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U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KSB

> (Mark One)
>   [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
>   SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, 2005

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

For the fiscal year from __________________ to
__________________

Commission File No. 0-49608

CHINA AGRITECH, INC.

|DELAWARE                                                | 75-2955368                                    
|------------------------------------------------------- | ----------------------------------------------
|(State
    or other jurisdiction of incorporation or    | (I.R.S.
    Employer Identification No.)      
|organization)                                           |                                               
|                                                        |                                               
|                                                        |                                               
|A#
    Room 0706-0707, The Spaces International Center, | +86
    10 58702123                           
|No.
    8 Dongdaqiao Road, Chaoyang District, Beijing,  |                                               
|China 100020                                            |                                               
|(Address of Principal Executive Office)                 | (Issuer
    Telephone No. Including Area Code)

Securities registered under Section 12(b) of the
Exchange Act: NONE

Securities registered under Section 12(g) of the
Exchange Act: Common stock, $.001 par value

Check whether the issuer is not
required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [
]

Check whether the issuer (1) filed
all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 12 months (or 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 ___

Check if no disclosure of delinquent
filers in response to Item 405 of Regulation S-B is contained in this form, and
no disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-KSB or any amendment to this Form 10-KSB. [X] Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).

Yes___   NoX

The issuer's revenues for its most
recent fiscal year are $25,335,316.

The aggregate market value of voting
and non-voting common equity held by non-affiliates of the registrant as of
April 3, 2006 : $22,456,817. The number of shares outstanding of the issuer's
common stock as of April 3, 2006 is 19,143,615.

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TABLE OF CONTENTS

|PART I                                                                       | 1  
|---------------------------------------------------------------------------- | ---
|                                                                             |    
|Item 1. Description of
    Business                                          | 1  
|                                                                             |    
|Item 2. Description of
    Property                                          | 15 
|                                                                             |    
|Item 3. Legal
    Proceedings                                                | 16 
|                                                                             |    
|Item 4. Submission of
    Matters to a Vote of Security Holders              | 16 
|                                                                             |    
|PART II                                                                      | 16 
|                                                                             |    
|Item 5. Market for
    Common Equity, Related Stockholder Matters and        |    
|Small Business Issuer
    Purchases of Equity Securities                     | 16 
|                                                                             |    
|Item 6. Management's
    Discussion and Analysis or Plan of Operation        | 18 
|                                                                             |    
|Item 7. Financial
    Statements                                             | 23 
|                                                                             |    
|Item 8. Changes in and
    Disagreements with Accountants on Accounting      |    
|and Financial
    Disclosure                                                 | 23 
|                                                                             |    
|Item 8A. Controls and
    Procedures                                         | 23 
|                                                                             |    
|PART III                                                                     | 23 
|                                                                             |    
|Item 9. Directors and
    Executive Officers, Promoters and Control Persons; |    
|Compliance with
    Section 16(a) of the Exchange Act                        | 23 
|                                                                             |    
|Item 10. Executive
    Compensation                                          | 25 
|                                                                             |    
|Item 11. Security
    Ownership of Certain Beneficial Owners and Management  |    
|and Related
    Stockholder Matters                                          | 27 
|                                                                             |    
|Item 12. Certain
    Relationships and Related Transactions                  | 28 
|                                                                             |    
|Item 13. Exhibits                                                            | 28 
|                                                                             |    
|Item 14. Principal
    Accountant Fees and Services                          | 30 
|                                                                             |    
|Signatures                                                                   | 32 
|                                                                             |    
|Financial Statements                                                         | F-1

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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: our need to raise additional
capital, our reliance on a limited number of distributors of our products, our
dependence on our chief executive officer, our dependence upon skilled
personnel, our use of a single manufacturing facility for the manufacture of our
products, our reliance on a small number of suppliers of the raw materials that
we need, potential for uninsured product liability claims, our potential
inability to renew the licenses that we need to operate our business, 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 that are described under "Item 1. Description
of Business  Risk Factors." 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.

When used in this report, the terms "China Agritech," "Company," "we," "our,"
and "us" refer to China Agritech Inc. and its subsidiaries including its wholly
owned subsidiary China Tailong Holdings Company Limited or Tailong, and
Tailong's 90% owned subsidiary Pacific Dragon Fertilizers Co. Ltd or Pacific
Dragon. References to "PRC" or "China" are references to the People's Republic
of China. Please note that the information provided below relates to the
combined Company after the acquisition of Tailong and Pacific Dragon, except
that information relating to periods prior to the date of the acquisition only
relate to China Agritech Inc. unless otherwise specifically indicated.

PART I

Item 1. DESCRIPTION OF BUSINESS.

Background

Our corporate name is China Agritech, Inc. We were originally incorporated on
January 5, 1925 under the laws of the State of Nevada as Argyle Mining Company
for the development of mining claims. Since then, we have changed our business
model several times. We had no active operations during the period from 1986
until February 2005, when we completed a reverse acquisition transaction with,
China Tailong Holdings Company Limited, a Hong Kong Corporation.

Over the years, we have experienced several corporate name changes: Argyle
Corporation in January 1960, Basic Empire in November 1963, Basic Empire Corp in
December 1976 and China Agritech, Inc. in May 2005.

On March 29, 2004, we, among other things, effected a 1-for-5.6 reverse stock
split of our common stock and decreased the par value of our common stock from
$0.10 per share to $0.001 per share.

On May 25, 2004, we sold 714,285 shares of our common stock to Halter
Financial Group, Inc., an entity owned by Timothy P. Halter, at a price of $0.28
per share for $200,000. As a result, Halter Financial Group, Inc. became our
controlling stockholder owning approximately 66% of our common stock. On the
following day, our then current directors and officers Matthew Blair and Glenn
Little resigned from all offices and positions they held with us and Timothy P.
Halter was appointed as our sole director and elected as our Chief Executive
Officer, President, Chief Financial Officer and Secretary. Glenn Little was our
controlling stockholder prior to this transaction.

In connection with this transaction, we paid Little and Company Investment
Securities, an entity owned by Glenn A. Little, $30,000 in the aggregate which
consists of (i) $11,000 as reimbursement of working capital advanced by Glenn
Little, and (ii) $19,000 as consulting fees for Glenn Little's services related
to this private placement transaction and as consideration for maintaining our
corporate entity.

On August 10, 2004, we merged with and into a newly formed wholly-owned
Delaware subsidiary for the purpose

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of changing our corporate domicile from Nevada to Delaware. The new entity
maintained the same name and capital structure.

Tailong, through its 90% owned subsidiary Pacific Dragon, engages in the
business of manufacturing and selling liquid compound fertilizers in China.
Tailong became our wholly owned subsidiary in connection with a reverse
acquisition transaction and is the 90% owner of Pacific Dragon which holds all
of our commercial operations. Pacific Dragon's products are primarily marketed
and sold to farmers in 12 provinces of China. In 2005, we had an approximate
annual production capacity of 5,000 metric tons or MT of organic liquid compound
fertilizers.

Acquisition of Tailong

On February 3, 2005, we completed a reverse acquisition transaction with
Tailong whereby we issued 10,606,158 shares of our restricted common stock to
the stockholders of Tailong in exchange for all of the issued and outstanding
capital stock of Tailong. Tailong thereby became our wholly owned subsidiary and
the former stockholders of Tailong became our controlling stockholders. For
accounting purposes, this transaction was treated as a reverse acquisition with
Tailong as the acquirer and China Agritech as the acquired entity.

On February 3, 2005, we also completed a private placement transaction
whereby we sold 590,284 shares of our common stock to two investors for the
consideration of $1,000,000. The shares and warrants were offered and sold to
investors in reliance upon exemptions from the registration requirements of the
Securities Act pursuant to Section 4(2) and Rule 506 thereunder. Each of the
investors qualified as an accredited investor as defined by Rule 501 under the
Securities Act.

On May 12, 2005, in connection with the reverse acquisition transaction, we
amended our Certificate of

Incorporation to (1) change our name to "China Agritech,
Inc." to reflect our new business of manufacturing and marketing liquid compound
fertilizer products; (2) allow our Board of Directors to set the number of
directors in accordance with our bylaws; and (3) effect a forward stock split
whereby each share of our issued and outstanding common stock is converted into
1.14 shares of our common stock.

Tailong was incorporated on October 27, 2003 under the laws of Hong Kong.
Tailong had no active operations until October 9, 2004 when it acquired 90%
ownership of Pacific Dragon. Pacific Dragon conducts Tailong's only business
operations. The remaining 10% ownership of Pacific Dragon is owned by Yinlong
Industrial Co. Ltd. or Yinlong, a limited company incorporated in PRC. Mr. Yu
Chang, our CEO, President and director, and Ms. Xiaorong Teng, our Vice
President of Sales and director, own 85% and 15% of Yinlong, respectively.
Yinlong provides wholesale and retail construction materials, automobile parts,
mechanical equipment and wood products to companies in the PRC.

Pacific Dragon is a foreign invested enterprise established in China on May
20, 1994. At the time of its incorporation, Pacific Dragon was a "contractual
joint venture" under Chinese foreign invested enterprises law. The three joint
venturers were Yinlong, Beijing Taiming Applied Technology Institute or Taiming,
a Chinese company and Cathay-Pacific Enterprises Ltd. or CPE, a Canadian
company. Yinlong contributed approximately $228,000 (RMB1,890,000), Taiming
contributed a patent with a value of approximately $140,000 (RMB1,160,000) and
CPE contributed $150,000 as the registered capital of Pacific Dragon,
representing 43%, 27% and 30% of the total registered capital, respectively. The
parties also agreed that Yinlong, Taiming and CPE shall have the right to
receive 41%, 10% and 49% of the profits from Pacific Dragon, respectively.

On June 8, 2004, Tailong and the three joint venturers of Pacific Dragon
entered into a Transfer of Capital Contribution and Profit Agreement pursuant to
which CPE transferred all of its 30% capital contribution and 49% profit sharing
right in Pacific Dragon and Taiming transferred all of its 27% capital
contribution and 10% profit sharing right in Pacific Dragon to Tailong. In
addition, Yinlong transferred 33% of its capital contribution and 31% of its
profit sharing right in Pacific Dragon to Tailong. As a result of such transfer,
Tailong and Yinlong are now the only stockholders of Pacific Dragon, owning 90%
and 10% of Pacific Dragon, respectively.

In connection with the capital transfer, on October 9, 2004, Pacific Dragon
changed its status to become an "equity joint venture" under Chinese foreign
invested enterprises law. The legal structure of "equity joint venture" is
similar to a limited liability company organized under the state laws in the
United States. Pacific Dragon has a registered

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capital of $500,000 and its Articles of Associations provide for a business
term of 15 years. Upon the expiration of the 15-year term, Pacific Dragon may
apply for and get an extension of the term of its Articles of Association.

Pacific Dragon engages in the business of manufacturing and marketing organic
liquid compound fertilizers. Pacific Dragon's products are primarily marketed
and sold to farmers in 12 provinces of China. In 2005, we had an approximate
annual production capacity of 5,000 metric tons of organic liquid compound
fertilizers.

The chart below illustrates our corporate structure:



Recent Development

On June 13, 2005, we completed another private placement transaction whereby
we sold 235,516 shares of our common stock to two investors for a total of
$350,000. The shares were offered and sold to investors in reliance upon
exemptions from the registration requirements of the Securities Act pursuant to
Section 4(2) and Rule 506 thereunder.

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On January 13, 2006, we sold 4,800,000 shares of our common stock to 22
investors for a total of $12,000,000. The shares were offered and sold to
investors in reliance upon exemptions from the registration requirements of the
Securities Act pursuant to Section 4(2) and Rule 506 thereunder.

Industry Background and Our Principal Market

Our business operations consist primarily of the manufacturing and sale of
organic liquid compound fertilizers and related products. China is the principal
market for our products. Our products are primarily sold to farmers in 12
provinces in China, including Heilongjiang, Hebei, Liaoning, Jilin, Shandong,
Inner Mongolia, Henan, Sichuan, Guangdong, Xinjiang, Yunnan and Guizhou.

China has the world's largest population of nearly 1.3 billion people. The
per capita irrigated land in China is 0.04 hectare (Source: 2003 China
statistics Yearbook), which is only approximately 50% of that of the United
States (Source: US Census Bureau, www.census.gov). Total arable land area in
China has been decreasing since 1978. With the reduction of arable land and the
increase of the population, there is a significant need to increase the output
of crops per hectare for China. China's crops output has increased 19% from 1988
to 2004 (the total crops output was 394,080,000 tons in 1988 as compared to
469,469,000 tons in 2004) (Source: Ministry of Agriculture of The People's
Republic of China). Extensive use of fertilizer contributes to the rise of grain
output. The use of fertilizer rose from 8,840,000 tons in 1978 to 46,366,000
tons in 2004 (Source: Ministry of Agriculture of The People's Republic of
China).

In the past 25 years, the consumption of compound fertilizer in China has
increased from 2,720,000 tons in 1980 to 12,040,000 in 2004, an increase rate of
5.8% from 2001 to 2002, 6.7% from 2002 to 2003 and 8.5% from 2003 to 2004.
(Source: 2005 China Statistic Yearbook). Since 2000, China has been the world's
largest producer of fertilizer. To meet the gap between the demand and supply,
China imports a large amount of fertilizers. In 2004, China imported 12,400,000
tons of fertilizer, representing 26.7% of its fertilizers requirements,
2,050,000 tons of which are compound fertilizers. China is now the world's
largest importer of fertilizers (Source: 2005 China Statistics Yearbook). In
order to improve the efficient utilization of fertilizer, the PRC Ministry of
Agriculture encourages the use of organic compound fertilizers instead of single
nutrients, such as urea, or chemical fertilizers. The percentage of compound
fertilizers consumption to the total fertilizer consumption rose from 2% in 1980
to 26% in 2004. (Source: 2005 China Statistics Yearbook) However, the percentage
of compound fertilizers consumption is still at a very low level compared with
the average level of about 70% worldwide. It is estimated that the demand for
compound fertilizer in the next decade will continue to grow (Source: China Farm
Reports).

Principal Products and Services

Through Tailong and its subsidiary Pacific Dragon, we develop and produce
various organic liquid compound fertilizers which are made from the combination
of organic elements (e.g., humic acid and amino acid), inorganic elements (e.g.,
nitrogen, phosphorus and potassium), microelements (e.g., boron, iron, zinc,
manganese and molybdenum) and other active and stimulative agents.

Since its inception, Pacific Dragon has developed, tested,
and produced various types of organic liquid compound fertilizers. Our main
products include "LvLingBao II," "LvLingBao III," "Tailong I" and other
customized crop special fertilizers which are tailored to customers' specific
requirements. The characteristics and properties of our three main products are
as follows:

LvLingBao II: This product consists of humic acid, nitrogen,
phosphor, potassium, microelements (e.g., boron, iron, zinc, manganese and
molybdenum, etc.), active agent, simulative agent and opsonin agent. LvLingBao
II is used in the fertilization of crops, plants and trees.

LvLingBao III: This product consists of humic acid, nitrogen, phosphor,
potassium, microelements (e.g., boron, iron, zinc, manganese and molybdenum,
etc.), amino acid, active agent, simulative agent and opsonin agent.

Tailong I: This product is used in the fertilization of a
variety of crops and plants. Tailong I was developed on the base of LvLingBao
III, with adjustments in the amount of amino acid, active agent and simulative
agent, so that the nutrients can be better absorbed.

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Our products can be used to:

- 

As such, our products are applicable to large scale spraying operation by
machine or aircraft.

Raw Materials and Our Principal Suppliers

The main raw materials of our products are humic acid and other organic and
inorganic elements. Humic acid is the main and unique component of organic
liquid compound fertilizers. It is a complex mixture of organic acids, produced
mostly by the decomposition of plant material and lignin which is a complex
polymer that binds to cellulose fibers and strengthens the cell walls of plants.

Humic acid, through the chelation of ions, has an often-favorable effect on
living organisms. Chelation occurs when organic compounds form coordinate bonds
with metals through two or more atoms of the organic compound. Humic acid
affects soil weathering and fertility, the pH value and alkalinity of natural
waters, trace metal chemistry and bioavailability (bioavailability is the degree
or rate at which a substance is able to be absorbed), the degradation and
transport of hydrophobic organic chemicals, the formation of disinfection
by-products during water treatment, and heterotrophic production in black-water
ecosystems (heterotrophic producers require minerals and organic substrates to
receive carbon for growth and development). Fluid humic acid fertilizer products
are widely recommended as they can be easily mixed with water and sprayed.

China is abundant in many minerals and organic elements. Humic acid, the main
component of our products is mainly mined from a soft, brownish-black coal
called lignite. China is a significant contributor in world coal production and
consumption. China has large lignite reserves according to the survey of energy
resources published by the World Energy Council.

There are numerous suppliers and vendors in China of the raw materials needed
for our products. Our subsidiary Pacific Dragon has entered into written
contracts with several suppliers and vendors. Our main suppliers are
Inner-Mongolia Humic Acid Factory, Beijing Zhongxin Chemical Development
Company, and Harbin Huangyan Plastic Manufacturing Company, which are our major
suppliers of humic acid, chemical raw materials, and plastic products,
respectively.

Our Distribution, Customers and Customer Programs

We sell most of our products through various regional distributors in China.
We have established and maintained long term relationships with major
distributors who we believe have local business experience and established
regional sales networks. We regularly host our distributors to promote our
products through various ordering conferences. We host an annual ordering
conference for our major distributors to place purchasing orders through written
sales agreements. Our sales department also holds ordering conferences in
various provinces, including Heilongjiang, Jilin, Liaoning, Hebei, Shandong,
Jiangsu and Sichuan from time to time. In addition, we also sell our

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products to end users directly. All purchasing orders on our products are
served on a first come first served basis.

For the year ended December 31, 2005, distribution through our ten largest
distributors accounted for approximately 46% of our total annual sales. Our
three largest distributors are:

- 

We provide our customers with a variety of customer services, including a
technical support hotline service, conducting seminars, informational
newsletters and instructional DVDs.

We have also been marketing and promoting our products through the following
means:

- 

Competition

China is the world's largest consumer of fertilizers, but its compound
fertilizer industry is highly fragmented, with many small regional factories
serving local requirements. Most fertilizer producers in China do not have the
national brand name recognition as a basis for promoting their products.

Through Pacific Dragon, we specialize in producing organic liquid compound
fertilizers that are specifically formulated to suit local plant, soil, and
climate conditions. We face competition from both Chinese fertilizer producers
and fertilizer producers outside of China. There are many small fertilizer
producers in China that supply liquid compound fertilizers with annual output of
less than 1,000 MT. Due to economies of scale, however, we believe that these
small producers are generally less cost effective, have lower quality control
and minimal product development capabilities. In addition, most of their
products consist of single or dual chemical nutrients, which are generally less
effective at boosting the growth of plants as compared to our organic liquid
compound fertilizers.

Another group of competitors are international fertilizer producers and the
trading companies that import fertilizers into China. The imported fertilizer
products range from fertilizers with single chemical element, such as urea,
phosphate and potash, to standard Nitrogen, phosphor and kalium compound
fertilizers. Qualities of imported fertilizers are generally higher and more
stable than fertilizers produced in China. However, due to tariffs, duties and
license fees imposed on imported fertilizer products and high shipping and
transportation expenses, imported fertilizers are generally less price
competitive than Chinese fertilizer products. In addition, Chinese government
imposes an annual quota on fertilizer products that can be imported into China.
China is expected to open its retail and wholesale fertilizer markets to
non-Chinese companies by December 11, 2006.

Because our products are specifically formulated for local plant, soil and
climate conditions, we believe that there are not many foreign competitors in
our selected markets that are capable of producing customized fertilizers.

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Intellectual Property

We have registered with the Trademark Office of the State
Administration for Industry and Commerce of China the trademark for the "Tailong"
logo (registration number: 836192), which is used on our products that are
distributed in China. The trademark expires in 2016.

We rely on trade secrets to protect our proprietary technology and formulas.
We currently do not own any patents and have not applied for patents on our
proprietary technology and formulas because a patent application requires a
detailed description of our technology and formulas which will be made available
to the general public. We believe a patent application and disclosure of our
technology and formulas would be detrimental to our future business. There are
currently few competitors in China's organic liquid compound fertilizer market
that are capable of producing customized fertilizers like our products. If
knowledge of our formulas and processes are not tightly controlled, more
competitors would likely emerge in this market. Only certain of our key
executives have knowledge of our proprietary technology and formulas.

Mr. Yu Chang, our CEO, President, Secretary and director, has granted us a
permanent license to use his know-how in manufacturing organic liquid compound
fertilizer on a royalty-free basis. Mr. Chang is under contractual obligations
to keep the confidentiality of this technology and refrain from licensing this
technology to any third party or using the technology for his own benefits.

Employees

As of April 11, 2006, we had approximately 80 full-time employees, of which
43 are administrative and management staffs, 28 are sales staffs and 9 are
manufacturing workers. We also hire temporary manufacturing workers, the number
of which varies from 20 to 60 based on our work load. None of our employees is
under collective bargaining agreements and they all reside in China. We believe
that we maintain a satisfactory working relationship with our employees and we
have not experienced any significant labor disputes or any difficulty in
recruiting staff for our operations.

Research and Development

We conduct on-going research and development activities relating to the
enhancement of concentration of the organic liquid compound fertilizers and the
control of manufacturing costs. Our principal research team consists of Mr.
Shuhua Liu and Mr. Kangde Liu. We spent approximately $13,500 (RMB 108,000) and
$60,460 (RMB 500,000) on research and development in 2005 and 2004,
respectively.

Government Regulation

All fertilizers produced in China must be registered with the PRC Ministry of
Agriculture. No fertilizers can be manufactured without such registration. There
are two kinds of registrations: interim registration and formal registration.
The interim registration is valid for one year and applies to fertilizers in the
stage of in-the-field test and test selling. All other fertilizers that have
completed the in-the-field test and test selling must obtain the formal
registration which, once obtained, is valid for five years. We have obtained the
necessary Formal Fertilizer Registration Certificate for all of our fertilizer
products from the PRC Ministry of Agriculture. Such certificate was issued on
September 3, 2002 and will expire in December 2007.

As of April 11, 2006, we believe that we are in material compliance with all
registrations and requirements for the issuance and maintenance of all licenses
required by the governing bodies. As of April 11, 2006, all license fees and
filings are current.

The costs of obtaining and maintaining licenses are not prohibitive and it is
illegal to do business without these licenses. If we were to lose any of these
licenses, we would only have a limited time to re-apply for such licenses and
would face possible regulatory fines. However, such licenses will only been
revoked under rare circumstances, such as the performance of illegal activities.
We are not subject to any environmental controls or restrictions that require
the outlay of capital or the obtaining of a permit in order to engage in
business operations.

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Risk Factors

You should carefully consider the risks described below, which are material
risks facing us. If any of the following risks actually occur, our business
could be harmed. You should also refer to the other information about us
contained in this Form 10-KSB, including our financial statements and related
notes.

Risks Related To Our Financial Condition

AS OF DECEMBER 31, 2005, WE HAD APPROXIMATELY $255,831 IN CASH. WE MAY NEED
TO RAISE ADDITIONAL CAPITAL IN THE FORESEEABLE FUTURE. ADDITIONAL FINANCING MAY
NOT BE AVAILABLE TO US ON FAVORABLE TERM OR AT ALL. RAISING ADDITIONAL CAPITAL
WILL DILUTE OUR CURRENT STOCKHOLDERS' OWNERSHIP INTEREST.

As of December 31, 2005, we had approximately $255,831 in cash. Based on
current reserves and anticipated cash flow from our operations, we anticipate
that the available funds will be sufficient to meet our anticipated needs for
working capital, capital expenditures, and business expansion for the next
twelve months. Thereafter, we will need to raise additional funds. We may seek
to satisfy our future funding requirements through revenues generated through
our operations, the proceeds of public or private offerings of our securities,
or through loans from financial institutions or our controlling stockholders.
Adequate funds may not be available when needed or on terms satisfactory to us.
A lack of funds may cause us to delay, reduce and/or abandon certain or all
aspects of our organic liquid compound fertilizer product development programs,
close facilities and/or lay-off employees which, in turn, will likely result in
decreased sales and profits.

If additional funds are raised through the issuance of equity or convertible
debt securities, the percentage ownership of our stockholders will be reduced,
Stockholders may experience additional dilution and such securities may have
rights, preferences and privileges senior to those of our common stock. This may
reduce a stockholder's return on investment or cause a complete loss in the
investment.

OUR HOLDING COMPANY STRUCTURE MAY LIMIT THE PAYMENT OF DIVIDENDS.

We have no direct business operations, other than the
ownership of our subsidiaries Tailong and Pacific Dragon. While we have no
current intention of paying dividends, should we decide in the future to do so,
as a holding company, our ability to pay dividends and meet other obligations
depends upon the receipt of dividends or other payments from our operating
subsidiaries and other holdings and investments. In addition, our operating
subsidiaries, from time to time, may be subject to restrictions on their ability
to make distributions to us, under Chinese law and otherwise, including as a
result of restrictive covenants in loan agreements, restrictions on the
conversion of local currency into U.S. dollars or other hard currency and other
regulatory restrictions as discussed below. If future dividends are paid in
Renminbi, fluctuations in the exchange rate for the conversion of Renminbi into
U.S. dollars may reduce the amount received by U.S. stockholders upon conversion
of the dividend payment into U.S. dollars.

Chinese regulations currently permit the payment of dividends
only out of accumulated profits as determined in accordance with Chinese
accounting standards and regulations. Our subsidiaries in China are also
required to set aside a portion of their after tax profits according to Chinese
accounting standards and regulations to fund certain reserve funds. Currently,
our subsidiaries in China are the only sources of revenues or investment
holdings for the payment of dividends. If they do not accumulate sufficient
profits under Chinese accounting standards and regulations to first fund certain
reserve funds as required by Chinese accounting standards, we will be unable to
pay any dividends.

Risk Related To Our Business

WE RELY ON A FEW MAJOR DISTRIBUTORS AND OUR BUSINESS WILL BE HARMED IF OUR
DISTRIBUTORS REDUCE THEIR ORDERS OR DISCONTINUE DOING BUSINESS WITH US.

Currently, we sell approximately 46% of our fertilizer products through ten
major distributors, including Chengdu Liteng Industry Company, Shunda
Agricultural Products Distributing Company and Shenyang Biochemical Co. Ltd.

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If any one of these distributors reduces its orders or discontinues business
with us, we would have difficulties finding new distributors to distribute our
products and our revenues and net income would decline considerably. Our
reliance on these major distributors could also affect our bargaining power in
getting favorable prices for our products. In addition, untimely payment and
failure to pay by these major distributors would negatively affect our cash
flow.

WE DEPEND HEAVILY ON MR. YU CHANG, OUR CEO, PRESIDENT, SECRETARY AND DIRECTOR
AND, WITHOUT HIS SERVICES OUR PROSPECTS WOULD BE SEVERELY LIMITED.

Our future business and results of operations depend in significant part upon
the continuing contribution of Mr. Yu Chang, our CEO, President, Secretary and
director. Mr. Chang has extensive experience in the liquid compound fertilizer
industry and is directly involved in all of our business operations. Mr. Chang
has a 3-year employment agreement with our subsidiary Pacific Dragon which
expires on January 5, 2008. There can be no assurance that we will be able to
retain Mr. Chang after the expiration of his employment agreement. If Mr. Chang,
ceases to be employed by us, we may have difficulty finding a suitable
replacement with equal leadership and industry experience, and our business
would suffer.

WE DEPEND HEAVILY ON SKILLFUL PERSONNEL, AND TURNOVER OF AND FAILURE TO
ATTRACT SUCH PERSONNEL COULD HARM OUR BUSINESS.

The agricultural products business is specialized and requires the employment
of personnel with significant scientific and operational experience in the
industry. Accordingly, we must attract, recruit and retain a sizeable workforce
of technically competent employees. Our ability to effectively implement our
business strategy will depend upon, among other factors, the successful
recruitment and retention of additional management and other key personnel that
have the necessary scientific, technical and operational skills and experience
with the liquid compound fertilizer industry. These individuals are difficult to
find in the PRC and we may not be able to retain such skilled employees.

WE DEPEND ON ONLY ONE FACTORY TO MANUFACTURE OUR PRODUCTS AND ANY DISRUPTION
OF THE OPERATIONS IN THIS FACTORY WOULD DAMAGE OUR BUSINESS.

All of our products are manufactured in a single factory in Harbin, China
which we depend on to produce the products that we sell. We currently maintain
insurance covering this manufacturing facility, machinery and other leasehold
improvements. However, we do not carry sufficient business interruption
insurance. Our operations could be interrupted by fire, flood, earthquake and
other events beyond our control. Any disruption of the operations in this
factory would have a significant negative impact on our ability to deliver
products, which would cause a potential diminution on sales, the cancellation of
orders, damage to our reputation and potential lawsuits.

WE CURRENTLY RELY ON A SMALL NUMBER OF THIRD PARTIES TO SUPPLY THE KEY RAW
MATERIALS WE USE TO PRODUCE OUR PRODUCTS.

Our business depends upon the availability of key raw materials, including
humic acid, chemical raw materials and plastic goods. We rely on only a few
external suppliers for these raw materials. In fiscal year 2005, we purchased
approximately 90% of our humic acid from Inner-Mongolia Humic Acid Factory,
approximately 77% of chemical raw materials from Beijing Zhongxin Chemical
Technology Development Co., and approximately 84% of plastic goods from Harbin
Huangyan Plastic Manufacturing Company. We have entered into written agreements
with all of these main suppliers. If any of our major suppliers were to default
or become unable to deliver the raw materials in sufficient quantities, we may
be unable to purchase these raw materials from alternative sources on the same
terms which may result in a significant increase in our operating costs. In
addition, any disruption in the supply of our raw materials could cause delay in
the delivery of our products which would be harmful to our sales reputation and
business.

OUR INABILITY TO PROTECT THE PROPRIETARY FORMULA AND MANUFACTURING PROCESSES
FOR OUR CONCENTRATED ORGANIC LIQUID COMPOUND FERTILIZER MAY INCREASE OUR
COMPETITION AND CAUSE OUR OPERATING RESULTS TO SUFFER.

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Our success will depend in part on our ability to protect our proprietary
formula and manufacturing process for highly concentrated organic liquid
compound fertilizer. We rely on trade secrets to protect our proprietary
formulas and manufacturing processes. We have not applied for patents for our
technology and formulas as we believe an application for such patents would
result in public knowledge of our proprietary technology and formulas and the
potential for increased competition. This may result in a decrease of our market
share and hurt our operating results. We have entered into a license agreement
with Mr. Yu Chang, our CEO, President, Secretary and director, under which Mr.
Chang granted us a permanent exclusive license to use his know-how in
manufacturing organic liquid compound fertilizer on a royalty-free basis. Under
the license agreement, Mr. Chang has the obligation to keep the confidentiality
of this technology and is refrained from licensing this technology to any third
party or using the technology for his own benefits. In addition, only certain of
our key executives have knowledge of our proprietary technology and formulas.

If our proprietary trade secrets are not afforded adequate legal protection
or if our employees unintentionally or willfully disclose our confidential
technology to competitors we may lose any competitive advantage that we
currently have. If we are forced to take legal action to protect our proprietary
formula and processes, we will incur significant expense and may incur an
unfavorable outcome.

In addition, our competitors may counterfeit our products and use our
trademark. These counterfeit products could damage our reputation and create
confusion to our customers.

CERTAIN OF OUR OFFICERS AND DIRECTORS' ASSOCIATION WITH OTHER BUSINESSES
COULD IMPEDE THEIR ABILITY TO DEVOTE AMPLE TIME TO OUR BUSINESS AND COULD POSE
CONFLICT OF INTEREST

Mr. Yu Chang, our CEO, President, Secretary and director, and Ms. Xiaorong
Teng, our Vice President of Sales and director, serve as the chairman and
director of Yinlong Industrial Co. Ltd., respectively. As a result, conflicts of
interest may arise from time to time. We will attempt to resolve any such
conflicts of interest in our favor. Our officers and directors are accountable
to us and our shareholders as fiduciaries, which requires that such officers and
directors exercise good faith and integrity in handling our affairs. However,
their existing responsibilities to other entities may limit the amount of times
they can spend on our affairs. Mr. Chang currently spends about 90% of his time
on our affairs and about 10% of his time on the affairs of Yinlong. Ms. Teng
currently spends about 95% of her time on our affairs and about 5% of her time
on the affairs of Yinlong.

WE MAY BE EXPOSED TO POTENTIAL RISKS RELATING TO OUR INTERNAL CONTROLS OVER
FINANCIAL REPORTING AND OUR ABILITY TO HAVE THOSE CONTROLS ATTESTED TO BY OUR
INDEPENDENT AUDITORS.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002 or SOX 404, the
Securities and Exchange Commission adopted rules requiring public companies to
include a report of management on the company's internal controls over financial
reporting in their annual reports, including Form 10-KSB. In addition, the
independent registered public accounting firm auditing a company's financial
statements must also attest to and report on management's assessment of the
effectiveness of the company's internal controls over financial reporting as
well as the operating effectiveness of the company's internal controls. We are
not subject to these requirements for our current fiscal year ending December
31, 2005, accordingly we have not evaluated our internal control systems in
order to allow our management to report on, and our independent auditors to
attest to, our internal controls as required by these requirements of SOX 404.
Under current law, we will be subject to these requirements beginning with our
annual report for the fiscal year ending December 31, 2006. We can provide no
assurance that we will comply with all of the requirements imposed thereby.
There can be no positive assurance that we will receive a positive attestation
from our independent auditors. In the event we identify significant deficiencies
or material weaknesses in our internal controls that we cannot remediate in a
timely manner or we are unable to receive a positive attestation from our
independent auditors with respect to our internal controls, investors and others
may lose confidence in the reliability of our financial statements.

Risks Related With Our Industry

OUR OPERATING RESULTS WILL SUFFER IF THE PRICE OF RAW MATERIALS INCREASES

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AND WE CANNOT PASS THE INCREASED COST ON TO OUR CUSTOMERS.

The main raw materials of our products are humic acid, chemical raw materials
and plastic goods. The prices for these raw materials are subject to market
forces largely beyond our control, including energy costs, organic chemical
feedstock, market demand, and freight costs. The prices for these raw materials
may fluctuate significantly based upon changes in these factors. Prices of our
organic liquid compound fertilizer products may not increase in response to raw
material price increases. Our operating results may be seriously harmed if we
are unable to pass any raw material price increases through to our customers.

THE NATURE OF THE PRODUCTS THAT WE MANUFACTURE COULD EXPOSE US TO PRODUCT
LIABILITY CLAIMS.

Defects in or unknown harmful effects caused by our organic liquid compound
fertilizer products and other products could subject us to potential product
liability claims that our products are ineffective or cause some harm to the
human body or to property. We have obtained product liability insurance to cover
claims from personal injuries or property damage caused by our products for the
period from June 28, 2005 to June 27, 2006. However, such insurance coverage is
limited to approximately $500,000 (RMB 4,000,000) and may not be sufficient to
cover future claims. A successful claim against us that is in excess of our
insurance coverage could significantly harm our business and financial
condition. As of April 11, 2006, no product liability claim has ever been
brought against us.

FERTILIZERS POSE CERTAIN SAFETY RISKS.

The manufacture of fertilizers poses certain safety risks and may cause
physical injury and sickness. Although we have adopted safety measures in our
research, development and manufacturing processes, accidents may still occur.
Any accident, whether at the manufacturing facilities or from the use of our
products, may subject us to significant liabilities to persons harmed by our
products.

IF WE CANNOT RENEW OUR FERTILIZER REGISTRATION CERTIFICATE, WHICH EXPIRES IN
DECEMBER 2007, WE WILL BE UNABLE TO SELL SOME OF OUR PRODUCTS CAUSING OUR
REVENUES TO SIGNIFICANTLY DECREASE.

All fertilizers produced in China must be registered with the PRC Ministry of
Agriculture. No fertilizer can be manufactured without such registration. There
are two kinds of registrations: interim registration and formal registration.
The interim registration is valid for one year and applies to fertilizers in the
stage of in-the-field test and test selling. All other fertilizers that have
completed the in-the-field test and test selling must obtain the formal
registration which, once obtained, is valid for five years. We have obtained the
necessary Formal Fertilizer Registration Certificate for all of our fertilizer
products from the PRC Ministry of Agriculture. Such certificate was issued on
September 3, 2002 and will expire on December 2007.

Generally, the PRC Ministry of Agriculture will grant an
application for renewal in the absence of illegal activity by the applicant.
However, there is no guarantee that the PRC Ministry of Agriculture will grant
renewal to our Formal Fertilizer Registration Certificate. If we cannot obtain
the necessary renewal, we will not be able to manufacture and sell our
fertilizer products in China which will cause the termination of our commercial
operations.

ADVERSE WEATHER CONDITIONS COULD NEGATIVELY IMPACT OUR SALES CASH FLOWS AND
OPERATING RESULTS.

The demand for our organic liquid compound fertilizer products fluctuates
significantly with weather conditions. Certain weather conditions may delay the
application of the fertilizer or render it unnecessary at all. If any natural
disasters, such as flood, drought, hail, tornado or earthquake, take place,
demands for our products will be reduced. In addition, in some cases, we allow
our distributors to purchase our products partially on credit. The distributors,
in turn, may sell the fertilizer to farmers on credit. If any natural disaster
occurs, reduced crops yield may cause farmer to default on their payments which
could

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harm our cash flow and result of operations.

WE FACE COMPETITION FROM NUMEROUS FERTILIZER MANUFACTURERS IN CHINA AND
ELSEWHERE.

We compete with approximately 300 small-sized Chinese fertilizer
manufacturers. The number of these small companies varies from time to time.
Furthermore, we face competition from international fertilizer producers and
traders who import fertilizers into China. These imported products range from
fertilizers with single chemical elements, such as urea, phosphate and potash,
to standard nitrogen phosphate, potassium compound fertilizers. The quality of
the imported products is generally higher and more stable than fertilizers
produced in China. Currently, imported fertilizers are subject to tariffs,
duties and quota imposed by Chinese Government. China is expected to open its
retail and wholesale fertilizer markets to non-Chinese companies by December 11,
2006. As a result, the amount of fertilizer imported to China will rise
significantly and we will face more competitions from non-Chinese fertilizer
manufacturers.

Risks Related To Doing Business In China

Our subsidiary Pacific Dragon operates from facilities located in China.
Accordingly, its operations are subject to the governmental regulations and
rules of China.

OUR BUSINESS IS LARGELY SUBJECT TO THE UNCERTAIN LEGAL ENVIRONMENT IN CHINA
AND YOUR LEGAL PROTECTION COULD BE LIMITED.

We conduct most of our business in China which utilizes a civil law system
based on written statutes. Unlike common law systems, it is a system in which
precedents set in earlier legal cases are not generally used. The overall effect
of legislation enacted over the past 20 years has been to enhance the
protections afforded to foreign invested enterprises in China. However, these
laws, regulations and legal requirements are relatively recent and are evolving
rapidly, and their interpretation and enforcement involve uncertainties. These
uncertainties could limit the legal protections available to foreign investors,
such as the right of foreign invested enterprises to hold licenses and permits
such as requisite business licenses. In addition, all of our executive officers
and our directors are residents of China and not of the U.S., and substantially
all the assets of these persons are located outside the U.S. As a result, it
could be difficult for investors to effect service of process in the U.S., or to
enforce a judgment obtained in the U.S. against us or any of these persons.

PRC ACCOUNTING LAWS MANDATE ACCOUNTING PRACTICES WHICH MAY NOT BE CONSISTENT
WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND THEREFORE OUR FINANCIALS
AND THEIR INTERPRETATION INVOLVE UNCERTAINTIES.

The PRC accounting laws mandate accounting practices which may not be
consistent with U.S. Generally Accepted Accounting Principles. The PRC
accounting laws require that an annual "statutory audit" be performed in
accordance with PRC accounting standards and that the books of Foreign Invested
Enterprises be maintained in accordance with Chinese accounting laws. Article 14
of the PRC Wholly Foreign-Owned Enterprise Law requires a Wholly Foreign-Owned
Enterprise to submit certain periodic fiscal reports and statements to
designated financial and tax authorities. Noncompliance with such requirements
may cause revocation of our business license. The translation of the financial
statements from the requirements of the PRC to US GAAP, requires interpretation
and exercise of judgment.

CHANGES IN CHINA'S POLITICAL AND ECONOMIC SITUATION COULD HARM US AND OUR
OPERATING RESULTS.

Economic reforms adopted by the Chinese government have had a positive effect
on the economic development of the country, but the government could change
these economic reforms or any of the legal systems at any time. This could
either benefit or damage our operations and profitability. Some of the things
that could have this effect are:

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- Level of government involvement in the economy;
- Control of foreign exchange;
- Methods of allocating resources;
- Balance of payments position;
- International trade restrictions; and
- International conflict.

The Chinese economy differs from the economies of most countries belonging to
the Organization for Economic Cooperation and Development, or OECD, in many
ways. As a result of these differences, we may not develop in the same way or at
the same rate as might be expected if the Chinese economy were similar to those
of the OECD member countries and the value of your investment in our stock may
not appreciate in a manner that is acceptable to you, if at all.

THE CHINESE GOVERNMENT EXERTS SUBSTANTIAL INFLUENCE OVER THE MANNER IN WHICH
WE CONDUCT OUR BUSINESS ACTIVITIES.

China only recently has permitted provincial and local economic autonomy and
private economic activities. Chinese government has exercised and continues to
exercise substantial control over virtually every sector of the Chinese economy
through regulation and state ownership. Our ability to operate profitably in
China may be harmed by changes in its laws and regulations, including those
relating to taxation, import and export tariffs, environmental regulations, land
use rights, property and other matters. We believe that our operations in China
are in material compliance with all applicable legal and regulatory
requirements. However, the central or local governments of these jurisdictions
may impose new, stricter regulations or interpretations of existing regulations,
including stricter environmental laws and regulations on the manufacture,
storage, use and disposal of fertilizer and/or of certain chemicals used in the
manufacture of fertilizer, that would require additional expenditures and
efforts on our part to ensure our compliance with such regulations or
interpretations. Accordingly, government actions in the future, including any
decision not to continue to support recent economic reforms and to return to a
more centrally planned economy or regional or local variations in the
implementation of economic policies, could have a significant effect on economic
conditions in China or particular regions thereof, and could require us to
divest ourselves of any interest we then hold in Chinese properties or joint
ventures.

FUTURE INFLATION IN CHINA MAY INHIBIT OUR ACTIVITY TO CONDUCT BUSINESS IN
CHINA.

In recent years, the Chinese economy has experienced periods of rapid
expansion and widely fluctuating rates of inflation. During the past ten years,
the rate of inflation in China has been as high as 20.7% and as low as -2.2%.
These factors have led to the adoption by Chinese government, from time to time,
of various corrective measures designed to restrict the availability of credit
or regulate growth and contain inflation. High inflation may in the future cause
Chinese government to impose controls on credit and/or prices, or to take other
action, which could inhibit economic activity in China, and thereby harm the
market for our products.

ANY RECURRENCE OF SEVERE ACUTE RESPIRATORY SYNDROME, OR SARS, OR ANOTHER
WIDESPREAD PUBLIC HEALTH WIDESPREAD PUBLIC HEALTH PROBLEM COULD HARM OUR
OPERATIONS.

A renewed outbreak of SARS or another widespread public health problem in
China, where our operations are conducted, could have a negative effect on our
operations. As a result of these widespread public health problems, our
operations may be impacted by a number of health-related consequences, including
the following:

- quarantines or closures of some of our offices which would severely
  disrupt our operations;
- the sickness or death of our key officers and employees; and
- a general slowdown in the Chinese economy.

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Any of the foregoing events or other unforeseen consequences of public health
problems could damage our operations.

RESTRICTIONS ON CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO RECEIVE AND USE
OUR REVENUE EFFECTIVELY.

The majority of our revenues will be settled in Renminbi, and any future
restrictions on currency exchanges may limit our ability to use revenue
generated in Renminbi to fund any future business activities outside China or to
make dividend or other payments in U.S. dollars. Although the Chinese government
introduced regulations in 1996 to allow greater convertibility of the Renminbi
for current account transactions, significant restrictions still remain,
including primarily the restriction that foreign-invested enterprises may only
buy, sell or remit foreign currencies after providing valid commercial
documents, at those banks in China authorized to conduct foreign exchange
business. In addition, conversion of Renminbi for capital account items,
including direct investment and loans, is subject to governmental approval in
China, and companies are required to open and maintain separate foreign exchange
accounts for capital account items. We cannot be certain that the Chinese
regulatory authorities will not impose more stringent restrictions on the
convertibility of the Renminbi.

THE VALUE OF OUR SECURITIES WILL BE AFFECTED BY THE FOREIGN EXCHANGE RATE
BETWEEN THE U.S. DOLLAR AND RENMINBI.

The value of our common stock will be affected by the foreign exchange rate
between the U.S. dollar and Renminbi, and between those currencies and other
currencies in which our sales may be denominated. For example, to the extent
that we need to convert U.S. dollars into Renminbi for our operational needs and
should the Renminbi appreciate against the U.S. dollar at that time, our
financial position, the business of the company, and the price of our common
stock may be harmed. Conversely, if we decide to convert our Renminbi into U.S.
dollars for the purpose of declaring dividends on our common stock or for other
business purposes and the U.S. dollar appreciates against the Renminbi, the U.S.
dollar equivalent of our earnings from our subsidiaries in China would be
reduced.

Risks Related To Our Common Stock

THE MARKET PRICE FOR OUR COMMON STOCK MAY BE VOLATILE WHICH COULD RESULT IN A
COMPLETE LOSS OF YOUR INVESTMENT.

Our stock is not widely traded or traded in great volume so the market price
for our common stock is likely to be highly volatile and subject to wide
fluctuations in response to factors including the following:

- actual or anticipated fluctuations in our quarterly operating results;
- announcements of new products by us or our competitors;
- changes in financial estimates by securities analysts;
- conditions in the fertilizer market;
- changes in the economic performance or market valuations of
  other companies involved in fertilizer production;
- announcements by our competitors of significant acquisitions;
- additions or departures of key personnel; and
- potential litigation.

CERTAIN OF OUR STOCKHOLDERS HOLD A SIGNIFICANT PERCENTAGE OF OUR OUTSTANDING
VOTING SECURITIES.

Mr. Yu Chang is the beneficiary owner of approximately 56.84% of our
outstanding common stock. As a result, he possesses significant influence,
giving him the ability, among other things, to elect a majority of our Board of
Directors and to authorize or prevent proposed significant corporate
transactions. His ownership and control may also have the effect of delaying or
preventing a future change in control, impeding a merger, consolidation,
takeover

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or other business combination or discourage a potential acquirer from making
a tender offer. This might result in limitations on, or a decrease in the price
of, our common stock.

OUR COMMON STOCK IS QUOTED ON THE OTC BULLETIN BOARD WHICH MAY HAVE AN
UNFAVORABLE IMPACT ON OUR STOCK PRICE AND LIQUIDITY.

Our common stock is quoted on the OTC Bulletin Board under the symbol "CAGC.OB."
The OTC Bulletin Board is a significantly more limited market than the New York
Stock Exchange or Nasdaq system. The quotation of our shares on the OTC Bulletin
Board may result in a less liquid market available for existing and potential
stockholders to trade shares of our common stock, could depress the trading
price of our common stock and could have a long-term adverse impact on our
ability to raise capital in the future.

WE ARE SUBJECT TO PENNY STOCK REGULATIONS AND RESTRICTIONS.

The SEC has adopted regulations which generally define so-called "penny
stocks" to be an equity security that has a market price less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exemptions. As of April 11, 2006, the closing bid and asked prices for our
common stock were $3.50 per share and therefore, it is designated a "penny
stock." Although since February 3, 2005, we have met the net worth exemption
from the "penny stock" definition, no assurance can be given that such exemption
will be maintained. As a "penny stock," our common stock may become subject to
Rule 15g-9 under the Exchange Act of 1934, or the "Penny Stock Rule." This rule
imposes additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. As a result, this rule may
affect the ability of broker-dealers to sell our securities and may affect the
ability of purchasers to sell any of our securities in the secondary market.

For any transaction involving a penny stock, unless exempt, the rules require
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the SEC relating to the penny stock market. Disclosure is also
required to be made about sales commissions payable to both the broker-dealer
and the registered representative and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stock.

There can be no assurance that our common stock will qualify for exemption
from the Penny Stock Rule. In any event, even if our common stock were exempt
from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the
Exchange Act, which gives the SEC the authority to restrict any person from
participating in a distribution of penny stock, if the SEC finds that such a
restriction would be in the public interest.

Item 2. DESCRIPTION OF PROPERTY.

Our executive office is located at A# Room 0706-0707, The Spaces
International Center, No. 8 Dongdaqiao Road, Chaoyang District, Beijing, China
100020. This office consists of approximately 318 square meters. The lease
agreement has a three-year term which expires in May 2008. The monthly rental
payment is approximately $3,625 (RMB 29,000).

We currently lease 9878 square meters in the aggregate for
office space and manufacturing facilities in Harbin, China where our subsidiary
Pacific Dragon is located. The lease has a 10-year term which runs from January
1, 2004 to January 1, 2014. Our current rent due under this lease is
approximately $450,000 (RMB 3,600,000) per year.

In addition, we have an office with a space of 1,000 square feet in Hong Kong
which is located at Flat 1605, Emperor Group Centre, 288 Hennessy Road, Wai Chai,
Hong Kong. The monthly rent payment is approximately $1,576 (HK$12,233) and the
term of the lease expires on May 31, 2006.

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Item 3. LEGAL PROCEEDINGS.

There are no legal proceedings which are pending or have been threatened
against us or any officer, director or control person of which management is
aware.

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

No matters were submitted during the fourth quarter of our fiscal year to a
vote of security holders, through the solicitation of proxies or otherwise.

PART II

Item 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL
BUSINESS ISSUER PURCHASE OF EQUITY SECURITIES.

Market Price

Our common stock is quoted on the OTC Bulletin Board under
the symbol "CAGC.OB." The following table sets forth, for the periods indicated,
the high and low bid prices of our common stock. These prices reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not represent actual transactions. The high and low quotations for the first
quarter of 2004 and second quarter of 2005 have been adjusted for the above
mentioned 1-for-5.6 reverse stock split and 1-for-1.14 forward stock split,
respectively.

|                                  | High   | Low  
|--------------------------------- | ------ | -----
|                                  |        |      
|1st Quarter
    of 2006           | $3.55  | $3.00
|                                  |        |      
|Year Ended
    December 31, 2005  |        |      
|1st Quarter                       | $18.42 | $0.09
|2nd Quarter                       | $3.60  | $1.67
|3rd Quarter                       | $4.50  | $2.05
|4th Quarter                       | $4.30  | $2.40
|                                  |        |      
|Year Ending
    December 31, 2004 |        |      
|1st Quarter                       | $0.25  | $0.25
|2nd Quarter                       | $0.25  | $0.25
|3rd Quarter                       | $0.04  | $0.04
|4th Quarter                       | $21.93 | $0.04

On April 11, 2006, the closing price of our common stock on the OTCBB was
$3.50.

Holders

As of April 3, 2006, we had approximately 975 holders of our
common stock. The number of record holders was determined from the records of
our transfer agent and does not include beneficial owners of common stock whose
shares are held in the names of various security brokers, dealers, and
registered clearing agencies.

Dividends

W have never declared or paid cash dividends. Any future
decisions regarding dividends will be made by our board of directors. We
currently intend to retain and use any future earnings for the development and
expansion of our business and do not anticipate paying any cash dividends in the
foreseeable future.

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Transfer Agent

The Transfer Agent and Registrar for our common stock is
Securities Transfer Corporation and its telephone number is (469) 633-0101.

Recent Sales of Unregistered Securities

On May 25, 2004, we issued 714,285 shares of our common stock
to Halter Financial Group, Inc. at the price of $0.28 per share for gross
proceeds of $200,000. The issuance of our shares to these individuals was made
in reliance on the exemption provided by Section 4(2) of the Securities Act for
the offer and sale of securities not involving a public offering and regulation
D promulgated thereunder.

On February 3, 2005, we issued 10,606,158 shares of our common
stock to Stockholders of Tailong. No underwriter participated in the
transaction. The shares were offered and sold in reliance upon exemptions from
the registration requirements of the Securities Act pursuant to Section 4(2) and
Regulation S thereunder.

On February 3, 2005, we sold 590,283 shares of our common
stock at a price of $1.6941 per share to two accredited investors, Chinamerica
Fund, LLP and Gary Evans, for a total of $1,000,000 pursuant to a stock purchase
agreement. The issuance of our shares to these investors was made in reliance on
the exemption provided by Section 4(2) of the Securities Act for the offer and
sale of securities not involving a public offering and regulation D promulgated
thereunder.

On June 13, 2005, we sold 235,516 shares of our common stock
at a price of $1.4861 per share to two accredited investors, Chinamerica Fund,
LLP and Steven Taylor, for a total of $350,000. The issuance of our shares to
these investors was made in reliance on the exemption provided by Section 4(2)
of the Securities Act for the offer and sale of securities not involving a
public offering and regulation D promulgated thereunder.

On January 13, 2006, we sold 4,800,000 shares of our common
stock at a price of $2.50 per share to twenty-two accredited investors for a
total of $12,000,000. The issuance of our shares to these investors was made in
reliance on the exemption provided by Section 4(2) of the Securities Act for the
offer and sale of securities not involving a public offering and regulation D
promulgated thereunder. . In instances described above where we issued
securities in reliance upon Regulation D, we relied upon Rule 506 of Regulation
D of the Securities Act. These stockholders who received the securities in such
instances made representations that (a) the stockholder is acquiring the
securities for his, her or its own account for investment and not for the
account of any other person and not with a view to or for distribution,
assignment or resale in connection with any distribution within the meaning of
the Securities Act, (b) the stockholder agrees not to sell or otherwise transfer
the purchased shares unless they are registered under the Securities Act and any
applicable state securities laws, or an exemption or exemptions from such
registration are available, (c) the stockholder has knowledge and experience in
financial and business matters such that he, she or it is capable of evaluating
the merits and risks of an investment in us, (d) the stockholder had access to
all of our documents, records, and books pertaining to the investment and was
provided the opportunity ask questions and receive answers regarding the terms
and conditions of the offering and to obtain any additional information which we
possessed or were able to acquire without unreasonable effort and expense, and
(e) the stockholder has no need for the liquidity in its investment in us and
could afford the complete loss of such investment. Management made the
determination that the investors in instances where we relied on Regulation D
are Accredited Investors (as defined in Regulation D) based upon management's
inquiry into their sophistication and net worth. In addition, there was no
general solicitation or advertising for securities issued in reliance upon
Regulation D.

In instances described above where we indicate that we relied
upon Regulation S promulgated under the Securities Act in issuing securities,
our reliance was based upon the following factors (a) each subscriber was
neither a U.S. person nor acquiring the shares for the account or benefit of any
U.S. person, (b) each subscriber agreed not to offer or sell the shares
(including any pre-arrangement for a purchase by a U.S. person or other person
in the United States) directly or indirectly, in the United States or to any
natural person who is a resident of the United States or to any other U.S.
person as defined in Regulation S unless registered under the Securities Act and
all applicable state laws or an exemption from the registration requirements of
the Securities Act and similar state laws is available, (c)

17

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each subscriber made his, her or its subscription from the subscriber's
residence or offices at an address outside of the United States and (d) each
subscriber or the subscriber's advisor has such knowledge and experience in
financial and business matters that the subscriber is capable of evaluating the
merits and risks of, and protecting his interests in connection with an
investment in us.

In instances described above where we indicate that we relied upon Section
4(2) of the Securities Act in issuing securities, our reliance was based upon
the following factors: (a) the issuance of the securities was an isolated
private transaction by us which did not involve a public offering; (b) there
were only a limited number of offerees; (c) there were no subsequent or
contemporaneous public offerings of the securities by us; (d) the securities
were not broken down into smaller denominations; and (e) the negotiations for
the sale of the stock took place directly between the offeree and us.

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Overview

General

We had no operations during the period from 1986 through February 2005. On
February 3, 2005, we completed a reverse acquisition transaction with Tailong in
which we acquired all of the issued and outstanding securities of Tailong from
the stockholders of Tailong in exchange for 10,606,158 shares of our common
stock. We are located in Beijing, China and conduct our business though our
subsidiary Tailong and its subsidiary, Pacific Dragon. We manufacture and sell
organic liquid compound fertilizers. Our products are primarily marketed and
sold to farmers in 12 provinces of China. In 2005, we had an approximate annual
production capacity of 5,000 metric tons of organic liquid compound fertilizers.

Our revenues are derived primarily from the sale of our organic liquid
compound fertilizer products to our customers.

Industry Wide Factors that are Relevant to Our Business

The fertilizer industry in China is in the process of rapid and continuous
development. China is the largest producer, importer and consumer of fertilizers
in the world. In 2004, the total consumption of fertilizers in China amounted to
approximately 46.4 million tons, an increase of 11.8% from 2000. The demand for
fertilizers has steadily increased. The total consumption of fertilizers is
expected to increase to 51 million tons by 2010 and 56 millions by 2020. We
believe this trend will impact favorably on the demand for our products, and
this will result in growth in sales of fertilizers and increased revenue for us.

Another trend that affects our industry is the growing demand for compound
fertilizers. The percentage of compound fertilizer consumption to the total
fertilizer consumption in China rose from 2% in 1980 to 26% in 2004. We believe
our revenue will grow as a result of the continuing increase of the demand of
compound fertilizers.

The Chinese government strongly encourages the development of the agriculture
industry and encourages companies in the agriculture sector to become bigger and
build name recognition. We plan to utilize the policy support to expand our
operations in various parts of China and to improve our name recognition in the
market.

Our industry faces increasing competition. See "Business  Our Competition."
The increased level of competition puts pressure on the sales prices of our
products, which may result in lower margin for us.

Results of operations

The following table summarizes the results of our operations during the
fiscal years ended December 31, 2005 and 2004 and provides information regarding
the dollar and percentage increase or (decrease) from the 2004 fiscal period to
the 2005 fiscal period:

18

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

|                    |          |          | Increase   | %
    Increase
|------------------- | -------- | -------- | ---------- | --------------
|Item                | 12/31/05 | 12/31/04 | (Decrease) | (% Decrease)  
|Sales Revenue       | 25.3     | 15.8     | 9.4        | 60%           
|Costs of Goods Sold | (12.8)   | (8.2)    | 4.6        | 56%           
|Selling Expenses    | (2.4)    | (1.4)    | 1.0        | 64%           
|Operating and       |          |          |            |               
|Administrative      |          |          |            |               
|Expenses            | (2.6)    | (0.5)    | 2.1        | 409%          
|Income from         |          |          |            |               
|Operations          | 7.5      | 5.7      | 1.8        | 32%           
|Other income        |          |          |            |               
|(expenses)          | 0        | 0        | 0          | 0             
|Income tax          | (3.2)    | (2.0)    | 1.2        | 60%           
|Minority interest   | (0.6)    | 0        | 0.6        | 100%          
|Net income          | 3.68     | 3.75     | (0.07)     | (2%)          

Sales Revenue

Our sales revenue in fiscal year 2005 was $25,335,316, which is approximately
$9,485,272 or 60% more than that of fiscal year 2004, where we had revenue of
$15,850,044. The increase in sales revenue is primarily the result of the
expansion of our distribution network from northern China to southern China and
the increase of our advertising activities. In 2005, sales to new customers
amounted to approximately $2.2 million, representing 9% of the total revenue. In
the meantime, we have also recorded increased sales to our existing customers.
We plan to continue our efforts in expanding the markets for our products and we
anticipate that our sales revenue will continue to grow.

Costs of Goods Sold

Cost of goods sold, which consist of raw materials, direct labor and
manufacturing overhead expenses, were $12,848,958 for the year ended December
31, 2005, a increase of $4,695,495 or 56%, as compared to $8,153,463 for the
year ended December 31, 2004. The proportions of cost of sales to total revenues
are 50.72% and 51.44% for the years of 2005 and 2004, respectively, a decrease
of approximately 1%. The main reason for this decrease is an improvement in cost
control measures.

Selling expenses

Selling expenses, which consist primarily of sales commission, advertising
and promotion expenses, freight charges and related compensation, were
$2,372,151 in 2005, as compared to $1,443,943 in 2004, an increase of $925,208
or approximately 64%. We believe the increases in selling expenses were
generally in line with the increase of sales revenue.

Operating and
administrative expenses

Our general and administrative expenses, which consist
primarily of rental expenses, related salaries, business development,
depreciation and traveling expenses, were $2,633,522 in 2005, as compared to
$517,831 in 2004, an increase of $2,115,691 or approximately 409%. The increase
was mainly attributable to a one-time merger cost of $1,748,675, consisting of
financial advisory fee, attorneys fees and other costs in connection with the
reverse acquisition of Tailong in February 2005. The increase is also
attributable to an increase of $102,637 traveling expenses and an expense of
$136,275 incurred by Tailong which had minimal operation before its acquisition
of Pacific Dragon in October 2004. The traveling expenses increased because of
our expanded marketing efforts.

Environmental Laws Compliance Costs

We incurred no cost for environmental compliance in fiscal years 2005 and
2004.

Income From Operations

19

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Income from operations was $7,480,685 in 2005, as compared to $5,734,807 in
2004, an increase of $1,745,878 or approximately 32%. The increase was mainly
attributable to the increased sales revenue.

Other income (expenses)

As we do not have any outstanding bank or other interest-bearing borrowings,
our financial expenses were approximately $160 and $115 in 2005 and 2004,
respectively.

Income taxes

Our Chinese subsidiaries are taxed at a rate of 33% of assessable profit. We
incurred income taxes of $3,173,533 in 2005. This is an increase of $1,191,281or
60% from the taxes we incurred in 2004, which were $1,982,252. We paid more
taxes in 2005 mostly because of higher income in 2005 compared to 2004.

Minority interest

Our financial statements in 2005 reflect an adjustment to our consolidated
group net income equal to $631,113, reflecting the 10% ownership of Pacific
Dragon held by Yinlong. No minority interest was recorded in 2004.

On June 8, 2004, Tailong and the three owners of Pacific Dragon entered into
a Capital Transfer Agreement whereby Tailong acquired 90% of the equity interest
in Pacific Dragon. Before such acquisition, Pacific Dragon had effectively been
controlled by Yinlong which was owned by the same stockholders as Tailong. As
such, Tailong and Pacific Dragon were under common control. On such basis, the
financial statements for the year ended December 31, 2004 are prepared by
combining the accounts of Tailong and Pacific Dragon in a manner similar to the
pooling of interest and no minority interest was recorded.

In the financial statements for the year ended December 31, 2005, a minority
interest was recorded because on February 3, 2005, China Agritech, a public
company with numerous shareholders, acquired 100% of Tailong. As a result of
such reverse acquisition, Yinlong, the 10% owner of Pacific Dragon, is no longer
owned by the same stockholders as Tailong.

Net Income

We earned net income of $3,675,879 in fiscal year of 2005. This is a decreaseof $77,494 or approximately 2% from fiscal year 2004 which had a net income
of $3,753,373. The decrease of our net income in 2005 was mainly attributable to
the one-time merger cost of $1,748,675.

Foreign Currency Translation Gains

We had a foreign currency translation gain of $228,566 in fiscal year 2005 as
compared with no foreign currency translation gain in fiscal year 2004. In July
21, 2005, China reformed its foreign currency exchange policy, revalued the
Renminbi by 2.1 percent and allowed Renminbi to appreciate as much as 0.3
percent per day against the U.S. dollar. As a result, we implemented different
exchange rates in translating Renminbi into U.S. dollar in our financial
statements for fiscal year 2005, the exchange rates of 0.124 and 0.122 were
implemented in calculating the total assets/liabilities and statement of income,
respectively, which results in a $228,566 increase in the foreign currency
translation gain from $0 in the fiscal year of 2004.

Liquidity and capital resources

As of December 31, 2005, we had cash and cash equivalents of $255,831. Our
current assets were $11,581,159 and our current liabilities were $1,350,444 as
of December 31 2005, which results in a current ratio of approximately 8.6. Our
total stockholders' equity as of December 31, 2005 was $10,057,951.

We had no bank loans or other interest bearing borrowings as of December 31,
2005.

In fiscal year 2005, we raised a total of $1,350,000 from the sale of 590,283
(before the 1-for-1.14 forward stock split) and 235,516 (after the 1-for-1.14
forward stock split) shares of our common stock through private placement
transactions. The proceeds from these private placement transactions were
initially placed in an escrow account and are to be released upon the
satisfaction of the conditions set out in certain Escrow Agreement we entered
into pursuant to the stock purchase agreements with the private placement
investors. As of December 31, 2005, $1,000,000 of the proceeds was released from
the escrow account, the remaining $350,000 is held in escrow account for the
purpose of disbursing expenses as set forth in the escrow agreements.

20

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On January 13, 2006, we further sold 4,800,000 shares of our common stock to
22 investors for a total of $12,000,000. The shares were offered and sold to
investors in reliance upon exemptions from the registration requirements of the
Securities Act pursuant to Section 4(2) and Rule 506 thereunder.

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
December 31, 2005, we did not have any material commitments for capital
expenditures.

Critical accounting policies

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

- 

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

21

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> December 31, 2005 and 2004.

- 

> In particular, Renminbi ("RMB"), the PRC's official currency, is the
>   functional currency of our operating subsidiary Pacific Dragon. Until July 21,
>   2005, RMB had been pegged to US$ at the rate of RMB8.28: US$1.00. On July 21,
>   2005, the PRC government reformed the exchange rate system into a managed
>   floating exchange rate system based on market supply and demand with reference
>   to a basket of currencies. In addition, the exchange rate of RMB to US$ was
>   adjusted to RMB8.11: US$1.00 as of July 21, 2005. The People's Bank of China
>   announces the closing price of a foreign currency such as US$ traded against
>   RMB in the inter-bank foreign exchange market after the closing of the market
>   on each working day, which will become the unified exchange rate for the
>   trading against RMB on the following working day. The daily trading price of
>   US$ against RMB in the inter-bank foreign exchange market is allowed to float
>   within a band of (0.3% around the unified exchange rate published by the
>   People's Bank of China. This quotation of exchange rates does not imply free
>   convertibility of RMB to other foreign currencies. All foreign exchange
>   transactions continue to take place either through the Bank of China or other
>   banks authorized to buy and sell foreign currencies at the exchange rates
>   quoted by the People's Bank of China. Approval of foreign currency payments by
>   the Bank of China or other institutions required submitting a payment
>   application form together with invoices, shipping documents and signed
>   contracts.
>   The rates used to translate Pacific Dragon's assets and liabilities at
>   December 31, 2005 and its statement of income are RMB1:US$0.124 and
>   RMB1:US$0.122, respectively. No representation is made that RMB amounts have
>   been, or could be, converted into US$ at these rates.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangement.

Inflation

We believe that inflation has not had a material impact on our results of
operations for the years ended December 31, 2005 and 2004.

Seasonality

We may experience seasonal variations in our future revenues and our
operating costs due to seasonality, however, we do not believe that these
variations will be material.

22

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Item 7. FINANCIAL STATEMENTS.

See the index to our financial statements and our financial statements
following the Signature Page and Certifications at the end of this Annual Report
on Form 10-KSB.

Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

There have been no disagreements regarding accounting and financial
disclosure matters with our independent certified public accountants.

Item 8A. CONTROLS AND PROCEDURES.

As required by Rule 13a-15 under the Exchange Act, within the 90 days prior
to the filing date of this report, we carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures. This evaluation was carried out under the supervision and with the
participation of our management, including our President, Chief Executive
Officer and Chief Financial Officer. Based upon that evaluation, our President,
Chief Executive and Chief Financial Officer concluded that our disclosure
controls and procedures are effective to ensure that information required to be
disclosed in the reports that we file or submit under the Exchange Act is
accumulated and communicated to management (including the chief executive
officer and chief financial officer) to allow timely decisions regarding
required disclosure and that our disclosure controls and procedures are
effective to give reasonable assurance that the information required to be
disclosed by us in reports that we file under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC. There have been no significant changes in our
internal controls or in other factors, which could significantly affect internal
controls subsequent to the date we carried out our evaluation.

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

PART III

Item 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

Directors and Executive Officers

Set forth below are the names of our directors, officers and significant
employees, their ages, all positions and offices that they hold with us, the
period during which they have served as such, and their business experience
During at least the last five years. The directors will serve until the next
annual meeting of the stockholders or until their successors are elected or
appointed and qualified. Executive officers will serve at the board's
discretion.

|Name                 | Age | Position                                                      
|-------------------- | --- | --------------------------------------------------------------
|                     |     |                                                               
|Yu Chang             | 49  | Chief Executive
    Officer, President, Secretary and Director
|Xiaorong Teng        | 35  | Vice President of
    Sales and Director                      
|Tao Liang            | 42  | Director                                                      
|Tak Shing Eddie Wong | 41  | Vice President of
    Sales                                   
|Tik Man Tsoi         | 48  | Vice President of
    Administration                          
|Li Jun Peng          | 63  | Chief Financial
    Officer and Controller                    

23

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Yu Chang: Mr. Chang has been our CEO, President, Secretary and
director since February 3, 2005. Since 1994, Mr. Chang has been serving as the
chairman of the Board of Directors of Pacific Dragon and Tailong. He has also
served as the Chairman of Board of Directors of Yinlong since 1993. Mr. Chang
currently spends approximately 10% of his time on the affairs of Yinlong. Mr.
Chang graduated from the Heilongjiang Forestry Cadre Management Institute. Mr.
Chang graduated from the Heilongjiang Forestry Cadre Management Institute.

Xiaorong Teng: Ms. Teng has served as our Vice President of Sales
since February 3, 2005 and our director since June 2005. Ms. Teng has served as
a director of Pacific Dragon since 2000. She has also served as a director of
Tailong since its inception in 2003. Ms. Teng worked for Yinlong from 1994 to
2000 as the General Manager. She worked for Harbin Post & Telecommunication
Bureau from 1992 to 1994.

Tao Liang: Mr. Liang has served as our director since June, 2005. Mr.
Liang has also served as the Vice General Manager of Pacific Dragon since 2000.
Mr. Liang has served as the Vice General Manager of Yinlong from 1997 to the end
of 1999. From 1993 to 1996, Mr. Liang served as the General Manager of Tainan
Food Processing Factory in Harbin, China. From 1989 to 1992, Mr. Liang served as
the Vice General Manager of Taibao Company in Harbin China. Mr. Liang graduated
from Renwen Correspondence University.

Tak Shing Eddie Wong: Mr. Wong has been our Vice
President of Sales since February 3, 2005. Mr. Wong has served as a director of
Tailong since 2004. He worked for Lim Li Fung Group-HK, a financial services
company,as a senior consultant from 1999 to 2004.

Tik Man Tsoi: Mr. Tsoi has been our Vice President of Administration
since February 3, 2005. He served as director of Heng An Tong Tai Investment
Holding Co. Ltd., a financial services company, from 1999 to 2005.

Li Jun Peng: Ms. Peng has been our Chief Financial
Officer and Controller since February 3, 2005. Ms. Peng has been working for
Pacific Dragon and later Tailong as the Chief Accountant since August 1997. Ms.
Peng graduated from Harbin Institute of Technology in 1968.

Board Composition and Committees

The board of directors is currently composed of three
members: Yu Chang, Xiaorong Teng and Tao Liang. All board actions require the
approval of a majority of the directors in attendance at a meeting at which a
quorum is present.

Committees and Board Meetings

We do not have a standing audit, nominating or compensation committee or any
committee performing a similar function although we intend to form such
committees in the near future.

Audit Committee and Audit Committee Financial Expert

We do not currently have an audit committee financial expert, nor do we have
an audit committee. Our entire board of directors, which currently consists of
Yu Chang, Xiaorong Teng and Tao Liang, handles the functions that would
otherwise be handled by an audit committee. We are in the process of searching
for a qualified independent expert who would be willing to serve on our board
and who would be willing to act as an audit committee financial expert. Before
retaining any such expert, our board would make a determination as to whether
such person is independent.

Director Compensation

No cash compensation was paid to our director for services as a director
during the fiscal year ended December 31, 2005. We have no standard arrangement
pursuant to which our board of directors is compensated for their services in
their capacity as directors. The board of directors may award special
remuneration to any director undertaking any special services on behalf of our
company other than those services ordinarily required of a director. All
authorized out-of-pocket expenses incurred by a director on our behalf will be
subject to reimbursement upon our receipt of required supporting document of
such expenses. No director received and/or accrued any compensation for his
services as a director, including committee participation and/or special
assignments.

24

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Family Relationships

There are no family relationships among our directors or officers.

Code of Ethics

On April 12, 2006, our board of directors adopted a code of
ethics that our principal financial officer, principal accounting officer or
controller and any person who may perform similar functions are subject to.
Currently Mr. Yu Chang, and Ms. Li Jun Peng are our only officers subject to the
Code of Ethics. If we retain additional officers in the future to act as our
principal financial officer, principal accounting officer, controller or persons
serving similar functions, they would become subject to the Code of Ethics. The
Code of Ethics does not indicate the consequences of a breach of the code. If
there is a breach, the board of directors would review the facts and
circumstances surrounding the breach and take action that it deems appropriate,
which action may include dismissal of the employee who breached the code.
Currently, since Mr. Chang serves as a director and since he is a controlling
stockholder he is largely responsible for reviewing his own conduct under the
Code of Ethics and determining what action to take in the event of his own
breach of the Code of Ethics. A copy of the code of ethics appears as an exhibit
to this annual report.

Compliance with Section 16(a) of the Securities Exchange Act

Section 16(a) of the Exchange Act, as amended, requires our executive
officers, directors and persons who beneficially own more than 10% of our shares
of common stock to file reports of their beneficial ownership and changes in
ownership (Forms 3, 4 and 5, and any amendment thereto) with the SEC. Executive
officers, directors and greater-than-10% holders are required to furnish us with
copies of all Section 16(a) forms they file.

Based solely upon a review of the Forms 3, 4 and 5 (and amendments thereto)
furnished to us for the fiscal year ended December 31, 2005, we have determined
that our directors, officers and greater-than-10% beneficial owners complied
with all applicable Section 16 filing requirements, except as described below.

|                |              | Number of        | Failure to File
|--------------- | ------------ | ---------------- | ---------------
|Name            | Number of    | Transactions Not | Requested      
|                | Late Reports | Reported on a    | Forms          
|                |              | Timely Basis     |                
|China Tailong   | 1(1)         | 1(1)             | 0              
|Group           |              |                  |                
|Limited         |              |                  |                
|Yu Chang        | 1(1)         | 1(1)             | 0              
|Tsoi Tik Man    | 1(1)         | 1(1)             | 0              
|Lijun Peng      | 1(1)         | 1(1)             | 0              
|Tak Shine Eddie | 1(1)         | 1(1)             | 0              
|Wong            |              |                  |                
|Xiaorong Teng   | 1(1)         | 1(1)             | 0              

(1) The named officer, director or
greater-than-10% stockholder, as applicable, filed a late Form 3 - Initial
Statement of Beneficial Ownership of Securities.

Item 10. EXECUTIVE COMPENSATION.

The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to our Chief Executive Officer, for
services during the last three fiscal years in all capacities to us, our
subsidiaries and predecessors. No executive officer received compensation of
$100,000 or more in any of the last three fiscal years.

25

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SUMMARY COMPENSATION TABLE

|                |      | Annual Compensation |       | Long-Term Compensation |            |             |        
|--------------- | ---- | ------------------- | ----- | ---------------------- | ---------- | ----------- | -------
|                |      |                     |       |                        | Awards     |             | Payouts
|                |      |                     |       |                        |            | Securities  |        
|                |      |                     |       |                        |            | Under-lying |        
|Name            |      |                     |       |                        | Restricted | Options/    |        
|And Principal   |      |                     |       |                        | Stock      | SARs        | LTIP   
|Position        |      | Salary              | Bonus |                        | Awards     | (#)         | Payouts
|                | Year | ($)                 | ($)   |                        | ($)        |             | ($)    
|                |      |                     |       |                        |            |             |        
|                |      |                     |       |                        |            |             |        
|Timothy Halter  | 2005 | 0                   | 0     | 0                      | 0          | 0           | 0      
|(1)             | 2004 | 0                   | 0     | 0                      | 0          | 0           | 0      
|CEO, President, | 2003 | 0                   | 0     | 0                      | 0          | 0           | 0      
|CFO and         |      |                     |       |                        |            |             |        
|Secretary       |      |                     |       |                        |            |             |        
|                |      |                     |       |                        |            |             |        
|Yu Chang (2)    | 2005 | $15,000             | 0     | 0                      | 0          | 0           | 0      
|CEO, President  |      | (4)                 |       |                        |            |             |        
|and Secretary   | 2004 | 0                   | 0     | 0                      | 0          | 0           | 0      
|                | 2003 | 0                   | 0     | 0                      | 0          | 0           | 0      

(1) Mr. Halter served as our CEO, President, CFO and Secretary until February
3, 2005. 
(2) Mr. Chang is our current CEO, President and Secretary. 
(3) Mr. Halter received a warrant to purchase 89,285 shares of our common stock
in 2004 in connection with his services provided to us. This warrant was
exercised in 2004. 
(4) RMB 120,000.

Bonuses and Deferred Compensation

We do not have any bonus, deferred compensation or retirement plan. We do not
have a compensation committee; all decisions regarding compensation are
determined by our Board of Directors.

Options and Stock Appreciation Rights

We do not currently have a stock option or other equity incentive plan. We
may adopt one or more such programs in the future.

Employment Contracts

On January 6, 2005, our subsidiary Pacific Dragon entered into an employment
agreement with Mr. Yu Chang pursuant to which Mr. Chang was hired as the General
Manager of Pacific Dragon. Such agreement has a three year term and is renewable
upon mutual agreements between the parties. Pursuant to the agreement, Mr.
Chang's annual salary will be determined based on his performance, but shall in
no event be less than approximately $14,458 (RMB120,000).

26

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Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.

The following table sets forth information regarding beneficial ownership of
our common stock as of April 11, 2006 (i) by each person who is known by us to
beneficially own more than 5% of our common stock; (ii) by each of our officers
and directors; and (iii) by all of our officers and directors as a group. Unless
otherwise stated, the address of all persons in the table is c/o China Agritech,
Inc., A# Room 0706-0707, The Spaces International Center, No. 8 Dongdaqiao Road,
Chaoyang District, Beijing, China 100020.

|Title of Class       |                                       |                    | Amount & Nature of |           
|-------------------- | ------------------------------------- | ------------------ | ------------------ | ----------
|                     | Name & Address of                     |                    | Beneficial         | Percent of
|                     | Beneficial Owner                      | Office, If Any     | Ownership1         | Class2    
|                     |                                       | CEO, President,    | 10,881,918 3       | 56.84%    
|Common Stock         |                                       | Secretary
    and  |                    |           
|$0.001 par
    value | Yu Chang                              | Director           |                    |           
|                     |                                       |                    |                    |           
|                     |                                       | Vice President     | 604,552            | 3.16%     
|Common Stock         | Xiaorong Teng                         | of Sales
    and   |                    |           
|$0.001 par
    value |                                       | Director           |                    |           
|                     |                                       |                    |                    |           
|Common Stock         | Tak Shing Eddie Wong                  | Vice President     | 0                  | *         
|$0.001 par value     |                                       | of Sale            |                    |           
|                     |                                       |                    |                    |           
|Common Stock         | China Tailong Group Limited           |                    | 10,881,918 4       | 56.84%    
|$0.001 par value     |                                       |                    |                    |           
|                     |                                       |                    |                    |           
|                     | Halter Financial Group, Inc.          |                    | 861,012 5          | 4.50%     
|Common Stock         | Address: 12890 Hilltop Road           |                    |                    |           
|$0.001 par value     | Argyle, Texas 76226                   |                    |                    |           
|                     |                                       |                    |                    |           
|Common Stock         | Tao Liang 6                           | Director           | 459,447            | 2.40%     
|$0.001 par value     |                                       |                    |                    |           
|                     |                                       |                    |                    |           
|Common Stock         | Lijun Peng                            | CFO and            | 0                  | *         
|$0.001 par value     |                                       | Controller         |                    |           
|                     |                                       |                    |                    |           
|                     |                                       | Vice
    President | 0                  | *         
|Common Stock         | Tik Man
    Tsoi7                     | of                 |                    |           
|$0.001 par
    value |                                       | Administration     |                    |           
|                     |                                       |                    |                    |           
|Common Stock         | All officers and directors as a group |                    | 11,945,917         | 62.4%     
|$0.001 par value     | (6 persons named above)               |                    |                    |           

* Less than 1%.

1

2A total of 19,143,615
shares of our Common Stock are considered to be outstanding pursuant to SEC Rule
13d-3(d)(1). For each Beneficial Owner above, any options exercisable within 60
days have been included in the denominator.

3

4

27

---



Group Limited.

5

6

7

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

On January 1, 2004, our subsidiary Pacific Dragon entered into a lease
agreement with Yinlong pursuant to which Pacific Dragon leases certain factory
and office premises from Yinlong. The current annual rental payment is
approximately $450,000 (RMB3,600,000). Our CEO, President, Secretary and
Director Yu Chang and our Vice President and director Xiaorong Teng, is the 85%
and 15% owner of Yinlong, respectively.

On January 6, 2005, our subsidiary Pacific Dragon entered into a license
agreement with Mr. Yu Chang, our CEO, President, Secretary and Director. 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.

Item 13. EXHIBITS.

The following exhibits are filed with this report, except those indicated as
having previously been filed with the Securities and Exchange Commission and are
incorporated by reference to another report, registration statement or form. As
to any shareholder of record requesting a copy of this report, we will furnish
any exhibit indicated in the list below as filed with this report upon payment
to us of our expenses in furnishing the information.

|Exhibit No. | Description                                                                                         
|----------- | ----------------------------------------------------------------------------------------------------
|            |                                                                                                     
|2.1         | Agreement and Plan of
    Merger, dated July 1, 2004 by and between Basic Empire                    
|            | Corporation, a Nevada
    Corporation and Basic Empire Corporation, a Delaware corporation          
|            | (incorporated by
    reference to Exhibit 10.2 in the registrant's annual report on Form            
|            | 10-KSB filed on April
    15, 2005)                                                                 
|            |                                                                                                     
|2.2         | Agreement and Plan of
    Reorganization, dated as of December 25, 2004, as amended, by             
|            | and among the
    Registrant, China Tailong Holdings Company Limited and its stockholders           
|            | (incorporated by
    reference to Exhibit 2.1 in the registrant's current report on Form 8-K        
|            | filed on February 3,
    2005, as amended)                                                          
|            |                                                                                                     
|3.1.1       | Amended and Restated
    Certificates of Incorporation as filed with the Secretary of the State     
|            | of Delaware
    (incorporated by reference to Exhibit 3.1 in the registrant's registration          
|            | statement on Form SB-2
    filed on July 22, 2005, as amended)                                      
|            |                                                                                                     
|3.1.2       | Articles of
    Association of China Tailong Holdings Company Limited (incorporated by              
|            | reference to Exhibit
    4.2 in the registrant's current report on Form 8-K filed on February 3,    
|            | 2005, as amended)                                                                                   
|            |                                                                                                     
|3.1.3       | Articles of
    Association of Pacific Dragon Fertilizers Co. Ltd. (incorporated by
    reference to
|            | Exhibit 4.3 in the
    registrant's current report on Form 8-K filed on February 3, 2005, as        
|            | amended)                                                                                            
|            |                                                                                                     
|3.2         | Amended and Restated
    Bylaws (incorporated by reference to Exhibit 3.2 in the registrant's       
|            | registration statement
    on Form SB-2 filed on July 22, 2005, as amended)                         

28

---



|      |                                                                                               
|----- | ----------------------------------------------------------------------------------------------
|10.1  | Form of Subscription Agreement, dated May 25,
    2004 (incorporated by reference to          
|      | Exhibit 10.1 in the registrant's current
    report on Form 8-K filed on May 27, 2004)        
|      |                                                                                               
|10.2  | Form of Warrant, dated May 26, 2004
    (incorporated by reference to Exhibit 4.2 in the      
|      | registrant's registration statement on Form
    S-8 filed on October 25, 2004)                
|      |                                                                                               
|10.3  | Joint Venture Contract of Sino-foreign
    Contractual Joint Venture Pacific Dragon, dated    
|      | June 9, 2004 (incorporated by reference to
    Exhibit 10.8 in the registrant's registration  
|      | statement on Form SB-2 filed on July 22,
    2005, as amended)                                
|      |                                                                                               
|10.4  | Transfer of Capital Contribution and Profit
    Agreement, dated June 8, 2004, by and among   
|      | China Tailong Holdings Limited, Yinlong
    Industrial Co. Ltd., Beijing Taiming Applied      
|      | Technology Institute and Cathay-Pacific
    Enterprises Ltd. (incorporated by reference to    
|      | Exhibit 4.1 in the registrant's current
    report on Form 8-K filed on February 3, 2005, as  
|      | amended)                                                                                      
|      |                                                                                               
|10.5  | Escrow Agreement, dated January 25, 2005, by
    and among the registrant, Chinamerica        
|      | Fund, LLP, Gary Evans, and the Securities
    Transfer Corporation (incorporated by reference 
|      | to Exhibit 10.2 in the registrant's
    registration statement on Form SB-2 filed on July 22, 
|      | 2005, as amended)                                                                             
|      |                                                                                               
|10.6  | Escrow Agreement, dated January 10, 2006, by
    and among the registrant, Securities         
|      | Transfer Corporation and the investors
    (incorporated by reference to Exhibit 10.2 in the  
|      | registrant's current report on Form 8-K filed
    on January 10, 2006)                        
|      |                                                                                               
|10.7  | Escrow Agreement, dated January 11, 2006, by
    and among the registrant, Securities         
|      | Transfer Corporation and the investors
    (incorporated by reference to Exhibit 10.3 in the  
|      | registrant's current report on Form 8-K filed
    on January 10, 2006)                        
|      |                                                                                               
|10.8  | Stock Purchase Agreement, dated February 3,
    2005, by and among the Registrant,            
|      | Chinamerica Fund, LLP and Gary Evans
    (incorporated by reference to Exhibit 10.1 in the    
|      | registrant's current report on Form 8-K filed
    on February 3, 2005, as amended)            
|      |                                                                                               
|10.9  | Stock Purchase Agreement, dated June 13,
    2005, by and among the registrant, Chinamerica   
|      | Fund, LLP and Steven S. Taylor, Jr.
    (incorporated by reference to Exhibit 10.9 in the     
|      | registrant's registration statement on Form
    SB-2 filed on July 22, 2005, as amended)      
|      |                                                                                               
|10.10 | Stock Purchase Agreement, dated Jan 13, 2006,
    by and among the registrant and the         
|      | investors (incorporated by reference to
    Exhibit 10.1 in the registrant's current report on
|      | Form 8-K filed on January 10, 2006)                                                           
|      |                                                                                               
|10.11 | Lease Agreement, dated December 30, 2003,
    between Pacific Dragon Fertilizers Co. Ltd.     
|      | and Yinlong Industrial Co. Ltd. (incorporated
    by reference to Exhibit 10.6 in the         
|      | registrant's registration statement on Form
    SB-2 filed on July 22, 2005, as amended)      
|      |                                                                                               
|10.12 | Amendment to the Lease Agreement, dated June
    28, 2005, by and between Pacific Dragon      
|      | Fertilizers Co. Ltd. and Yinlong Industrial
    Co. Ltd.                                      
|      |                                                                                               
|10.13 | Lease Agreement, dated May 31, 2004, by and
    between China Tailong Holdings Company        
|      | Limited and Upgrade International Trading Co.
    Ltd.                                        
|      |                                                                                               
|10.14 | Lease Agreement, dated May 15, 2005, by and
    between China Tailong Holdings Company        
|      | Limited and Beijing Guangxin Long'An Real
    Estate Brokerage Co., Ltd.                      
|      |                                                                                               
|10.15 | License Agreement, dated January 6, 2005, by
    and between Yu Chang and Pacific Dragon      

29

---



|      | Fertilizers Co. Ltd.
    (incorporated by reference to Exhibit 10.4 in the registrant's registration
|----- | ----------------------------------------------------------------------------------------------------
|      | statement on Form SB-2
    filed on July 22, 2005, as amended)                                      
|      |                                                                                                     
|10.16 | Permanent License
    Agreement, dated December 3, 2005, by and between Yu Chang and                
|      | Pacific Dragon
    Fertilizers Co. Ltd.                                                             
|      |                                                                                                     
|10.17 | Employment Agreement
    between Yu Chang and Pacific Dragon Fertilizers Co. Ltd.                   
|      | (incorporated by
    reference to Exhibit 10.5 in the registrant's registration statement on Form   
|      | SB-2 filed on July 22,
    2005, as amended)                                                        
|      |                                                                                                     
|10.18 | Financial Advisory
    Agreement, dated November 17, 2004, by and between China                     
|      | Tailong Holdings
    Company Limited and HFG International Limited (incorporated by                 
|      | reference to Exhibit
    10.1 in the registrant's quarterly report on Form 10-QSB filed on June     
|      | 13, 2005)                                                                                           
|      |                                                                                                     
|14    | Code of ethics                                                                                      
|      |                                                                                                     
|31.1  | Rule
    13a-14(a)/15d-14(a) Certifications by the Principal Executive Officer                      
|      |                                                                                                     
|31.2  | Rule
    13a-14(a)/15d-14(a) Certifications by the Principal Financial Officer                      
|      |                                                                                                     
|32    | Section 1350
    Certifications                                                                     

Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees

The aggregate fees billed for each of the fiscal year ended
December 31, 2005 and 2004 for professional services rendered by the principal
accountant for the audit of the registrant's annual financial statements and
review of the financial statements included in the registrant's Form 10-QSB or
services that are normally provided by the accountant in connection with
statutory and regulatory filings or engagements for those fiscal years were
approximately $227,688 and $81,311, respectively.

Audit Related Fees

The aggregate fees billed in the fiscal year ended December
31, 2005 and 2004 for assurance and related services by the principal accountant
that are reasonably related to the performance of the audit or review of the
registrant's financial statements and are not reported under the paragraph
captioned "Audit Fees" above are $0 and $0, respectively.

Tax Fees

The aggregate fees billed in the fiscal years ended December 31, 2005 and
2004 for professional services rendered by the principal accountant for tax
compliance, tax advice and tax planning were approximately $1,100 (RMB 86,400)
and $1,000 (RMB 79,200), respectively.

All Other Fees

The aggregate fees billed in the fiscal years ended December 31, 2005 and
2004 for products and services provided by the principal accountant, other than
the services reported above under other captions of this Item 14 are $0 and $0,
respectively.

Pre-Approval Policies and Procedures

On March 5, 2005, our board of directors adopted resolutions in accordance
with the Sarbanes-Oxley Act of 2002

30

---



requiring pre-approval of all auditing services and all audit related, tax or
other services not prohibited under Section 10A(g) of the Securities Exchange
Act of 1934, as amended to be performed for us by our independent auditors,
subject to the de minimus exception described in Section 10A(i)(1)(B) of the
Exchange Act. These resolutions authorized our independent auditor to perform
audit services required in connection with the annual audit relating to the
fiscal year ended December 31, 2005 and the quarterly reviews for the subsequent
fiscal quarters of 2006 through the review for the quarter ended September 30,
2006 at which time additional pre-approvals for any additional services to be
performed by our auditor would be sought from the Board. Our board of directors
also appointed and authorized Lijun Peng to grant pre-approvals of other audit,
audit-related, tax and other services requiring board approval to be performed
for us by our independent auditor, provided that the designee, following any
such pre-approvals, thereafter reports the pre-approvals of such services at the
next following regular meeting of the Board.

The percentage of audit-related, tax and other services that were approved by
the board of directors is zero (-0-).

31

---



SIGNATURES

In accordance with section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this Report on Form 10-KSB to be signed on its
behalf by the undersigned, thereto duly authorized individual.

Date: April 14, 2006

CHINA AGRITECH, INC.By: /s/ Yu ChangYu ChangChief Executive Officer,President and Secretary


In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

|Signature      | Title                             | Date          
|-------------- | --------------------------------- | --------------
|               |                                   |               
|/s/ Yu Chang   |                                   | April 14, 2006
|Yu Chang       | CEO, President,
    Secretary and |               
|               | Director                          |               
|               |                                   |               
|               |                                   |               
|/s/ Lijun Peng | CFO and Controller                | April 14, 2006
|Lijun Peng     |                                   |               

32

---



CHINA AGRITECH, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS 
FOR THE YEAR ENDED DECEMBER 31, 2005

---

CHINA AGRITECH, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                               | Pages   
|-------------------------------------------------------------- | --------
|                                                               |         
|Report of Independent Registered
    Public Accounting Firm    | F-1     
|                                                               |         
|Consolidated Balance Sheet                                     |         
|                                                               | F-2     
|Consolidated Statements of
    Operations                      | F-3     
|                                                               |         
|Consolidated Statements of
    Changes in Stockholders' Equity | F-4     
|                                                               |         
|Consolidated Statements of Cash
    Flows                      | F-5     
|                                                               |         
|Notes to Financial Statements                                  | F-6  15

F-34

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors 
of China Agritech, Inc. & subsidiaries

We have audited the accompanying consolidated balance sheet
of China Agritech, Inc. and subsidiaries (the "Company") as of December 31, 2005
and the related consolidated statements of income, stockholders' equity and cash
flows for the years ended December 31, 2005 and December 31, 2004. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits of these statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2005 and the results of its
operations and its cash flows for the years ended December 31, 2005 and December
31, 2004, in conformity with accounting principles generally accepted in the
United States of America.

KABANI & COMPANY, INC. 
CERTIFIED PUBLIC ACCOUNTANTS

Los Angeles, California 
March 10, 2006

F-1

---



CHINA AGRITECH, INC. AND SUBSIDIARIES 
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2005

|ASSETS                                                                        
|------------------------------------------------------------------------------
|                                                                              
|Current Assets                                                                
|Cash and cash
    equivalents                                                 
|Restricted cash                                                               
|Accounts receivable,
    net                                                  
|Inventories                                                                   
|Advances to suppliers                                                         
|Prepayments and other
    receivables                                         
|                                                                              
|Total Current
    Assets                                                      
|                                                                              
|Property, plant and
    equipment, net                                        
|                                                                              
|Total Assets                                                                  
|                                                                              
|                                                                              
|LIABILITIES AND STOCKHOLDERS'
    EQUITY                                      
|                                                                              
|Current Liabilities                                                           
|Accounts payable                                                              
|Accrued liabilities
    and other payables                                    
|Amount due to related
    parties                                             
|Income tax payable                                                            
|                                                                              
|Total Current
    Liabilities                                                 
|                                                                              
|Minority Interests                                                            
|                                                                              
|Commitments                                                                   
|                                                                              
|Stockholders'
    Equity                                                      
|Common
    stocks; $0.001 par value, 100,000,000 shares authorized, 14,343,615
|shares
    issued and outstanding                                             
|Additional paid-in
    capital                                                
|Statutory reserves                                                            
|Accumulated other
    comprehensive income                                    
|Retained earnings                                                             
|                                                                              
|Total Stockholders'
    Equity                                                
|                                                                              
|Total Liabilities
    and Stockholders' Equity                                

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

F-2

---



CHINA AGRITECH, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENTS OF OPERATIONS 
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

|                                                        |   | 2 0 0 5      |   | 2 0 0 4    
|------------------------------------------------------- | - | ------------ | - | -----------
|                                                        |   |              |   |            
|Sales                                                   | $ | 25,335,316   | $ | 15,850,044 
|                                                        |   |              |   |            
|Cost of goods sold                                      |   | (12,848,958) |   | (8,153,463)
|                                                        |   |              |   |            
|Gross profit                                            |   | 12,486,358   |   | 7,696,581  
|                                                        |   |              |   |            
|Operating expenses                                      |   |              |   |            
|Selling expenses                                        |   | (2,372,151)  |   | (1,443,943)
|Operating and
    administrative expenses               |   | (2,633,522)  |   | (517,831)  
|                                                        |   |              |   |            
|Total operating expenses                                |   | (5,005,673)  |   | (1,961,774)
|                                                        |   |              |   |            
|Income from
    operations                              |   | 7,480,685    |   | 5,734,807  
|                                                        |   |              |   |            
|Other income
    (expense)                              |   |              |   |            
|Other income                                            |   | -            |   | 933        
|Interest expense                                        |   | (160)        |   | (115)      
|                                                        |   |              |   |            
|Total other income (expense)                            |   | (160)        |   | 818        
|                                                        |   |              |   |            
|Income before
    income taxes                          |   | 7,480,525    |   | 5,735,625  
|                                                        |   |              |   |            
|Provision for income
    taxes                          |   | (3,173,533)  |   | (1,982,252)
|                                                        |   |              |   |            
|Income before
    minority interests                    |   | 4,306,992    |   | 3,753,373  
|                                                        |   |              |   |            
|Minority interests                                      |   | (631,113)    |   | -          
|                                                        |   |              |   |            
|Net income                                              |   | 3,675,879    |   | 3,753,373  
|                                                        |   |              |   |            
|Other comprehensive
    income                          |   |              |   |            
|Foreign currency translation gain                       |   | 228,566      |   | -          
|                                                        |   |              |   |            
|Comprehensive
    income                                | $ | 3,904,445    | $ | 3,753,373  
|                                                        |   |              |   |            
|Basic & diluted
    weighted average shares outstanding |   | 13,945,937   |   | 13,435,143 
|                                                        |   |              |   |            
|Basic and diluted
    net earnings per share            | $ | 0.26         | $ | 0.28       

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

F-3

---



CHINA AGRITECH, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY 
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

|                   | Common stock |          |           |             |             |               |            
|------------------ | ------------ | -------- | --------- | ----------- | ----------- | ------------- | -----------
|                   |              |          |           | Additional  |             | Other         |            
|                   |              |          | Partners' | paid-in     | Statutory   | comprehensive | Retained   
|                   | Shares       | Amount   | capital   | capital     | reserves    | income        | earnings   
|                   |              |          |           |             |             |               |            
|Balance at         |              |          |           |             |             |               |            
|January 1, 2004    | 241,833      | $ 242    | $ 450,575 | $ (241)     | -           | $ 21,714      | $ 4,463,150
|                   |              |          |           |             |             |               |            
|Stock issued for   |              |          |           |             |             |               |            
|cash               | 11,849,796   | 11,850   | -         | (11,838)    | -           | -             | -          
|                   |              |          |           |             |             |               |            
|Changes due to     |              |          |           |             |             |               |            
|merger between     |              |          |           |             |             |               |            
|entities under     |              |          |           |             |             |               |            
|common control     | -            | -        | (450,575) | 276,131     | -           | 797           | -          
|                   |              |          |           |             |             |               |            
|Net income for     |              |          |           |             |             |               |            
|the year           | -            | -        | -         |             | -           | -             | 3,753,373  
|                   |              |          |           |             |             |               |            
|Dividend paid      |              |          |           |             |             |               |            
|during the year    | -            | -        | -         | -           | -           | -             | (3,137,297)
|                   |              |          |           |             |             |               |            
|Transfer to        |              |          |           |             |             |               |            
|statutory reserves | -            | -        | -         | -           | 870,531     | -             | (870,531)  
|                   |              |          |           |             |             |               |            
|Balance at         |              |          |           |             |             |               |            
|December 31,       |              |          |           |             |             |               |            
|2004               | 12,091,629   | 12,092   | -         | 264,052     | 870,531     | 22,511        | 4,208,695  
|                   |              |          |           |             |             |               |            
|Recapitalization   |              |          |           |             |             |               |            
|on reverse         |              |          |           |             |             |               |            
|acquisition        | 1,343,514    | 1,344    | -         | (1,344)     | -           | -             | -          
|                   |              |          |           |             |             |               |            
|Stock issued for   |              |          |           |             |             |               |            
|cash               | 908,472      | 908      | -         | 1,349,092   | -           | -             | -          
|                   |              |          |           |             |             |               |            
|Reclassification   |              |          |           |             |             |               |            
|and adjustment to  |              |          |           |             |             |               |            
|minority interest  | -            | -        | -         | (64,059)    | (89,895)    | (49,207)      | (397,910)  
|                   |              |          |           |             |             |               |            
|Foreign currency   |              |          |           |             |             |               |            
|translation        | -            | -        | -         | -           | -           | 255,262       | -          
|                   |              |          |           |             |             |               |            
|Net income for     |              |          |           |             |             |               |            
|the year           | -            | -        | -         | -           | -           | -             | 3,675,879  
|                   |              |          |           |             |             |               |            
|Transfer to        |              |          |           |             |             |               |            
|statutory reserves | -            | -        | -         | -           | 950,431     | -             | (950,431)  
|                   |              |          |           |             |             |               |            
|Balance at         |              |          |           |             |             |               |            
|December 31,       |              |          |           |             |             |               |            
|2005               | 14,343,615   | $ 14,344 | $  -      | $ 1,547,741 | $ 1,731,067 | $ 228,566     | $ 6,536,233

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

F-4

---



CHINA AGRITECH, INC. AND SUBSIDIARIES 
CONSOLIDATED STATEMENT OF CASH FLOWS 
FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2004

|                                                                |   | 2 0 0 5     |   | 2 0 0 4    
|--------------------------------------------------------------- | - | ----------- | - | -----------
|Cash flows from operating activities                            |   |             |   |            
|Net income                                                      | $ | 3,675,879   | $ | 3,753,373  
|Adjustment to reconcile net income to net
    cash provided by  |   |             |   |            
|operating activities:                                           |   |             |   |            
|Minority interest                                               |   | 631,113     |   | -          
|Depreciation                                                    |   | 102,901     |   | 103,679    
|Loss on disposal of fixed
    assets                            |   | -           |   | 36,141     
|Delivery charges                                                |   | -           |   | (387)      
|Changes in operating assets and liabilities:                    |   |             |   |            
|(Increase) decrease in:                                         |   |             |   |            
|Accounts receivable, net                                        |   | (2,759,236) |   | (3,581,853)
|Other receivable                                                |   | (65,730)    |   | 103,886    
|Inventories                                                     |   | 487,630     |   | 431,537    
|Advances to suppliers                                           |   | (1,914,346) |   | -          
|Prepayments                                                     |   | 100,289     |   | 232,500    
|Other assets                                                    |   | (226,162)   |   | -          
|(Decrease) increase in:                                         |   |             |   |            
|Accounts payable                                                |   | (281,234)   |   | 127,299    
|Accrued liabilities and
    other payables                      |   | 280,280     |   | (23,712)   
|Taxes payable                                                   |   | 131,998     |   | (50,489)   
|                                                                |   |             |   |            
|Net cash provided by
    operating activities                   |   | 163,382     |   | 1,131,974  
|                                                                |   |             |   |            
|Cash flows from investing activities                            |   |             |   |            
|Purchase of property,
    plant and equipment                   |   | (8,238)     |   | (11,789)   
|Restricted Cash                                                 |   | (275,000)   |   | -          
|Proceeds from disposal of
    fixed assets                      |   | -           |   | 205        
|                                                                |   |             |   |            
|Net cash used in investing
    activities                       |   | (283,238)   |   | (11,584)   
|                                                                |   |             |   |            
|Cash flows from financing activities                            |   |             |   |            
|Repayment of installment
    loan                               |   | -           |   | (9,639)    
|Payments to and advances
    from related parties               |   | (1,026,846) |   | 1,511,579  
|Issuance of stock for cash                                      |   | 1,350,000   |   | 12         
|Dividend paid                                                   |   | -           |   | (3,137,297)
|                                                                |   |             |   |            
|Net cash provided by (used in) financing
    activities         |   | 323,154     |   | (1,635,345)
|                                                                |   |             |   |            
|Effect of exchange rate change on cash and
    cash equivalents |   | 14,468      |   | -          
|                                                                |   |             |   |            
|Net increase in cash and cash equivalents                       |   | 203,298     |   | 27,464     
|                                                                |   |             |   |            
|Cash and cash equivalents, beginning of year                    |   | 38,065      |   | 10,601     
|                                                                |   |             |   |            
|Cash and cash equivalents, end of year                          | $ | 255,831     | $ | 38,065     
|                                                                |   |             |   |            
|Supplemental disclosure information                             |   |             |   |            
|Interest expense paid                                           | $ | 160         | $ | 115        
|Income taxes paid                                               | $ | 3,043,223   | $ | 2,066,497  

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

F-5

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CHINA AGRITECH, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.   ORGANIZATION AND DESCRIPTION OF BUSINESS

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

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

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

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

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

Tailong was incorporated on October
27, 2003 under the laws of Hong Kong. On October 9, 2004, Tailong acquired 90%
of Pacific Dragon, which conducts Tailong's only business operation. Pacific
Dragon is a foreign investment joint venture and was incorporated in the PRC on
May 20, 1994. Pacific Dragon is classified as a Foreign 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 11 provinces of
China. Pacific Dragon conducts ongoing research and development to enhance
concentration of the organic liquid compound fertilizer and lower the
manufacturing cost. The principal researchers in Pacific Dragon are Liu Shuhua
and Liu Kangde. The annual expense on research and development is around
RMB300,000 to 500,000 (approximately $36,276 to $60,460). As of December 31,
2005, we have an approximate annual production capacity of 5000 metric tons
("MT") for organic liquid compound fertilizers. Our major products include "LvLingBao
II", LvLingBao III" and "Tailong I".

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

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

F-6

---



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.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.   Principle of consolidation

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

b.   Use of Estimates

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

c.   Cash and cash equivalents

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

d.   Accounts Receivable

The Company's policy is to maintain
reserves for potential credit losses on accounts receivable. Management reviews
the composition of accounts receivable and analyzes historical bad debts,
customer concentrations, customer credit worthiness, current economic trends and
changes in customer payment patterns to evaluate the adequacy of these reserves.
The Company had accounts receivable of $8,525,185, net of allowance of $164,739
as of December 31, 2005.

e.   Advances to suppliers

The Company advances to certain vendors for purchase
of its material. The advances to suppliers amounted to $2,076,252 as of December
31, 2005.

f.   Inventories

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

g.   Property , plant and equipment

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

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

F-7

---



5 years for motor vehicles.

h.   Impairment

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

The Company tests long-lived assets,
including property, plant and equipment and intangible assets subject to
periodic amortization, for recoverability at least annually or more frequently
upon the occurrence of an event or when circumstances indicate that the net
carrying amount is greater than its fair value. Assets are grouped and evaluated
at the lowest level for their identifiable cash flows that are largely
independent of the cash flows of other groups of assets. The Company considers
historical performance and future estimated results in its evaluation of
potential impairment and then compares the carrying amount of the asset to the
future estimated cash flows expected to result from the use of the asset. If the
carrying amount of the asset exceeds estimated expected undiscounted future cash
flows, the Company measures the amount of impairment by comparing the carrying
amount of the asset to its fair value. The estimation of fair value is generally
measured by discounting expected future cash flows as the rate the Company
utilizes to evaluate potential investments. The Company estimates fair value
based on the information available in making whatever estimates, judgments and
projections are considered necessary. There was no impairment of long-lived
assets in the years ended December 31, 2005 and 2004.

i.   Revenue Recognition

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

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

All of the Company's products that
are sold in the PRC are subject to a Chinese value-added tax at a predetermined
rate of 6% of the gross sales price. The total VAT paid for the year ended
December 31, 2005 and 2004 were $1,532,000 and $951,000, respectively.

j.   Advertising Costs

The Company expenses the cost of
advertising as incurred or, as appropriate, the first time the advertising takes
place. Advertising costs for the years ended December 31, 2005 and 2004 were
$428,040 and $246,840, respectively.

k.   Income Taxes

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

F-8

---



benefits, or that future deductibility is uncertain.

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

l.   Foreign currency translation

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

In particular, Renminbi ("RMB"), the
PRC's official currency, is the functional currency of Pacific Dragon. Until
July 21, 2005, RMB had been pegged to US$ at the rate of RMB8.28: US$1.00. On
July 21, 2005, the PRC government reformed the exchange rate system into a
managed floating exchange rate system based on market supply and demand with
reference to a basket of currencies. In addition, the exchange rate of RMB to
US$ was adjusted to RMB8.11: US$1.00 as of July 21, 2005. The People's Bank of
China announces the closing price of a foreign currency such as US$ traded
against RMB in the inter-bank foreign exchange market after the closing of the
market on each working day, which will become the unified exchange rate for the
trading against RMB on the following working day. The daily trading price of US$
against RMB in the inter-bank foreign exchange market is allowed to float within
a band of

The rates used to translate Pacific
Dragon's assets and liabilities at December 31, 2005 and its statement of income
are RMB1:US$0.124 and RMB1:US$0.122, respectively. No representation is made
that RMB amounts have been, or could be, converted into US$ at these rates.

m.   Fair values of financial instruments

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

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

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

F-9

---



n.   Earning per share (EPS)

Basic EPS is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the period. Diluted EPS is not presented as the Company
has no potential dilutive shares outstanding.

A stock dividend or split is accounted for
retrospectively by considering it outstanding for the entirety of each period
presented.

o.   Segment Reporting

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

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

p.   Statement of Cash Flows

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

q.   Recent Accounting Pronouncements

In December 2004, the FASB issued
FASB Statement No. 123R, "Share-Based Payment, an Amendment of FASB Statement
No. 123" ("FAS No. 123R"). FAS No. 123R requires companies to recognize in the
statement of operations the grant- date fair value of stock options and other
equity-based compensation issued to employees. FAS No. 123R is effective
beginning in the Company's second quarter of fiscal 2006. The Company does not
expect the adoption of FAS No. 123R to have a material impact on its
consolidated financial position, results of operations or cash flows.

In May 2005, the FASB issued FASB
Statement No. 154, "Accounting Changes and Error Corrections  a replacement of
APB Opinion No. 20 and FASB Statement No. 3". This statement replaces APB
Opinion No. 20, "Accounting Changes", and FASB Statement No. 3, "Reporting
Accounting Changes in Interim Financial Statements", and changes the
requirements for the accounting for and reporting of a change in accounting
principle. This statement applies to all voluntary changes in accounting
principle. It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition
provisions. This statement is effective for accounting changes and correction of
errors made in fiscal years beginning after December 15, 2005. Management
believes the adoption of this pronouncement will not have a material effect on
our consolidated financial statements.

In June 2005, the FASB ratified the
EITF consensus to amend EITF No. 96-16, "Investor's Accounting for an Investee
When the Investor Has a Majority of the Voting Interest but the Minority
Shareholders Have Certain Approval or Veto Rights". The EITF agreed to amend the
Protective Rights section of this consensus, as well as Example of Exhibit
96-16A, to be consistent with the consensus reached in Issue No. 04-5,
"Determining Whether a General Partner, or the General Partners as a Group,
Controls a Limited Partnership or Similarly Entity When the Limited Partners
Have Certain Rights." The provisions of this amendment should be applied
prospectively to new investments and to investment agreements that are modified
after June 29, 2005. Management believes the adoption of this pronouncement will
not have a

F-10

---



material effect on our consolidated financial
statements.

In June 2005, the EITF reached
consensus on Issue No. 05-6, Determining the Amortization Period for Leasehold
Improvements ("EITF 05-6.") EITF 05-6 provides guidance on determining the
amortization period for leasehold improvements acquired in a business
combination or acquired subsequent to lease inception. The guidance in EITF 05-6
will be applied prospectively and is effective for periods beginning after June
29, 2005. EITF 05-6 is not expected to have a material effect on its
consolidated financial position or results of operations.

In February 2006, FASB issued SFAS
No. 155, "Accounting for Certain Hybrid Financial Instruments". SFAS No. 155
amends SFAS No 133, "Accounting for Derivative Instruments and Hedging
Activities", and SFAF No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". SFAS No. 155, permits fair
value remeasurement for any hybrid financial instrument that contains an
embedded derivative that otherwise would require bifurcation, clarifies which
interest-only strips and principal-only strips are not subject to the
requirements of SFAS No. 133, establishes a requirement to evaluate interest in
securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an embedded
derivative requiring bifurcation, clarifies that concentrations of credit risk
in the form of subordination are not embedded derivatives, and amends SFAS No.
140 to eliminate the prohibition on the qualifying special-purpose entity from
holding a derivative financial instrument that pertains to a beneficial interest
other than another derivative financial instrument. This statement is effective
for all financial instruments acquired or issued after the beginning of the
Company's first fiscal year that begins after September 15, 2006. The Company
has not evaluated the impact of this pronouncement its financial statements.

In March 2006 FASB issued SFAS 156
'Accounting for Servicing of Financial Assets' this Statement amends FASB
Statement No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities, with respect to the accounting for
separately recognized servicing assets and servicing liabilities. This
Statement:

1. Requires an entity to recognize
a servicing asset or servicing liability each time it undertakes an obligation
to service a financial asset by entering into a servicing contract.

2. Requires all separately
recognized servicing assets and servicing liabilities to be initially measured
at fair value, if practicable.

3. Permits an entity to choose
'Amortization method' or Fair value measurement method' for each class of
separately recognized servicing assets and servicing liabilities.

4. At its initial adoption, permits
a one-time reclassification of available-for-sale securities to trading
securities by entities with recognized servicing rights, without calling into
question the treatment of other available-for-sale securities under Statement
115, provided that the available-for-sale securities are identified in some
manner as offsetting the entity's exposure to changes in fair value of servicing
assets or servicing liabilities that a servicer elects to subsequently measure
at fair value.

5. Requires separate presentation
of servicing assets and servicing liabilities subsequently measured at fair
value in the statement of financial position and additional disclosures for all
separately recognized servicing assets and servicing liabilities. An entity
should adopt this Statement as of the beginning of its first fiscal year that
begins after September 15, 2006. Management believes that this statement will
not have a significant impact on the financial statement.

3. RESTRICTED CASH

Proceeds amounting $1,350,000 from
the issuance of shares during the year were deposited in an escrow account. Upon
filing of the registration statement covering the shares issued, the purchase
price was to be released from escrow. In accordance with the terms of the stock
purchase agreement, $600,000 of the proceeds was kept in a trust account for
certain corporate communication program. At December 31, 2005, the Company had
$275,000 in this account for the corporate communication program.

F-11

---



4. CONCENTRATIONS OF CREDIT RISK

Financial instruments which
potentially expose the Company to concentrations of credit risk, consist of cash
and accounts receivable at December 31, 2005. The Company performs ongoing
evaluations of its cash position and credit evaluations to ensure collections
and minimize losses.

As of December 31, 2005, the Company's bank deposits
were all placed with banks in the PRC where there is currently no rule or
regulation in place for obligatory insurance of bank accounts.

For the years ended December 31, 2005 and 2004, all
of the Company's sales arose in the PRC. In addition, all accounts receivable as
at December 2005 and 2004 also arose in the PRC.

5. INVENTORIES

Inventories consist of the following as of December
31, 2005:

|Raw materials     | $ | 18,980
|----------------- | - | ------
|Packing materials |   | 18,968
|Finished goods    |   | 34,879
|                  |   |       
|                  | $ | 72,827

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the
following as of December 31, 2005:

|Manufacturing machinery        | $ | 1,171,266
|------------------------------ | - | ---------
|Leasehold improvements         |   | 1,471    
|Office equipment               |   | 84,155   
|Motor vehicles                 |   | 142,095  
|                               |   | 1,398,987
|Less: Accumulated depreciation |   | 333,841  
|                               |   |          
|                               | $ | 1,065,146

Depreciation expense for the years ended December 31,
2005 and 2004 was $102,901 and $103,679, respectively.

7. INSTALLMENT LOAN

The installment loan was obtained for
the purpose of acquiring a motor vehicle and bears interest at an annual rate of
5.49%. The loan is repayable by 24 monthly installments from January 2003 to
December 2004. Each installment is $803 plus interest on the outstanding
principal. The installment loan was fully repaid in 2004.

8. DUE TO RELATED PARTIES

The amount due to related parties is the advance from
its CEO, which is unsecured, non-interest bearing and has no fixed repayment
date. As of December 31, 2005, due to related parties amounted $56,702.

9. 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

F-12

---



included in the financial statements or tax returns.
Under this method, deferred income taxes are recognized for the tax consequences
in future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each period end based on enacted tax
laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be
realized.

The Company is subject to PRC Enterprise Income Tax
at a rate of 33% on the net income.

The provision for taxes on earnings for the years
2005 and 2004 consisted of:

|                                | 2 0 0 5 | 2 0 0 4
|------------------------------- | ------- | -------
|                                |         |        
|Tax at statutory rate           | 34%     | 34%    
|Foreign tax rate difference     | <1%>    | <1%>   
|                                |         |        
|Net operating loss in other tax |         |        
|jurisdiction for where no       |         |        
|benefit is realized             | 9%      | 2%     
|                                | 42%     | 35%    

No provision for deferred tax (benefit) has been made
for the PRC tax jurisdiction as no significant deferred tax liabilities or
assets existed as of either December 31, 2005 or 2004.

Net operating loss carryforward for
the US and Hong Kong tax jurisdiction amounted to $1,360,000 and $ 644,000,
respectively. A 100% valuation allowance has been recorded for the deferred tax
asset of $575,000 due to the uncertainty of its realization. There were no other
significant book and tax basis differences.

10. EARNINGS PER SHARE

Basic earnings per share for the years ended December
31, 2005 and 2004, were determined by dividing net income for the years by the
weighted average number of common shares outstanding.

On March 2, 2005, the board of directors approved a
forward stock split of 1.14 shares for each share. All per share data has been
restarted retroactively.

11. RELATED PARTY TRANSACTIONS

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

The Company's PRC subsidiary, Pacific
Dragon, has entered into a tenancy agreement with Harbin Yinlong Enterprise Co.
Ltd. ("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 RMB1,200,000 (equivalent to $144,578).
The tenancy agreement was revised by increasing the annual rent to RMB3, 600,000
(equivalent to $442,800) effective from July 1, 2005. During the year ended
December 31, 2005, the Company paid RMB 2,400,000 (equivalent to $295,200) to
Yinlong.

12. MINORITY INTEREST

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

F-13

---



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 the North America and Western Europe. These include
risks associated with, among others, the political, economic and legal
environments and foreign currency exchange. Pacific Dragon's results may be
adversely affected by changes in governmental policies with respect to laws and
regulations, anti-inflationary measures, currency conversion and remittance
abroad, and rates and methods of taxation, among other things.

14. STOCKHOLDERS' EQUITY

Pursuant to the Reorganization
Agreement (as defined in Note 1 "Organization and Description of Business"
above), the Company issued 10,606,158 shares of newly issued restricted common
stock in exchange for all of the issued and outstanding common stock of Tailong.

On February 3, 2005, and following
the combination with Tailong, the Company completed the sale of 590,283 shares
of its restricted common stock ("Private Placement Shares") for $1.6941 per
share for a total of $1,000,000 to accredited investors pursuant to the stock
purchase agreement dated February 3, 2005.

On May 12, 2005, the Company made 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. As a result, the
common stock amount has been increased proportionately based on the forward
stock split ratio and the additional paid-in capital has been reduced by the
same amount.

On June 13, 2005, the Company entered
into a stock purchase agreement for the sale of 235,516 shares of the Company's
common stock for $1.4861 per share for a total of $350,000. Out of the amount of
$350,000 received, $275,000 was held in escrow at December 31, 2005 for the
purpose of disbursing expenses as set forth in the escrow agreement. The funds
shall be released subject to the fulfillment of the conditions set out in the
escrow agreement entered into by the Company pursuant to the stock purchase
agreements.

15. STATUTORY RESERVES

As stipulated by the Company Law of the People's
Republic of China (PRC), 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 in 2005. The amount
included in the statutory reserves as of December 31, 2005 amounted to
$1,169,455.

F-14

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The Company established a reserve for
the annual contribution of 5% of net income to the common welfare fund in 2005.
The amount included in the statutory reserves as of December 31, 2005 amounted
to $561,612.

16.

The Company's PRC subsidiary, Pacific
Dragon, has entered into a tenancy agreement for the lease of factory and office
premises from Harbin Yin Long Co. Ltd., the minority shareholder of Pacific
Dragon, for a period of ten years from January 1, 2004 to December 31, 2013. The
related lease commitments for the next five years and thereafter are as follows:

|Year 2006                | $ | 442,800  
|------------------------ | - | ---------
|Year 2007                |   | 442,800  
|Year 2008                |   | 442,800  
|Year 2009                |   | 442,800  
|Year 2010                |   | 442,800  
|Year 2011 and thereafter |   | 1,328,400
|                         |   |          
|                         | $ | 3,542,400

17. COMMITMENT

In May 31, 2004, Tailong entered into
a lease agreement for the office in Hong Kong. The term of the lease is 24
months with monthly payments of $1,565. Minimum annual rent payments for Tailong
for next year is approximately $18,780.

18. EMPLOYMENT CONTRACTS

On January 6, 2005, Pacific Dragon entered into an
employment agreement with Mr. Yu Chang pursuant to which Mr. Chang was hired as
the General Manager of Pacific Dragon. Such agreement has a three year term and
is renewable upon mutual agreements between the parties. Pursuant to the
agreement, Mr. Chang's annual salary will be determined based on his
performance, but shall in no event be less than approximately $14,458
(RMB120,000).

19. RECLASSIFICATIONS

Certain prior period amounts have been reclassified
to conform to the twelve months period ended December 31, 2005 presentation.

20. SUBSEQUENT EVENTS (UNAUDITED)

On January 13, 2006, the Company
entered into a stock purchase agreement for the sale of 4,800,000 shares of the
Company's common stock for $2.50 per share for a total of $12,000,000. The
proceeds have been received in March, 2006.

F-15

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EXHIBIT INDEX

|Exhibit No. | Description                                                                             
|----------- | ----------------------------------------------------------------------------------------
|10.12       | Amendment to the Lease
    Agreement, dated June 28, 2005, by and between Pacific Dragon
|            | Fertilizers Co. Ltd.
    and Yinlong Industrial Co. Ltd.                                
|            |                                                                                         
|10.13       | Lease Agreement, dated
    May 31, 2004, by and between China Tailong Holdings Company  
|            | Limited and Upgrade
    International Trading Co., Ltd.                                 
|            |                                                                                         
|10.14       | Lease Agreement, dated
    May 15, 2005, by and between China Tailong Holdings Company  
|            | Limited and Beijing
    Guangxin Long'An Real Estate Brokerage Co., Ltd.                
|            |                                                                                         
|10.16       | Permanent License
    Agreement, dated December 3, 2005, by and between Yu Chang and    
|            | Pacific Dragon
    Fertilizers Co. Ltd.                                                 
|            |                                                                                         
|14          | Code of ethics                                                                          
|            |                                                                                         
|31.1        | Rule
    13a-14(a)/15d-14(a) Certifications by the Principal Executive Officer          
|            |                                                                                         
|31.2        | Rule
    13a-14(a)/15d-14(a) Certifications by the Principal Financial Officer          
|            |                                                                                         
|32          | Section 1350
    Certifications                                                         

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