**SECURITIES
      AND EXCHANGE COMMISSION**




**W** **ashington,
      D.C. 20549**




**FORM
      10-K**




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




For
      the
      fiscal year ended: December 31, 2007




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




For
      the
      transition period from __________ to ____________




Commission
      File Number: 000-49608




**CHINA
      AGRITECH, INC.**




**(** **Exact
      Name Of Registrant As Specified In Its Charter)**




**Delaware**
            **75-2955368**(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification Number)**Room
                3F No. 11 Building, Zhonghong International Business Garden, Future
                Business Center,**
              **Chaoyang
                North Road, Chaoyang District, Beijing, China 100024**
              (Address
                of principal executive office, including zip code)**(86)10-59621278**Securities
                registered pursuant to Section 12(b) of the Act:**None**
              Securities
                registered pursuant to Section 12(g) of the Act:**Common
                Stock, Par Value 0.001**


Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes o  No ý




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes o  No ý




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
      registrant was required to file such reports), and (2) has been subject to
      such filing requirements for the past 90 days.




Yes ý  No o







Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not 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-K or any
      amendment to this Form 10-K. o




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




Large
                accelerated filero
            Accelerated
                filero
            Non-accelerated
                filer o
            Smaller
                Reporting Company ý





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




The
      number of shares and aggregate market value of common stock held by
      non-affiliates as of the last business day of the registrant’s most recently
      completed second fiscal quarter was 8,657,145 and $28,395,436,
      respectively.




There
      were 24,699,615 shares of common stock outstanding as of March 27,
      2008.




**DOCUMENTS
      INCORPORATED BY REFERENCE:** None.


2








**TABLE
      OF CONTENTS**




**Number**
            
            **Page****PART
                I**Item
                1.
            Business
            5Item
                1A.
            Risk
                Factors
            14Item
                1B.
            Unresolved
                Staff Comments
            27Item
                2.
            Properties
            27Item
                3.
            Legal
                Proceedings
            28Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            28**PART
              II**Item
                5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            28Item
                6.
            Selected
                Financial Data
            30Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            31Item
                7A.
            Quantitative
                and Qualitative Disclosures about Market Risk
            40Item
                8.
            Financial
                Statements and Supplementary Data
            40Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            41Item
                9A.
            Control
                and Procedures
            41Item
                9B
            Other
                Information
            43**PART
                III**Item
                10.
            Directors
                and Executive Officers of the Registrant
            43Item
                11.
            Executive
                Compensation
            46Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management
            48Item
                13.
            Certain
                Relationships and Related Transactions
            50Item
                14.
            Principal
                Accountant Fees and Services
            50**PART
                IV**Item
                15.
            Exhibits
                and Financial Statement Schedules
            51




3




**INTRODUCTORY
      NOTE**




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





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




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




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






4





**PART
              I**




**Item
      1.**   **Description
      of Business**




**Our
      Business**





China
      Agritech is a holding company whose direct and indirect subsidiaries manufacture
      and sell organic liquid compound fertilizers and related agricultural products.
      Our business operations are primarily conducted through our China-based
      subsidiaries, Anhui Agritech, Beijing Agritech and Pacific Dragon. Our revenues
      are derived primarily from the sale of our organic fertilizer products to our
      customers. We are a leading manufacturer of fertilizer products in China,
      specifically, organic fertilizer products in liquid form. We have been producing
      organic liquid compound fertilizer product in China since 1994.





China
      is
      the principal market for our fertilizer products, which are primarily sold
      to
      farmers in 20 provinces in China: Hainan, Anhui, Hubei, Jiangsu, Jiangxi,
      Guangxi, Liaoning, Shanxi Heilongjiang, Hebei, Jilin, Shandong, Inner Mongolia,
      Henan, Sichuan, Guangdong, Xinjiang, Yunnan, Chongqing and Guizhou. Our annual
      fertilizer production capacity in 2006 was approximately 9,000 **** metric
      tons and our 2007 capacity was approximately 13,000 **** metric
      tons.





Our
      sales
      revenue increased from $25.3 million in 2005 to $29.5 million in 2006 and our
      net income increased from $3.7 million in 2005 to $5.3 million in 2006. Our
      sales revenue increased 33% from $29.5 million in fiscal year ended
      December 31, 2006 to $39.2 million in fiscal year ended December 31, 2007,
      and
      our net income grew 62.3% from $5.3 million in fiscal year 2006 to $8.6 million
      in fiscal year 2007.





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





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





We
      have
      made progress in expanding our operations through our recently formed Anhui
      Agritech and Beijing Agritech operating subsidiaries. Anhui Agritech operates
      our constructed facility in the Anhui province that began operations in July,
      2006. Anhui Agritech manufactures and sells our fertilizer products to customers
      in the Anhui, Hubei, and Henan provinces of China. Beijing Agritech supervises
      our Beijing operations, which serve as a research and development center and
      our
      primary syrup production center and converting factory. Our Beijing Agritech
      operations commenced business in September 2006. Our annual production capacity
      in 2007 was approximately 13,000 metric tons of organic liquid compound
      fertilizers.





**Our
      Industry**





In
      China,
      the total output of fertilizer in 2005 reached 48.3 million metric tons, which
      was the one third of the world’s output. China is the principal market for our
      organic liquid compound fertilizers and related agricultural products. It is
      anticipated that the total demand of fertilizer will exceed to 50 million metric
      ton by the year 2015. As a subset of the broader fertilizer market, the use
      of
      compound fertilizers in China has likewise increased, from 1,796,000 tons in
      1985 to 13,032,000 in 2005, an increase rate of 5.8% from 2001 to 2002, 6.7%
      from 2002 to 2003, and 8% increase in 2004 and 2005 (Source: 2006 China
      statistics Yearbook). It is expected that the total demand of organic fertilizer
      will reach to about 25 million metric ton by the year 2015.





5


The
      large
      size and high growth rate of the Chinese fertilizer market, particularly the
      environmentally friendly organic fertilizer market, can be attributed to several
      factors, including China’s large population, significant farming and
      agricultural activities, government incentives and environmental concerns.
      Future growth in the fertilizer market is expected to be due largely to the
      projected growth in the use of fertilizer products and a continuation of the
      high level of farming and agricultural activities.





**Our
      Challenges**




Our
      ability to successfully operate our business and achieve our goals and
      strategies is subject to numerous challenges and risks as discussed more fully
      in the section titled “Risk Factors,” including for example:





·
            any
                failure to expand our operations and production capacity sufficiently
                to
                meet our customers’ demands;




·
            any
                inability to effectively manage rapid growth and accurately project
                market
                demand for our products;




·
            risks
                associated with future investments or acquisitions; any loss of key
                members of our senior management;




·
            loss
                of any skilled personnel or any failure to continue to attract skilled
                personnel in the future;




·
            any
                failure to protect the proprietary formula and manufacturing processes
                for
                out concentrated organic liquid compound
                fertilizer;





·
            potential
                product liability claims arising from fertilizer
                products;




·
            failure
                to renew our fertilizer registration certificate;





·
            unexpected
                changes to China’s political or economic situation or legal
                environment;




·
            failure
                to comply with PRC regulations relating to the establishment of offshore
                special purpose companies by our PRC resident stockholders;
                and





·
            determination
                of the China Securities Regulatory Commission, or CSRC, or another
                PRC
                regulatory agency that CSRC approval is required regarding any previous
                or
                future financing transaction we may enter
                into.





You
      should read and consider the information set forth in “Risk Factors” and all
      other information set forth in this report before investing in our common stock.





**Corporate
      Information**




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, which is the
      holding company for Pacific Dragon, one of our operating companies.




In
      addition to Pacific Dragon, we conduct business operations through two other
      PRC
      based operating companies: Anhui Agritech and Beijing Agritech. See “Our
      Corporate Structure and History.”




6


The
      following chart reflects our organizational structure as of the date of this
      report.












The
      address of our principal executive office is Room 301 No. 11 Building. Zhonghong
      International Business Garden, Future Business Center, Chaoyang North Road,
      Chaoyang District, Beijing China 100024. Our telephone number is
      (86)10-59621278. We maintain a website at http://www.chinaagritechinc.com that
      contains information about us, but that information is not part of this
      report.





**Recent
      Developments**





On
      July
      3, 2007, we completed a private placement transaction whereby we sold 5,556,000
      shares of our common stock to 20 investors for approximately $15 million, as
      described in our Current Report on Form 8-K, filed with the Securities and
      Exchange Commission (the “SEC”) on July 6, 2007. 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.





On
      October 8, 2007, we entered into a contractual arrangement with SINOCHEM (the
      “Buyer”), pursuant to which we will supply Green Vitality fertilizers to the
      Buyer through October 7, 2008, as described in our Current Report on Form 8-K,
      filed with the SEC on October 8, 2007, as amended. The total revenue expected
      from the contract is equivalent to approximately U.S. $7.8 million.




We
      opened
      additional converting facilities in Chongqing and Xinjiang on March and July
      2007, respectively, the latter one as described in our Current Report on Form
      8-K, filed with the SEC on August 3, 2007. We have a total capacity of 13,000
      metric tons for the year ended December 31, 2007, a 160% increase in capacity
      from the end of 2006.




7


**Industry
      Background and Our Principal Markets**




In
      China,
      the total output of fertilizer in 2005 reached 48.3 million metric tons, which
      was the one third of the world’s output. China is the principal market for our
      organic liquid compound fertilizers and related agricultural products. Our
      products are primarily sold to farmers in 20 provinces in China: Hainan, Anhui,
      Hubei, Jiangsu, Jiangxi, Guangxi, Liaoning, Shanxi Heilongjiang, Hebei, Jilin,
      Shandong, Inner Mongolia, Henan, Sichuan, Guangdong, Xinjiang, Yunnan, Chongqing
      and Guizhou.





China
      has
      the world's largest population of nearly 1.3 billion people. However, China's
      arable land on a per capita basis is only 0.04 hectare (Source: 2006 China
      statistics Yearbook), or approximately 50% of that present in the United States
      (Source: US Census Bureau, www.census.gov ).
      This
      combination of limited arable land and a large and growing population has
      created a significant need to increase the output of crops per hectare in China.
      China's agricultural output increased 19% from 1989 to 2005 (the total crops
      output was 407,549,000 tons in 1989 as compared to 484,022,000 tons in 2005)
      (Source: 2006 China statistics Yearbook). An increase in the use of fertilizers
      - 8,840,000 tons were used in 1978 compared to 47,662,000 tons used in 2005,
      one
      third of the world’s output, has contributed to this growth (Source: 2006 China
      statistics Yearbook). It is anticipated that the total demand of fertilizer
      will
      exceed to 50 million metric ton by the year 2015. As a subset of the broader
      fertilizer market, the use of compound fertilizers in China has likewise
      increased, from 1,796,000 tons in 1985 to 13,032,000 in 2005, an increase rate
      of 5.8% from 2001 to 2002, 6.7% from 2002 to 2003, and 8% increase in 2004
      and
      2005 (Source: 2006 China statistics Yearbook). It is expected that the total
      demand of organic fertilizer will reach to about 25 million metric ton by the
      year 2015.





We
      believe that China’s fertilizer industry is mainly influenced by the following
      factors:





·
            ***Growth
                and evolution of China’s fertilizer industry****.*The
                fertilizer industry in China is in the process of rapid and continuous
                development. China is the largest producer and consumer of fertilizers
                in
                the world. The total consumption of fertilizers is expected to increase
                to
                51 million tons by 2010 and 56 millions by 2020. We believe this
                will
                favorably influence the demand for our products and contribute to
                growth
                in sales of our fertilizer products and our
                revenues.





·
            ***PRC
                regulators are encouraging use of organic compound
                fertilizers****.*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 fertilizer consumption to the total fertilizer consumption
                rose from 10% in 1985 to 27% in 2005. (Source: 2006 China Statistics
                Yearbook). However, the usage of compound fertilizers in China is
                low
                compared with the average usage level of about 70% worldwide. We
                believe
                that this factor will promote usage of our products.****





·
            ***Availability
                of land suitable for agricultural purposes.***Decreases of available farmland in China, projected population growth,
                and
                the movement toward environmentally conscientious farming around
                the world
                are contributing to an increase in the use of more effective and
                environmentally friendly organic compound fertilizers. Our products
                are
                designed to satisfy this demand.





·
            ***Seasonality.***Like
                other fertilizer manufacturers, we experience seasonal fluctuations
                in
                demand for our products. Fertilizer manufacturers are focusing their
                sales
                efforts in the southern and western areas of China which have warmer
                climates and longer harvesting seasons in order to realize more evenly
                distributed demand for the our products throughout the
                year.




8


**Our
      Competitive Strengths**





We
      believe that the following competitive strengths enable us to compete
      effectively in the fertilizer market in China:





·
            ***Strong
                Market Position.***We
                are a leading manufacturer of fertilizer products in China, specifically,
                organic fertilizer products in liquid form.





·
            ***Recognized
                and Certified Product Offerings***.
                Our Tailong brand of fertilizer products were favorably recognized
                by the
                China Association for Quality Supervision and the China Quality Standard
                Research Center in 2006 for product quality, brand reputation and
                customer
                loyalty.  Our fertilizer products also have been certified by the PRC
                government at the national level which is an endorsement of the
                effectiveness of the products in all regions of China, making us
                one of
                only about 10% of the fertilizer companies in China which have been
                fully
                certified.





·
            ***Established
                Distribution Network.***We
                sell the majority of our fertilizer products through an extensive
                distribution network of regional factories, which help us to establish
                a
                local presence in each community we serve with multi-level sales
                support
                and to educate local retailers and farmers on the benefits of our
                fertilizer products.





·
            ***Efficient
                Infrastructure.***We
                have created a flexible and responsive infrastructure, which allows
                us to
                efficiently manufacture and deliver high-quality fertilizer products
                within a short delivery time.





·
            ***Broad
                Customer Base.***We
                developed a diversified customer base of farmers and retailers located
                throughout China and are not dependent on, or heavily concentrated
                in, any
                single customer or customer base.




**Our
      Strategy**





We
      believe that our strong competitive position, our ability to meet customer
      demands and our well regarded product offerings will enable us to benefit from
      the anticipated growth in China’s fertilizer market. We are committed to
      enhancing our sales, profitability and cash flows through the following
      strategies:





·
            ***Capitalize
                on our brand reputation to increase sales of new and existing products.***We
                intend to leverage the favorable reputation of our fertilizer products
                through collaboration with academic and governmental institutions
                which
                can attest to the quality of our current product offerings. We plan
                to
                develop new compounds to better meet the changing needs of China’s
                agricultural communities by tailoring our product offerings to meet
                the
                local needs of the farmers and to create greater reliability of fertilizer
                products nationwide. We presently intend to use a portion of the
                proceeds
                from our recent financing to add organic granular compound fertilizer
                to
                its product lines and construct a granular fertilizer line near each
                of
                its existing factories, located in Harbin, Beijing, and
                Xinjiang.




·
            ***Expand
                Our Domestic Operations***.
                We intend to build or acquire additional organic granular fertilizer
                factories in strategic locations in China to serve other agricultural
                areas in China, particularly the central and Southern regions of
                China.
                Our anticipated expansion plans will increase our organic granular
                compound fertilizer production capacity to 200,000 metric
                tons.





·
            ***Enhance
                Brand Awareness.***A
                core future focus will be to build and enhance brand awareness of
                our
                “Lvlingbao” and “Tailong” products as well as our “Green Vitality” product
                line and organic granular compound fertilizer by launching an extensive
                advertising campaign to educate retailers and farmers on the benefits
                of
                our liquid organic compound products. We expect these efforts will
                allow
                us to expand our distribution and sales outside of our traditional
                base in
                Northeast China and capture a larger market
                share.




9




·
            ***Increase
                Sales into Select Foreign Markets.***We
                plan to leverage our product offerings and brand reputation to expand
                our
                product sales into select international markets. We currently performing
                a
                feasibility study and market research on few selected oversea markets
                which we expect will result in revenue growth in the future and we
                intend
                to pursue sales to other strategic foreign
                regions.





**Our
      Products**




Our
      fertilizer products consist primarily of organic liquid compound fertilizers
      which are derived from natural sources. We believe that our fertilizer products
      are capable of increase crop yield by as much as 30%.





We
      produce our fertilizer production using proprietary formulas of humic acid
      and
      other amino acids which have proven to have a significant effect on crop yield
      and quality without the harmful side effects of chemical fertilizers. Our
      products contain over 30 active ingredients comprised of organic elements,
      inorganic elements that are region specific and other active and stimulative
      agents.





Our
      products, which are designed to be multi-functional, improve the photosynthesis
      function in crops and the root absorption system, enhance the resistance of
      crops to harsh environmental conditions and increase plant size and quality.
      Our
      fertilizer formulas are highly concentrated, blendable with pesticides or water
      for easy application and facilitate better absorption rates due to low
      sedimentation. Our products are suitable for a variety of application methods,
      ranging from seed soaking, root dipping and irrigation to application by machine
      and aircraft.





Our
      four
      main product lines and their primary uses are as follows:





·
            **Lvlingbao
                III.**Our Lvlingbao III fertilizer product line blends humic acid, nitrogen,
                phosphorus, potassium, microelements, amino acid, active and stimulative
                agents and is specially formulated for fruits and
                vegetables.





·
            **Lvlingbao
                IV.**Our Lvlingbao IV fertilizer line is produced using humic acid, nitrogen,
                phosphorus, potassium, microelements and is formulated for large
                scale
                crops of fruits, vegetables and grains and suitable for jet spray
                application.





·
            **Tailong
                I.**Tailong I is our highly customized fertilizer line used for a wide
                variety
                of crops and plants that can be tailored to local soil conditions.
                Tailong
                I has been derived from LvLingBao III, with adjustments in the amount
                of
                amino acid, active agent and stimulative agent, in order to better
                nutrient absorption.





·
            **Green
                Vitality**.
                Our new Green Vitality fertilizer product line is a new, premium
                line that
                will be marketed in the central and southern regions of China and
                can be
                applied to enhance yield in a large variety of
                crops.





We
      are
      committed to producing “green” agricultural products which are designed to be
      environmentally friendly and intend to expand our product offerings to add
      organic granular compound fertilizer products.





10


**Raw
      Materials and Our Principal Suppliers**




The
      main
      raw materials of our products are humic acid, nitrogen, phosphorus, kalium
      and
      other supplementary material, which are abundant in China. Humic acid is mainly
      mined from a soft, brownish-black coal called lignite and 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 Company has entered into written contracts with our main
      suppliers: Inner-Mongolia Humic Acid Factory, Beijing Zhongxin Chemical
      Development Company and Shenzhen Hongchou Technology Company. In fiscal year
      2007, we purchased approximately 10.35% of our humic acid from Inner-Mongolia
      Humic Acid Factory, approximately 19.12% of our nitrogen, phosphorus and kalium
      from Beijing Zhongxin Chemical Technology Development Co., and approximately
      20.85% of our other supplementary material from Shenzhen Hongchou
      Technology Company.





On
      December 16, 2005, our subsidiary Pacific Dragon has entered into a supplier
      contract with Shenzhen Hongchou Technology Company, with the approximate value
      of US$2,549,351 (RMB 19,630,000) valid through 2008. Pre-payment 30% of the
      total contract value was paid on December 26, 2005, and 70% of total contract
      value was paid on February 6, 2006 upon final delivery.





On
      March
      1, 2005, our subsidiary Pacific Dragon has entered into a supplier contract
      with
      Inner-Mongolia Wu Chuan Humic Acid Factory, with the approximate value of
      US$747,532 (RMB 5,756,000) through March 1, 2008.





On
      January 15, 2007, our subsidiary Pacific Dragon has entered into a supplier
      contract with Beijing Zhongxin Chemical Technology Development Co, with the
      approximate value of US$2,363,636 (RMB 18,200,000) valid from February 1, 2007
      to January 31, 2009. A pre-payment of $2 million was paid, and the balance
      will
      be paid upon final delivery.





**Our
      Distributors and Customers**





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.





For
      the
      year ended December 31, 2007, distribution through our ten largest distributors
      accounted for approximately 33.76% of our total annual sales. Our three largest
      distributors are:




**·**
            Harbin
                Long Feng Trading Co., Ltd, which is located in Harbin Province and
                purchased approximately 7.56% of our organic liquid compound fertilizers
                in 2007.




**·**
            Huai
                An Nong Ye Zhi Bao Zhan, which is located in Huai An province and
                purchased approximately 4.11% of our organic liquid compound fertilizers
                in 2007.




**·**
            Heilongjiang JiuSan
                Agricultural Department, which is located in Heilongjiang province
                and
                purchased approximately 3.12% of our organic liquid compound fertilizers
                in 2007.





On
      October 8, 2007, we entered into a contractual arrangement with SINOCHEM,
      pursuant to which we will supply organic Green Vitality fertilizers to SINOCHEM
      through October 7, 2008, with total revenue expected of approximately U.S.
      $7.8
      million.





We
      hold
      an annual ordering conference for our major distributors to place purchasing
      orders through written sales agreements. In addition, our sales department
      holds
      ordering conferences with our distributors in various provinces, including
      Heilongjiang, Jilin, Liaoning, Hebei, Shandong, Jiangsu, Xinjiang and Sichuan
      from time to time to promote our products and maintain and strengthen these
      relationships. In addition, we also sell our products to end users directly.
      All
      purchasing orders on our products are served on a first come, first serve
      basis.





11


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





We
      have
      also been marketing and promoting our products through broadcasting on Chinese
      local TV channels, such as Heilongjiang Satellite Channel and participating
      in
      activities organized by local governments to promote information about, and
      use
      of, fertilizers.




**Competition**





Our
      experience is that the compound fertilizer industry in China is highly
      fragmented, consisting of numerous smaller regional manufacturers and larger,
      domestic and international competitors.





Our
      major
      competitors in China include Guangxi Beihai Penshibao Co., Ltd (www.psb.com.cn),
      Henan Luo Xiaowang Group (www.luoxiaowang.com), and Shangdong Tianda 2116
      (www.2116.cn). Our major global competitors include Phosyn from the UK
      (www.cuikang.com/news/), Shi Ma (Chinese translation) a portion of BASF of
      Germany, Kemira GrowHow Oyj from Finland, and Leffingwell from the
      USA.




Management
      expects that a fairly recent development has the potential change the
      competitive landscape in the Chinese fertilizer market in the near future.
      Due
      to the Chinese government’s WTO commitment, China started to allow foreign
      companies to gain the right to distribute and make retail sales of fertilizers
      beginning on December 11, 2006. Because fertilizer products usually need to
      be
      specifically formulated for local plant, soil and climate conditions, we believe
      that there are not many foreign competitors in our selected markets that are
      capable of producing customized fertilizers that compete with our products.
      Nevertheless, as a result of the opening of the fertilizer market to foreign
      producers, we expect that the amount of fertilizer imported to China will rise
      significantly and that we will face increasing competition from non-Chinese
      fertilizer manufacturers. Judging by China Agritech’s 2007 financial
      performance, management remains optimistic that our company can remain
      competitive in its markets notwithstanding the entry of non-Chinese fertilizer
      manufacturers into the marketplace, although we can make no assurances of this
      belief in light of the anticipated increase in competition.




**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 we do not want to make available
      to
      the public a detailed description of our technology and formulas as would be
      required in connection with a patent application. We believe that disclosure
      of
      our technology and formulas would be detrimental to our future business. If
      information about our formulas and processes is not tightly controlled, we
      believe that 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 certain types of organic liquid
      compound fertilizer on a royalty-free basis and has granted us a long-term
      royalty and free license to use his know-how in manufacturing other organic
      liquid compound fertilizers. 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 benefit.




12


**Employees**




As
      of
      December 31, 2007, we had approximately 329 full-time employees, of which 85
      were administrative and managerial staff, 131 were sales staff and
      113 **** were
      manufacturing workers. We also hire temporary manufacturing workers to
      supplement our manufacture capabilities at periods of high demand. 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 improvement
      of the organic liquid compound fertilizers we manufacture and the control of
      related manufacturing costs. Our primary research and development facilities
      are
      located in Beijing and our principal research team consists of Mr. Shuhua Liu
      and Mr. Kangde Liu. We spent approximately $1,480 (RMB11,240) and $21,900 (RMB
      108,000) on research and development in 2007 and 2006,
      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
      stages of in-the-field testing and test selling. All fertilizers that have
      completed in-the-field testing and test selling must obtain formal registration
      which, once obtained, is valid for five years and thereafter may be renewed
      for
      five year periods. 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 expired in
      December, 2007, at which time we were required to renew the formal registration.
      We had begun the process of renewing our certificate prior to December, 2007
      and
      its expected to be renewed by April, 2008.





Additionally,
      fertilizer manufacturers in the PRC must have a manufacturing license to make
      some types of fertilizer. We have a current and active license permitting us
      to
      manufacture those types of fertilizer.




Other
      than as mentioned in the first paragraph in this section, as of December 31,
      2007, 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. Other than as mentioned in the first paragraph in this
      section, as of December 31, 2007, all license fees and filings are
      current.




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 generally only be revoked under rare circumstances, such
      as
      when illegal activities have occurred. 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.




**·**  **Item
      1A. Risk Factors**




13


**RISK
      FACTORS**




*An
      investment in our common stock involves a high degree of risk. You should
      carefully consider the risks described below, together with all of the other
      information included in this report, before making an investment decision.
      If
      any of the following risks actually occurs, our business, financial condition
      or
      results of operations could suffer. In that case, the trading price of our
      common stock could decline, and you may lose all or part of your
      investment.*





**Risks
      Related To Our Business**





*If
      we
      fail to effectively expand our operations and capacity to satisfy demand for
      our
      fertilizer products, our results of operations and business prospects could
      be
      impaired.*





Our
      future success depends on our ability to expand our business to address the
      growth in demand for our fertilizer products. Because our industry is highly
      competitive, if we are unable to increase our production capabilities to meet
      increased demand for our products, we may lose existing customers, as well
      as
      potential additional customers, to competitors with greater production
      capacities. If we are unable to satisfy existing customers’ increased demands
      for products, such customers may terminate their relationships with us which
      could reduce our revenues and significantly hurt our overall financial
      performance. In addition, we currently rely on 10 major distributors, each
      of
      whom distribute our products to multiple end user customers. If we are unable
      to
      meet the demand of end user customers of any of these distributors, such
      distributors may terminate their relationships with us with respect to all
      of
      their end user customers in favor or one or more of our competitors who could
      meet the demands of all of such customers. Failure to continue to attract new
      customers may impair our revenue growth. If our production capacity and revenues
      do not continue to grow, our competitive position, margins and profits could
      materially decline.





We
      recently completed construction of our Anhui Agritech and Beijing Agritech
      manufacturing lines as well as the factories in Chongqing and Xinjiang which
      became operational in July, 2006 and September, 2006, March, 2007, and July,
      2007 respectively, resulting in overall annual fertilizer production capacity
      of
      approximately 13,000 metric tons. Our ability to add production capacity and
      increase output is subject to significant risks and uncertainties,
      including:





·
            the
                availability of additional funding to build manufacturing facilities
                and
                purchase raw materials on favorable terms or at
                all;





·
            our
                management and minimization of delays and cost overruns caused by
                problems
                with our suppliers of raw materials and third-party vendors;
                and





·
            our
                receipt of any necessary government approvals or permits that may
                be
                required to expand our operations in a timely manner or at
                all.




If
      we
      cannot successfully implement additional production capacity increases
      efficiently and cost-effectively, we will be unable to satisfy any increased
      demand for our products, which could significantly impair our financial
      performance. See also “ *We
      face risks associated with recent and future investments or
      acquisitions* ”
      below.





*Our
      rapid expansion could significantly strain our resources, management and
      operational infrastructure which could impair our ability to meet increased
      demand for our products and hurt our business results.*




To
      accommodate the recent and anticipated growth of our production assets, we
      will
      need to expend capital resources and dedicate personnel to implement and upgrade
      our accounting, operational and internal management systems and enhance our
      record keeping and contract tracking system. Such measures will require us
      to
      dedicate additional financial resources and personnel to optimize our
      operational infrastructure and to recruit more personnel to train and manage
      our
      growing employee base. If we cannot successfully implement these measures
      efficiently and cost-effectively, then we could fail to utilize our production
      assets sufficiently to meet demand for our products and our operating costs
      could increase disproportionately, either of which could impair our revenue
      growth and hurt our overall financial performance.





14


*If
      we
      fail to accurately project market demand for our products, our business
      expansion plan could be jeopardized and our financial condition and results
      of
      operations will suffer.*





We
      plan
      to increase our annual manufacturing capacity of our fertilizer products to
      meet
      an expected increase in demand for our products. Our annual production capacity
      of our organic fertilizer products is approximately 13,000 metric tons for
      the
      2007 fiscal year. Our decision to increase our production capacity was based
      primarily on our projected increases in our sales volume and growth in the
      size
      of the fertilizer market in China. If actual customer orders are less than
      our
      projected market demand, we will likely suffer overcapacity problems, may have
      to leave capacity idle and may accumulate substantial inventories of our
      fertilizer products, which may reduce our overall profitability and hurt our
      financial condition and results of operations due to the loss of cash flow
      from
      the increasing inventory and may cause us to sell our products at a lower price
      than we might otherwise agree upon with a customer.





*Our
      business will be harmed if our major distributors reduce their orders or
      discontinue doing business with us.*





For
      the
      year ended December 31, 2007, we sold approximately 33.76% of our
      fertilizer products through ten major distributors, including Harbin Long Feng
      Trading Co., Ltd, Huai An Nong Ye Zhi Bao Zhan and Heilongjiang JiuSan
      Agricultural Department. We anticipate that a similar percentage of our products
      will be sold through some of these and other distributors in 2008. Although
      we
      believe that our relationship with these distributors is good, we have no long
      term supply agreements with them and any or all of them could terminate their
      relationship with us in favor of competitors with increased productions
      capabilities or offering lower prices or other favorable terms. If some or
      all
      of these distributors reduce their orders or discontinue doing business with
      us,
      we could have difficulties finding new distributors to distribute our products
      and our revenues and net income could in turn decline considerably. Our reliance
      on these major distributors could also affect our bargaining power in getting
      favorable prices and shorter credit term given for our products. In addition,
      untimely payment and/or 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
      had a 3-year employment agreement with our subsidiary, Pacific Dragon, which
      expired on January 5, 2008. Mr. Chang continues to serve in the same manner
      as
      prior to the expiration of his contract and intends to enter into a new
      employment agreement in the near future. There can be no assurance that we
      will
      be able to retain Mr. Chang after the expiration of his new 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 because we will not have the leadership needed
      to
      capitalize on market opportunities and to direct our growth, leading to a
      possible decrease in revenues and inappropriate capital investments in projects
      that may not benefit our long-term growth. Mr. Chang has both sales contacts
      in
      the Agricultural industry and know-how to produce our products, making his
      expertise both unique and valuable to us **.**





*We
      face risks associated with recent and future investments or
      acquisitions.*





An
      important element of our growth strategy is to invest in or acquire businesses
      that will enable us, among other things, to expand the fertilizer products
      we
      offer to our existing target customer base, expand our production capacity,
      lower our costs for raw materials and components and capitalize on opportunities
      to expand into new markets. If we are unable to identify acquisition candidates
      or to effectively and efficiently acquire and integrate such businesses into
      our
      existing business, we may be unable to meet the demand for our products or
      maintain a competitive advantage over our competitors in terms of products
      offered, supply capacity, product price and quality. Even if we are able to
      identify and acquire additional businesses, if we are unable to efficiently
      integrate such businesses, then the anticipated advantages of such acquisitions
      may be lost and our costs could increase, our margins could decline and our
      financial results could be significantly harmed.





15


During
      the past 12 months, we expanded our operations through our recently formed
      Anhui
      Agritech and Beijing Agritech operating subsidiaries which we expect to
      contribute to our future growth. Anhui Agritech operates our facility in the
      Anhui province and manufactures and sells our fertilizer products to customers
      in the Anhui, Hubei, and Henan provinces of China. Beijing Agritech supervises
      our Beijing operation, which serves as a research and development center and
      our
      primary syrup production center and converting factory.




In
      the
      future, we may be unable to identify other suitable investment or acquisition
      candidates or may be unable to make these investments or acquisitions on
      commercially reasonable terms, if at all. If we complete any such investment
      or
      acquisition, we may not realize the anticipated benefits from the transaction.





Integrating
      an acquired business is distracting and time consuming, as well as a potentially
      expensive process. The successful integration of our any newly established
      or
      acquired businesses require us to:





·
            integrate
                and retain key management, sales, research and development, production
                and
                other personnel;





·
            incorporate
                the newly developed products or additional capabilities into our
                offerings
                from an product development, sales and marketing perspective;





·
            coordinate
                research and development efforts;





·
            integrate
                and support pre-existing supplier, distribution and customer
                relationships; and





·
            consolidate
                duplicate facilities and functions and combine back office accounting,
                order processing and support
                functions.





We
      may be
      unsuccessful in effectively performing these tasks. Geographic distance between
      business operations, the compatibility of the technologies and operations being
      integrated also present significant challenges. If we are unsuccessful in our
      investments and acquisitions our financials results may be harmed by the lost
      transaction costs, potential disposition costs if the target is resold later
      and
      lost opportunities our management is unable to capitalize upon while focused
      on
      the investments and acquisitions. See also “ *If
      we
      fail to effectively expand our operations and capacity to satisfy demand for
      our
      fertilizer products, our results of operations and business prospects could
      be
      impaired* ”
      above.





*We
      depend heavily on skilled personnel, and any loss of such personnel, or the
      failure to continue to attract such personnel in the future, could harm our
      business.*





The
      agricultural chemicals 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 and scientifically 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 fertilizer industry. These
      individuals are difficult to find in the PRC and we may not be able to retain
      such skilled employees. If we are unable to hire the correct individuals we
      may
      not be able to produce enough product to optimize profits, research and
      development initiatives may be delayed and we may encounter disruptions in
      production and research which will negatively impact our financial
      condition.





16


*Any
      disruption of the operations in our factories would damage our
      business.*





All
      of
      our fertilizer products are currently manufactured in our factories in Harbin,
      Beijing, and Anhui, China. We currently maintain insurance covering only our
      leased factories. Our operations could be interrupted by fire, flood, earthquake
      and other events beyond our control. Any disruption of the operations in our
      factories would have a significant negative impact on our ability to manufacture
      and deliver products, because we would likely not be able to outsource our
      production on terms favorable to the company, if at all. Failure to be able
      to
      replace any lost production capability would cause a potential diminution in
      sales, the cancellation of orders, loss of valuable employees, 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, nitrogen, phosphorus, kalium, and other supplementary material. We rely
      on
      only a few external suppliers for these raw materials. In fiscal year 2007,
      we
      purchased approximately 10.35% of our humic acid from Inner-Mongolia Humic
      Acid
      Factory, approximately 19.12% of our nitrogen, phosphorus and kalium from
      Beijing Zhongxin Chemical Technology Development Co., and approximately 20.85%
      of our other supplementary material from Shenzhen Hongchou Technology
      Company. For the 2008 fiscal year, we expect that our raw materials suppliers
      will be substantially similar to past years and the amount of raw materials
      will
      increase commensurate with the increase in the demand of our fertilizer
      products. We have entered into written agreements with all of these 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 or similar terms, which could
      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.
      If
      supply is disrupted the increased amount we have to pay for raw materials could
      negatively impact our margins, cause us to delay deliveries which may cause
      us
      to breach contracts or damage customer relationships or cause us to cease
      production if an alternate supplier cannot be found. If we were unable to
      procure replacement supplies, our ability to meet the production demands of
      our
      customers could cause the loss of customers and/or market share. Our financial
      results could be negatively impacted by the lost sales or decreased
      margins.





*If
      we
      cannot protect the proprietary formula and manufacturing processes for our
      concentrated organic liquid compound fertilizer it could increase our
      competition and cause our operating results to suffer.*





Our
      success will depend in part on our ability to protect our proprietary formula
      and manufacturing process for highly concentrated organic liquid compound
      fertilizer products. We rely on trade secrets to protect our proprietary
      formulas and manufacturing processes. We have not applied for patents for our
      technology and formulas because we believe an application for such patents
      would
      result in public knowledge of our proprietary technology and formulas and could
      lead competitors to attempt to copy our products, thereby increasing
      competition. This could in turn result in a decrease of our market share and
      hurt our operating results. Our subsidiary Pacific Dragon has entered into
      a
      license agreement with Mr. Yu Chang, our Chairman CEO and President, under
      which
      Mr. Chang granted us an 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 maintain the confidentiality of
      this
      technology and is prohibited from licensing this technology to any third party
      or using the technology for his own benefit. In addition, only certain of our
      key executives have knowledge of our proprietary technology and
      formulas.





Despite
      these precautions, the legal regime protecting intellectual property rights
      in
      China is weak. If we are not able to enforce our licensing agreement with Mr.
      Chang, and fully protect our proprietary trade secrets, if our employees
      unintentionally or willfully disclose our confidential technology to
      competitors, or if our competitors independently develop similar or superior
      products, our competitors may be able to more effectively offer products similar
      to ours and/or produce products with a cost structure similar to ours, if not
      better, and we may thereby 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 further could not guarantee
      a favorable outcome.





17


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





Our
      financial results would be negatively impacted by the lost sales to the fake
      and/or competitive product or by lost sales from a damaged
      reputation.





*Certain
      of our officers and directors' associations with other business enterprises
      could impede their ability to devote ample time to our business and could pose
      conflicts of interest.*





Mr.
      Yu
      Chang, our CEO, President, Secretary and director, and Ms. Xiaorong Teng, our
      Chief Operating Officer, serve as the chairman and a director, respectively,
      of
      Yinlong Industrial Co. Ltd. These existing responsibilities to another entity
      could limit the amount of time 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. In addition,
      in
      carrying out their responsibilities for both us and Yinlong, Mr. Chang and
      Ms.
      Teng could face conflicts of interest 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. Our financials results could be negatively impacted if our officers
      and
      directors do not capitalize on opportunities for us because of their other
      obligations or if we are unable to take advantage of a potential opportunity
      because of a perceived conflict of interest with an officer and/or
      director.




W *e
      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 SEC 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-K.  We are subject to this requirement commencing with
      our fiscal year ending December 31, 2007 and a report of our management is
      included under Item 9A of this Annual Report on Form 10-K. In addition, SOX
      404
      requires the independent registered public accounting firm auditing a company’s
      financial statements to also attest to and report on the operating effectiveness
      of such company’s internal controls. However, this annual report does not
      include an attestation report because under current law, we will not be subject
      to these requirements until our annual report for the fiscal year ending
      December 31, 2008.  We can provide no assurance that we will comply with
      all of the requirements imposed thereby.  There can be no 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.





*We
      may need to raise additional capital in the foreseeable future and may not
      be
      able to do so on terms favorable to us or you or at all.*





Part
      of
      our strategy involves increasing our fertilizer production capacity by
      constructing additional manufacturing facilities and making strategic
      investments and acquisitions which require significant capital resources. As
      of
      December 31, 2007, we had approximately $11.4 million in cash with $11,415
      in restricted 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. If we decide to expand our business
      operations more broadly than currently anticipated or if cash flows from
      operations are inadequate for our capital needs, we may seek to satisfy our
      future capital requirements from the sale of our securities in public or private
      offerings, 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 also may cause us to delay, reduce and/or
      abandon certain or all aspects of our organic liquid compound fertilizer product
      research and development programs, close facilities and/or lay-off employees
      which, in turn, will likely result in decreased sales and profits.





18


If
      additional funds are raised through the issuance of equity or convertible debt
      securities, the percentage ownership of our stockholders will be reduced and
      our
      stockholders may experience additional dilution. In addition, such equity or
      convertible debt 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 direct and indirect ownership
      of
      our subsidiaries Pacific Dragon, Anhui Agritech and Beijing Agritech. We have
      no
      current intention of paying dividends. As a holding company, if we decide to
      pay
      dividends in the future our ability to do so will depend upon the receipt of
      dividends or other payments from our operating subsidiaries and other holdings
      and investments. Our operating subsidiaries may be subject to restrictions
      on
      their ability to make distributions to us due to Chinese law, 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 not receive any dividends and will be
      unable to pay any dividends to our stockholders.





Our
      inability to pay dividends may harm the market price of our stock.





**Risks
      Related To Our Industry**





*Our
      operating results will suffer if the price of raw materials increases and we
      cannot pass the increased cost through to our customers.*




The
      primary raw materials included in our products are humic acid, nitrogen,
      phosphorus, kalium and other supplementary material. 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 forces. Our operating results may be seriously harmed if we are unable
      to
      pass any raw material price increases through to our customers due to lower
      margins from our sales. If we are forced to increase prices of our products
      due
      to increases in the prices of raw materials, the demand for our products could
      decrease, which could materially harm our operations and financial results.
      See
“ *If
      we
      fail to accurately project market demand for our products, our business
      expansion plan could be jeopardized and our financial condition and results
      of
      operations will suffer* ”
      above.





19


*If
      we
      cannot renew our fertilizer registration certificate, which expired in December,
      2007, or we cannot maintain our manufacturing license we will be unable to
      sell
      some of our products which will cause our sales revenues to significantly
      decrease.*




All
      fertilizers produced in China must be registered with the PRC Ministry of
      Agriculture and receive a registration certificate. 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 stages of in-the-field testing
      and test selling. Fertilizers that have completed in-the-field testing and
      test
      selling must obtain formal registration, which is valid for five years, and
      thereafter must be renewed each five years. We have obtained a Formal Fertilizer
      Registration Certificate covering all of our fertilizer products from the PRC
      Ministry of Agriculture. Such certificate was issued on September 3, 2002 and
      expired in December, 2007. We began pursuing renewal of this certificate prior
      to its expiration and we expect to complete the renewal process in early of
      April 2008.




Our
      belief is that the PRC Ministry of Agriculture generally 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 of 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. We may also be warned by the government and fined up to RMB20,000
      for operating without a Fertilizer Registration Certificate.




We
      also
      must maintain a license to manufacture certain types of fertilizer in the PRC.
      We currently have a valid license to manufacture those types of fertilizer.
      However, there is no guarantee that we will be able to renew our Manufacturing
      License in the future. 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. We may fined 15% to 20% of the
      value of the products illegally manufactured and/or sold and if any loss is
      caused by our manufacturing, the government can investigate the company’s legal
      liabilities according to law.





*Adverse
      weather conditions could reduce demand for fertilizer products.*




The
      demand for our organic fertilizer products fluctuates significantly with weather
      conditions, which 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, occur, the demand for our products could 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 crop yields may
      cause
      farmers to default on their payments which could harm our cash flow and results
      of operations. If we are unable to collect on our sales our cash flows will
      decrease and we will have additional expenses from bad debts which will harm
      our
      published financials results.




*Competition
      in the fertilizer industry in China and elsewhere is intense.*




We
      compete with approximately 300 small-sized, local Chinese fertilizer
      manufacturers. The number of these small companies varies from time to time.
      While we may have greater resources than our smaller competitors, it is possible
      that these competitors have better access in certain local markets to customers
      and prospects, an enhanced ability to customize products to a particular region
      or locality and established local distribution channels within a small region.
      Furthermore, we face competition from large domestic and international
      fertilizer producers and traders who import fertilizers into China such as
      Guangxi Beihai Penshibao Co., Ltd ( www.psb.com.cn ),
      Henan
      Luo Xiaowang Group ( www.luoxiaowang.com ),
      and
      Shangdong Tianda 2116 ( www.2116.cn ).
      Our
      major international competitors are Phosyn from the UK ( www.cuikang.com/news/ ),
      Shi Ma
      (Chinese translation) part of BASF of Germany, Kemira GrowHow Oyj from Finland,
      and Leffingwell from the USA. 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.
      While our resources may not be as great as our larger competitors, we believe
      our product quality, sales network, brand recognition and sales network are
      superior. If our competitors are able to gain greater market share or improve
      their sales efforts, our sales may decrease, we may be forced to lower our
      prices, or our marketing costs may increase, all of which could negatively
      impact our financial results.




Historically,
      imported fertilizers have been subject to tariffs, duties and quota imposed
      by
      the Chinese government. In connection with China's entry into the World Trade
      Organization, based on the WTO commitment, the Chinese government started to
      allow foreign companies to sell and distribute fertilizers beginning in
      December, 2006. As the Chinese fertilizer market starts to gain more market
      participants, we will face increased competition which may create pricing,
      supply and demand constraints and cause our profit margins to
      suffer.


20





*The
      fertilizer products that we manufacture pose safety risks and could expose
      us to
      product liability claims.*





Defects
      in, or unknown harmful effects caused by, organic and inorganic chemical and
      elements in our products could subject us to potential product liability claims
      that our products cause some harm to the human body or to property. Although
      we
      have adopted safety measures of industry standard in our research, development
      and manufacturing processes, accidents may still occur. Any accident, either
      at
      the manufacturing phase or during the use of our products, may subject us to
      significant liabilities to persons harmed by these products. We have renewed
      product liability insurance to cover claims from personal injuries or property
      damage caused by our products for the period from July 11, 2007 to July 10,
      2008. Our insurance coverage was limited to approximately $500,000 (RMB
      4,000,000) and may not have been sufficient to cover potential claims. A
      successful claim against us that is in excess of our insurance coverage could
      significantly harm our business and financial condition. Public perception
      that
      our products are not safe, whether justified or not, could impair our
      reputation, involve us in litigation, damage our brand names and our business.
      As of the filing of this Report, no product liability claim has ever been
      brought against us. However, if we are involved in litigation in the future
      the
      potential judgment or settlement along with the litigation costs could harm
      our
      financial performance.





**Risks
      Related To Doing Business In China**





*Adverse
      changes in political and economic policies of the PRC government could impede
      the overall economic growth of China, which could reduce the demand for our
      products and damage our business.*





We
      conduct substantially all of our operations and generate most of our revenue
      in
      China. Accordingly, our business, financial condition, results of operations
      and
      prospects are affected significantly by economic, political and legal
      developments in China. The PRC economy differs from the economies of most
      developed countries in many respects, including:





·
            the
                higher level of government
                involvement;




·
            the
                early stage of development of the market-oriented sector of the economy;





·
            the
                rapid growth rate;





·
            the
                higher level of control over foreign exchange; and





·
            the
                allocation of resources.




21


As
      the
      PRC economy continues to transition from a planned economy to a more
      market-oriented economy, the PRC government has implemented and continues to
      implement various measures to encourage economic growth and guide the allocation
      of resources by controlling payment of foreign currency-denominated obligations,
      setting monetary policy and imposing policies that impact particular industries
      or companies in different ways. While these measures may benefit the overall
      PRC
      economy, they may also have a negative effect on us, especially if such measures
      create an unfriendly environment for businesses in the agricultural sector
      of
      the economy. For example, PRC governmental entities, whether local or national,
      could implement additional regulations requiring the payment of increased taxes,
      tariffs or other duties, or increase the level of government supervision,
      review, licensing or other involvement in our operations and expansion efforts.
      Such regulations could significantly increase our costs of doing business,
      producing products or acquisition efforts. We may not be able to pass these
      additional costs along to costumers by increasing the costs of our products,
      or
      if we are forced to increase the prices of our products, our sales may be
      negatively effected and our competitors, whether in other areas of the PRC
      or
      internationally, may gain an advantage over the company.




If
      the
      PRC government changes laws to which we are subject, particularly laws relating
      to taxation, import and export tariffs, environmental regulations, land use
      rights, property and other matters our business could be harmed. 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 the
      jurisdictions in which we operate may impose new, stricter regulations or
      interpretations of existing regulations that would require additional
      expenditures and efforts on our part to ensure our compliance with such
      regulations or interpretations.




*Uncertainties
      with respect to the PRC legal system could limit the legal protections available
      to you and us.*




We
      conduct substantially all of our business through our operating subsidiaries
      in
      China, primarily Pacific Dragon, Anhui Agritech and Beijing Agritech. Our
      operating subsidiaries are generally subject to laws and regulations applicable
      to foreign investments in China and, in particular, laws applicable to
      foreign-invested enterprises. The PRC legal system is based on written statutes,
      and prior court decisions may be cited for reference, but have limited
      precedential value. Since 1979, a series of new PRC laws and regulations have
      significantly enhanced the protections afforded to various forms of foreign
      investments in China.





For
      example, while contractual disputes occurs, the arbitration will be brought
      to
      the China International Economic and Trade Arbitration Commission (“CIETAC”) in
      accordance with CIETAC Arbitration Rules, the agreements are governed by PRC
      law
      and an arbitration award may be challenged in accordance with PRC
      law.  For example, a claim that the enforcement of an award in our
      favor will be detrimental to the public interest, or that an issue does not
      fall
      within the scope of the arbitration would require us to engage in administrative
      and judicial proceedings to defend an award. China’s legal system is a civil law
      system based on written statutes and unlike common law systems, it is a system
      in which decided legal cases have little value as precedent. As a result,
      China’s administrative and judicial authorities have significant discretion in
      interpreting and implementing statutory and contractual terms, and it may be
      more difficult to evaluate the outcome of administrative and judicial
      proceedings and the level of legal protection available than in more developed
      legal systems.  These uncertainties may impede our ability to enforce
      the terms of the contracts that we may enter into with our business
      partners.  Any inability to enforce agreement or an award thereunder
      could materially and adversely affect our business and operation. The inability
      to get the benefits of the contractual rights for which we bargained may also
      negatively impact our financial results as we may have expenditures that are
      not
      match with reciprical benefits.




22


*Failure
      to comply with PRC regulations relating to the establishment of offshore special
      purpose companies by PRC residents may subject our PRC resident stockholders
      to
      personal liability, limit our ability to acquire PRC companies or to inject
      capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to
      distribute profits to us or otherwise materially adversely affect us.*





In
      October, 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued
      the Notice on Relevant Issues in the Foreign Exchange Control over Financing
      and
      Return Investment Through Special Purpose Companies by Residents Inside China,
      generally referred to as Circular 75, which required PRC residents to register
      with the competent local SAFE branch before establishing or acquiring control
      over an offshore special purpose company, or SPV, for the purpose of engaging
      in
      an equity financing outside of China on the strength of domestic PRC assets
      originally held by those residents. Internal implementing guidelines issued
      by
      SAFE, which became public in June, 2007 (known as Notice 106), expanded the
      reach of Circular 75 by (i) purporting to cover the establishment or acquisition
      of control by PRC residents of offshore entities which merely acquire “control”
over domestic companies or assets, even in the absence of legal ownership;
      (ii)
      adding requirements relating to the source of the PRC resident’s funds used to
      establish or acquire the offshore entity; (iii) covering the use of existing
      offshore entities for offshore financings; (iv) purporting to cover situations
      in which an offshore SPV establishes a new subsidiary in China or acquires
      an
      unrelated company or unrelated assets in China; and (v) making the domestic
      affiliate of the SPV responsible for the accuracy of certain documents which
      must be filed in connection with any such registration, notably, the business
      plan which describes the overseas financing and the use of proceeds. Amendments
      to registrations made under Circular 75 are required in connection with any
      increase or decrease of capital, transfer of shares, mergers and acquisitions,
      equity investment or creation of any security interest in any assets located
      in
      China to guarantee offshore obligations, and Notice 106 makes the offshore
      SPV
      jointly responsible for these filings. In the case of an SPV which was
      established, and which acquired a related domestic company or assets, before
      the
      implementation date of Circular 75, a retroactive SAFE registration was required
      to have been completed before March 31, 2006; this date was subsequently
      extended indefinitely by Notice 106, which also required that the registrant
      establish that all foreign exchange transactions undertaken by the SPV and
      its
      affiliates were in compliance with applicable laws and regulations. Failure
      to
      comply with the requirements of Circular 75, as applied by SAFE in accordance
      with Notice 106, may result in fines and other penalties under PRC laws for
      evasion of applicable foreign exchange restrictions. Any such failure could
      also
      result in the SPV’s affiliates being impeded or prevented from distributing
      their profits and the proceeds from any reduction in capital, share transfer
      or
      liquidation to the SPV, or from engaging in other transfers of funds into or
      out
      of China.




We
      believe our stockholders who are PRC residents, as defined in Circular 75,
      have
      registered with the relevant branch of SAFE, as currently required, in
      connection with their equity interests in us and our acquisitions of equity
      interests in our PRC subsidiaries. However, we cannot provide any assurances
      that their existing registrations have fully complied with, and they have made
      all necessary amendments to their registration to fully comply with, all
      applicable registrations or approvals required by Circular 75. Moreover, because
      of uncertainty over how Circular 75 will be interpreted and implemented, and
      how
      or whether SAFE will apply it to us, we cannot predict how it will affect our
      business operations or future strategies. For example, our present and
      prospective PRC subsidiaries’ ability to conduct foreign exchange activities,
      such as the remittance of dividends and foreign currency-denominated borrowings,
      may be subject to compliance with Circular 75 by our PRC resident beneficial
      holders. In addition, such PRC residents may not always be able to complete
      the
      necessary registration procedures required by Circular 75. We also have little
      control over either our present or prospective direct or indirect stockholders
      or the outcome of such registration procedures. A failure by our PRC resident
      beneficial holders or future PRC resident stockholders to comply with Circular
      75, if SAFE requires it, could subject these PRC resident beneficial holders
      to
      fines or legal sanctions, restrict our overseas or cross-border investment
      activities, limit our subsidiaries’ ability to make distributions or pay
      dividends or affect our ownership structure, which could adversely affect our
      business and prospects.





*We
      may be exposed to liabilities under the Foreign Corrupt Practices Act, and
      any
      determination that we violated the Foreign Corrupt Practices Act could have
      a
      material adverse effect on our business.*





We
      are
      subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that
      prohibit improper payments or offers of payments to foreign governments and
      their officials and political parties by U.S. persons and issuers as defined
      by
      the statute for the purpose of obtaining or retaining business. We have
      operations, agreements with third parties and make sales in China, which may
      experience corruption. Our activities in China create the risk of unauthorized
      payments or offers of payments by one of the employees, consultants, sales
      agents or distributors of our Company, even though these parties are not always
      subject to our control. It is our policy to implement safeguards to discourage
      these practices by our employees. However, our existing safeguards and any
      future improvements may prove to be less than effective, and the employees,
      consultants, sales agents or distributors of our Company may engage in conduct
      for which we might be held responsible. Violations of the FCPA may result in
      severe criminal or civil sanctions, and we may be subject to other liabilities,
      which could negatively affect our business, operating results and financial
      condition. In addition, the government may seek to hold our Company liable
      for
      successor liability FCPA violations committed by companies in which we invest
      or
      that we acquire.




23


*Our
      business will suffer if we lose our land use rights.*





There
      is
      no private ownership of land in China and all land ownership is held by the
      government of the PRC, its agencies and collectives. Land use rights can be
      obtained from the government for a period up to 70 years, and are typically
      renewable. Land use rights can be transferred upon approval by the land
      administrative authorities of the PRC (State Land Administration Bureau) upon
      payment of the required land transfer fee. We have received the necessary land
      use right certificate for our primary operating facilities, but we can give
      no
      assurance that our land use rights will be renewed on terms favorable to us
      or
      renewed at all. If we lose our land right certificates we may lose production
      facilities that may be difficult or impossible to replace. Should we have to
      relocate, our workforce may be unable or unwilling to work in the new location
      and our operations will be disrupted during the relocation. The relocation
      or
      loss of facilities could cause us to lose sales and/or increase our costs of
      production, which will negatively impact our financial results.





*Accounting
      laws in China 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 require an annual "statutory audit" to be performed in
      accordance with PRC accounting standards and the books of foreign invested
      enterprises to be maintained in accordance with Chinese accounting laws. These
      Chinese accounting practices which may not be consistent with U.S. generally
      accepted accounting principles, or GAAP. 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 U.S. GAAP, requires interpretation and exercise
      of
      judgment. This may increase costs or cause additional errors. Moreover, our
      PRC
      accounting records may not convert directly into the needed U.S. GAAP accounting
      records, causing inaccuracies or misstatements that could negatively impact
      our
      ability to get a clean audit opinion in the U.S. or may lead to fines by certain
      governmental bodies, which could negatively impact our financial performance
      and/or stock price.





*Restrictions
      on currency exchange may limit our ability to receive and use our sales revenue
      effectively.*





Most
      of
      our sales revenue and expenses are denominated in Renminbi. Under PRC law,
      the
      Renminbi is currently convertible under the “current account,” which includes
      dividends and trade and service-related foreign exchange transactions, but
      not
      under the “capital account,” which includes foreign direct investment and loans.
      Currently, our PRC operating subsidiaries may purchase foreign currencies for
      settlement of current account transactions, including payments of dividends
      to
      us, without the approval of the State Administration of Foreign Exchange, or
      SAFE, by complying with certain procedural requirements. However, the relevant
      PRC government authorities may limit or eliminate our ability to purchase
      foreign currencies in the future. Since a significant amount of our future
      revenue will be denominated in Renminbi, any existing and future restrictions
      on
      currency exchange may limit our ability to utilize revenue generated in Renminbi
      to fund our business activities outside China that are denominated in foreign
      currencies.





24


Foreign
      exchange transactions by PRC operating subsidiaries under the capital account
      continue to be subject to significant foreign exchange controls and require
      the
      approval of or need to register with PRC government authorities, including
      SAFE.
      In particular, if our PRC operating subsidiaries borrow foreign currency through
      loans from us or other foreign lenders, these loans must be registered with
      SAFE, and if we finance the subsidiaries by means of additional capital
      contributions, these capital contributions must be approved by certain
      government authorities, including the Ministry of Commerce, or their respective
      local counterparts. These limitations could affect our PRC operating
      subsidiaries’ ability to obtain foreign exchange through debt or equity
      financing. This could negatively impact our financial performance as it may
      limit our ability to reallocate capital and to take advantage of market
      opportunities.




*Fluctuations
      in exchange rates could hurt our business and the value of our stock.*





The
      value
      of our common stock will be indirectly affected by the foreign exchange rate
      between U.S. dollars and the Renminbi and between those currencies and other
      currencies in which our sales may be denominated. Because substantially all
      of
      our earnings and cash assets are denominated in Renminbi and the net proceeds
      from this offering will be denominated in U.S. dollars, fluctuations in the
      exchange rate between the U.S. dollar and the Renminbi will affect the relative
      purchasing power of these proceeds, our balance sheet and our earnings per
      share
      in U.S. dollars following this offering. In addition, appreciation or
      depreciation in the value of the Renminbi relative to the U.S. dollar would
      affect our financial results reported in U.S. dollar terms without giving effect
      to any underlying change in our business or results of operations. Fluctuations
      in the exchange rate will also affect the relative value of any dividend we
      issue after this offering that will be exchanged into U.S. dollars and earnings
      from, and the value of, any U.S. dollar-denominated investments we make in
      the
      future. Since July, 2005, the Renminbi has no longer been pegged to the U.S.
      dollar. Although the People’s Bank of China regularly intervenes in the foreign
      exchange market to prevent significant short-term fluctuations in the exchange
      rate, the Renminbi may appreciate or depreciate significantly in value against
      the U.S. dollar in the medium to long term. Moreover, it is possible that in
      the
      future the PRC authorities may lift restrictions on fluctuations in the Renminbi
      exchange rate and lessen intervention in the foreign exchange
      market.





Very
      limited hedging transactions are available in China to reduce our exposure
      to
      exchange rate fluctuations. To date, we have not entered into any hedging
      transactions in an effort to reduce our exposure to foreign currency exchange
      risk. While we may enter into hedging transactions in the future, the
      availability and effectiveness of these transactions may be limited, and we
      may
      not be able to successfully hedge our exposure at all. In addition, our foreign
      currency exchange losses may be magnified by PRC exchange control regulations
      that restrict our ability to convert Renminbi into foreign currencies. If
      Renminbi weakens relative to the dollar our earnings will be less valuable
      in
      terms of the equivalent U.S. Dollars which may negatively impact our stock
      price.





*We
      own our PRC subsidiaries rather than merely having a contractual relationship
      with such entities.*





We
      own
      our PRC subsidiaries, as opposed to having a mere contractual relationship
      with
      entities who operate in the PRC. This makes our investment in the PRC more
      rigid
      and long-term. We may be unable to quickly sell, dispose of our subsidiaries
      or
      exit the PRC if conditions in the PRC become unfavorable for business. Should
      we
      wish to exit the PRC and be unable to do so the value of stock may decrease
      due
      to our inability to relocate our corporate operations.





25


**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.





Our
      stock
      price could change very quickly and could move in a negative direction at any
      time.




*Certain
      of our stockholders hold a significant percentage of our outstanding voting
      securities.*





Our
      Chairman, Chief Executive Officer, President and Secretary, Mr. Yu Chang is
      the
      beneficial owner of approximately 41.85% 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 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 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
      December 31, 2007, the closing price for our common stock was $2.84 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.





26


Unless
      exempt, for any transaction involving a penny stock, 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
      the 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 a penny stock if the SEC determines that such a restriction
      would be in the public interest.





**Item
      1B. Unresolved Staff Comments.**




We
      currently do not have any unresolved comments of issues with the Staff of the
      Corporation Finance Division of the U.S. Securities and Exchange
      Commission.




**Item
      2.** **Properties.**




Our
      executive office is located at Room3F
      No. 11 Building No. Zhonghong International Business Garden, Future Business
      Center, Chaoyang North Road, Chaoyang District, Beijing, China
      100024 .
      The
      rentable space in this office consists of approximately 780 square meters
      (approximately 8,396 square feet). The lease agreement has a two-year term
      which
      expires in March, 2009. The monthly rental payment is approximately $5,267
      (RMB
      40,000).




We
      currently lease 9878 square meters (approximately 106,326 square feet) 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 200 square feet in Hong Kong which
      is located at Unit 2008 at 20 th Floor,
      Wellable Comm. Building, 513 Hennessy Road, Causeway Bay, Hong Kong. The monthly
      rent payment is approximately $1,090 (HK$8,500) and the term of the lease
      expires on September 6, 2008.




We
      have
      four factories located in Anhui, Beijing, Chongqing, and Xinjiang. The details
      of facilities and properties and lease terms are described below.




**Factories**
            
            **Address**
            
            **Area
                (m****2****)**
              **(Approx.
                ft****2****)**
            
            **Lease
                Term**
            
            **Monthly
                Rent**Anhui
            
            No.
                1188 Changzheng Rd. Gaoxin District, Bangfu City
            
            1338(14,402)
            
            2006.6.1-2016.5.31
            
            US$1,727
              (RMB
                13,300)Chongqing
            
            No.
                11-3, Industrial Park, Geleshandu City
            
            1874(20,172)
            
            2007.4.1-2012.3.31
            
            US$
                1,216
              (RMB
                9370)Xinjiang
            
            No.
                10, Gisi Rd. Industrial Park, Gaoxin District Northern District,
                Wulumuqi
                City
            
            3110(33,476)
            
            2007.6.10-2017.6.10
            
            US$3,246
                (RMB25,000)Beijing
            
            No.
                8, M2-4 District, Pinggu Industrial Development District, Pinggu
                District
            
            4484.76(48,274)
            
            2006.9.15-2011.9.15
            
            US$6,794
                (RMB52,325)







27


**Item
      3.**  **Legal
      Proceedings**




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





**Item
      4.**  **Submission
      of Matters to a Vote of Security Holders**




We
      intend
      to submit certain matters to a vote of our stockholders in connection with
      the
      proxy materials and the annual meeting for this year.




**PART
      II**




**Item
      5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.**




**Market
      Price Information for our Common Stock**




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




Closing
                Bid Prices(1)High
            
            Low1stQuarter of 2008 (through March 26, 2008)
            
            $
            3.03
            
            $
            1.78***Year
                Ended December 31, 2007***1st
                Quarter
            
            $
            4.00
            
            $
            1.552nd
                Quarter
            
            $
            3.80
            
            $
            2.903rd
                Quarter
            
            $
            3.81
            
            $
            2.054th
                Quarter
            
            $
            5.16
            
            $
            2.46***Year
                Ended December 31, 2006***1st
                Quarter
            
            $
            4.75
            
            $
            2.902nd
                Quarter
            
            $
            5.00
            
            $
            3.123rd
                Quarter
            
            $
            4.00
            
            $
            2.354th
                Quarter
            
            $
            3.50
            
            $
            2.41***Year
                Ended December 31, 2005***1st
                Quarter
            
            $
            4.00
            
            $
            0.102nd
                Quarter
            
            $
            3.00
            
            $
            1.903rd
                Quarter
            
            $
            4.50
            
            $
            2.054th
                Quarter
            
            $
            4.30
            
            $
            3.05


__________________




(1)
      The
      above tables set forth the range of high and low closing bid prices per share
      of
      our common stock as reported by www.quotemedia.com for the periods
      indicated.




28


On
      March
      26, 2008, the closing price of our common stock on the OTCBB was
      $2.40.




**Reports
      to Stockholders**




We
      plan
      to furnish our stockholders with an annual report for each fiscal year ending
      December 31 containing financial statements audited by our independent certified
      public accountants. Additionally, we may, in our sole discretion, issue
      unaudited quarterly or other interim reports to our stockholders when we deem
      appropriate. We intend to maintain compliance with the periodic reporting
      requirements of the Securities Exchange Act of 1934.





**Approximate
      Number of Holders of Our Common Stock**




As
      of
      March 27, 2008, 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.





**Dividend
      Policy**




Our
      Board
      of Directors will make any future decisions regarding dividends. 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.




**Recent
      Sales of Unregistered Securities**




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.




On
      July
      5, 2007, we completed a private placement transaction whereby we sold 5,556,000
      shares of our common stock to 20 investors for an approximate total of $15
      million at a price of $2.70 per share. 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 605 thereunder. The purchasers
      were sophisticated investors with access to all relevant information necessary
      to evaluate the investment, and who represented to us that the shares were
      being
      acquired for investment.




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.




29




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.**  **Selected
      Financial Data**




The
      following table sets forth selected financial data on an historical basis for
      China Agritech. This data should be read in conjunction with the consolidated
      financial statements and notes thereto and “Management’s Discussion and Analysis
      of Financial Condition and Results of Operations” included elsewhere in this
      Form 10-K.




(All
                Amounts in Thousands of U.S. Dollars)**As
                of December 31,****2007**
            
            
            **2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003****Income
                Statement Data:****Revenue**Sales
            
            $
            39,270
            
            $
            29,526
            
            $
            25,335
            
            $
            15,850
            
            
            12,180Cost
                of sales
            
            
            (18,940
            )
            
            (14,161
            )
            
            (12,849
            )
            
            (8,153
            )
            
            (6,450
            )Gross
                profit
            
            
            20,330
            
            
            15,364
            
            
            12,486
            
            
            7,697
            
            
            5,730**Expenses**General
                and administrative expenses
            
            
            (2,418
            )
            
            (2,015
            )
            
            (2,633
            )
            
            (518
            )
            
            (836
            )Selling
                expenses
            
            
            (2,986
            )
            
            (2,984
            )
            
            (2,372
            )
            
            (1,444
            )
            
            (1,876
            )Total
                Expenses
            
            
            (5,404
            )
            
            (4,999
            )
            
            (5,006
            )
            
            (1,962
            )
            
            (2,703
            )Income
                from Operations
            
            
            14,926
            
            
            10,365
            
            
            7,481
            
            
            5,735
            
            
            3,027Other
                Income
            
            
            112
            
            
            99
            
            
            -
            
            
            -
            
            
            -Finance
                costs
            
            
            -
            
            
            (4
            )
            
            0
            
            
            0
            
            
            (4
            )Income
                before income taxes and minority interests
            
            
            15,038
            
            
            10,460
            
            
            7,480
            
            
            5,735
            
            
            3,023Income
                taxes
            
            
            (5,391
            )
            
            (4,248
            )
            
            (3,174
            )
            
            (1,982
            )
            
            (1,016
            )Minority
                interests
            
            
            (1,118
            )
            
            (863
            )
            
            (631
            )
            
            -
            
            
            -Foreign
                Currency Translation Gains
            
            
            1,976
            
            
            373
            
            
            229
            
            
            -
            
            
            -Net
                income
            
            
            8,529
            
            
            5,349
            
            
            3,676
            
            
            3,753
            
            
            2,007Earnings
                per share: basic and diluted
            
            
            0.39
            
            
            0.29
            
            
            0.26
            
            
            0.28
            
            
            0.15Basic
                weighted average number of shares outstanding
            
            
            21,868
            
            
            18,736
            
            
            13,946
            
            
            13,435
            
            
            13,435Diluted
                weighted average number of shares outstanding
            
            
            21,929
            
            
            18,736
            
            
            13,946
            
            
            13,435
            
            
            13,435







30




**As
                of December 31,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
              **(unaudited)****Cash
                Flow Data:**Net
                cash flows provided by (used in) operating activities
            
            
            (4,647
            )
            
            (3,337
            )
            
            163
            
            
            1,132
            
            
            3,118Net
                cash provided by (used in) investing activities
            
            
            (3,341
            )
            
            (1,367
            )
            
            (283
            )
            
            (12
            )
            
            (2,920
            )Net
                cash provided by (used in) financing activities
            
            
            13,485
            
            
            11,028
            
            
            323
            
            
            (1,093
            )
            
            (188
            )







**As
                of December 31,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**
              **(unaudited)****Balance
                sheet data:**Cash
                and cash equivalents
            
            
            11,841
            
            
            6,430
            
            $
            256
            
            $
            0.38
            
            
            11Working
                capital
            
            
            50,551
            
            
            26,503
            
            
            10,230
            
            
            4,249
            
            
            3,679Total
                assets
            
            
            57,441
            
            
            31,027
            
            
            12,646
            
            
            7,582
            
            
            7,299Total
                current liabilities
            
            
            3,092
            
            
            2,010
            
            
            1,350
            
            
            2,205
            
            
            2,364Long
                term liabilities
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                liabilities
            
            
            3,092
            
            
            2,010
            
            
            1,350
            
            
            2,205
            
            
            2,364Total
                stockholders' equity
            
            
            50,884
            
            
            26,856
            
            
            10,057
            
            
            5,377
            
            
            4,935







**Item
      7.**  **Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations**




**Overview**





China
      Agritech is a Delaware corporation who holds interests in China-based operating
      subsidiaries, Pacific Dragon, Anhui Agritech and Beijing Agritech, who develops,
      manufactures and sells fertilizer product, particularly organic liquid compound
      fertilizer products in China. We have been producing fertilizer products in
      China since 1994. We have experienced growth in our sales revenue due to
      increasing demand for our fertilizer products, broadening of our customer base,
      and an expansion of our production capacity and product offerings.





Our
      main
      products include “LvLingBao III,” “LvLingBao IV,” “Tailong I”, “Green Vitality”
and other customized, crop specific fertilizers that are tailored to our
      customers' specific requirements. China is the principal market for our
      fertilizer products, which are primarily sold to farmers in twenty provinces
      in
      China including: Hainan, Anhui, Hubei, Jiangsu, Jiangxi, Guangxi, Liaoning,
      Shanxi Heilongjiang, Hebei, Jilin, Shandong, Inner Mongolia, Henan, Sichuan,
      Guangdong, Xinjiang, Yunnan, Chongqing and Guizhou.




To
      capitalize on the increased demand for our products and geographic expansion
      of
      our sales throughout China, we organized two new operating subsidiaries: Anhui
      Agritech and Beijing Agritech in 2007. Anhui Agritech operates our facility
      in
      the Anhui province and manufactures and sells our fertilizer products to
      customers in the Anhui, Hubei, and Henan provinces of China. Our Beijing
      Agritech facility is our primary research and development center syrup
      production center and converting factory.


31





As
      of
      December 31, 2007, we had 329 employees working at our Harbin, Beijing, Anhui,
      Chongqing, and Xinjiang facilities, which have an annual production capacity
      of
      approximately 13,000 **** metric
      tons of organic liquid compound fertilizers.





We
      plan
      to expand our product mix by offering organic granular compound fertilizer
      to
      our product lines and expect to construct an organic granular compound
      fertilizer line near each of its existing factories, located in Harbin Beijing,
      Xinjiang. We are currently evaluating the location for the 4 th organic
      granular compound fertilizer production line.





**Principal
      Factors Affecting Our Financial Performance**




We
      believe that the following factors will continue to affect our financial
      performance:





***Growth
      and evolution of China’s fertilizer industry*** *.* 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. The total consumption of fertilizers in China in 2005 amounted
      to
      approximately RMB **** 120-160
      billion (or approximately $155.8-207.8 million), according to China Statistical
      yearbook 2006. The total consumption of fertilizers is expected to exceed 50
      million metric tons by the year of 2015. We believe this growth trend will
      favorably influence the demand for our fertilizer products.





***PRC
      regulations promoting the growth of the fertilizer
      industry*** *.* Management believes that the Chinese government, through regulation and other
      measures, will continue to promote the development of the agriculture industry
      and encourage companies in the agriculture sector to become bigger and build
      name recognition. Favorable regulation and political policy support afford
      us
      with an opportunity to expand our operations in various parts of China and
      to
      improve our name recognition in the market.




***Expansion
      of our production capacity and product offerings*** .    We
      believe we will need to expand our production capacity to meet our projected
      increase in demand for our fertilizer products. We have already expanded our
      operations in the Beijing and Anhui regions of China through the commencement
      of
      our Anhui Agritech and Beijing Agritech operations. A large portion of the
      proceeds raised in our 2007 equity financing is expected to be used to construct
      additional production lines and expand our product offerings.





***Availability
      of land suitable for agricultural purposes*** *.* The
      continuing decrease in lack of available farmland in the China, along with
      the
      projected increase in population in China, and the growth in environmentally
      friendly farming around the world has caused an increase in the use of organic
      compounds as fertilizers due to their safety, efficacy, and environmental
      benefits. Our products are designed to satisfy this demand.




***Seasonality*** *.* ****** Like
      other fertilizer manufacturers, we experience a high degree of fluctuation
      in
      demand for our products due to seasonality. The first and fourth quarters are
      historically the weakest while the second and third quarters are the strongest.
      The warmer climate in the southern and western areas allows for longer growing
      season with multiple harvests and more diversified crops and a corresponding
      increase in demand for our products. We plan to expand our operations and sales
      to these areas in order to realize more evenly distributed yearly demand for
      our
      products.





32


***Increase
      in exports*** *.* We
      plan to expand sales of our fertilizer products to foreign markets. In 2007,
      we
      had no sales to foreign customers. We currently performing a feasibility study
      and market research on a few selected overseas markets.





**Results
      of Operations**




***Year
      Ended December 31, 2007 Compared with Year Ended December 31,
      2006***




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




**December
                31,**
            **Increase**
            **%
                Increase****Item**
            **2007**
            **2006**
            **(Decrease)**
            **(%
                Decrease)**Sales
                Revenue
            39.2
            29.5
            9.7
            33.0Cost
                of Goods Sold
            (18.9)
            (14.1)
            4.8
            33.7Selling
                Expenses
            (3.0)
            (3.0)
            -
            -Operating
                and Administrative
            (2.4)
            (2.0)
            0.4
            20.0ExpensesIncome
                fromOperations
            14.9
            10.4
            4.5
            44.0Other
                income
            0.1
            0.1
            0.0
            13.4(expenses)
            (0.0)
            (0.0)
            0.0
            (92.5)Income
                tax
            (5.4)
            (4.3)
            1.1
            26.9Minority
                interest
            (1.1)
            (0.9)
            0.2
            29.5Net
                income
            8.5
            5.3
            3.3
            59.4




*Sales
      Revenues* .
      Sales
      revenues increased $9,744,715, or 32.9% to $39,270,292 for the year ended
      December 31, 2007 from $29,525,577 for the year in 2006. This increase was
      mainly attributable to increase in sales to our existing customers and new
      customers from the new geographical penetrated mainly in central, southern
      and
      northwestern of China subsequent to the additional of new facilities in Beijing,
      Anhui, Chongqing and Xinjiang.




*Cost
      of Goods Sold* .
      Our
      cost of goods sold increased $4,778,367, or 34% to $18,939,725 for the year
      ended December 31, 2007 from $14,161,358 in the same period in 2006. The
      increase was primarily due to an increase in sales of our fertilizer products
      which required us to purchase more raw materials, packaging materials and higher
      direct labor costs incurred which is in line with the increase in
      sales. As a
      percentage of net revenues, the cost of goods sold increased slightly to 48.2%
      during the year ended December 31, 2007 from 48% in 2006. There was
      no significant variation in cost of good sold as a percentage of net revenues.
      There are no significant variation in the cost of good sold as a percentage
      of
      net revenues for the year ended December 31, 2007 as compared to December 31,
      2006.





*Gross
      Profit* .
      Our
      gross profit increased $4,966,348 to $20,330,567 for the year ended December
      31,
      2007 from $15,364,219 for the same period in 2006. Gross profit as a percentage
      of net revenues was 51.8% for the year ended December 31, 2007, as compared
      to
      52.0% during the same period in 2006. There
      was no significant variation in the gross profit as a percentage of net revenue
      for the year ended December 31, 2007 as compared to December 31,
      2006.




*Administrative
      Expenses* .
      Our
      administrative expenses increased $403,643 or 20% to $2,418,895 for the year
      ended December 31, 2007 from $2,015,252 for the same period in 2006. As a
      percentage of net revenues, administrative expenses decreased to 6.2% for the
      year ended December 31, 2007 from 6.8% for the same period in 2006. Higher
      administration expenses for the year ended December 31, 2006 as compared to
      December 31, 2007 was primarily attributable to expenses incurred in setting
      up
      new production facilities in Beijing and Anhui in 2006. No such expenses were
      incurred in 2007.




33


*Amortization
      and depreciation* .
      Our
      amortization and depreciation expenses increased $235,444, or 151.2%, to $
      390,736 for the year ended December 31, 2007 from $155,292 for the same period
      in 2006. As a percentage of net revenues, expenses associated with amortization
      and depreciation increased to 1% for the year ended December 31, 2007 from
      0.5%
      for the same period in 2006. The increase in the amortization and depreciation
      expenses were primarily attributable to the addition of new production
      facilities.




*Selling
      expenses* .
      Our
      selling expenses did not change for the year ended December 31, 2007 compared
      to
      the same period in 2006. As a percentage of net revenues, our selling expenses
      decreased to 7.6% for the year ended December 31, 2007 from 10.2% for the same
      period in 2006. This decrease was primarily attributable to higher marketing
      activities carried out in 2006 for new geographical areas entered after new
      production facilities were set up in Beijing and Anhui. In addition, an unusual
      flood happened in second and early third  quarter
      of 2007 which reduced the need for our products, causing us to reduce our
      marketing activities.




*Total
      expenses* .
      Our
      total expenses increased $405,468, or 8.1%, to $5,404,476 for the year ended
      December 31, 2007 from $4,999,008 for the same period in 2006. As a percentage
      of net revenues, our total expenses decreased to 13.5% for the year ended
      December 31, 2007 from 16.9% for the same period in 2006. This decrease was
      primarily attributable to explanation made above.




*Income
      from operations before taxes* .
      Income
      from operations before taxes increased $4,577,404, or 43.8%, to $15,037,642
      for
      the year ended December 31, 2007 from $10,460,238 during the same period in
      2006. Income from operations before taxes as a percentage of net revenues
      increased to 38.3% during the year ended December 31, 2007 from 35.6% during
      the
      same period in 2006.




*Provision
      for income taxes* .
      Provision for income taxes increased $1,143,320, or 26.9%, to $5,391,464 during
      the year ended December 31, 2007 from $4,248,144 during the same period in
      2006.




*Net
      income* .
      Net
      income increased $3,179,287, or 59.4%, to $8,528,625 during the year ended
      December 31, 2007 from $5,349,338 during the same period in 2006, as a result
      of
      the factors described above.




***Year
      Ended December 31, 2006 Compared with Year Ended December 31,
      2005***




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




**December
                31,**
            **Increase**
            **%
                Increase****Item**
            **2006**
            **2005**
            **(Decrease)**
            **(%
                Decrease)**Sales
                Revenue
            29.5
            25.3
            4.2
            17%Costs
                of Goods Sold
            (14.1)
            (12.8)
            1.3
            10%Selling
                Expenses
            (3.0)
            (2.4)
            0.6
            25%Operating
                and Administrative
            (2.0)
            (2.6)
            (0.6)
            (23%)ExpensesIncome
                fromOperations
            10.4
            7.5
            2.9
            39%Other
                income(expenses)
            0.1
            0
            0.1
            n/aIncome
                tax
            (4.3)
            (3.2)
            1.1
            34%Minority
                interest
            (0.9)
            (0.6)
            (0.3)
            50%Net
                income
            5.3
            3.7
            1.6
            43%







34


*Sales
      Revenues* .
      Sales
      revenues increased $4,190,261, or 17% to $29,525,577 for the year ended December
      31, 2006 from $25,335,316 for the year in 2005. This increase was mainly
      attributable to the change
      of delivery time as well as improvement of product mix. In 2005, some orders
      that had historically been delivered in the third quarter were delivered earlier
      in the second quarter of 2005, while in 2006, this did not happen. In addition,
      we increased the sales of Tailong I, which has a higher selling price than
      our
      other products, from 1,209 tons of 2005 to 1,544 tons of 2006.




*Cost
      of Goods Sold* .
      Our
      cost of goods sold increased $1,312,400, or 10% to $14,161,358 for the year
      ended December 31, 2006 from $12,848,958 in the same period in 2005. The
      increase was primarily due to an increase in sales of our fertilizer products
      which required us to purchase more raw materials. This
      increase was due to the increase of the sales revenue. As a percentage of net
      revenues, the cost of goods sold decreased to 47.8% during the year ended
      December 31, 2006 from 50.6% in the same period of 2005. Such increase of gross
      margin was mainly attributable to the reduced
      material cost as a result of improved production cost control measures, as
      well
      as increased sales of higher margin products.





*Gross
      Profit* .
      Our
      gross profit increased $2,877,861 to $15,364,219 for the year ended December
      31,
      2006 from $12,486,358 for the same period in 2005. Gross profit as a percentage
      of net revenues was 52.2% for the year ended December 31, 2006, as compared
      to
      49.4% during the same period in 2005. Such increase was due to reduced
      material cost as a result of improved production cost control measures, as
      well
      as increased sales of higher margin products.




*Administrative
      Expenses* . Our
      administrative expenses decreased $618,270, or 23%, to $2,015,252 for the year
      ended December 31, 2006 from $2,633,522 for the same period in 2005. As a
      percentage of net revenues, administrative expenses decreased to 6.8% for the
      year ended December 31, 2006 from 10.4% for the same period in 2005. This
      percentage decrease was primarily attributable to more efficient controls of
      our
      administrative expenses.




*Amortization
      and depreciation* .
      Our
      amortization and depreciation expenses increased $52,391, or 50.9%, to $155,292
      for the year ended December 31, 2006 from $102,901 for the same period in 2005.
      As a percentage of net revenues, expenses associated with amortization and
      depreciation increased to 0.5% for the year ended December 31, 2006 from 0.4%
      for the same period in 2005.




*Selling
      expenses* .
      Our
      selling expenses increased $611,605, or 25%, to $2,983,756 for the year ended
      December 31, 2006 from $2,373,151 for the same period in 2005. As a percentage
      of net revenues, our selling expenses increased to 10.2% for the year ended
      December 31, 2006 from 9.5% for the same period in 2005. This increase was
      primarily attributable to the expansion of our distribution network from
      northern China to southern China and the increase in our advertising
      activities.




*Total
      expenses* . Our
      total expenses decreased $6,665, or 0.1%, to $4,999,008 for the year ended
      December 31, 2006 from $5,005,673 for the same period in 2005. As a percentage
      of net revenues, our total expenses decreased to 16.9% for the year ended
      December 31, 2006 from 19.8% for the same period in 2005. This decrease was
      primarily attributable to more efficient controls of our administrative
      expenses.




*Income
      from operations before taxes* .
      Income
      from operations before taxes increased $2.979,713, or 39.8%, to $10,460,238
      during the year ended December 31, 2006 from $7,480,525 during the same period
      in 2005. Income from operations before taxes as a percentage of net revenues
      increased to 35.6% during the year ended December 31, 2006 from 29.6% during
      the
      same period in 2005.




*Provision
      for income taxes* .
      Provision for income taxes increased $1,074,611, or 34%, to $4,248,144 during
      the year ended December 31, 2006 from $3,173,533 during the same period in
      2005.
      Our effective tax rate for the year ended December 31, 2006, was 33%. Our 2007
      effective tax rate is expected to be 33%.




35


*Net
      income* .
      Net
      income increased $1,673,459, or 46%, to $5,349,338 during the year ended
      December 31, 2006 from $3,675,879 during the same period in 2005, as a result
      of
      the factors described above.




***Foreign
      Currency Translation Gains***




We
      had a
      foreign currency translation gain of $1,976,819 as of December 31, 2007 as
      compared with a foreign currency translation gain of $372,722 in the same period
      ended December 31, 2006. On July 21, 2005, China reformed its foreign currency
      exchange policy, revalued the RMB by 2.1 percent and allowed RMB to appreciate
      as much as 0.3% per day against the U.S. dollar. As a result, we implemented
      different exchange rates in translating RMB into U.S. dollars in our financial
      statements for the year ended December 31, 2007. The exchange rates of RMB
      1.0:US $0.13672 and RMB 1.0:US $0.13167 were implemented in calculating the
      total assets/liabilities and statement of income, respectively. This results
      in
      a $1,604,097  increase in the foreign currency translation gain for the
      fiscal year in 2007, as compared with $144,156 for the fiscal year in
      2006.





**Liquidity
      and capital resources**




As
      of
      December 31, 2007, we had cash and cash equivalents of $11,841,221. Our current
      assets were $53,762,365 and our current liabilities were $3,091,615 as of
      December 31, 2007 which results in a current ratio of approximately 17.4: 1.
      Total stockholders' equity as of December 31, 2007, was
      $50,883,984.




We
      had no
      bank loans or other interest bearing borrowings as of December 31, 2007.




The
      following table sets forth a summary of our cash flows for the periods
      indicated:




**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**Net
                cash provided by / (used in) operating activities
            
            
            (4,647,180)
            
            
            (3,336,862)
            
            
            163,382Net
                cash used in investing activities
            
            
            (3,340,697)
            
            
            (1,366,840)
            
            
            (283,238)Net
                cash provided by financing activities
            
            
            13,484,478
            
            
            11,028,393
            
            
            323,154Effect
                of exchange rate changes on cash and cash equivalents
            
            
            (85,390)
            
            
            (150,513)
            
            
            14,468Net
                increase/(decrease) in cash and cash equivalent
            
            
            5,411,212
            
            
            6,174,178
            
            
            217,766Cash
                and cash equivalents at the beginning of period
            
            
            6,430,009
            
            
            255,831
            
            
            38,065Cash
                and cash equivalents at the end of period
            
            
            11,841,221
            
            
            6,430,009
            
            
            255,831





In
      fiscal
      year 2005, we raised a total of $1,350,000 from the sale of 590,283 (before
      the
      1-for-1.14 forward stock split) and 235,516 (after the 1-for-1.14 forward stock
      split) shares of our common stock through private placement transactions. In
      accordance with the terms of the stock purchase agreement, $600,000 of the
      proceeds from the private placement transactions was kept in a trust account
      and
      been earmarked for a certain corporate communication program. As of December
      31,
      2007, the Company still had $11,415 in this account for the corporate
      communication program.





On
      July
      5, 2007, we raised a total of approximately $15,000,000 from the sale of
      5,556,000 shares of our common stock through a private placement transaction.
      In
      accordance with the terms of the private placement, $2,000,000 of the proceeds
      from the private placement transactions remained in a trust account and will
      be
      released when we hire a new CFO and modify our board of directors in accordance
      with the terms of the private placement documents. As of December 31, 2007,
      all
      $2,000,000 remained in escrow.





36


**Operating
      Activities**




Net
      cash
      used in operating activities was $4.65 million for the fiscal year ended
      December 31, 2007 which is an increase of $1.31 million from the $3.34
      million net cash used in operating activities for the same period in 2006.
      The
      increase are mainly due to the advances made to suppliers toward the year end
      for the purchases of raw materials.




Net
      cash
      used in operating activities was approximately $3.34 million in 2006, which
      is
      an increase of $3.18 million from the $0.16 million net cash provided by
      operating activities for the same period in 2005. The increase of net cash
      used
      in operating activities was mainly attributable to the increase in advances
      to suppliers **.**




**Investing
      Activities** :




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





Net
      cash
      used in investing activities in the fiscal year ended December 31, 2007 was
      $3.34 million, which is an increase of $1.97 million  from net cash used
      for investing activities of $1.37 million in the same period of
      2006.





Net
      cash
      used in investing activities in fiscal year 2006 was $1.37 million, which is
      an
      increase of $1.09 million from net cash used in investing activities of $0.28
      million in fiscal year 2005, due to the purchase of property and equipment.





**Financing
      Activities**




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





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





Our
      debt
      to equity ratio was 0% as of December 31, 2007 as we have no bank loans or
      other
      borrowings.




We
      believe that our currently available working capital will be sufficient to
      maintain our operations at our current levels for the next twelve months. As
      of
      December 31, 2007, we did not have any material commitments for capital
      expenditures.





Net
      cash
      provided by financing activities in the fiscal year ended December 31, 2007
      totaled $13,484,478 as compared to $11,028,393 provided by financing activities
      in the same period of 2006. The increase of the cash provided by financing
      activities was mainly attributable to the fact that we engaged in capital
      raising activities on July 5, 2007 as explained below.





Net
      cash
      provided by financing activities in fiscal year 2006 was $11 million, which
      is
      an increase of $10.7 million from $0.3 million net cash provided
      by financing activities in fiscal year 2005. The increase of the cash
      provided by financing activities was mainly attributable to the additional
      of
      capital raised.




**Loan
      Facilities**




We
      had no
      bank loans or other interest bearing borrowings as of December 31, 2007.





**Obligations
      under Material Contracts**




We
      do not
      have any obligations under material Contracts as of December 31, 2007.




37


**Critical
      accounting policies**




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




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




·
            ***Accounts
                Receivable***.
                 Our policy is to maintain reserves for potential credit losses on
                accounts receivable. Management reviews the composition of accounts
                receivable and analyzes historical bad debts, customer concentrations,
                customer credit worthiness, current economic trends and changes in
                customer payment patterns to evaluate the adequacy of these reserves.
                We
                had accounts receivable of $22,695,039 and $12,239,073, net of
                allowance of $227,981 and $170,236 as of December 31, 2007 and December
                31, 2006, respectively.





·
            ***Advances
                to suppliers***.
                 We permit advances to certain vendors for purchase of our material.
                The advances to suppliers amounted to $12,343,255 and $8,038,974
                as of
                December 31, 2007 and December 31, 2006,
                respectively.




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




·
            ***Impairment***.
                 We apply the provisions of Statement of Financial Accounting
                Standard No. 144, "Accounting for the Impairment or Disposal of Long-Lived
                Assets" ("FAS No. 144"), issued by the Financial Accounting Standards
                Board ("FASB"). FAS No. 144 requires that long-lived assets be reviewed
                for impairment whenever events or changes in circumstances indicate
                that
                the carrying amount of an asset may not be recoverable through the
                estimated undiscounted cash flows expected to result from the use
                and
                eventual disposition of the assets. Whenever any such impairment
                exists,
                an impairment loss will be recognized for the amount by which the
                carrying
                value exceeds the fair value.We test
              long-lived
              assets, including property, plant and equipment and intangible assets
              subject to periodic amortization, for recoverability at least annually
              or
              more frequently upon the occurrence of an event or when circumstances
              indicate that the net carrying amount is greater than its fair value.
              Assets are grouped and evaluated at the lowest level for their
              identifiable cash flows that are largely independent of the cash flows
              of
              other groups of assets. We consider historical performance and future
              estimated results in our evaluation of potential impairment and then
              compares the carrying amount of the asset to the future estimated cash
              flows expected to result from the use of the asset. If the carrying
              amount
              of the asset exceeds estimated expected undiscounted future cash flows,
              we
              measure the amount of impairment by comparing the carrying amount of
              the
              asset to its fair value. The estimation of fair value is generally
              measured by discounting expected future cash flows as the rate we utilize
              to evaluate potential investments. We estimate fair value based on
              the
              information available in making whatever estimates, judgments and
              projections are considered necessary. There was no impairment of
              long-lived assets in the years ended December 31, 2007 and
              2006.






38




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




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




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




**Off-Balance
      Sheet Arrangements**





We
      do not
      have any off-balance sheet arrangements.





**Seasonality**





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





39


**Item
      7A. Quantitative and Qualitative Disclosures About Market
      Risk**




***Interest
      Rate Risk*** ****





We
      had no
      bank loans or other interest bearing borrowings as of December 31, 2007;
      therefore, we are not exposed to interest rate risk.





***Foreign
      Exchange Risk***





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





***Inflation***





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





**Item
      8.**  **Financial
      Statements and Supplementary Financial Data**




**Consolidated
      Financial Statements**





The
      financial statements required by this item begin on page F-1
      hereof.





**Quarterly
      Financial Results**





The
      following table reflects our unaudited quarterly consolidated statement of
      operations data for the quarters presented. We believe that the historical
      quarterly information has been prepared substantially on the same basis as
      the
      audited consolidated financial statements, and all necessary adjustments,
      consisting only of normal recurring adjustments, have been included in the
      amounts below to state fairly the unaudited quarterly results of operations
      data.





**Three
                Months Ended**
              **(amounts
                in thousand of U.S. Dollars, except percentages)****March
                31, 2006**
            
            **June
                30, 2006**
            
            **September
                30, 2006**
            
            **December
                31, 2006**Amount
            
            Amount
            
            Amount
            
            AmountUSD
            
            USD
            
            USD
            
            USDNet
                Revenues
            
            $
            5,685
            
            $
            10,235
            
            $
            7,602
            
            $
            6,004Gross
                profit
            
            
            2,820
            
            
            5,383
            
            
            4,012
            
            
            3,149Net
                income
            
            
            1,014
            
            
            2,088
            
            
            1,108
            
            
            1,139Net
                income per common share: Basic and diluted
            
            
            0.05
            
            
            0.11
            
            
            0.06
            
            
            0.06






40





**Three
                Months Ended**
              **(amounts
                in thousand of U.S. Dollars, except percentages)****March
                31, 2007**
            
            **June
                30, 2007**
            
            **September
                30, 2007**
            
            **December
                31, 2007**Amount
            
            Amount
            
            Amount
            
            AmountUSD
            
            USD
            
            USD
            
            USDNet
                Revenues
            
            $
            8,520
            
            $
            9,867
            
            $
            11,596
            
            $
            9,196Gross
                profit
            
            
            3,357
            
            
            5,752
            
            
            6,180
            
            
            3,888Net
                income
            
            
            1,525
            
            
            2,634
            
            
            2,558
            
            
            4,152Net
                income per common share: Basic and diluted
            
            
            0.10
            
            
            0.14
            
            
            0.10
            
            
            0.06




**Item
      9.**  **Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure.**




Not
      applicable.





**Item
      9A. Controls and Procedures.**




***Disclosure
      Controls and Procedures***





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





As
      required by Rule 13a-15 under the Exchange Act, our management, including our
      Chairman, Chief Executive Officer and President, Yu Chang, and our chief
      financial officer, Lijun Peng, evaluated the effectiveness of the design and
      operation of our disclosure controls and procedures as of December 31, 2007.
      Based on that evaluation, Mr. Chang and Mr. Peng concluded that as of December
      31, 2007, and as of the date that the evaluation of the effectiveness of our
      disclosure controls and procedures was completed, our disclosure controls and
      procedures were effective to satisfy the objectives for which they are
      intended.





**Internal
      Controls Over Financial Reporting**





*Management’s
      Annual Report on Internal Control over Financial Reporting.*




Section 404
      of the Sarbanes-Oxley Act of 2002 requires that management document and test
      the
      Company’s internal control over financial reporting and include in this Annual
      Report on Form 10-K a report on management’s assessment of the
      effectiveness of our internal control over financial reporting.




Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting, as such term is defined in
      Rule 13a-15(f) of the Exchange Act. Under the supervision and with the
      participation of our management, including our Chief Executive Officer Yu Chang,
      and Lijun Peng, our Chief Financial Officer, we conducted an evaluation of
      the
      effectiveness of our internal control over financial reporting based upon the
      framework in Internal Control—Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission (COSO). Based upon, and
      as
      of the date of this evaluation, our Chief Executive Officer and Chief Financial
      Officer concluded that our disclosure controls and procedures contained
      deficiencies and weaknesses. We believe that the deficiencies and weaknesses
      in
      our disclosure controls and procedures result from weaknesses in our internal
      controls over financial reporting.




41


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




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




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




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




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




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




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




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





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




This
      year, we have hired Kelviz Lim Kok Siak as our
      Vice President of Finance. We intend to continue to hire other professionals
      with substantial accounting experiences to supplement our accounting
      department.





42


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




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




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




It
      has
      also come to our attention that since the Company does not have any
      Independent Directors, an Audit Committee or a Compensation/Remuneration
      Committee it would be a best practice to implement such committees and to hire
      Independent Directors. We have obtained candidates’ curriculum vitae for
      potential candidates and are currently reviewing possible directors.




This
      annual report does not include an attestation report of our registered public
      accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by our registered public
      accounting firm pursuant to temporary rules of the Securities and Exchange
      Commission that permit us to provide only management’s report in this annual
      report.




*Changes
      in Internal Controls over Financial Reporting.*




During
      the fiscal year ended December 31, 2007, there were no changes in our internal
      control over financial reporting identified in connection with the evaluation
      performed during the fiscal year covered by this report that has materially
      affected, or is reasonably likely to materially affect, our internal control
      over financial reporting.





**Item
      9B. Other Information.**




Not
      applicable.




**Part
      III**




**Item 10.
      Directors, Executive Officers of and Corporate
      Governance**





**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
            
            52
            
            Chief
                Executive Officer, President, Secretary and DirectorXiao
                Rong Teng
            
            37
            
            Chief
                Operating Officer and DirectorTao
                Liang
            
            42
            
            DirectorLi
                Jun Peng
            
            66
            
            Chief
                Financial Officer and ControllerJi
                Wei Zhang
            
            38
            
            Vice
                President of AdministrationWen
                Sheng Chen
            
            39
            
            Vice
                President of SalesKelviz
                Lim Kok Siak
            
            34
            
            Vice
                President of Finance






43




***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.




***Xiao
      Rong Teng*** :
      Ms.
      Teng has served as our Chief Operating Officer 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.




***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.




***Jiwei
      Zhang*** *:* Mr.
      Zhang has been our Vice President of Administration since August, 2005. Mr.
      Zhang has served as the Managing Director of Wusu-Salken beer Inc, in The Kyrgyz
      Republic from 2003 to 2005. From 2001 to 2003, Mr. Zhang served as the Chief
      accountant and Company Manager of Wusu Beer Group Company in Xinjiang China.
      From 1995 to 2001, Mr. Zhang served as the Manager and Deputy Director of
      Accounting Firm in Xinjiang China.




***Wen
      Sheng Chen*** :
      Mr.
      Chen has been our Vice President of Sales since September, 2006. He has served
      as the General Manager of Fortune Ng Fung Foot Co., Ltd, in Hebei China, from
      2001 to 2006. He has also served as the Deputy General Manager of Xinjiang
      Hops
      Co., Ltd, in Xinjiang China, from 1995 to 2001. From 1992 to 1995, He has also
      served as an officer of the Department of Trade and Foreign in Chinese
      government. Mr. Chen graduated from Renmin University China.




***Kelviz
      Lim Kok Siak:*** Mr.
      Lim
      has been our Vice President of Finance since July, 2007. He is responsible
      for
      managing the company's daily financial operations and is the company's key
      representative interfacing with investors. Mr. Lim previously held various
      positions at Ernst & Young Shanghai including Audit Assistant Manager and
      Senior Accountant. He worked at Ernst & Young Shanghai from June 2004 to
      June 2007. Mr. Lim graduated with honors from Multimedia University, Kuala
      Lumpur, Malaysia with a Bachelor of Accounting degree. He has received the
      Association of Chartered Certified Accountants (ACCA) designation in August
      2007.




**Board
      Composition and Meetings of the Board of Directors**




The
      Board
      of Directors is currently composed of three members: Yu Chang, Xiaorong Teng
      and
      Tao Liang. All actions of the Board of Directors require the approval of a
      majority of the directors in attendance at a meeting at which a quorum is
      present. During 2006, our Board of Directors met in person 3 times and acted
      by
      unanimous written consent 3 times. Through December 31, 2007, our Board of
      Directors met in person 4 **** times
      and
      acted by written consent **** 9 **** times.




44


**Committees**




We
      do not
      have a standing audit, nominating or compensation committee or any committee
      performing a similar function, although we may 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.





**Independent
      Directors**




No
      member
      of our Board of Directors qualifies as an "independent director" under the
      listing requirements of NASDAQ.




As
      we
      increase the membership of our Board of Directors, we may add directors who
      qualified as "independent directors," establish Board committees on which such
      independent directors may serve and adopt written Board committee charters,
      as
      appropriate, to assist in corporate governance.




**Policy
      Regarding Board Attendance**




Our
      directors are expected to attend Board meetings as frequently as necessary
      to
      properly discharge their responsibilities and to spend the time needed to
      prepare for each such meeting. Our directors are expected to attend annual
      meetings of stockholders, but we do not have a formal policy requiring them
      to
      do so.




**Director
      Compensation**




No
      cash
      compensation was paid to any member of our Board of Directors for services
      as a
      director during the fiscal year ended December 31, 2007 and 2006. 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.




**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 to which our Chief
      Executive Officer, Chief Financial Officer, Chief Operating Officer, Controller
      and any person who may perform similar functions are subject. Currently, Mr.
      Chang and Ms. 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 our Code of Ethics.




45


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 evaluating 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.




**Section
      16(A) Beneficial Ownership Reporting Compliance**






Under
      U.S. securities laws, directors, certain executive officers and persons holding
      more than 10% of our common stock must report their initial ownership of the
      common stock, and any changes in that ownership, to the SEC.  The SEC has
      designated specific due dates for these reports. Based solely on our review
      of
      copies of such reports filed with the SEC and written representations of our
      directors and executive offers, we believe that all persons subject to reporting
      filed the required reports on time in 2006, except as follows: (i) missing
      Form
      4 reports to be filed by each of China Tailong Group Limited and Yu Chang to
      report the transfer of 544,096 shares of common stock on May 8, 2007 to perform
      a make good escrow agreement entered into in connection with a securities
      purchase agreement, dated January 13, 2006, because the Company did not meet
      certain financial targets in fiscal year 2006.




**Item
      11. 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 and
      Chief Financial 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.





**SUMMARY
      COMPENSATION TABLE**





**Name
                and Principal Position**
            
            **Year**
            
            **Salary**
              **($)**
            
            **Bonus**
              **($)**
            
            **Stock
                Awards ($)**
            
            **Option
                Awards ($)**
            
            **Non-**
              **Equity
                Incentive Plan Compensation Earnings ($)**
            
            **Non-**
              **qualified
                Deferred Compensation Earnings ($)**
            
            **All
                Other**
              **Compensation
                ($)**
            
            **Total**
              **($)**Yu
                Chang, CEO, President and Secretary
            
            
            2007
            
            
            120,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            120,000Lijun
                Peng
              CFO
                and Controller
            
            
            2007
            
            
            0
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            0





**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.





46


**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 $15,000 (RMB120,000).





On
      July
      1, 2007, we entered into an employment agreement with Kelviz Lim Kok Siak.
      Mr.
      Lim, pursuant to which Mr. Lim was hired as the vice president of finance
      responsible for managing the company's daily financial operations and is the
      company's key representative interfacing with investors. Mr. Lim previously
      held
      various positions at Ernst & Young Shanghai including Audit Assistant
      Manager and Senior Accountant. He worked at Ernst & Young Shanghai from June
      2004 to June 2007. Mr. Lim graduated with honors from Multimedia University,
      Kuala Lumpur, Malaysia with a Bachelor of Accounting degree. He received the
      Association of Chartered Certified Accountants (ACCA) designation in August
      2007. Mr. Lim receive a base salary of approximately $94,737 (RMB720,000) per
      annum (the "Base Salary") effective July 1, 2007, which is payable over 12
      months, in accordance with our customary payroll practices. This Employment
      Agreement may be terminated with not less than two month’s notice in writing or
      payment in lieu of notice on either side.





**Payment
      of Post-Termination Compensation**




The
      Company does not have change-in-control agreements with any of its executive
      officers, and the Company is not obligated to pay severance or other enhanced
      benefits to executive officers upon termination of their employment.




**Limitation
      of Liability and Indemnification of Officers and Directors**




As
      permitted by Delaware law, we have adopted provisions in our amended and
      restated certificate of incorporation and bylaws that limit or eliminate the
      personal liability of our directors and officers to the fullest extent permitted
      by Delaware law, as it now exists or may in the future be amended, and against
      all expenses and liabilities reasonably incurred in connection with their
      service for or on our behalf. In addition, our certificate of incorporation
      provides that our directors will not be personally liable for monetary damages
      to us for breaches of their fiduciary duty as directors, unless they violated
      their duty of loyalty to us or our stockholders, acted in bad faith, knowingly
      or intentionally violated the law, authorized illegal dividends or redemptions
      or derived an improper personal benefit from their action as directors.




**Compensation
      Discussion and Analysis**




***Background
      and Compensation Philosophy***




We
      currently have two named executive officers, Yu Chang, our Chief Executive
      Officer, President and Secretary and the beneficial owner of 41.85% **** of
      our
      stock, and Lijun Peng, Chief Financial Officer and Controller. Our Board of
      Directors, on which Mr. Chang serves, has historically determined the
      compensation to be paid to Mr. Chang and Ms. Peng based on the Company's
      financial and operating performance and prospects, the level of compensation
      paid to similarly situated executives in comparably sized companies and the
      contributions made by Mr. Chang and Ms. Peng to the success of the
      Company.




47


Our
      Board
      of Directors has not adopted or established a formal policy or procedure for
      determining the amount of compensation paid to our executive officers. No
      pre-established, objective performance goals or metrics have been used by the
      Board of Directors in determining the compensation of our executive officers.
      Mr. Chang is involved in the Board's deliberations regarding executive
      compensation and provides recommendations with respect to his and Ms. Peng's
      compensation.




As
      our
      executive leadership and Board of Directors grows, our Board of Directors may
      decide to form a compensation committee charged with the oversight of executive
      compensation plans, policies and programs, but we have no current plans to
      establish a compensation committee.




***Elements
      of Compensation***




We
      provide our executive officers solely with a base salary to compensate them
      for
      services rendered during the year. Our policy of compensating our executives
      with a cash salary has served the Company well. Because of our history of
      attracting and retaining executive talent, we do not believe it is necessary
      at
      this time to provide our executives discretionary bonuses, equity incentives,
      or
      other benefits for the Company to continue to be successful.




**Base
      Salary** .
      The
      base salary paid to Mr. Chang and Ms. Peng during 2006 was approximately
      $120,000 and $0 (RMB 0) respectively and their 2007 annual compensation was
      $120,000 and $0 (RMB 0) respectively. **** All
      such
      amounts were paid in cash. The value of base salary reflects each executive's
      skill set and the market value of that skill set in the sole discretion of
      the
      Board of Directors. Ms. Peng was on long-term leave in 2006 and 2007 and did
      not
      serve at the company on a day-to-day basis but did remain involved in the
      Company’s affairs as its Chief Financial Officer (and is able to make
      certifications required in this 10-K).




***Discretionary
      Bonus*** .
      Historically, we have not paid bonus compensation to our executive officers
      and
      no bonus compensation was paid to our executive officers in 2006. If the Board
      of Directors determines to do so in the future, it will be on an ad hoc basis
      to
      recognize superior performance by executive officers as determined in the sole
      discretion of the Board of Directors.




***Equity
      Incentives*** *.* The
      Company and its subsidiaries have not established an equity based incentive
      program and have not granted stock based awards as a component of compensation.
      In the future, we may adopt and establish an equity incentive plan pursuant
      to
      which awards may be granted if our Board of Directors determines that it is
      in
      the best interest of the Company and its stockholders to do so.




***Retirement
      Benefits.*** **** Our
      executive officers are not presently entitled to company-sponsored retirement
      benefits.




***Perquisites*** **.** We
      have
      not provided our executive officers with any material perquisites and other
      personal benefits and, therefore, we do not view perquisites as a significant
      or
      necessary element of our executive's compensation.




***Deferred
      Compensation*** **.** We
      do not
      provide our executives the opportunity to defer receipt of annual compensation.





**Item
      12. 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 December 31, 2007 (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., Room3F, No 11 Building, Zhonghong International Business
      Garden, Future Business Center. Chaoyang North Road, Chaoyang District, Beijing
      China.






48





**Title
                of Class**
            
            **Name
                & Address of Beneficial Owner**
            
            **Office,
                If Any**
            
            **Amount
                & Nature of Beneficial Ownership (1)**
            
            **Percent
                of Class (2)**Common
                Stock $0.001 par value
            
            
            Yu
                Chang
            
            
            Chief
                Executive Officer, President,
              Secretary
                and
              Director
            
            
            10,337,822
            (3)
            
            41.85
            %Common
                Stock $0.001 par value
            
            
            Xiao
                Rong Teng
            
            
            Vice
                President of
              Sales
                and Director
            
            
            604,552
            
            
            2.45
            %Common
                Stock $0.001 par value
            
            
            China
                Tailong Group Limited
            
            
            
            
            
            8,644,839
            
            
            35.00
            %Common
                Stock $0.001 par value
            
            
            Tao
                Liang (5)
            
            
            Director
            
            
            0
            
            
            0
            %Common
                Stock $0.001 par value
            
            
            Li
                Jun Peng
            
            
            Chief
                Financial Officer and Controller
            
            
            0
            
            
            *Common
                Stock $0.001 par value
            
            
            All
                officers and directors as a group (4 persons named above)
            
            
            
            
            
            10,942,374
            (4)
            
            44.30
            %Common
                Stock $0.001 par value
            
            
            Ardsley
                Advisory Partners (6)
            
            
            
            
            
            1,323,038
            
            
            5.35
            %Common
                Stock $0.001 par value
            
            
            Philip
                J. Hempleman (6)
            
            
            
            
            
            1,323,038
            
            
            5.35
            %**Total
                Shares Owned by Persons Named above**
            
            
            
            
            
            
            
            
            12,265,412
            
            
            49.65
            %





*
            Less
                than 1%.




1
            Beneficial
                Ownership is determined in accordance with the rules of the Securities
                and
                Exchange Commission and generally includes voting or investment power
                with
                respect to securities. Each of the beneficial owners listed above
                has
                direct ownership of and sole voting power and investment power with
                respect to the shares of our common stock.2
            A
                total of 24,699,615 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
            Including
                8,644,839 shares of our common stock held by China Tailong Group
                Limited
                of which Mr. Chang has 100% of the registered shares. Mr. Tao Liang
                and
                Mr. Tik Man Tsoi have an unwritten agreement with Mr. Chang entitling
                them
                to 5% and 30%, respectively, of the shares of China Tailong Group
                Limited.4
            Including
                1,692,983 shares of our common stock held by Mr. Yu Chang, 8,644,839
                shares of our common stock owned by China Tailong Group Limited which
                is
                controlled by Mr. Chang who has 100% of the registered shares of
                China
                Tailong Group Limited (Mr. Tao Liang and Mr. Tik Man Tsoi have an
                unwritten agreement with Mr. Chang entitling them to 5% and 30%,
                respectively, of the shares of China Tailong Group Limited), and
                604,552
                shares of our common stock owned by Ms.
                Teng.






49




5
            Mr.
                Liang has an unwritten agreement with Mr. Chang giving him a right
                to 5%
                of the ownership interest in China Tailong Group
                Limited.6
            Ardsley
                Advisory Partners (“Ardsley”), a New York general partnership which owns
                or controls 1,323,038 shares of our common stock through a group
                disclosed
                in a Schedule 13G filed February 14, 2008 and the most recent share
                holders list. Philip J. Hempleman is the managing partner of Ardsley,
                and
                believed to have voting and investment control over the securities
                held by
                Ardsley.




**Item 13.
      Certain Relationships and Related Transactions and Director
      Independence**





***Related
      Parties Transactions***




The
      Company's PRC subsidiary, Pacific Dragon, has entered into a tenancy agreement
      with 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 (approximately 75,541 sq. feet) 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 (at then current exchange rates)). The tenancy agreement
      was revised by increasing the annual rent to RMB3,600,000 (equivalent to
      $442,800 (at then current exchange rates)) effective from July 1, 2005. During
      the years ended December 31, 2007 and 2006, the Company paid RMB 3,600,000
      (equivalent to $451,562 (at then current exchange rates)) to Yinlong.





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





***Director
      Independence Standards***




The
      Company's Board of Directors has determined that no member of the Board of
      Directors qualifies as an "independent director" in accordance with the listing
      requirements of NASDAQ.





**Item
      14. Principal Accounting Fees and Services.**





Kabani
      & Co. LLP, Certified Public Accountants, was the Company’s independent
      registered public accounting firm engaged to examine the Company’s consolidated
      financial statements for the fiscal year ended December 31, 2007, 2006 and
      2005. Weinberg
& Co., P.A. was
      the Company’s independent registered public accounting firm engaged to examine
      our financial statements for the fiscal years ended January 31, 2004, 2003
      and
      2002.




***Fees
      for the fiscal years ended December 31, 2007 and 2006***





**Audit
      Fees.** Kabani
      & Co. LLP, was paid aggregate fees of approximately $145,000 and $227,688
      for the fiscal years ended December 31, 2007 and 2006, respectively, for
      professional services rendered for the audit of our annual financial statements,
      responding to SEC inquiries and for the reviews of the financial statements
      included in our quarterly reports on Form 10-Q for the periods ended March
      31,
      2007 and 2006, June 30, 2007 and 2006, September 30, 2007 and 2006.




50


**Audit
      Related Fees.** Kabani
      & Co. LLP, was not paid additional fees that are not reported under the
      paragraph captioned “Audit Fees” above for the fiscal years December 31, 2007
      and December 31, 2006 for assurance and related services reasonably related
      to
      the performance of the audit or review of our financial statements.





**Tax
      Fees.** The
      aggregate fees billed in the fiscal years ended December 31, 2007 and 2006
      for
      professional services rendered by the principal accountant for tax compliance,
      tax advice and tax planning were approximately $0 and $1,100, respectively.





**All
      Other Fees** ***.*** The aggregate fees billed in the fiscal years ended December 31, 2007 and 2006
      for products and services provided by the principal accountant, other than
      services reported above under other captions of this Item 14 are $0 and $0,
      respectively.





**Board
      of Directors Pre-Approval Policies and Procedures**





Our
      Board of Directors has not adopted a policy to pre-approve audit and permissible
      non-audit services provided by our independent auditors.





**Part
      IV**




**Item
      15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**





**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 our
                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 us, China Tailong Holdings Company Limited and its
                stockholders (incorporated by reference to Exhibit 2.1 in the our
                current
                report on Form 8-K filed on February 3, 2005, as
                amended).3.1
            
            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 our
                registration statement on Form SB-2 filed on July 22, 2005, as
                amended).3.2
            
            Articles
                of Association of China Tailong Holdings Company Limited (incorporated
                by
                reference to Exhibit 4.2 in our current report on Form 8-K filed
                on
                February 3, 2005, as amended).3.3
            
            Articles
                of Association of Pacific Dragon Fertilizers Co. Ltd. (incorporated
                by
                reference to Exhibit 4.3 in our current report on Form 8-K filed
                on
                February 3, 2005, as amended).3.4
            
            Amended
                and Restated Bylaws (incorporated by reference to Exhibit 3.2 in
                our
                registration statement on Form SB-2 filed on July 22, 2005, as
                amended).4.1
            
            Form
                of Registration Right Agreement, dated June 29, 2007, by and among
                us,
                Securities Transfer Corporation and the Investors (incorporated by
                reference to Exhibit 4 in our Form S-1/A filed on October 19,
                2007).4.2
            
            Common
                Stock Purchase Warrant, dated July 5, 2007, issued to Roth Capital
                Partner, LLC. (incorporated by reference to Exhibit 4.1 in our Form
                S-1
                filed on August 20, 2007).






51




**Exhibit
                No.**
            
            **Description**10.1
            
            Form
                of Subscription Agreement, dated May 25, 2004 (incorporated by reference
                to Exhibit 10.1 in our 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 our 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
                our
                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 our 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 us, Chinamerica
                Fund,
                LLP, Gary Evans, and the Securities Transfer Corporation (incorporated
                by
                reference to Exhibit 10.2 in our registration statement on Form SB-2
                filed
                on July 22, 2005, as amended).10.6
            
            Escrow
                Agreement, dated January 10, 2006, by and among us, Securities Transfer
                Corporation and the investors (incorporated by reference to Exhibit
                10.2
                in our 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 our current report on Form 8-K filed on January 10,
                2006).10.8
            
            Form
                of Escrow Agreement. (incorporated by reference to Exhibit 10.2 in
                our
                current report on Form 8-K filed on July 6, 2007).10.9
            
            Form
                of Escrow Agreement, (incorporated by reference to Exhibit 10.3 in
                our
                current report on Form 8-K filed on July 6, 2007).10.10
            
            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 our current report on Form 8-K filed on February 3, 2005,
                as
                amended).10.11
            
            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 our registration statement on Form SB-2 filed
                on July
                22, 2005, as amended).10.12
            
            Stock
                Purchase Agreement, dated Jan 13, 2006, by and among the registrant
                and
                the investors (incorporated by reference to Exhibit 10.1 in our current
                report on Form 8-K filed on January 10, 2006).10.13
            
            Stock
                Purchase Agreement, dated March 2, 2006, by and among the registrant,
                China Tailong Group Limited and Mr. Yu Chang (incorporated by
                reference to Exhibit 10.11 in our Form SB-2/A filed on April 28,
                2007).






52






**Exhibit
                No.**
            
            **Description**10.14
            
            Form
                of Securities Purchase Agreement, dated June 29, 2007 (incorporated
                by
                reference to Exhibit 10.1 in our current report on Form 8-K filed
                on July
                6, 2007).10.15
            
            Lease
                Agreement, dated December 30, 2003, by and between Pacific Dragon
                Fertilizers Co. Ltd. and Yinlong Industrial Co. Ltd. (incorporated
                by
                reference to Exhibit 10.6 in our registration statement on Form SB-2
                filed
                on July 22, 2005, as amended).10.16
            
            Amendment
                to the Lease Agreement, dated June 28, 2005, by and between Pacific
                Dragon
                Fertilizers Co. Ltd. and Yinlong Industrial Co. Ltd. (incorporated
                by
                reference to Exhibit10.12 in our annual report on Form 10-KSB filed
                on
                April 14, 2006).10.17
            
            Lease
                Agreement, dated May 31, 2004, by and between China Tailong Holdings
                Company Limited and Upgrade International Trading Co. Ltd. (incorporated
                by reference to Exhibit 10.13 in our annual report on Form 10-KSB
                filed on
                April 14, 2006).10.18
            
            Lease
                Agreement, dated August 30, 2007, by and between China Tailong Holdings
                Company Limited and Superior Strategy Company Limited (incorporated
                by
                reference to Exhibit 10.18 in our Form S-1/A filed on October 19,
                2007).10.19
            
            License
                Agreement, dated January 6, 2005, by and between Yu Chang and Pacific
                Dragon Fertilizers Co. Ltd. (incorporated by reference to Exhibit
                10.4 in
                our registration statement on Form SB-2 filed on July 22, 2005, as
                amended).10.20
            
            Permanent
                License Agreement, dated December 3, 2005, by and between Yu Chang
                and
                Pacific Dragon Fertilizers Co. Ltd. (incorporated by reference to
                Exhibit
                10.16 in our annual report on Form 10-KSB filed on April 14,
                2006)10.21
            
            Permanent
                License Agreement, dated July 5, 2007, by and between Yu Chang and
                Pacific
                Dragon Fertilizers Co., Ltd. (incorporated by reference to Exhibit
                10.21
                in our Form S-1 filed on August 17, 2007).10.22
            
            Employment
                Agreement between Yu Chang and Pacific Dragon Fertilizers Co. Ltd.
                (incorporated by reference to Exhibit 10.5 in our registration statement
                on Form SB-2 filed on July 22, 2005, as amended).10.23
            
            Employment
                Agreement, dated May 8, 2007, by and between Kelviz Lim Kok Siak
                and
                Pacific Dragon Fertilizers Co. Ltd. (incorporated by reference to
                Exhibit
                10.23 in our current report on Form S-1 filed on August 20,
                2007).10.24
            
            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 our quarterly report on Form 10-QSB
                filed on
                June 13, 2005)






53




**Exhibit
              No.**
            ****
            **Description**10.25
            
            Supplier
                contracts dated March 1, 2005, by and between Pacific Dragon Fertilizers
                Co., Ltd. and Inner-Mongolia Humic Acid Factory (incorporated by
                reference
                to Exhibit 10.25 in our current report on Form S-1 filed on August
                20,
                2007).10.26
            
            Supplier
                contracts dated December 16, 2005, by and between Pacific Dragon
                Fertilizers Co., Ltd. and Shenzhen Hongchou Technology Company
                (incorporated by reference to Exhibit 10.26 in our current report
                on Form
                S-1 filed on August 20, 2007).10.27
            
            Distribution
                contracts dated June 1, 2006, by and between China Agritech Inc.
                and KDK
                Co., Ltd., (incorporated by reference to Exhibit 10.1 in our Form
                8-K
                filed on September 13, 2006).10.28
            
            Distribution
                contracts dated June 1, 2006, by and between China Agritech Inc.
                and Aheqi
                Co., Ltd., (incorporated by reference to Exhibit 10.2 in our Form
                8-K
                filed on September 13, 2006).10.29
            
            Supplier
                contracts dated January 15, 2007, by and between Pacific Dragon
                Fertilizers Co., Ltd. and Beijing Zhongxin Chemical Technology Development
                Co. (incorporated by reference to Exhibit 10.27 in our Form S-1 filed
                on
                August 20, 2007).10.30
            
            Supplier
                contracts dated October 8, 2007, by and between China Agritech, Inc.
                and
                SINOCHEM FERTILIZER CO., LTD.(incorporated by reference to Exhibit
                10.1 in
                our Form 8-K filed on October 10, 2007).14
            
            Code
                of ethics (incorporated by reference to Exhibit 14 in our annual
                report on
                Form 10-KSB filed on April 14, 2006)21
            
            Subsidiaries
                of the Registrant (incorporated by reference to Exhibit 21 in our
                registration statement on Form 10K filed on April 2,
                2007)24
            
            Power
                of Attorney (included on the signature page of this registration
                statement).31.1*
            Certification of Chief Executive Officer, pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 200231.2*
            Certification of Chief Financial Officer, pursuant to Section 302
                of the
                Sarbanes-Oxley Act of 200232.1*
            Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section
                1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                of 2002
                *32.2*
            Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section
                1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                of 2002
                *


*
      Filed
      herewith




54


**CHINA
      AGRITECH, INC.**


**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS**


**ENDED
      DECEMBER 31, 2005, 2006 AND 2007**




**Contents**
            
            **Page(s)**Report
                of Independent Registered Public Accounting Firm
            
            F-2Consolidated
                Balance Sheets as of December 31, 2006 and 2007
            
            F-3Consolidated
                Statements of Income and Comprehensive Income for the years ended
                December
                31, 2005, 2006 and 2007
            
            F-4Consolidated
                Statements of Shareholders’ Equity for the years ended December 31, 2005,
                2006 and 2007
            
            F-5Consolidated
                Statements of Cash Flows for the years ended December 31, 2005, 2006
                and
                2007
            
            F-6Notes
                to the Consolidated Financial Statements
            
            F-7






F-1


**Report
      of Independent Registered Public Accounting Firm**













Board
      of
      Directors and Stockholders of


China
      Agritech and Subsidiaries





We
      have
      audited the accompanying consolidated balance sheets of China Agritech Inc.
      and
      Subsidiaries as of December 31, 2007 and 2006, and the related consolidated
      statements of income, stockholders' equity, and cash flows for the three year
      periods ended December 31, 2007. 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
      audit.




We
      conducted our audits 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
      consolidated 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 consolidated 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 consolidated financial position of China Agritech
      Inc. and Subsidiaries as of December 31, 2007 and 2006, and the consolidated
      income statements and their consolidated cash flows for the three year periods
      ended December 31, 2007, in conformity with U.S. generally accepted accounting
      principles.







/s/
      Kabani & Company, Inc.


**Certified
      Public Accountants**





Los
      Angeles, California


March
      10,
      2008





F-2


CHINA
      AGRITECH, INC. AND SUBSIDIARIES


CONSOLIDATED
      BALANCE SHEETS AS OF DECEMBER 31, 2007 AND 2006


**2007**
            
            2006**ASSETS****Current
                Assets**Cash
                and cash equivalents
            
            $
            11,841,221
            
            $
            6,430,009Restricted
                cash
            
            
            2,011,415
            
            
            100,028Accounts
                receivable, net
            
            
            22,695,039
            
            
            12,239,073Inventories
            
            
            3,508,741
            
            
            1,322,244Advances
                to suppliers
            
            
            12,343,255
            
            
            8,038,974Prepayments
                and other receivables
            
            
            1,242,694
            
            
            382,463**Total
                Current Assets**
            
            
            53,642,365
            
            
            28,512,791**Property,
                Plant and Equipment, net**
            
            
            3,798,958
            
            
            2,514,123**Total
                Assets**
            
            $
            57,441,323
            
            $
            31,026,914**LIABILITIES
                AND STOCKHOLDERS' EQUITY****Current
                Liabilities**Accounts
                payable
            
            $
            41,146
            
            $
            108,886Accrued
                expenses and other payables
            
            
            1,047,721
            
            
            871,495Amount
                due to related parties
            
            
            352,505
            
            
            954Tax
                payables
            
            
            1,650,243
            
            
            1,028,885**Total
                Current Liabilities**
            
            
            3,091,615
            
            
            2,010,220**Minority
                Interests**
            
            
            3,465,724
            
            
            2,160,575**Commitments**
            
            
            -
            
            
            -**Stockholders'
                Equity**Common
                    stocks; $0.001 par value, 100,000,000 sharesauthorized,
                  shares issued and outstanding 24,699,615and 19,143,615
            
            
            24,700
            
            
            19,144Additional
                paid-in capital
            
            
            26,135,914
            
            
            12,619,049Statutory
                reserves
            
            
            4,299,653
            
            
            2,790,916Accumulated
                other comprehensive income
            
            
            2,578,107
            
            
            601,288Retained
                earnings
            
            
            17,845,610
            
            
            10,825,722**Total
                Stockholders' Equity**
            
            
            50,883,984
            
            
            26,856,119**Total
                Liabilities and Stockholders' Equity**
            
            $
            57,441,323
            
            $
            31,026,914


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











F-3








CHINA
                AGRITECH, INC. AND SUBSIDIARIESCONSOLIDATED
                INCOME STATEMENTSFOR
                THE YEARS ENDED DECEMBER 31, 2007, 2006 AND
                2005





2007
            
            2006
            
            2005**Net
                revenue**
            
            $
            39,270,292
            
            $
            29,525,577
            
            $
            25,335,316**Cost
                of revenue**
            
            
            (18,939,725
            )
            
            (14,161,358
            )
            
            (12,848,958
            )**Gross
                profit**
            
            
            20,330,567
            
            
            15,364,219
            
            
            12,486,358**Operating
                expenses****Selling
                expenses**
            
            
            (2,985,581
            )
            
            (2,983,756
            )
            
            (2,372,151
            )**Operating
                and administrative expenses**
            
            
            (2,418,895
            )
            
            (2,015,252
            )
            
            (2,633,522
            )**Total
                operating expenses**
            
            
            (5,404,476
            )
            
            (4,999,008
            )
            
            (5,005,673
            )**Income
                from operations**
            
            
            14,926,091
            
            
            10,365,211
            
            
            7,480,685**Other
                income (expense)****Other
                income**
            
            
            111,852
            
            
            98,617
            
            
            -**Finance
                costs**
            
            
            (271
            )
            
            (3,590
            )
            
            (160
            )**Total
                other income (expense)**
            
            
            111,581
            
            
            95,027
            
            
            (160
            )**Income
                before income taxes and minority interests**
            
            
            15,037,672
            
            
            10,460,238
            
            
            7,480,525**Provision
                for income taxes**
            
            
            (5,391,464
            )
            
            (4,248,144
            )
            
            (3,173,533
            )**Income
                before minorityinterests**
            
            
            9,646,208
            
            
            6,212,094
            
            
            4,306,992**Minority
                interests**
            
            
            (1,117,583
            )
            
            (862,756
            )
            
            (631,113
            )**Net
                income**
            
            
            8,528,625
            
            
            5,349,338
            
            
            3,675,879**Other
                comprehensive income****Foreign
                currency translation adjustment**
            
            
            1,976,819
            
            
            372,722
            
            
            228,566**Other
                comprehensive income**
            
            
            10,505,444
            
            
            5,722,060
            
            
            3,904,445**Basic
                weighted average shares outstanding**
            
            
            21,868,338
            
            
            18,735,944
            
            
            13,945,937**Basic
                net earning per share**
            
            
            0.39
            
            
            0.29
            
            
            0.26**Diluted
                weighted average shares outstanding**
            
            
            21,929,031
            
            
            18,735,944
            
            
            13,945,937**Diluted
                net earnings per share**
            
            $
            0.39
            
            $
            0.29
            
            $
            0.26





Baisc
                and diluted weighted average shares outstanding are the same as there
                is
                no antidilutive effect.The
                accompanying notes are an integral part of these consolidated financial
                statements.













F-4










CHINA
                AGRITECH, INC. AND SUBSIDIARIESCONSOLIDATED
                STATEMENT OF STOCKHOLDERS' EQUITYFOR
                THE YEARS ENDED DECEMBER 31, 2007, 2006 AND
                2005






Common
                stockAdditional
            
            
            
            
            
            OtherNumber
                of
            
            
            
            
            
            paid-in-
            
            
            Statutory
            
            
            comprehensive
            
            
            Retainedshares
            
            
            Amount
            
            
            capital
            
            
            reserves
            
            
            income
            
            
            earnings
            
            
            TotalBalance
                at January 1, 2005
            
            
            12,091,629
            
            $
            12,092
            
            $
            264,052
            
            $
            870,531
            
            $
            22,511
            
            
            4,208,695
            
            
            5,377,881Stock
                issued for cash
            
            
            908,472
            
            
            908
            
            
            1,349,092
            
            
            -
            
            
            -
            
            
            -
            
            
            1,350,000Recapitalization
                on reverse acquisition
            
            
            1,343,514
            
            
            1,344
            
            
            (1,344
            )Net
                income for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            3,675,879
            
            
            3,675,879Reclassification
                and adjustment to minority interest
            
            
            
            
            
            
            
            
            (64,059
            
            
            (89,895
            )
            
            (49,207
            )
            
            (397,910
            )
            
            (601,071
            )Foreign
                currency translation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            255,262
            
            
            -
            
            
            255,262Transfer
                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
            
            
            10,057,951Stock
                issued for cash
            
            
            4,800,000
            
            
            4,800
            
            
            11,074,905
            
            
            -
            
            
            -
            
            
            -
            
            
            11,079,705Stock
                option expenses
            
            
            -
            
            
            -
            
            
            (3,597
            )
            
            -
            
            
            -
            
            
            -
            
            
            (3,597
            )Foreign
                currency translation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            372,722
            
            
            -
            
            
            372,722Net
                income for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5,349,338
            
            
            5,349,338Transfer
                to statutory reserves
            
            
            -
            
            
            -
            
            
            -
            
            
            1,059,849
            
            
            -
            
            
            (1,059,849
            )
            
            -Balance
                at December 31, 2006
            
            
            19,143,615
            
            $
            19,144
            
            $
            12,619,049
            
            $
            2,790,916
            
            $
            601,288
            
            $
            10,825,722
            
            $
            26,856,119Stock
                issued for cash
            
            
            5,556,000
            
            
            5,556
            
            
            13,478,922
            
            
            -
            
            
            -
            
            
            -
            
            
            13,484,478Stock
                option expenses
            
            
            -
            
            
            -
            
            
            37,943
            
            
            -
            
            
            -
            
            
            -
            
            
            37,943Foreign
                currency translation
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,976,819
            
            
            -
            
            
            1,976,819Net
                income for the year
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8,528,625
            
            
            8,528,625Transfer
                to statutory reserve
            
            
            -
            
            
            -
            
            
            -
            
            
            1,508,737
            
            
            -
            
            
            (1,508,737
            )
            
            -Balance
                at December 31, 2007
            
            
            24,699,615
            
            $
            24,700
            
            $
            26,135,914
            
            
            4,299,653
            
            
            2,578,107
            
            
            17,845,610
            
            
            50,883,984









F-5








CHINA
      AGRITECH, INC. AND SUBSIDIARIES


CONSOLIDATED
      STATEMENT OF CASH FLOWS


FOR
      THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005





2007
            
            2006
            
            2005**Cash
                flows from operating activities:**Net
                income
            
            $
            8,528,625
            
            $
            5,349,338
            
            $
            3,675,879Adjustments
                to reconcile net income to net cashProvided
                by (used in) operating activities:Stock
                based compensation
            
            
            37,942
            
            
            (3,597
            )
            
            -Minority
                Interest
            
            
            1,117,583
            
            
            862,756
            
            
            631,113Depreciation
            
            
            390,736
            
            
            155,292
            
            
            102,901Decrease
                / (Increase) in current assets:Accounts
            
            
            (9,275,894
            )
            
            (3,357,026
            )
            
            (2,759,236
            )Other
                receivables
            
            
            (111,276
            )
            
            55,024
            
            
            (65,730
            )Inventory
            
            
            (2,186,497
            )
            
            (1,502,205
            )
            
            487,630Advances
                to suppliers
            
            
            (3,626,775
            )
            
            (5,769,071
            )
            
            (1,914,346
            )Prepayments
            
            
            (344,423
            )
            
            (62,887
            )
            
            100,289Other
                assets
            
            
            22,532
            
            
            2,024
            
            
            (226,162
            )(Decrease)
                / Increase in current liabilities:Accounts
                payable
            
            
            (357,627
            )
            
            262,020
            
            
            (281,234
            )Tax
                payables
            
            
            532,043
            
            
            365,731
            
            
            131,998Accrued
                expenses and other payables
            
            
            625,851
            
            
            305,739
            
            
            280,280Net
                cash provided by (used in) operating activities
            
            
            (4,647,180
            )
            
            (3,336,852
            )
            
            (163,382
            )**Cash
                flows from investing activities:**Restricted
                cash
            
            
            (1,911,179
            )
            
            174,972
            
            
            (275,000
            )Acquisition
                of property & equipment
            
            
            (1,429,517
            )
            
            (1,541,812
            )
            
            (8,238
            )Net
                cash used in investing
              activities
            
            
            (3,340,697
            )
            
            (1,366,840
            )
            
            (283,238
            )**Cash
                flows from financing activities:**Payments
                to shareholders / related parties
            
            
            -
            
            
            (51,312
            )
            
            (1,026,846
            )Capital
                contributed
            
            
            13,484,478
            
            
            11,079,705
            
            
            1,350,000-
            
            
            
            
            
            
            
            
            -Net
                cash provided by (used in) financing activities
            
            
            13,484,478
            
            
            11,028,393
            
            
            323,154**Effect
                of exchange rate change on cash and cash
                equivalents**
            
            
            (85,390
            )
            
            (150,513
            )
            
            14,468**Net
                increase in cash and cash equivalents**
            
            
            5,411,212
            
            
            6,174,178
            
            
            217,766**Cash
                and cash equivalents, beginning of year**
            
            
            6,430,009
            
            
            255,831
            
            
            38,065**Cash
                and cash equivalents, end of year**
            
            $
            11,841,221
            
            $
            6,430,009
            
            $
            255,831**Supplement
                disclosure of cash flow information:**Interest
                expense paid
            
            $
            -
            
            $
            3,590
            
            $
            160Income
                taxes paid
            
            $
            5,266,039
            
            $
            3,760,570
            
            $
            3,043,223Cash
                from issue of common stock placed in escrow account
            
            $
            2,000,000
            
            $
            11,079,705
            
            $
            1,350,000














F-6





CHINA
      AGRITECH, INC. AND SUBSIDIARIES


NOTES
      TO
      AUDITED CONSOLIDATED FINANCIAL STATEMENTS







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




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




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




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




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




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




Tailong
      was incorporated on October 27, 2003 under the laws of Hong Kong. On October
      9,
      2004, Tailong acquired 90% of Pacific Dragon, which conducts Tailong's only
      business operation. Pacific Dragon is a foreign investment joint venture and
      was
      incorporated in the PRC on May 20, 1994. Pacific Dragon is classified as a
      Foreign Invested Enterprise ("FIE") in the PRC and is subject to the FIE laws
      of
      the PRC. Its legal structure is similar to a limited liability company organized
      under state laws in the United States. The Articles of Associations provide
      for
      a term of 15 years with registered capital of $500,000. Pacific Dragon engages
      in the business of manufacturing and marketing a series of organic liquid
      compound fertilizers. These products are marketed and sold to farmers in several
      provinces of China. Pacific Dragon conducts ongoing research and development
      to
      enhance concentration of the organic liquid compound fertilizer and lower the
      manufacturing cost. Our major products include "LvLingBao II", LvLingBao III"
      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. Transaction costs incurred in the reverse acquisition have
      been charged to expense. On April 21, 2005, the Company filed a Form Definitive
      14C - Information Statement pursuant to Section 14(c) of the Securities Exchange
      Act of 1934 giving notice that the Company received written consents in lieu
      of
      a meeting from the holders of a majority of the Company's issued and outstanding
      common stock of a proposal to amend and restate the Company's Certificate of
      Incorporation (the "Restatement") to effect, among other things, a forward
      stock
      split whereby each share of issued and outstanding common stock is converted
      into 1.14 shares of the Company's common stock. The Form Definitive 14C became
      effective on May 12, 2005 when the Company filed its amended and restated
      Certificate of Incorporation with the Secretary of the State of Delaware. The
      effect of this action is reflected in the Company's financial statements as
      of
      the first day of the first period presented.




F-7




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




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




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




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




a. Principle
      of consolidation




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




b. Use
      of
      estimates




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




c. Cash
      and cash equivalents




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




d. Accounts
      receivable




The
      Company's policy is to maintain reserves for potential credit losses on accounts
      receivable. Management reviews the composition of accounts receivable and
      analyzes historical bad debts, customer concentrations, customer
      creditworthiness, current economic trends and changes in customer payment
      patterns to evaluate the adequacy of these reserves. The Company gives most
      clients an extended credit policy for one year. As of December 31, 2007 and
      2006, the Company had accounts receivable of $22,695,039 and $12,239,073 ,
      net of
      allowance of $227,981 and $170,236 respectively.




e. Advances
      to suppliers




The
      Company provides advances to certain vendors for purchase of it’s material. As
      of December 31, 2007 and 2006, the advances to suppliers amounted to $12,343,255
      and $8,038,974, respectively.




F-8


f. Inventories




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




g. Property,
      plant and equipment




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




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




h. Impairment




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




The
      Company tests long-lived assets, including property, plant and equipment and
      intangible assets subject to periodic amortization, for recoverability at least
      annually or more frequently upon the occurrence of an event or when
      circumstances indicate that the net carrying amount is greater than its fair
      value. Assets are grouped and evaluated at the lowest level for their
      identifiable cash flows that are largely independent of the cash flows of other
      groups of assets. The Company considers historical performance and future
      estimated results in its evaluation of potential impairment and then compares
      the carrying amount of the asset to the future estimated cash flows expected
      to
      result from the use of the asset. If the carrying amount of the asset exceeds
      estimated expected undiscounted future cash flows, the Company measures the
      amount of impairment by comparing the carrying amount of the asset to its fair
      value. The estimation of fair value is generally measured by discounting
      expected future cash flows as the rate the Company utilizes to evaluate
      potential investments. The Company estimates fair value based on the information
      available in making whatever estimates, judgments and projections are considered
      necessary. There was no impairment of long-lived assets for the year ended
      December 31, 2007 and 2006.




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).




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 year ended
      December 31, 2007 and 2006 were $460,403 and $686,384 respectively.




F-9


k. Income
      taxes




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




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




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




l. Foreign
      currency translation




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




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 carrying amounts reported in the statements of
      financial position for assets and liabilities qualifying as financial
      instruments are a reasonable estimate of fair value.




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




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




n. Earning
      per share (EPS)




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




F-10


Basic
      earning per share were $0.40 and $0.29 for the year ended December 31, 2007
      and
      2006. Diluted earning per share were $0.39 and $0.29 for the year ended December
      31, 2007 and 2006.




o. Segment
      reporting




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




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




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




q. Recent
      Accounting Pronouncements




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




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





1.
      A
      brief description of the provisions of this Statement


2.
      The
      date that adoption is required




F-11




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





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





In
      February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for
      Financial Assets and Financial Liabilities. FAS 159 is effective for fiscal
      years beginning after November 15, 2007. Early adoption is permitted subject
      to
      specific requirements outlined in the new Statement. Therefore, calendar-year
      companies may be able to adopt FAS 159 for their first quarter 2007 financial
      statements.




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





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





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





On
      March
      19, 2008, the Financial Accounting Standards Board (FASB) issued FASB Statement
      No. 161, Disclosures about Derivative Instruments and Hedging Activities. The
      new standard is intended to improve financial reporting about derivative
      instruments and hedging activities by requiring enhanced disclosures to enable
      investors to better understand their effects on an entity’s financial position,
      financial performance, and cash flows. It is effective for financial statements
      issued for fiscal years and interim periods beginning after November 15, 2008,
      with early application encouraged. "Use and complexity of derivative instruments
      and hedging activities have increased significantly over the past several years.
      This has led to concerns among investors that the existing disclosure
      requirements in FASB Statement No. 133, Accounting for Derivative Instruments
      and Hedging Activities, do not provide enough information about how these
      instruments and activities affect the entity’s financial position and
      performance," explained Kevin Stoklosa, project manager. "By requiring
      additional information about how and why derivative instruments are being used,
      the new standard gives investors better information upon which to base their
      decisions." The new standard also improves transparency about the location
      and
      amounts of derivative instruments in an entity’s financial statements; how
      derivative instruments and related hedged items are accounted for under
      Statement 133; and how derivative instruments and related hedged items affect
      its financial position, financial performance, and cash flows. FASB Statement
      No. 161 achieves these improvements by requiring disclosure of the fair values
      of derivative instruments and their gains and losses in a tabular format. It
      also provides more information about an entity’s liquidity by requiring
      disclosure of derivative features that are credit risk-related. Finally, it
      requires cross-referencing within footnotes to enable financial statement users
      to locate important information about derivative instruments. Management is
      currently evaluating the effect of this pronouncement on financial
      statements.




F-12


r. Reclassifications




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




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




Proceeds
      amounting to $1,350,000 from the issuance of shares during 2005 were deposited
      in an escrow account. The purchase price was to be released from escrow. In
      accordance with the terms of the stock purchase agreement, $600,000 of the
      proceeds was kept in a trust account for a certain corporate communication
      program. The balances were $11,415 and $100,028 as of December 31, 2007 and
      2006,




On
      July
      5, 2007, the Company issued and sold 5,556,000 shares of our Company’s common
      stock for $2.70 per share for a purchase price, in the aggregate, of $15,001,200
      which was completed on July 5, 2007. The direct costs related to this stock
      sale, including legal and professional fees, were deducted from the related
      proceeds and the net amount in excess of par value was recorded as additional
      paid-in capital. $2,000,000 was held in escrow account as of December 31, 2007.
      The amount held in escrow will be distributed to the investors on a pro rata
      basis if the Company’s net income for the year ended December 31, 2007 would be
      $8,350,000 or less.




The
      balances were $2,011,415 and $100,028 as of December 31, 2007 and 2006,
      respectively.




**4.** **INVENTORIES**




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




December
                31
            
            December
                312007
            
            2006Raw
                Materials
            
            $
            2,579,210
            
            $
            483,100Packing
                Materials
            
            
            37,645
            
            
            46,133Finished
                goods
            
            
            891,886
            
            
            791,380Work
                in progress
            
            
            -
            
            
            1,631$
            3,508,741
            
            $
            1,322,244




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




As
      of
      December 31, 2007 and 2006, prepayments and other receivable amounted to
      $1,242,693 and $382,463, respectively. Prepayments and other receivable include
      mainly prepaid rent, prepaid advertising and advanced travel expenses to
      employees.




F-13


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




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




December
                31
            
            December
                312007
            
            2006Manufacturing
                machinery
            
            $
            3,750,526
            
            $
            2,388,716Leasehold
                improvement
            
            
            165,905
            
            
            57,706Office
                equipment
            
            
            210,998
            
            
            228,172Motor
                vehicles
            
            
            565,310
            
            
            342,5704,692,738
            
            
            3,017,164Less:
                Accumulated Depreciation
            
            
            (893,780
            )
            
            (503,041
            )$
            3,798,958
            
            $
            2,514,123




Depreciation
      expenses for the year ended December 31, 2007 and 2006 were $390,736 and
      $155,292, respectively.




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




The
      amounts due to related parties were the advances from the Company’s officers and
      shareholders, and were unsecured, non-interest bearing and due on demand.
      Amounts due to related parties were $ 352,505 and
      $954 as December 31, 2007 and 2006, respectively.




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




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




December
                31
            
            December
                312007
            
            2006Accrued
                commission payable
            
            $
            818,671
            
            $
            577,571Accrued
                professional expense
            
            
            -
            
            
            90,000Other
                accrued expense
            
            
            103,495
            
            
            17,678Vendor
                deposit
            
            
            -
            
            
            148,395Others
                payable
            
            
            125,555
            
            
            37,851$
            1,047,721
            
            $
            871,495







F-14






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




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




December
                31
            
            December
                312007
            
            2006Income
                tax payable
            
            $
            1,069,936
            
            $
            880,716VAT
                tax payable
            
            
            576,911
            
            
            144,641Individual
                tax payable
            
            
            339
            
            
            1,002Others
            
            
            3,057
            
            
            2,526$
            1,650,243
            
            $
            1,028,885




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




The
      Company utilizes SFAS No. 109, "Accounting for Income Taxes," which requires
      the
      recognition of deferred tax assets and liabilities for the expected future
      tax
      consequences of events that have been included in the financial statements
      or
      tax returns. Under this method, deferred income taxes are recognized for the
      tax
      consequences in future years of differences between the tax bases of assets
      and
      liabilities and their financial reporting amounts at each period end based
      on
      enacted tax laws and statutory tax rates applicable to the periods in which
      the
      differences are expected to affect taxable income. Valuation allowances are
      established, when necessary, to reduce deferred tax assets to the amount
      expected to be realized. At December 31, 2007 and 2006, there was no significant
      book to tax differences.




Local
      PRC income tax





The
      Company is governed by the Income Tax Law of the PRC concerning Chinese
      registered limited liability companies. Under the Income Tax Laws of the PRC,
      Chinese enterprises are generally subject to an income tax at an effective
      rate
      of 33% (30% state income taxes plus 3% local income taxes) on income reported
      in
      the statutory financial statements after appropriate tax adjustments, unless
      the
      enterprise is located in a specially designated region for which more favorable
      effective tax rates are applicable. The provision for income taxes for the
      year
      ended December 31, 2007 and 2006 consisted of the following:




Year
                ended December 31,2007
            
            
            2006Provision
                for China income and local tax
            
            $
            5,391,464
            
            $
            4,248,144Deferred
                taxes for China
            
            
            -
            
            
            -Provision
                for US income and local tax
            
            
            -
            
            
            -Total
                provision for income taxes
            
            $
            5,391,464
            
            $
            4,248,144





The
      following table reconciles the U.S. statutory rates to the Company’s effective
      tax rate at December 31,







F-15




2007
            
            2006Tax
                at statutory rate
            
            
            34
            %
            
            34
            %Foreign
                tax rate difference
            
            
            -1
            %
            
            -1
            %Net
                operating loss in other tax jurisdiction for where no benefit is
                realized
            
            
            3
            %
            
            8
            %36
            %
            
            41
            %




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




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




The
      amounts of $3,465,724 and $2,160,575, as of December 31, 2007 and 2006,
      represent the 10% interest of our minority shareholder, Harbin Yinlong
      Enterprise Co., Ltd., a related party of the Company, in Pacific
      Dragon.




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




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




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




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




There
      were no major customers which accounted for more than 10% of the total net
      revenue for the years ended December 31, 2007 and 2006.





Four
      vendors provided approximately 80% of the Company’s raw materials for the year
      ended December 31, 2007 with each vendor individually accounting for about
      31%,
      19%, 21% and 10%. Three vendors provided 76% of the Company’s dollar value of
      raw materials for the year ended December 31, 2006 with each individually
      accounting for about 34%, 27% and 15%.





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




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




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




F-16




On
      July
      5, 2007, the Company issued and sold 5,556,000 shares of our Company’s common
      stock for $2.70 per share for a purchase price, in the aggregate, of $15,001,200
      which was completed on July 5, 2007. The direct costs related to this stock
      sale, including legal and professional fees, were deducted from the related
      proceeds and the net amount in excess of par value was recorded as additional
      paid-in capital. $2,000,000 was held in escrow account as of December 31, 2007.




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




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




Primarily
      as a result of adopting SFAS No. 123R, the Company recognized $37,942 in
      share-based compensation expense for the year ended December 31, 2007. The
      impact of this share-based compensation expense on the Company's basic and
      diluted earnings per share was $0.00 per share. The fair value of our stock
      options was estimated using the Black-Scholes option pricing model.




Options




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




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




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




Following
      is a summary of the stock option activity:




Options
                outstanding
            
            Weighted
                Average Exercise Price
            
            Aggregate
                Intrinsic ValueOutstanding,
                December 31, 2006
            
            
            37,500
            
            $
            3.50
            
            $
            0.00Granted
            
            
            12,500
            
            $
            3.50
            
            $
            0.00Forfeited
            
            
            -
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -
            
            
            -Outstanding,
                December 31, 2007
            
            
            50,000
            
            $
            3.50
            
            $
            0.00







F-17


Following
      is a summary of the status of options outstanding at December 31, 2007:





Outstanding
                Options
            
            Exercisable
                OptionsExercise
                Price
            
            Number
            
            Average
                Remaining Contractual Life
            
            Average
                Exercise Price
            
            Number
            
            Average
                Exercise Price$
            3.50
            
            
            12,500
            
            
            3.375
            
            $
            3.50
            
            
            4,063
            
            $
            3.50




Warrants




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




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




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




Following
      is a summary of the warrants activity:




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





Following
      is a summary of the status of warrants outstanding at December 31, 2007:





Outstanding
                Warrants
            
            Exercisable
                WarrantsExercise
                Price
            
            Number
            
            Average
                Remaining Contractual Life
            
            Average
                Exercise Price
            
            Number
            
            Average
                Exercise Price$
            2.70
            
            
            388,920
            
            
            4.5
            
            $
            2.70
            
            
            388,920
            
            $
            2.70







F-18




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




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




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




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




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




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




In
      accordance with the Chinese Company Law, the Company has allocated 10% of its
      net income to surplus. The amount included in the statutory reserves as of
      December 31, 2007 and 2006 amounted to $2,866,436 and $1,860,610,
      respectively.




The
      Company established a reserve for the annual contribution of 5% of net income
      to
      the common welfare fund. The amount included in the statutory reserves as of
      December 31, 2007 and 2006 amounted to $1,,433,217 and $930,306,
      respectively.




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




On
      January 6, 2005, Pacific Dragon entered into a License Agreement with Mr. Chang
      Yu, director of the Company. The Company's PRC subsidiary, Pacific Dragon,
      has
      entered into a tenancy agreement with Harbin Yinlong Enterprise Co. Ltd.
      ("Harbin Yinlong"), the joint venture partners holding 10% equity interest
      in
      Pacific Dragon to lease two factory plants and one office building with a total
      floor area of 7,018 sq. meters for a term of 10 years from January 1, 2004
      to
      December 31, 2013 at an annual rent of RMB 1,200,000 (equivalent to $144,578).
      The tenancy agreement was revised by increasing the annual rent to RMB 3,600,000
      (equivalent to $442,800) effective from July 1, 2005.




The
      Company incurred rent expenses $701,761 and $621,106 for the year ended December
      31, 2007 and 2006. The rent expenses for the next five years after December
      31,
      2007 are as follows:






Year
                2008
            
            
            759,455Year
                2009
            
            
            732,485Year
                2010
            
            
            713,920Year
                2011
            
            
            713,920Year
                2012 and thereafter
            
            
            1,551,469$
            4,471,250








F-19






**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this Report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.







CHINA
                AGRITECH, INC.March
                27, 2008
            
            By:
                /s/ Yu Chang(Date
                Signed)
            
            Yu
                Chang, Chief Executive Officer, President, and Secretary




Pursuant
      to the requirements of 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 date indicated.




**Signature**
            **Capacity**
            **Date**/s/
                Yu Chang
              
              Yu
                Chang
            Chief
                Executive Officer, President, Secretary and Director
            March
                27, 2008/s/
                Li Jun Peng
              Li
                Jun Peng
            Chief
                Financial Officer and Controller
            March
                27, 2008/s/
                Xiaorong Teng
              Xiaorong
                Teng
            Chief
                Operating Officer and Director
            March
                27, 2008/s/
                Tao Liang
              Tao
                Liang
            Director
            March
                27, 2008












**Exhibit
      Index**





**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 our 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 our current
                report on Form 8-K filed on February 3, 2005, as
                amended).




3.1
            
            Amended
                and Restated Certificates of Incorporation as filed with the Secretary
                of
                the State of Delaware (incorporated by reference to Exhibit 3.1 in
                our
                registration statement on Form SB-2 filed on July 22, 2005, as
                amended).3.2
            
            Articles
                of Association of China Tailong Holdings Company Limited (incorporated
                by
                reference to Exhibit 4.2 in our current report on Form 8-K filed
                on
                February 3, 2005, as amended).3.3
            
            Articles
                of Association of Pacific Dragon Fertilizers Co. Ltd. (incorporated
                by
                reference to Exhibit 4.3 in our current report on Form 8-K filed
                on
                February 3, 2005, as amended).3.4
            
            Amended
                and Restated Bylaws (incorporated by reference to Exhibit 3.2 in
                our
                registration statement on Form SB-2 filed on July 22, 2005, as
                amended).4.1
            
            Form
                of Registration Right Agreement, dated June 29, 2007, by and among
                the
                registrant, Securities Transfer Corporation and the Investors
                (incorporated by reference to Exhibit 4 in our Form S-1/A filed on
                October
                19, 2007).4.2
            
            Common
                Stock Purchase Warrant, dated July 5, 2007, issued to Roth Capital
                Partner, LLC. (incorporated by reference to Exhibit 4.1 in our Form
                S-1
                filed on August 20, 2007).10.1
            
            Form
                of Subscription Agreement, dated May 25, 2004 (incorporated by reference
                to Exhibit 10.1 in our 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 our 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
                our
                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 our 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 our 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 our 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 our current report on Form 8-K filed on January 10,
                2006).











**Exhibit
                No.**
            
            **Description**


10.8
            
            Form
                of Escrow Agreement. (incorporated by reference to Exhibit 10.2 in
                our
                current report on Form 8-K filed on July 6, 2007).10.9
            
            Form
                of Escrow Agreement, (incorporated by reference to Exhibit 10.3 in
                our
                current report on Form 8-K filed on July 6, 2007).10.10
            
            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 our current report on Form 8-K filed on February 3, 2005,
                as
                amended).10.11
            
            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 our registration statement on Form SB-2 filed
                on July
                22, 2005, as amended).10.12
            
            Stock
                Purchase Agreement, dated Jan 13, 2006, by and among the registrant
                and
                the investors (incorporated by reference to Exhibit 10.1 in our current
                report on Form 8-K filed on January 10, 2006).10.13
            
            Stock
                Purchase Agreement, dated March 2, 2006, by and among the registrant,
                China Tailong Group Limited and Mr. Yu Chang (incorporated by
                reference to Exhibit 10.11 in our Form SB-2/A filed on April 28,
                2007).10.14
            
            Form
                of Securities Purchase Agreement, dated June 29, 2007 (incorporated
                by
                reference to Exhibit 10.1 in our current report on Form 8-K filed
                on July
                6, 2007).10.15
            
            Lease
                Agreement, dated December 30, 2003, by and between Pacific Dragon
                Fertilizers Co. Ltd. and Yinlong Industrial Co. Ltd. (incorporated
                by
                reference to Exhibit 10.6 in our registration statement on Form SB-2
                filed
                on July 22, 2005, as amended).10.16
            
            Amendment
                to the Lease Agreement, dated June 28, 2005, by and between Pacific
                Dragon
                Fertilizers Co. Ltd. and Yinlong Industrial Co. Ltd. (incorporated
                by
                reference to Exhibit10.12 in our annual report on Form 10-KSB filed
                on
                April 14, 2006).10.17
            
            Lease
                Agreement, dated May 31, 2004, by and between China Tailong Holdings
                Company Limited and Upgrade International Trading Co. Ltd. (incorporated
                by reference to Exhibit 10.13 in our annual report on Form 10-KSB
                filed on
                April 14, 2006).10.18
            
            Lease
                Agreement, dated August 30, 2007, by and between China Tailong Holdings
                Company Limited and Superior Strategy Company Limited (incorporated
                by
                reference to Exhibit 10.18 in our Form S-1/A filed on October 19,
                2007).10.19
            
            License
                Agreement, dated January 6, 2005, by and between Yu Chang and Pacific
                Dragon Fertilizers Co. Ltd. (incorporated by reference to Exhibit
                10.4 in
                our registration statement on Form SB-2 filed on July 22, 2005, as
                amended).10.20
            
            Permanent
                License Agreement, dated December 3, 2005, by and between Yu Chang
                and
                Pacific Dragon Fertilizers Co. Ltd. (incorporated by reference to
                Exhibit
                10.16 in our annual report on Form 10-KSB filed on April 14,
                2006)









**Exhibit
                No.**
            
            **Description**


10.21
            
            Permanent
                License Agreement, dated July 5, 2007, by and between Yu Chang and
                Pacific
                Dragon Fertilizers Co., Ltd. (incorporated by reference to Exhibit
                10.21
                in our Form S-1 filed on August 17, 2007).10.22
            
            Employment
                Agreement between Yu Chang and Pacific Dragon Fertilizers Co. Ltd.
                (incorporated by reference to Exhibit 10.5 in our registration statement
                on Form SB-2 filed on July 22, 2005, as amended).10.23
            
            Employment
                Agreement, dated May 8, 2007, by and between Kelviz Lim Kok Siak
                and
                Pacific Dragon Fertilizers Co. Ltd. (incorporated by reference to
                Exhibit
                10.23 in our current report on Form S-1 filed on August 20,
                2007).10.24
            
            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 our quarterly report on Form 10-QSB
                filed on
                June 13, 2005)10.25
            
            Supplier
                contracts dated March 1, 2005, by and between Pacific Dragon Fertilizers
                Co., Ltd. and Inner-Mongolia Humic Acid Factory (incorporated by
                reference
                to Exhibit 10.25 in our current report on Form S-1 filed on August
                20,
                2007).10.26
            
            Supplier
                contracts dated December 16, 2005, by and between Pacific Dragon
                Fertilizers Co., Ltd. and Shenzhen Hongchou Technology Company
                (incorporated by reference to Exhibit 10.26 in our current report
                on Form
                S-1 filed on August 20, 2007).10.27
            
            Distribution
                contracts dated June 1, 2006, by and between China Agritech Inc.
                and KDK
                Co., Ltd., (incorporated by reference to Exhibit 10.1 in our Form
                8-K
                filed on September 13, 2006).10.28
            
            Distribution
                contracts dated June 1, 2006, by and between China Agritech Inc.
                and Aheqi
                Co., Ltd., (incorporated by reference to Exhibit 10.2 in our Form
                8-K
                filed on September 13, 2006).10.29
            
            Supplier
                contracts dated January 15, 2007, by and between Pacific Dragon
                Fertilizers Co., Ltd. and Beijing Zhongxin Chemical Technology Development
                Co. (incorporated by reference to Exhibit 10.27 in our Form S-1 filed
                on
                August 20, 2007).10.30
            
            Supplier
                contracts dated October 8, 2007, by and between China Agritech, Inc.
                and
                SINOCHEM FERTILIZER CO., LTD.(incorporated by reference to Exhibit
                10.1 in
                our Form 8-K filed on October 10, 2007).14
            
            Code
                of ethics (incorporated by reference to Exhibit 14 in our annual
                report on
                Form 10-KSB filed on April 14, 2006)21
            
            Subsidiaries
                of the Registrant (incorporated by reference to Exhibit 21 in our
                registration statement on Form 10K filed on April 2,
                2007)24
            
            Power
                of Attorney (included on the signature page of this registration
                statement).









**Exhibit
                No.**
            
            **Description**


31.1*
            Certification
                of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200231.2*
            Certification
                of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley
                Act of 200232.1*
            Certification
                of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                *32.2*
            Certification
                of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
                *