500
            
            
            891,886$
            8,597,711
            
            $
            3,508,741




**5.**  **PREPAYMENTS
      AND OTHER RECEIVABLES**




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




**6.**  **PROPERTY
      AND EQUIPMENT**




Property
      and equipment consist of the following as of June 30, 2008 and December 31,
      2007:




June 30
            
            December 312008
            
            2007Manufacturing
                machinery
            
            $
            4,005,556
            
            $
            3,750,525Leasehold
                improvement
            
            
            222,445
            
            
            165,905Office
                equipment
            
            
            212,438
            
            
            210,998Motor
                vehicles
            
            
            615,603
            
            
            565,3105,056,042
            
            
            4,692,738Less:
                Accumulated Depreciation
            
            
            (1,218,813
            )
            
            (893,780
            )$
            3,837,229
            
            $
            3,798,958




Depreciation
      and amortization expense for the three months ended June 30, 2008 and June
      30,
      2007 was $325,033 and $390,736, respectively. Depreciation and amortization
      expense for the six months ended June 30, 2008 and 2007 was $644,998 and
      $522,077, respectively.




**7.**  **CONSTRUCTION
      IN PROGRESS**




The
      construction in progress amounted to $1,794,062 and $0 as of June 30, 2008
      and
      December 31, 2007. The construction in progress consists of property and
      equipment for the organic granular compound fertilizer plants in Beijing and
      Haerbin.





12




**8.**  **AMOUNTS
      DUE TO RELATED PARTIES**




The
      amounts due to related parties represented advances from the Company’s officers
      and shareholders, and were unsecured, non-interest bearing and due on demand.




**9.** **ACCRUED
      EXPENSES AND OTHER PAYABLES**




Accrued
      expenses and other payables consist of the following as of June 30, 2008 and
      December 31, 2007:




June 30
            
            December 312008
            
            2007Accrued
                commission payable
            
            $
            1,046,789
            
            $
            818,671Other
                accrued expense
            
            
            367,308
            
            
            103,495Vendor
                deposit
            
            
            14,595
            
            
            -Other
                payables
            
            
            44,350
            
            
            125,555$
            1,473,042
            
            $
            1,047,721




**10.**  **TAXES
      PAYABLE**




Taxes
      payable consist of the following as of June 30, 2008 and December 31, 2007:




June 30
            
            December 312008
            
            2007Income
                tax payable
            
            $
            1,463,298
            
            $
            1,069,936VAT
                tax payable
            
            
            552,425
            
            
            576,911Others
            
            
            4,633
            
            
            3,396$
            2,020,356
            
            $
            1,650,243




**11.**  **INCOME
      TAXES**




Local
      PRC income tax




The
      Company is governed by the Income Tax Law of the PRC concerning Chinese
      registered limited liability companies. Under the Income Tax Laws of the PRC,
      Chinese enterprises are generally subject to an income tax at an effective
      rate
      of 25% and 33% (30% state income taxes plus 3% local income taxes) for the
      periods ended June 30, 2008 and 2007 respectively on income reported in the
      statutory financial statements after appropriate tax adjustments, unless the
      enterprise is located in a specially designated region for which more favorable
      effective tax rates are applicable. The provision for income taxes for the
      three
      and six months ended June 30, 2008 and 2007 consisted of the following:





13


Three month periods ended June 30,
              
              Six month periods ended June 30,2008
              
              2007
              
              2008
              
              2007Provision
                  for China income and local tax
              
              $
              1,432,714
              
              $
              1,544,137
              
              $
              2,149,994
              
              $
              2,804,192Deferred
                  taxes for China
              
              
              -
              
              
              -
              
              
              -
              
              
              -Provision
                  for US income and local tax
              
              
              -
              
              
              -
              
              
              -
              
              
              -Total
                  provision for income taxes
              
              $
              1,432,714
              
              $
              1,544,137
              
              $
              2,149,994
              
              $
              2,804,192




The
      following table reconciles the U.S. statutory rates to the Company’s effective
      tax rate at June 30, 2008 and 2007 respectively;





2008
            
            2007Tax
                at statutory rate
            
            
            25
            %
            
            33
            %Foreign
                tax rate difference
            
            
            -1
            %
            
            -1
            %Net
                operating loss in other tax jurisdiction for where no benefit is
                realized
            
            
            7
            %
            
            4
            %31
            %
            
            36
            %




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




**12.**  **MINORITY
      INTEREST**




The
      amounts represent the 10% interest of our minority shareholder, Harbin Yinlong
      Enterprise Co., Ltd., a related party of the Company, in Pacific
      Dragon.




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




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




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





14




**14.**  **MAJOR
      CUSTOMERS AND VENDORS** ****




There
      were no major customers which accounted for more than 10% of the total net
      revenue for the six month periods ended June 30, 2008 and 2007.




Four
      vendors provided approximately 77% of the Company’s raw materials for the six
      months ended June 30, 2008 with each vendor individually accounting for
      approximately 35%, 21%, 11% and 10%. Four vendors provided approximately 70%
      of
      the Company’s dollar value of raw materials for the six months ended June 30,
      2007 with each individually accounting for approximately 22%, 20%, 17% and
      11%.




**15.**  **STOCKHOLDERS’
      EQUITY**




On
      July
      5, 2007, the Company issued and sold 5,556,000 shares of our Company’s common
      stock for $2.70 per share for a purchase price, in the aggregate, of
      $15,001,200. 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.




**16.**  **STOCK
      OPTIONS AND WARRANTS**




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




As
      a
      result of adopting SFAS No. 123R, the Company recognized $0 and $2,398 in
      share-based compensation expense for the six months ended June 30, 2008 and
      2007. The
      Company recognized $0 and $1,197 in share-based compensation expenses for the
      three months ended June 30, 2008 and 2007. The
      impact of this share-based compensation expense on the Company's basic and
      diluted earnings per share was $0.00 per share. The fair value of our stock
      options was estimated using the Black-Scholes option pricing model.




Options




On
      May
      10, 2006, the Company granted an unrelated party 50,000 stock options with
      12,500 vesting on May 10, 2006 and with 12,500 vesting each quarter after May
      10, 2006 until 50,000 will be all vested.  The option exercise price is
      $3.50. The fair value of the shares at the time of granting of the options
      was
      $3.00.




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


Risk-free
                interest rate
            
            
            6.0
            %Expected
                life of the options
            
            
            0.75
                yearsExpected
                volatility
            
            
            80
            %Expected
                dividend yield
            
            
            0


15


Following
      is a summary of the stock option activity:




Options outstanding
            
            Weighted Average Exercise Price
            
            Aggregate Intrinsic ValueOutstanding,
                December 31, 2006
            
            
            50,000
            
            $
            3.50
            
            $
            0.00GrantedForfeitedExercisedOutstanding,
                December 31, 2007
            
            
            50,000
            
            $
            3.50
            
            $
            0.00Granted
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -Outstanding,
                June 30, 2008
            
            
            50,000
            
            $
            3.50
            
            $
            0.00





Following
      is a summary of the status of options outstanding at June 30, 2008:





Outstanding Options
            
            Exercisable OptionsExercise Price
            
            Number
            
            Average
              Remaining
              Contractual Life
            
            Average
              Exercise Price
            
            Number
            
            Average Exercise
              Price$3.50
            
            
            50,000
            
            
            2.875
            
            $
            3.50
            
            
            50,000
            
            $
            3.50




Warrants




On
      July
      5, 2007, the Company granted the private placement consultant 388,920 warrants
      that vested immediately.  The warrants exercise price is $2.70. The fair
      value of the shares at the time of granting of the warrants was $3.22.




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




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




Following
      is a summary of the warrants activity:




Warrants
              outstanding
            
            Weighted
              Average Exercise
              Price
            
            Aggregate Intrinsic
              ValueOutstanding,
                December 31, 2006
            
            
            0
            
            $
            0.00
            
            $
            0.00Granted
            
            
            388,920
            
            $
            2.70
            
            $
            0.00Forfeited
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -Outstanding,
                December 31, 2007
            
            
            388,920
            
            $
            2.70
            
            $
            0.00GrantedForfeitedExercisedOutstanding,
                June 30, 2008
            
            
            388,920
            
            $
            2.70
            
            $
            0.00


16


Following
      is a summary of the status of warrants outstanding at June 30, 2008





Outstanding Warrants
            
            Exercisable WarrantsExercise Price
            
            Number
            
            Average
              Remaining
              Contractual Life
            
            Average
              Exercise Price
            
            Number
            
            Average Exercise
              Price$2.70
            
            
            388,920
            
            
            4.0
            
            $
            2.70
            
            
            388,920
            
            $
            2.70




**17.**  **STATUTORY
      RESERVES**




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




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




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




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




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




In
      accordance with the Chinese Company Law, the Company has allocated 10% of its
      net income to surplus. The amount included in the statutory reserves as of
      June
      30, 2008 and December 31, 2007 amounted to $588,756 and $2,866,436,
      respectively.




The
      Company established a reserve for the annual contribution of 5% of net income
      to
      the common welfare fund. The amount included in the statutory reserves as of
      June 30, 2008 and December 31, 2007 amounted to $294,378 and $1,433,217,
      respectively.




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




On
      January 6, 2005, our subsidiary Pacific Dragon entered into a license agreement
      with Mr. Chang. Under this license agreement, Mr. Chang granted an exclusive
      license to Pacific Dragon for the use of know-how in manufacturing organic
      liquid compound fertilizer on a royalty-free basis. On December 3, 2005, Mr.
      Chang and Pacific Dragon entered into another license agreement pursuant to
      which the term of the license was extended to a permanent license. In accordance
      with Section 5.1(f) of Securities Purchase Agreement, dated June 29, 2007,
      entered among the Company, Yu Chang, and the investors named therein, an
      additional license agreement was entered for the know-how mentioned above
      between Chang Yu and Pacific Dragon Fertilizers Co. Ltd. (a subsidiary of the
      Company), confirming the license has been extended until December 31,
      2011.




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


17


On
      July
      2, 2007, Agritech Fertilizer Co., Ltd entered into a tenancy agreement with
      Ms
      Teng Xiao Rong (a director of the Company) to lease an office with a total
      floor
      area of 780 meter square for a term of 5 years from February 1, 2007 to February
      1, 2012 at an annual rent of RMB 480,000 (equivalent to $68,083) effective
      from
      July 2, 2007.




As
      of
      June 30, 2008, we have approximately $79,000 in capital commitments for the
      purchase of organic granular compound fertilizer’s production
      facilities.




The
      Company incurred rent expense of $395,153 and $337,758 related to the above
      leases for the six month periods ended June 30, 2008 and 2007, respectively
      and
      $195,496 and $199,950 for the three month periods ended June 30, 2008 and 2007
      respectively. The rent obligations for the next five years after June 30, 2008
      are as follows:




Year
                2008
            
            
            432,587Year
                2009
            
            
            783,388Year
                2010
            
            
            769,062Year
                2011
            
            
            747,786Year
                2012
            
            
            671,997Thereafter
            
            
            779,453$
            4,184,273


18


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





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





This
      report contains forward-looking statements and information relating to China
      Agritech, Inc., that are based on the beliefs of our management as well as
      assumptions made by and information currently available to us. When used in
      this
      report, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,”
“plan” and similar expressions, as they relate to us or our management, are
      intended to identify forward-looking statements. These statements reflect our
      current view concerning future events and are subject to risks, uncertainties
      and assumptions, including among many others: a general economic downturn;
      a
      downturn in the securities markets; Securities and Exchange Commission
      regulations which affect trading in the securities of "penny stocks," and other
      risks and uncertainties. Should any of these risks or uncertainties materialize,
      or should underlying assumptions prove incorrect, actual results may vary
      materially from those described in this report as anticipated, estimated or
      expected. Except as required by law, we assume no obligation to update any
      forward-looking statements publicly, or to update the reasons actual results
      could differ materially from those anticipated in any forward- looking
      statements, even if new information becomes available in the future. Important
      factors that may cause actual results to differ from those projected include
      the
      risk factors specified above. Notwithstanding the above, Section 27A of the
      Securities Act and Section 21E of the Securities Exchange Act expressly state
      that the safe harbor for forward-looking statements does not apply to companies
      that issue penny stock. Because we may from time to time be considered as an
      issuer of penny stock, the safe harbor for forward-looking statements may not
      apply to us at certain times.




All
      statements other than statements of historical fact are statements that could
      be
      deemed forward-looking statements, including statements regarding new and
      existing products, technologies and opportunities; statements regarding market
      and industry segment growth and demand and acceptance of new and existing
      products; any projections of sales, earnings, revenue, margins or other
      financial items; any statements of the plans, strategies and objectives of
      management for future operations; any statements regarding future economic
      conditions or performance; uncertainties related to conducting business in
      China; any statements of belief or intention; any of the factors mentioned
      in
      the "Risk Factors" section of the Company’s Form 10-K originally filed with the
      SEC on March 28, 2008, as amended; and any statements or assumptions underlying
      any of the foregoing.  We assume no obligation and do not intend to update
      these forward-looking statements, except as required by law.





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





**Our
      Business**




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





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


19


China
      is
      the principal market for our products, which are primarily sold to farmers
      in
      several provinces in China: Heilongjiang, Hebei, Liaoning, Jilin, Shandong,
      Inner Mongolia, Henan, Sichuan, Guangdong, Xinjiang, Yunnan, Guizhou, Hainan
      and
      Jiangsu. In 2008, we estimate that our annual production capacity will be
      approximately 13,000 **** metric
      tons of organic liquid compound fertilizers.





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





**Overview
      of Second Fiscal Quarter of 2008**





Sales
      during the second quarter of 2008 were approximately 42.83% higher than sales
      during the second quarter of 2007. The Company’s consolidated balance sheet
      as of June 30, 2008 included current assets of $60,618,385 and total assets
      of
      $66,249,676. The Company had no long-term debt during the second quarter of
      2008
      or at June 30, 2008.





We
      have
      made progress in expanding our operations through our recently formed Anhui
      Agritech and Beijing Agritech operating subsidiaries. Anhui Agritech operates
      our recently constructed facility in the Anhui province and began operations
      in
      the first quarter of 2007. In addition it manufactures and sells our fertilizer
      products to customers in the Anhui, Hubei, and Henan provinces of China. Beijing
      Agritech supervises our Beijing operations, which serve as a research and
      development center and as our primary syrup production center and converting
      factory. Our Beijing Agritech operations commenced business in September 2006.
      Our annual production capacity in 2007 was approximately 13,000 metric tons
      of
      organic liquid compound fertilizers. Due to this expansion we expect that our
      Anhui Agritech and Beijing Agritech operating subsidiaries will contribute
      to
      our financial results during the 2008 fiscal year.





**Recent
      Developments Affecting Our Business**





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





**Results
      of Operations**





**Comparison
      of Three Months Ended June 30, 2008 and June 30, 2007.**





The
      following table summarizes the results of our operations during the three-month
      periods ended June 30, 2008 and 2007 and provides information regarding the
      dollar and percentage increase or (decrease) from the 2007 fiscal period to
      the
      2008 fiscal period:





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





**3 Month Period**
              **Ended**
              **6/30/08**
            
            **3 Month Period**
              **Ended**
              **6/30/07**
            
            **Dollar ($)**
              **Increase**
              **(Decrease)**
            
            **Percentage (%)**
              **Increase**
              **(Decrease)**Net
                Revenue
            
            $
            14.093
            
            $
            9.867
            
            
            4.226
            
            
            42.83Cost
                of Revenue
            
            
            (6.852
            )
            
            (4.115
            )
            
            2.737
            
            
            66.51Gross
                Profit
            
            
            7.241
            
            
            5.752
            
            
            1.489
            
            
            25.89Selling
                Expenses
            
            
            (1.226
            )
            
            (0.791
            )
            
            0.435
            
            
            54.99Operating
                and Administrative Expenses
            
            
            (1.050
            )
            
            (0.464
            )
            
            0.586
            
            
            126.29Income
                From Operations
            
            
            4.965
            
            
            4.497
            
            
            0.468
            
            
            10.40Other
                Income (Expenses)
            
            
            (0.178
            )
            
            0.002
            
            
            (0.180
            )
            
            (9.000
            )Income
                Tax
            
            
            (1.433
            )
            
            (1.544
            )
            
            (0.111
            )
            
            (7.19
            )Minority
                Interest
            
            
            (0.430
            )
            
            (0.321
            )
            
            0.109
            
            
            33.96Foreign
                Currency Translation Gains
            
            
            1.797
            
            
            0.327
            
            
            1.470
            
            
            449.54Net
                income
            
            
            2.925
            
            
            2.634
            
            
            0.291
            
            
            11.05


20


***Net
      Revenue*** .
      Our net
      revenue is generated from sales of our fertilizer products. The increase in
      net
      revenue is mainly attributable to expansion of customers based in the newly
      established sales markets in the central and southern regions of China. In
      addition, the increase in sales for the three month period ended on June 30,
      2008 also resulted from the delayed delivery of products in the first quarter
      of
      2008 due to the extended cold weather in the northern region of China in the
      first quarter of 2008 which delayed use of our products by our customers in
      the
      first quarter, therefore leading to greater delivery in the second quarter
      of
      2008.





***Costs
      of Revenue*** .
      Our
      costs of revenue are primarily comprised of the cost of our raw materials,
      direct labor and manufacturing overhead expenses. Our cost of revenue increased
      period to period as a result of higher sales, but the percentages of the costs
      of revenue to total revenues increased to 48.6% from 41.7% for the three-month
      periods ended on June 30, 2008 and 2007, respectively. The higher cost of
      revenue as a percentage of sales was primarily a result of an increase in the
      prices of raw materials and packaging materials. ****





***Gross
      Profit*** **.** Our
      gross profit is equal to the difference between our sales revenue and our cost
      of goods sold. Gross profit as a percentage of net revenues was 51.3% for the
      three months ended June 30, 2008, as compared to 58.3% for the three months
      ended June 30, 2007. The decrease in gross profit as a percentage of revenues
      was mainly due to the increase in cost of raw materials and packing materials.





***Selling
      Expenses*** .
      Our
      selling expenses consist primarily of sales commission, advertising and
      promotion expenses, freight charges and related compensation. The increase
      was
      primarily attributable to increase in sales representative compensation as
      a
      result of the salary increment and adjustment made to the commission basis.
      We
      also paid higher sales commissions in connection with higher sales of our
      products. Greater selling and marketing activities were also carried on in
      the
      three month period ending June 30, 2008 in the newly established sales markets
      in the central and southern regions of China, compared to three month period
      ended June 30, 2007, resulting in an increase in selling expenses. We have
      seen
      the cost of travel related to sales increase as a result of the new geographical
      expansion in Xinjiang region which did not exist for comparable periods in
      2007.
      Finally, freight charges related to sales have increased as a result of the
      increase in fuel prices and sales volume compared to the three months ended
      June
      30, 2007.





***Operating
      and Administrative Expenses.*** Our
      operating and administrative expenses consist primarily of rental expenses,
      related salaries, business development, depreciation and traveling expenses,
      legal and professional expenses. Higher administrative expenses for the three
      month period ended June 30, 2008 were primarily attributable to legal and
      professional consulting fees such as SOX 404 and SEC maintenance and general
      legal advice for long term company planning. Higher salary expenses were also
      experienced from the addition of 3 newly recruited management members to our
      payroll. In the second quarter of 2008, we incurred additional general
      administrative costs mainly related to the newly established market (Xinjiang)
      and similar costs were not incurred in the second quarter of 2007. Finally,
      the
      administrative costs, such as factory rental expenses for the newly constructed
      organic granular compound fertilizer plant in Beijing also contributed to the
      increase in operating and administrative expenses. ****





***Income
      From Operations.*** The
      increase in our income from operations from period to period was caused by
      the
      increased sales during the second quarter of 2008, which were partially offset
      by the increase in selling expenses, operating and administrative expenses
      and
      costs of revenue.




***Other
      Income (Expenses).*** Other
      expenses mainly consisted of exchange loss. Increase in exchange loss resulted
      from the loss in exchange of the proceeds (in US dollars) derived from the
      common shares issued and sold in July 2007 into Chinese Yuan due to the weaker
      U.S. dollar relative to Chinese Yuan as of June 30, 2008.





***Income
      taxes*** .
      Our
      Chinese subsidiaries are taxed at a rate of 25% of assessable profit. We paid
      less taxes for the three month period ended June 30, 2008 than the three month
      period ended June 30, 2007 due to the new corporate income tax law in the PRC,
      which revised the corporate tax rate that we pay from 33% to 25%.


21


***Minority
      interest*** .
      Our
      financial statements reflect the minority interest held by Yinlong Industrial
      Co. Ltd. in our subsidiary Pacific Dragon. The increase in the minority interest
      adjustment is due to the increase in the net income of Pacific Dragon.





***Foreign
      Currency Translation Gains*** .
      The
      increase in foreign currency translation gains can be attributed to a stronger
      RMB relative to US$ as of June 30, 2008 as compared to the same date in
      2007.





***Net
      Income*** .
      The
      increase in the net income was attributable to higher amount of sales achieved
      and lower taxes, which were partially offset by the increase in the selling
      and
      administrative expenses for the three month period ended June 30, 2008 as
      explained above.





**Comparison
      of Six Months Ended June 30, 2008 and June 30, 2007.**





The
      following table summarizes the results of our operations during the six-month
      periods ended June 30, 2008 and June 30, 2007 and provides information regarding
      the dollar and percentage increase (or decrease) from the 2007 fiscal period
      to
      the 2008 fiscal period:





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





Six-Month
              Period Ended
              on June 30, 2008
            
            Six-Month
              Period Ended
              On June 30, 2007
            
            Dollar ($)
              Increase (Decrease)
            
            Percentage (%)
              Increase
              (Decrease)Net
                Revenue
            
            $
            21.410
            
            $
            18.479
            
            $
            2.931
            
            
            15.86Costs
                of Revenue
            
            
            (10.533
            )
            
            (8.216
            )
            
            2.317
            
            
            28.20Gross
                Profit
            
            
            10.877
            
            
            10.263
            
            
            0.614
            
            
            5.98Selling
                Expenses
            
            
            (1.932
            )
            
            (1.405
            )
            
            0.527
            
            
            37.51Operating
                and Administrative Expenses
            
            
            (1.924
            )
            
            (1.012
            )
            
            0.912
            
            
            90.12Income
                from Operations
            
            
            7.021
            
            
            7.846
            
            
            (0.825
            )
            
            (10.51
            )Other
                income (Expenses)
            
            
            (0.111
            )
            
            0.030
            
            
            (0.141
            )
            
            (470.00
            )Income
                Tax
            
            
            (2.150
            )
            
            (2.804
            )
            
            (0.654
            )
            
            (23.32
            )Minority
                Interest
            
            
            (0.645
            )
            
            (0.552
            )
            
            0.093
            
            
            16.85Foreign
                Currency Translation Gains
            
            
            3.115
            
            
            0.832
            
            
            2.283
            
            
            274.40Net
                Income
            
            
            4.115
            
            
            4.519
            
            
            (0.404
            )
            
            (8.94
            )





***Net
      Revenue.*** Our net
      revenue for the six months ended June 30, 2008 amounted to $21,409,652, which
      is
      approximately $2,931,000 or 15.86% more than that of the same period ended
      on
      June 30, 2007, where we had revenue of $18,478,632. The increase in the net
      revenue is mainly attributed to expansion of customers based in the newly
      established sales markets in the central and southern regions of China.





***Cost
      of Revenue*** .
      Our
      cost of revenue was $10,532,674 for the six-month period ended June 30, 2008,
      an
      increase of approximately $2,317,000 or 28.2%, as compared to $8,216,104 for
      the
      six-month period ended June 30, 2007. The percentage of the cost of sales to the
      total revenues are 49.2% and 44.46% for the six-month periods ended on June
      30,
      2008 and 2007, respectively, an increase of approximately 4.74%. This change
      was
      primarily the result of the increase in the prices for raw materials and
      packaging materials.





***Gross
      Profit*** **.** Our
      gross profit is equal to the difference between our sales revenue and our cost
      of goods sold. Gross profit as a percentage of net revenues was 50.8% for the
      six months ended June 30, 2008, as compared to 55.5% for the six months ended
      June 30, 2007. The decrease in gross profit as a percentage of revenues was
      mainly due to the increase in cost of raw materials and packaging
      materials.





***Selling
      Expenses*** .
      Our
      selling expenses were $1,932,203 for the six-month period ended June 30, 2008,
      as compared to $1,404,786 for the same period ended June 30, 2007, an increase
      of approximately $527,000 or 37.51%, due to the increase in sales representative
      compensation as a result of the salary increment and adjustment made to the
      commission basis. Higher sales commission incurred because of higher sales
      also
      contributed to the higher selling expenses. Greater selling and marketing
      activities were also carried on in the six month period ending June 30, 2008
      in
      the newly established sales markets in the central and southern regions of
      China, compared to six month period ended June 30, 2007, resulting in an
      increase in selling expenses. We have seen the cost of travel related to sales
      increase as a result of our geographical expansion into the Chongqing and
      Xinjiang regions. Finally, freight charges related to sales have increased
      as a
      result of the increase in fuel prices and sales volume compared to the six
      month
      period ended June 30, 2007.


22


***Operating
      and Administrative Expenses*** .
      Our
      general and administrative expenses were $1,923,891 for the six-month period
      ended June 30, 2008, as compared to $1,012,157 for the same period ended June
      30, 2007, an increase of approximately $912,000 or 90.12%, primarily due to
      legal and professional consulting fees such as SOX 404 and SEC maintenance
      and
      general legal advice for long term company planning. Higher salary expenses
      were
      also experienced from the addition of 3 newly recruited management members
      to
      our payroll. We have incurred additional general administrative costs mainly
      related to the newly established sales markets (Xinjiang and Chongqing) and
      similar costs were not incurred prior to March and July of 2007 for Chongqing
      and Xinjiang respectively. Finally, the administrative cost such as factory
      rental expenses for the newly constructed organic granular compound fertilizer
      plant in Beijing has also contributed to the increase in operating and
      administrative expenses.





***Income
      From Operations*** .
      Income
      from operations was $7,020,884 for the six-month period ended June 30, 2008,
      as
      compared to $7,845,585 for the same period ended June 30, 2007, a decrease
      of
      approximately $825,000 or 10.51%. This decrease was primarily attributable
      to
      the increase in sales for the six months period ended June 30, 2008, which
      were
      partially offset by the increase in selling expenses, operating and
      administrative expenses and costs of revenue.





***Other
      Income (Expenses).*** Interest
      income was $63,896 for the six-month period ended June 30, 2008, as compared
      to
      $31,881 for the same period ended June 30, 2007. The increase in interest income
      was due to an increase in cash on deposit with our bank derived from the
      proceeds of common shares issued and sold in July 2007. Other expenses mainly
      consisted of exchange loss. The increase in exchange loss resulted from the
      loss
      in exchange of the proceeds (in US dollar) derived from the common shares issued
      and sold in July 2007 into Chinese Yuan due to the weaker U.S. dollar relative
      to Chinese Yuan as of June 30, 2008.





***Income
      taxes*** .
      We
      incurred income taxes of $2,149,994 for the six-month period ended on June
      30,
      2008. This is a decrease of approximately $654,000 or 23.32% from the taxes
      we
      incurred for the same period in 2007, which were $2,804,192. We paid less taxes
      in the six months ended June 30, 2008 due to the new corporate income tax law
      in
      the PRC, which revised the corporate tax rate that we pay from 33% to 25%.





***Minority
      interest*** .
      Our
      financial statements reflect an adjustment to our consolidated group net income
      equal to $644,998 and $552,077 **** for
      the
      six-month periods ended June 30, 2008 and 2007, respectively, reflecting the
      minority interest held by Yinlong Industrial Co. Ltd. in our subsidiary Pacific
      Dragon. The increase in the minority interest adjustment is due to an increase
      in the net income of Pacific Dragon.





***Foreign
      Currency Translation Gains*** .
      We had
      a foreign currency translation gain of $3,115,178 for the six-month period
      ended
      June 30, 2008 as compared to $831,773 for the six-month period ended June 30,
      2007. This increase is a result of a $2,283,405 increase in the foreign currency
      translation gain for the six-month period ended June 30, 2008 from $831,773
      for
      the six-month period ended June 30, 2007.





***Net
      Income*** .
      We
      earned net income of $4,114,949 for the six-month period ended June 30, 2008.
      This is a decrease of approximately $404,000 or 8.94% from our net income during
      the same period ended June 30, 2007 of $4,519,271 mainly due to higher selling
      expenses and general and administrative expenses as explained
      above.




**Liquidity
      and Capital Resources**





As
      of
      June 30, 2008, we had cash and cash equivalents of $7,388,358 and restricted
      cash of $0. Our current assets were $60,618,385 and our current liabilities
      were
      $3,772,180 as of June 30, 2008, which results in a current ratio of
      approximately 16 times. Our total stockholders’ equity as of June 30, 2008 was
      $58,114,112. We had no bank loans or other interest bearing borrowings as of
      June 30, 2008. 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 June 30, 2008, we have approximately $79,000 in capital
      commitments for the purchase of organic granular compound fertilizer production
      facilities.


23




**Cash
                Flows (in thousands of U.S. Dollars)****Six
                Months**
              **Ended
                June 30,****2008**
            
            **2007**Net
                cash used in operating activities
            
            
            (5,663,337
            )
            
            (826,672
            )Net
                cash provided by (used in) investing activities
            
            
            (2,157,367
            )
            
            (1,071,927
            )Net
                cash provided by financing activities
            
            
            -
            
            
            -Net
                decrease in cash
            
            
            (7,832,120
            )
            
            (1,898,599
            )




On
      July
      5, 2007, we raised a total of approximately $15,000,000 from the sale of
      5,556,000 shares of our common stock through a private placement transaction.
      In
      accordance with the terms of the private placement, $2,000,000 of the proceeds
      from the private placement transactions were kept in a trust account and will
      be
      released when we hire a new CFO and modify our board of directors in accordance
      with the terms of the private placement documents. As of June 30, 2008, all
      $2,000,000 remained in escrow.





**Operating
      Activities** :




Net
      cash
      used in operating activities was $5.67 million for the six-month period ended
      June 30, 2008, which was an increase of $4.84 million from the $0.83 million
      net
      cash used in operating activities for the same period in 2007. The increase
      was
      attributable to lower net income for the six month period ended June 30, 2008
      compared to the same period in 2007. In addition, greater advances to suppliers
      for raw materials for our newly constructed organic granular compound
      fertilizer’s production facilities also contributed to the increase in net cash
      used in operating activities. Expansion of our central and southern region
      customers base has increased the overall accounts receivable as the Company’s
      average credit terms given ranged from 6 to 12 months, hence this has also
      contributed to the increase in net cash used in operating activities.





**Investing
      Activities** :




Our
      main
      uses of cash for investing activities were payments for the acquisition of
      property, plant, equipment and construction in progress for the plant, equipment
      and investments related to Anhui Agritech and Beijing Agritech. Net cash used
      in
      investing activities in the six-month period ended June 30, 2008 was $2,157,367,
      which is an increase of approximately $1 million from net cash used for
      investing activities of $1.07 million in the same period of 2007. The increase
      was due to the construction of organic granular compound fertilizer production
      facilities.





**Critical
      Accounting Policies**





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




·
            ***Accounts
                Receivable***.
                 Our policy is to maintain reserves for potential credit losses on
                accounts receivable. Management reviews the composition of accounts
                receivable and analyzes historical bad debts, customer concentrations,
                customer credit worthiness, current economic trends and changes in
                customer payment patterns to evaluate the adequacy of these reserves.




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


24




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




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




·
            ***Foreign
                currency translation***.
                We use U.S. dollars for financial reporting purposes. Our subsidiaries
                maintain their books and records in their functional currency, being
                the
                primary currency of the economic environment in which their operations
                are
                conducted. In general, for consolidation purposes, we translate the
                subsidiaries' assets and liabilities into U.S. dollars using the
                applicable exchange rates prevailing at the balance sheet date, and
                the
                statement of income is translated at average exchange rates during
                the
                reporting period. Gain or loss on foreign currency transactions are
                reflected on the income statement. Gain or loss on financial statement
                translation from foreign currency are recorded as a separate component
                in
                the equity section of the balance sheet, as a component of comprehensive
                income. The functional currency of our Company is Chinese Renminbi.
                Until
                July 21, 2005, RMB had been pegged to the U.S. dollar at the rate
                of RMB
                8.28:$1.00. On July 21, 2005, the PRC government reformed the exchange
                rate system into a managed floating exchange rate system based on
                market
                supply and demand with reference to a basket of currencies. In addition,
                the exchange rate of RMB to U.S. dollars was adjusted to RMB 8.11:$1.00
                as
                of July 21, 2005. The People's Bank of China announces the closing
                price
                of a foreign currency such as U.S. dollar traded against RMB in the
                inter-bank foreign exchange market after the closing of the market
                on each
                working day, which will become the unified exchange rate for the
                trading
                against RMB on the following working day. The daily trading price
                of U.S.
                dollars against RMB in the inter-bank foreign exchange market is
                allowed
                to float within a band of 0.3% around the unified exchange rate published
                by the People's Bank of China. This quotation of exchange rates does
                not
                imply free convertibility of RMB to other foreign currencies. All
                foreign
                exchange transactions continue to take place either through the People’s
                Bank of China or other banks authorized to buy and sell foreign currencies
                at the exchange rates quoted by the People's Bank of China. Approval
                of
                foreign currency payments by the People’s Bank of China or other
                institutions require submitting a payment application form together
                with
                invoices, shipping documents and signed contracts.





**Off-Balance
      Sheet Arrangements**





We
      do not
      have any off-balance sheet arrangements.





**Seasonality**





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


25


**ITEM
      4. CONTROLS AND PROCEDURES**





***Disclosure
      Controls and Procedures***





We
      maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under
      the Exchange Act) that are designed to ensure that information that would be
      required to be disclosed in Exchange Act reports is recorded, processed,
      summarized and reported within the time period specified in the SEC’s rules and
      forms, and that such information is accumulated and communicated to our
      management, including to our Chief Executive Officer and Chief Financial
      Officer, as appropriate, to allow timely decisions regarding required
      disclosure.





As
      required by Rule 13a-15 under the Exchange Act, under the supervision and with
      the participation of our management, including our Chief Executive Officer
      Yu
      Chang, and Lijun Peng, our Chief Financial Officer, we evaluated the
      effectiveness of the design and operation of our disclosure controls and
      procedures as of June 30, 2008.  Based on that evaluation, Messrs. Chang
      and Ping concluded that because of the material weakness in internal control
      over financial reporting described below, our disclosure controls and procedures
      were not effective as of June 30, 2008.







In
      connection with their review of our internal controls over financial reporting
      for the fiscal year ended December 31, 2007, our management concluded that
      there
      were several significant deficiencies, that when combined, resulted in a
      material weakness in our internal controls over our ability to produce financial
      statements free from material misstatements.




As
      we
      have disclosed in our prior SEC filings, we conduct all of our operations
      through our Chinese operating subsidiaries. At the time of the reverse merger
      transaction whereby our operating subsidiaries became part of a US public
      company, these Chinese companies did not have in place the financial controls
      and procedures required to comply with U.S. financial reporting standards.
      As a
      public company, we have implemented and continue to implement remediation plan
      measures with respect to our internal controls over financial reporting during
      the year ended December 31, 2007 and through the current date.




In
      the
      absence of full implementation of the remediation plans described below, we
      have
      undertaken additional measures to ensure that our consolidated financial
      statements included in this report were prepared in accordance with accounting
      principles generally accepted in the United States. Accordingly, the Company's
      management believes that the consolidated financial statements included in
      this
      report fairly present in all material respects the Company's financial
      condition, results of operations and cash flows for the period presented and
      that this report does not contain any untrue statement of a material fact or
      omit to state a material fact necessary to make the statements made, in light
      of
      the circumstances under which such statements were made, not misleading with
      respect to the period covered by this report.




The
      following is a description of each deficiency or weakness with respect to our
      internal controls over financial reporting identified and the remediation
      initiatives that we have implemented or intend to implement in the near
      future:




1.  *Issue*  The
      Company does not have a formal employee code of conduct and ethics and not
      all
      duties are properly segregated due to the high turnover in the Company.





*Remediation
      Plan*  We
      conducted a survey and sought an opinion from each department on their current
      ethics and job function segregation procedures to gather sufficient information
      for preparing a formal employee code of conduct and ethics (the “Code”) and job
      function segregation plan. We held a training session for every employee on
      the
      Code and intend to have the Code reviewed and revised annually. We also reviewed
      the job description for each position to ensure no overlapping of roles and
      responsibilities. Based on the results of the review, the management revised
      the
      job description for each position when necessary and has located sufficient
      personnel to fill any vacant position.





2.  *Issue.*  There
      is
      lack of formal training program for the finance, administration and logistics
      departments, and the Company is focusing training solely on sales and technical
      departments.


26


*Remediation
      Plan.* Our
      Human
      Resources department developed an annual training program for each department
      so
      that each member of our staff will receive continuing and systematic training.
      We focused the training of each department based on such department’s functions.
      After each training, we conducted an assessment to assess the effectiveness
      of
      the training.




3.  *Issue.*  The
      current staff in the accounting department is relatively new and inexperienced,
      and needs substantial training due to staff turnover and the higher demands
      of
      keeping accounting records in compliance with U.S. GAAP. The accounting skills
      and understanding necessary to fulfill the requirements of U.S. GAAP-based
      reporting, including the consolidation of subsidiary financial statements,
      are
      inadequate. Additionally, there is lack of financial analysis being done on
      financial statements. Currently, we are only performing the financial analysis
      on the cash flow statement between budgeted and actual results.




*Remediation
      Plan* .
      We have
      recently expanded our internal accounting staff and intend to continue this
      effort in the future. In particular, we are seeking accountants experienced
      in
      several key areas of accounting, including persons with experience in Chinese
      and U.S. GAAP, U.S. GAAP consolidation requirements, and SEC financial reporting
      requirements. In addition, we plan to allocate additional resources to train
      our
      existing accounting staff.





As
      we
      have disclosed in our prior SEC filings in 2007, we have hired a new Vice
      President of Finance and we intend to continue to hire other professionals
      with
      substantial accounting experience to supplement our accounting department.





We
      intend
      to develop a proper procedure for financial statement analysis, including
      inter-year comparisons, explanation of significant or unusual fluctuations,
      follow-up action plans, and reporting and recording mechanisms.





4.  *Issue* .  Our
      Internal Audit Department has not taken an active role in the conduct or its
      activities due to insufficient resources. The annual plan, budget, and specific
      procedures to perform the internal audit function have not been developed and
      an
      anti-fraud audit plan has not been developed.





*Remediation
      Plan* .  The
      management is committed to developing a comprehensive and risk-based internal
      audit function within the Company. We have enhanced our efforts in recruitment.
      We expect to have a functioning Internal Audit Department by July, 2008. The
      roles and responsibilities of the Internal Audit Department will be formulated
      and the risk-based internal audit plan will be developed and approved by the
      Audit Committee.





It
      has
      also come to our attention that since the Company does not have any Independent
      Directors, an Audit Committee or a Compensation/Remuneration Committee, it
      would
      be a best practice to implement such committees and to hire Independent
      Directors. We are still obtaining candidates’ curriculum vitae for potential
      candidates and are currently reviewing possible directors. As of June 30, we
      have interviewed 2 potential candidates and expect to complete the recruitment
      process by end of August, 2008.




***Changes
      in Internal Controls over Financial Reporting.***




During
      the second quarter ended June 30, 2008, other than the remediation plan efforts
      described above, there were no changes in our internal control over financial
      reporting identified in connection with the evaluation performed during the
      second fiscal quarter covered by this report that has materially affected,
      or is
      reasonably likely to materially affect, our internal control over financial
      reporting.




**PART
      II.  OTHER INFORMATION**




**ITEM
      1.  LEGAL PROCEEDINGS** ****





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


27


**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.


28




**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:
      August 8, 2008





**CHINA
                AGRITECH, INC.**/s/
                Lijun PengLijun
                PengChief
                Financial Officer (Principal Financial
                Officer)


29


EXHIBIT
      INDEX





ExhibitNumber
            Description31.1
            Certification
                of Principal Executive Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            Certification
                of Principal Financial Officer filed pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.32.1
            Certification
                of Principal Executive Officer furnished pursuant to 18 U.S.C. Section
                1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002.32.2
            Certification
                of Principal Financial Officer furnished pursuant to 18 U.S.C. Section
                1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002.


30