SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended: March 31, 2010

¨	TRANSITION REPORT PUR SUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-49608

CHINA AGRITECH, INC.

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

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

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

Chaoyang North Road, Chaoyang District, Beijing, China 100024

People’s Republic of China

(Address of principal executive offices, Zip Code)

(86) 10-59621278

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller Reporting Company x

(Do not check if a smaller reporting company)

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

The number of shares outstanding of each of the issuer’s classes of common equity, as of May 7, 2010 is as follows:

	Class of Securities		Shares Outstanding
	Common Stock, $0.001 par value		18,909,219

Contents	Page(s)

PART I: FINANCIAL INFORMATION
Item 1 Financial statements	1-13
Item 2 Management Discussion and Analysis of Financial Condition and Results of Operations	14-25
Item 3 Quantitative and Qualitative Disclosure about Market Risk	25
Item 4 Controls and Procedures	26
PART II : OTHER INFORMATION	26
Item 1 Legal Proceedings	26
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3 Defaults Upon Senior Securities	26
Item 4 Removed and Reserved	26
Item 5 Other Information	26
Item 6 Exhibits	26
SIGNATURES	27

PART I: FINANCIAL STATEMENTS

CHINA AGRITECH, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31, 2010		December 31, 2009
ASSETS	(Unaudited)
Current Assets
Cash and cash equivalents	$	28,670,837	$	20,313,089
Accounts receivable, net		43,341,716		39,256,098
Inventories		13,607,662		6,606,095
Advances to suppliers		12,889,971		25,348,687
Prepayments and other receivables		2,864,593		2,287,220
Total Current Assets		101,374,779		93,811,189

Property, plant and equipment, net		5,836,267		5,980,696
Construction in progress		424,128		424,006
Intangible assets, net		381,926		397,507

Total Assets	$	108,017,100	$	100,613,398

LIABILITIES AND STOCKHOLDERS’S EQUITY
Current Liabilities
Accounts payable	$	4,014,855	$	62,616
Accrued expenses and other payables		1,603,498		1,394,357
Warrant liabilities		29,635,346		20,157,869
Taxes payable		1,616,406		1,695,665

Total Current Liabilities		36,870,105		23,310,507

Stockholders’ Equity
Preferred stock: $0.001 par value, 10,000,000 shares authorized, none issued		—		—
Common stock: $0.001 par value; 100,000,000 shares authorized, 17,002,542* shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively		17,003		17,003
Additional paid in capital		34,853,025		34,698,079
Statutory reserves		2,195,818		2,195,818
Accumulated other comprehensive income		5,777,832		5,723,265
Retained earnings		28,303,317		34,668,726
Total Equity		71,146,995		77,302,891

Total Liabilities and Stockholders’ Equity	$	108,017,100	$	100,613,398

*as retroactively adjusted for the 1-for-4 reverse stock split on September 8, 2009 and the 2-for-1 forward stock split on February 1, 2010.

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

CHINA AGRITECH, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	For the Three Months Ended March, 31,
	2010			2009
Net revenue	$	15,353,857		$	7,347,376

Cost of revenue		(8,970,221	)		(3,978,685	)

Gross profit		6,383,636			3,368,691

Operating expenses:
Selling expenses		(559,769	)		(405,719	)
Operating and administrative expenses		(1,562,001	)		(983,675	)

Total operating expenses		(2,121,770	)		(1,389,394	)

Income from operations		4,261,866			1,979,297

Other income/(expenses):
Interest income		11,346			2,573
Exchange loss, net		(165	)		(447	)
Changes in fair value of warrants classified as derivatives		(9,477,477	)		-
Total other income/(expense), net		(9,466,296	)		2,126

(Loss)/Income before income taxes		(5,204,430	)		1,981,423

Income tax expenses		(1,160,979	)		(714,278	)

Net (loss)/ income		(6,365,409	)		1,267,145

Net income attributable to non-controlling interest		-			(214,283	)

Net (loss)/income attributable to China Agritech stockholders	$	(6,365,409	)	$	1,052,862

Other comprehensive income
Foreign currency translation adjustment		54,567			(101,813	)

Comprehensive income		(6,310,842	)		951,049
Comprehensive income attributable to non-controlling interest in a subsidiary		-			17,217

Comprehensive income attributable to China Agritech stockholders		(6,310,842	)		968,266
(Loss)/Earnings per share*:
- Basic	$	(0.37	)	$	0.09
- Diluted	$	(0.37	)	$	0.09
Weighted average shares outstanding*:
- Basic		17,002,542			12,349,808
- Diluted		17,002,542			12,349,808

*as retroactively adjusted for the 1-for-4 reverse stock split on September 8, 2009 and the 2-for-1 forward stock split on February 1, 2010.

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

CHINA AGRITECH, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

	For the Three Months Ended 31,
	2010			2009

Cash flows from operating activities:
Net (loss)/ income	$	(6,365,409	)	$	1,267,145
Adjustments to reconcile net income to net cash used in operating activities:
Share-based compensation		154,947			—
Depreciation and amortization of property, plant and equipment		190,116			152,442
Amortization of intangible assets		15,708			—
Allowance for doubtful debts		(437	)		—
Changes in fair value of warrants classified as derivatives		9,477,477			—
Decrease / (Increase) in current assets:
Accounts receivable		(4,085,181	)		(1,287,193	)
Inventories		(7,001,568	)		(6,460,298	)
Advances to suppliers		12,458,716			215,676
Prepayments and other receivable		(577,372	)		170,089
(Decrease) / Increase in current liabilities:
Accounts payable		3,952,239			369,294
Tax payables		(79,259	)		13,053
Accrued expenses and other payables		209,142			154,357
Net cash generated from (used in) operating activities		8,349,119			(5,405,435	)

Cash flows from investing activities:
Acquisition of property, plant and equipment		(45,687	)		(598	)
Deposit paid for acquisition of non controlling interest		—			(1,000,000	)
Net cash used in investing activities		(45,687	)		(1,000,598	)


Effect of exchange rate change on cash and cash equivalents		54,316			(62,947	)

Net increase/ (decrease) in cash and cash equivalents		8,357,748			(6,468,980	)
Cash and cash equivalents, beginning of period		20,313,089			11,952,235

Cash and cash equivalents, end of period	$	28,670,837		$	5,483,255

Supplemental disclosure of cash flow information:
Cash paid for interest		—			—
Cash paid for income tax	$	1,282,063		$	714,278
Non cash Investment and Financing Activity
Acquisition of noncontrolling interest funded by issuance of stock	$	—		$	(1,000,000	)

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

CHINA AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2010 AND 2009

1.	ORGANIZATION AND DESCRIPTION OF BUSINESS

China Agritech Inc. (the “Company” or “China Agritech”) is a holding company whose direct and indirect subsidiaries manufacture and sell organic liquid compound fertilizers, organic granular compound fertilizers and related agricultural products. The Company conducts its business operations primarily through its subsidiaries including Anhui Agritech Agriculture Development Limited (“Anhui Agritech”), Beijing Agritech Fertilizer Ltd. (“Beijing Agritech”), China Tailong Holdings Company Limited (“Tailong”) and Pacific Dragon Fertilizers Co. Ltd. (“Pacific Dragon”). The Company’s revenues are derived from the sale of fertilizers and related agricultural products to customers.

Changes in Capital Structure

On September 8, 2009, the Company effected a reverse split of its common stock on the basis of one share for every four outstanding shares, so that every four outstanding shares of common stock before the reverse stock split was converted into one common stock after the reverse stock split. On February 1, 2010, the Company effected a 2 for 1 forward split of its common stock on the basis of two shares for every one outstanding shares, so that every outstanding share of common stock before the forward stock split was converted into two shares of common stock after the forward stock split. Except as otherwise noted, all references to common share and per common share amounts (including warrant and option shares, shares reserved for issuance and applicable exercise prices) for all periods presented in these consolidated financial statements have been retroactively restated to reflect these reverse and forward splits.

2.	BASIS OF PRESENTATION

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

These interim condensed consolidated financial statements for the three-month periods ended March 31, 2010 and 2009 are unaudited. In the opinion of management, all adjustments and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. These interim condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with accounting principles generally accepted in the United States. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the years ended December 31, 2009 and 2008, and accompanying footnotes included in Company’s annual report on Form 10-K for the year ended December 31, 2009.

CHINA AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2010 AND 2009

3.	RECENT ACCOUNTING PRONOUCEMENTS

Effective January 1, 2010, the Company adopted the provisions in ASU 2009-17, “Consolidation (ASC Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities”, which changes how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. The adoption of the provisions in ASU 2009-17 did not have an impact on the Company’s consolidated financial statements.

Effective January 1, 2010, the Company adopted ASU 2010-01, “Equity (ASC Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash”, which clarifies that the stock portion of a distribution to shareholders that allow them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected prospectively in earnings per share and is not considered a stock dividend for purposes of ASC Topic 505 and ASC Topic 260. The adoption of the provisions in ASU 2010-01 did not have an impact on the Company’s consolidated financial statements.

Effective January 1, 2010, the Company adopted the provisions in ASU 2010-06, “Fair Value Measurements and Disclosures (ASC Topic 820): Improving Disclosures about Fair Value Measurements, which requires new disclosures related to transfers in and out of levels 1 and 2 and activity in level 3 fair value measurements, as well as amends existing disclosure requirements on level of disaggregation and inputs and valuation techniques. The adoption of the provisions in ASU 2010-06 did not have an impact on the Company’s consolidated financial statements.

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

4.	(LOSS) / EARNINGS PER SHARE

The following table is a reconciliation of the net (loss) income and the weighted average shares used in the computation of basic and diluted (loss) earnings per share for the periods presented:

	For Three Months Ended March 31,
	2010			2009
(Loss)/ Income available to common stockholders for calculation of basic and diluted EPS	$	(6,365,409	)	$	1,052,862

Weighted average number of shares:
- Basic		17,002,542			12,349,808
- Effect of dilutive securities – options and warrants		–			–
- Diluted		17,002,542			12,349,808

On September 8, 2009, the Company effected a 1-for-4 reverse split of its common stock. On February 1, 2010, the Company effected a 2-for-1 forward split of its common stock. The weighted average number of shares for the purposes of calculating the earnings per share has been retroactively adjusted as if the reverse split and the forward split had taken effect as of the beginning of the earliest period presented.

The dilutive earnings per share computation for the three months ended March 31, 2010 excludes options and warrants to purchase up to 189,791 shares of common stock because the Company incurred net loss for the period. The dilutive earnings per share computation for the three months ended March 31, 2009 excludes options and warrants to purchase up to 269,460 shares of common stock because their effects were anti-dilutive.

CHINA AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2010 AND 2009

5.	FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

Level one — Quoted market prices in active markets for identical assets or liabilities;

Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.

The following tables present the Company’s assets and liabilities measured at fair value on a recurring basic as of March 31, 2010 and December 31, 2009:

			Using Input
March 31, 2010	Carrying value		Level 1		Level 2		Level 3
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Warrant Liability	$	29,635,346	$	—	$	29,635,346	$	—
Total	$	29,635,346	$	—	$	29,635,346	$	—

			Using Input
December 31, 2009	Carrying value		Level 1		Level 2		Level 3

Warrant Liability	$	20,157,869	$	—	$	20,157,869	$	—
Total	$	20,157,869	$	—	$	20,157,869	$	—

There were no assets or liabilities measured at fair value on a non-recurring basis as of March 31, 2010 or December 31, 2009.

The carrying values of cash and cash equivalents, trade and other receivables, trade and other payables approximate their fair values due to the short maturities of these instruments.

CHINA AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2010 AND 2009

5.	FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS – CONTINUED

Derivative Instruments – Warrants

The Company’s only derivative instruments as of March 31, 2010 included warrants, the exercise price of which are denominated in a currency other than the Company’s functional currency, as follows:

▪	1,857,024 warrants (“2009 Warrants”) exercisable at approximately $5.38 per share at any time during the period from April 19, 2010 through April 2012, that were issued in conjunction with a private placement of the Company’s common stock completed in October 2009.

Effective January 1, 2009, the Company adopted the guidance provided in FASB ASC 815-40-15-5 through 815-40-15-8 (formerly EITF 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock”). ASC 815-40-15-5 through 815-40-15-8 applies to any freestanding financial instruments or embedded features that have the characteristics of a derivative, as defined in ASC paragraph 815-10-15-83 (formerly SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,”) and to any freestanding financial instruments that are potentially settled in an entity’s own common stock.

The Warrants are not considered indexed to the Company’s own stock and have been recorded at their fair value as derivative liabilities. In addition, they do not qualify for hedge accounting, and as such, all changes in the fair value of these warrants have been recognized as other income or expenses. These warrants will continue to be reported as liability until such time as they are exercised or expire.

The Company estimates the fair values of the 2009 Warrants as of March 31, 2010 and December 31, 2009 using the Black-Scholes option pricing model based on the following assumptions:

	March 31, 2010			December 31, 2009
	(Unaudited)
Exercise price (per share)	$	5.38		$	5.38
Remaining contractual life (years)		2.05			2.3
Dividend yield		—			—
Expected volatility (based on historical volatility)		97.95	%		112.21	%
Risk free interest rate		1.04	%		1.29	%
Estimated fair value (per share)	$	7.937		$	10.855

The risk-free rate of return reflects the interest rate for U.S. Treasury Note with similar time-to-maturity to that of the warrants.

CHINA AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2010 AND 2009

6.	ACCOUNTS RECEIVABLE

Accounts receivable consist of the following:

	March 31, 2010			December 31, 2009
	(Unaudited)
Accounts receivable	$	44,110,244		$	40,025,063
Less: Allowance for doubtful accounts		(768,528	)		(768,965	)
	$	43,341,716		$	39,256,098

The activity in the Company’s allowance for doubtful accounts is summarized as follows:

	For the Three Months Ended Ended March 31,
	2010			2009
	(Unaudited)
Balance at the beginning of the period	$	768,965		$	448,606
(Reversal of provision)/ provision made for the period		(437	)		320,359
Balance at the end of the period	$	768,528		$	768,965

7.	INVENTORIES

Inventories consist of the following:

	March 31, 2010		December 31, 2009
	(Unaudited)
Raw Materials	$	9,678,013	$	4,166,380
Work in progress		22,744		—
Packing materials		689,892		85,342
Finished goods		3,217,013		2,354,373
	$	13,607,662	$	6,606,095

CHINA AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2010 AND 2009

8.	PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	March 31, 2010			December 31, 2009
	(Unaudited)
Building	$	1,060,604		$	1,060,298
Manufacturing machinery		5,842,585			5,840,901
Leasehold improvements		440,217			440,092
Office equipment		230,973			223,298
Motor vehicles		665,484			629,587
		8,239,863			8,194,176
Less: Accumulated depreciation and amortization		(2,403,596	)		(2,213,480	)
Net book value	$	5,836,267		$	5,980,696

Depreciation expenses for the three months ended March 31, 2010 and 2009 was $190,116 and $152,320, respectively.

9.	INTANGIBLE ASSETS

Intangible assets consist of the following:

	March 31, 2010			December 31, 2009
	(Unaudited)
License for manufacture and sale of fertilizer products	$	439,477		$	440,100
Less: Accumulated amortization		(57,551	)		(42,593	)
Net book value	$	381,926		$	397,507

Amortization expenses for three months ended March 31, 2010 and 2009 was $15,708 and $nil respectively.

10.	ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables consist of the following:

	March 31, 2010		December 31, 2009
	(Unaudited)
Accrued expenses	$	708,349	$	439,028
Other payables		895,149		955,329
	$	1,603,498	$	1,394,357

CHINA AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2010 AND 2009

11.	TAXES PAYABLE

Taxes payable consist of the following:

	March 31, 2010		December 31, 2009
	(Unaudited)
Income tax payable	$	1,161,103	$	1,281,775
Value added tax payable		437,879		397,118
Others		17,424		16,772
	$	1,616,406	$	1,695,665

12.	INCOME TAXES

The entities within the Company file separate tax returns in the respective tax jurisdictions that they operate.

The Company’s operating subsidiaries are subject to PRC enterprise income tax (“EIT”). Before January 1, 2008, the PRC EIT rate was generally 33%. In March 2007, the PRC government enacted a new PRC Enterprise Income Tax Law, or the New EIT Law, and promulgated related regulation, Implementation Regulations for the PRC Enterprise Income Tax Law. The New EIT Law and Implementation Regulations became effective from January 1, 2008. The New EIT Law, among other things, imposes a unified income tax rate of 25% for both domestic and foreign invested enterprises registered in the PRC. The New EIT Law provides for a grandfathering and five-year transition period from its effective date for those enterprises which were established before the promulgation date of the New EIT Law and which were entitled to a preferential EIT treatment. Accordingly, Beijing Agritech and Anhui Agritech as wholly foreign-owned enterprises have continued to be entitled to tax exemption for the two years ended December 31, 2009 and 2008and a 50% reduction on its EIT rate for the ensuing three years ended December 31, 2010 through 2012.

The provision for income taxes for three months ended March 31, 2010 and 2009consisted of the following:

	For Three Months Ended March 31,
	2010		2009
	(Unaudited)		(Unaudited)
Provision for current income tax – China	$	1,160,979	$	714,278

As of March 31, 2010 and December 31, 2009, the Company did not have any significant temporary differences and carryforwards that may result in deferred tax.

The following table reconciles the theoretical tax benefit (expense) calculated at the statutory rates to the Company’s effective tax expense for the three months ended March 31, 2010 and 2009 respectively.

Reconciliation of effective tax expense

	For Three Months Ended March 31,
	2010			2009
	(Unaudited)			(Unaudited)
Theoretical tax benefit (expense) calculated at PRC statutory enterprise income tax rate of 25%	$	1,301,108		$	(495,356	)
Tax effect of non-deductible expenses		(2,623,339	)		(218,922	)
Tax holiday		184,345			—
Other		(23,093	)		—
Effective tax expense	$	(1,160,979	)	$	(714,278	)

CHINA AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2010 AND 2009

12.	INCOME TAXES (Cont’d)

Non-deductible expenses for the three months ended March 31, 2010 primarily consist of the change in fair value of warrants classified as derivative of $9,477,477, share-based compensation expense of $154,947 and others. The non-deductible expenses for three months ended March 31, 2009 are the result of various net operating losses in other tax jurisdictions for where no benefit is realized.

13.	COMMON STOCK AND WARRANTS

Common Stock Purchase Warrants

A summary of the warrants outstanding as of March 31, 2010, and changes during the three months ended March 31, 2010 are presented below:

Number of underlying shares

Weighted Average Exercise Price

Average Remaining Contractual Life (years)

Outstanding at December 31, 2009

1,857,024

5.38

2.50

Issued

−

Forfeited

−

Exercised

−

Outstanding at March 31, 2010

1,857,024

5.38

2.05

Exercisable at March 31, 2010

−

14.	STOCK OPTIONS AND SHARE-BASED COMPENSATION

A summary of the stock options activity, which were granted under the Company’s 2008 Equity Incentive Plan (the “Plan”), and changes during the three months ended March 31, 2010 are presented below:

	Underlying shares		Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2009*		517,000	$	11.64		4.80 years
Granted		—
Exercise		—
Outstanding at March 31, 2010		517,500	$	11.64		4.55 years	$	6,840,850
Exercisable at March 31, 2010		279,500	$	10.40		4.40 years	$	3,761,130

*	As retroactively adjusted for the 1-for-4 reverse stock split on September 8, 2009 and the 2-for-1 forward stock split on February 1, 2010.

As of March 31, 2010, a total of $891,521 of unrecognized compensation cost related to non-vested options under the Plan is expected to be recognized over a weighted average period of 1.75 years. The total fair value of options vested under the Plan and recognized as administrative expenses for the three months ended March 31, 2010 and 2009 was $154,947 and $nil, respectively.

CHINA AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2010 AND 2009

15.	RELATED PARTY TRANSACTIONS

On January 6, 2005, the Company’s subsidiary Pacific Dragon entered into a license agreement with Mr. Yu Chang, our Chairman, Chief Executive Officer and President. Under this license agreement, Mr. Chang granted an exclusive license to Pacific Dragon for the use of certain know-how in manufacturing organic liquid compound fertilizer on a royalty-free basis. The Company continues to refine the manufacturing know-how of the product at its expense. In order to translate such know-how to practicable applications in commercial production, the Company has continued to develop the manufacturing know-how of the product at its expense. The Company considers that the know-how would have had an insignificant value without the Company’s development initiatives. On December 3, 2005, Mr. Chang and Pacific Dragon entered into another license agreement pursuant to which the term of the license was extended to a permanent license. In accordance with the Securities Purchase Agreement, dated June 29, 2007, among the Company, Mr. Chang, and the investors named therein, an additional license agreement was entered into for this know-how between Mr. Chang and Pacific Dragon, confirming that the license has been extended until December 31, 2011.

Pacific Dragon has entered into a tenancy agreement with a related party, Yinlong Industrial Co. Ltd. (“Yinlong”), the former minority shareholder previously 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 $518,940) effective from July 1, 2005. Yinlong is owned and controlled by Mr. Yu Chang and Ms. Xiaorong Teng, who are both directors of the Company.

On July 2, 2007, Beijing Agritech entered into a tenancy agreement with Ms. Xiaorong Teng (a director of the Company) to lease an office with a total floor area of 780 sq. meters for a term of 5 years from February 1, 2007 to February 1, 2012 at an annual rent of RMB492,000 (equivalent to approximately $70,922) effective from July 2, 2007.

16.	RISK OF CONCENTRATIONS

Three customers which accounted for 31.4% of the Company’s net revenue for three months ended March 31, 2010, which each individually accounting for approximately 12%, 10% and 10% respectively of the Company’s net revenue for the same period. There was no individual customer which accounted for 10% or more of the Company’s net revenue for the three months ended March 31, 2009.

Five suppliers provided approximately 52% of the Company’s dollar value of raw materials purchased for the three months ended March 31, 2010, with each individually accounting for approximately 14%, 13%, 9%, 8% and 8% respectively. Five suppliers provided approximately 82% of the Company’s raw materials for the three months ended March 31, 2009 with each individually accounting for approximately 22%, 19%, 15%, 13% and 13% respectively.

CHINA AGRITECH, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2010 AND 2009

17.	SEGMENT AND ENTITY-WIDE INFORMATION

The Company operates in one business segment, manufacturing and sale of organic fertilizer products. The Company also operates only in one geographical segment – China, as all of the Company’s products are sold to customers located in China and the Company’s long-lived assets are located in China.

The Company’s major product categories are (i) organic liquid fertilizers, and (ii) organic granular fertilizers. The sale of granular fertilizers was officially launched in the second quarter of fiscal year 2009.

Management evaluates performance based on several factors, of which net revenue and gross profit by product are the primary financial measures:

	For Three Months Ended March 31,
	2010		2009
	(Unaudited)		(Unaudited)
Net revenue from unaffiliated customers:
Organic liquid fertilizers	$	8,181,470	$	7,347,376
Organic granular fertilizers		7,172,387		—
Total	$	15,353,857		7,347,376
Gross profit:
Organic liquid fertilizers	$	4,318,423	$	3,368,691
Organic granular fertilizers		2,065,213		—
Total	$	6,383,636	$	3,368,691

18.	SUBSEQUENT EVENT

On April 28, 2010, we entered into an underwriting with Rodman & Renshaw Capital Group, Inc. (the “Underwriter”), pursuant to which the Company agreed to issue and sell 1,243,000 shares of our common stock (the “Firm Shares”), to the Underwriter at a price per share of $16.10. In addition, we granted the Underwriter an option to purchase up to an additional 186,450 shares to cover over-allotments (“Option Shares”), if any, at the same price as the Firm Shares. The sale of the Firm Shares and Option Shares was consummated on May 4, 2010. Net proceeds to the Company from the offering, after deducting underwriting discounts and commissions and estimated offering expenses, were approximately $21 million.

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

Introductory Note

Except as otherwise indicated by the context, references in this Quarterly Report on Form 10-Q (this “Report”) to the “Company,” “China Agritech,” “we,” “us” or “our” are references to the combined business of China Agritech, Inc. and its consolidated subsidiaries. References to “Tailong” are references to our wholly-owned subsidiary, China Tailong Holdings Company Limited; references to “Pacific Dragon” are to Tailong’s wholly owned subsidiary, Pacific Dragon Fertilizers Co. Ltd.; references to “CAI” are to our wholly owned subsidiary, CAI Investment Inc.; references to “Beijing Agritech” are to our wholly-owned indirect subsidiary, Agritech Fertilizer Ltd.; references to Anhui Agritech are to our wholly-owned subsidiary, Anhui Agritech Development Co. Ltd., and references to “Beijing Agritech” are to Xinjiang Agritech Agricultural Resources Co. Ltd., our wholly owned indirect subsidiary. References to “China” or “PRC” are references to the People’s Republic of China. References to “RMB” are to Renminbi, the legal currency of China, and all references to “$” and dollars are to the United States dollar, the legal currency of the United States.

Special Note Regarding Forward Looking Statements

This Report contains forward-looking statements and information relating to China Agritech that are based on the beliefs of our management, as well as assumptions made by and information currently available to us. Such statements should not be unduly relied upon. When used in this Report, forward-looking statements include, but are not limited to, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions, as well as statements regarding new and existing products, technologies and opportunities, statements regarding market and industry segment growth and demand and acceptance of new and existing products, any projections of sales, earnings, revenue, margins or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements regarding future economic conditions or performance, uncertainties related to conducting business in China, any statements of belief or intention, any of the factors mentioned in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 23, 2010, and any statements or assumptions underlying any of the foregoing. These statements reflect our current view concerning future events and are subject to risks, uncertainties and assumptions. There are important factors that could cause actual results to vary materially from those described in this Report as anticipated, estimated or expected, including, but not limited to, competition in the fertilizer industry and the impact of such competition on pricing, revenues and margins, volatility in the securities market due to the general economic downturn; SEC regulations which affect trading in the securities of “penny stocks,” and other risks and uncertainties. Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward- looking statements, even if new information becomes available in the future. Depending on the market for our stock and other conditional tests, a specific safe harbor under the Private Securities Litigation Reform Act of 1995 may be available. Notwithstanding the above, Section 27A of the Securities Act of 1933, as amended (the “ Securities Act” ) and Section 21E of the Securities Exchange Act of 1934, as amended (the “ Exchange Act” ) expressly state that the safe harbor for forward-looking statements does not apply to companies that issue penny stock. Because we may from time to time be considered to be an issuer of penny stock, the safe harbor for forward-looking statements may not apply to us at certain times.

Our Business

We manufacture and sell organic liquid compound fertilizers, organic granular compound fertilizers and related agricultural products in the PRC through our direct and indirect subsidiaries: Anhui Agritech Development Co. Ltd. (“Anhui Agritech”), Agritech Fertilizer Limited (“Beijing Agritech”), China Tailong Holdings Company Limited (“Tailong”), Pacific Dragon Fertilizer Co. Ltd. (“Pacific Dragon”), and Xinjiang Agritech Agriculture Resources Co., Ltd (“Xinjiang Agritech”).

Our main products include spray, water-flush, dip and granular fertilizer products and other customized, crop specific fertilizers that are tailored to our customers’ specific requirements. Our liquid fertilizer 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 the PRC.

Our products:

promote photosynthesis, root system growth and transmission of nutrients to seeds;

equilibrate absorption of nutrients to speed a plant’s maturity;

eliminate the damage of harmful radicals to plants;

increase protein and vitamin content levels;

accelerate the accumulation of photosynthesis materials and cell concentration;

increase plants’ reservation ability to resist drought, resistance and the utilization rate of basic fertility; and

foster the development of plant life along with neutral or acidic pesticides.

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

The demand for our products has steadily increased. Our annual production capacity as of December 31, 2009 was approximately 13,000 metric tons of organic liquid compound fertilizers whereas our annual production capacity for granular fertilizers as of December 31, 2009 was approximately 200,000 metric tons, consisting of 100,000 metric tons in Anhui, 50,000 metric tons in Harbin, and 50,000 tons in our newly completed plant in Xinjiang.

We currently plan to build and operate approximately 10 and 45 branded large-scale distribution centers in central and eastern provinces in 2010 and 2011, respectively, to sell our organic fertilizers and third party sourced products, including seeds, pesticides, and other agricultural products to franchised retail stores, and intend to expand into southern and western provinces starting 2012. We anticipate that each distribution center will cost approximately $1 million to build and can supply 80 to 100 franchised retail stores in its geographic area. Because we do not expect that the distribution centers will sell products on a retail basis, we intend to initially engage our current distributors to become the franchisees of such retail stores. We will not own the retail stores and will not receive any franchise fees from the stores, but we will provide product sourcing, training, expertise and logistic services to our franchisees In return, the retail stores will be required to commit to sell our organic fertilizers, together with third party products sourced by us. We believe that our planned distribution centers and franchised retail stores in the PRC could enable us to introduce farmers, especially individual farmers, to our products, educate them about the benefits of organic fertilizer over chemical fertilizer, and teach them how to properly use our products in a more cost effective manner. We believe that these franchised stores could also introduce our products to a vast network of farmers who otherwise operate outside of our existing distribution network and outside of the reach of traditional advertising media. Our anticipated schedule of building and operating these branded distribution centers depends upon a variety of factors, many of which are outside of our control. Accordingly, our current build-out schedule, may change.

China is the principal market for our products, which are primarily sold to farmers through distributors in 28 provinces in China: Hainan, Anhui, Hubei, Jiangsu, Jiangxi, Guangxi, Liaoning, Shanxi, Heilongjiang, Hebei, Jilin, Shandong, Inner Mongolia, Henan, Sichuan, Guangdong, Xinjiang, Yunnan, Chongqing, Beijing, Shanghai, Tianjin, Ningxia, Shan'xi, Hunan, Fujian, Zhejiang and Guizhou.

Our Industry and Our Principal Markets

China

Arable land, which is defined as land that is capable of being cultivated and supporting agricultural production has been steadily reduced as a result of industrialization/urbanization, soil degradation and the availability of water. While China accounts for approximately 20% of the world’s population; the country’s total available arable land represents only 7% of global supply. This disparity has been exacerbated over the past 20 years as the population has continued to grow, adding 12–13 million net new inhabitants on an annual basis while total arable land has shrunk from 133 million hectares to 121 million hectares today. On a relative basis, China has 40% less per capita arable land than the global average and nearly 1/8th that of the United States. These statistics highlight the fact that if China is to become/remain self sufficient from agricultural basis, farmers will have to largely increase yields to meet future demand.

Fertilizers are used by farmers as a means to supplement naturally occurring soil components in an effort to aid the growth and yield of agricultural products. These elements are comprised largely of nutrients such as nitrogen, phosphorus, potassium, and sulfur, as well as the trace elements such as iron, zinc, and magnesium.

China is the world’s largest fertilizer market, both in production and consumption, accounting for approximately 1/3 of the total global market. Growing at a compound annual growth rate of 2.5% over 1998-2007, the country’s total fertilizer consumption reached 51.1 million metric tons in 2007 compared to 40.8 million metric tons a decade ago, according to the China Statistical Year Book. Fertilizer demand throughout China has continued to grow as a result of both increased food volume demands but also low yield comparison with other producer nations and a decrease in arable lands.

Organic versus Chemical Fertilizers

Fertilizers fall into two broad categories, Organic and Inorganic, also known as chemical. Organic fertilizers are a combination of materials derived from living things: animal manures, compost, bone meal and blood meal represent typical organic fertilizers; while chemical fertilizers are manufactured from nonliving materials; such as rock phosphate which is a common source of phosphorus in chemical fertilizers.

Chemical fertilizers have long been a “fast and dirty” solution as the components are already in inorganic form and can be immediately absorbed by plants. It is important to note that there is no nutritional quality differentiation found in crops using either organic or chemical fertilizers. Potassium provided to a plant root is no different if it is the result of wood ash found in organic fertilizer or muriate in the potash component of chemical fertilizer. However, chemical fertilizers have three main disadvantages relative to organic fertilizers. First they are subject to leaching, which occurs when the fertilizers are washed by rain or irrigation water down below the level of the plant roots. Second, a heavy application of chemical fertilizers can “burn” seedlings and young plants. This is a result of drying out, or desiccation, due to the presence of chemical salts within the commercial fertilizers. The third problem associated with the use of chemical commercial fertilizers is that overly heavy applications can build up toxic concentrations of salts in the soil and create chemical imbalances.

Organic fertilizers require a digestion period prior to making nutrients available to plants. Before the plants can use them, they must be broken down by soil microorganisms into simpler, inorganic molecules and ions. In contrast, the nutrients in chemical fertilizers are already in inorganic form and so can be immediately used by the plants. The use of organic fertilizers contributes not only vital nutrients to plant growth, but also improves the soil structure, or tilth, and increases its ability to hold both water and nutrients. As microorganisms in the soil break down the organic material into an inorganic soluble form, a slow release of nutrients is provided over a longer period of time. With organic fertilizers a buildup of toxicity in the soil is unlikely, as long as the amount of organic material incorporated into the soil is fully decomposed. There are relative disadvantages to the use of organic fertilizers. As noted above, they are not immediately available to the plants. An example of this can be the application of manure to a vegetable garden in the spring may not provide useful nutrients to the plants until it has been broken down into organic form by soil bacteria, which could take several months. Also there is less of an ability to measure the exact nutrient components and volume that are added to the soil. The amount of nutrients and the exact type of elements available from a given amount of manure, compost or other inorganic fertilizer is difficult to distinguish and is dependent on such factors as: the age of the manure or compost; its origin (chicken, cow, horse, sawdust, garden residue, grass clippings); and weather conditions such as temperature and rainfall.

Years of chemical fertilizer overuse have led to environmental pollution, soil quality degradation and crop yield impacts. China’s Ministry of Agriculture, therefore, is actively promoting and creating awareness among farmers about application of compound fertilizers to help an environment friendly and sustainable future. The awareness about compound fertilizers has been increasing – especially in areas like southern and eastern China, where industrial crops are more dominant.

Compound fertilizers help in achieving optimal agricultural yield as these include all the nutrients needed by different types of soils and crops. However, the 2008 China Statistical Year Book indicates that the use of compound fertilizers account for less than 30% of the total fertilizer consumption in China, far below the 50-80% average in developed countries. This is due to the fact that compound fertilizers are relatively new to the market and Chinese farmers are accustomed to using more conventional varieties. Nevertheless, demand for compound fertilizers are estimated to grow at a compound annual growth rate over 7% in the coming years, according to the China National Chemical Information Centre (CNCIC). In 2008, Chinese farmers reduced their usage of traditional fertilizers by approximately 30% year over year because of surging prices, thus impacting the fertility of the farmlands. Factors like these are expected to increase demand for compound fertilizers in order to boost fertility rapidly.

Although we recently began to distribute our products into several other Asian and Southeast Asian countries, the PRC is the principal market for our organic compound fertilizers and related agricultural products.

The PRC’s “Green Food” Industry

Crops grown with the use of our products are eligible to qualify for the “AA Green Food” rating administered by the China Green Food Development Center, an agency under the jurisdiction of the Ministry of Agriculture of the PRC. The green food rating system consists of an “A” rating and a more stringent “AA” rating. The “AA” rating indicates that the crops contain minimal chemical residue from fertilizers (however, our products themselves do not bear the “AA green food” designation). “Green Food” is food that is deemed safe, free from pollutants and harmful chemicals, and of good quality.

In 1990, the PRC Ministry of Agriculture began to encourage the production of “Green Food”. In 1992, the PRC Ministry of Agriculture established the China Green Food Development Center to oversee food quality and the development and management of Green Food at the national and provincial level in the PRC. In 1993, the Ministry of Agriculture established regulations on the use of Green Food labeling. In 1996, an identifying trademark for Green Food was registered in the PRC and put into use. More information regarding the China Green Food Development Center, including the green food regulatory and authentication process, is available at the Center’s website at http://www.greenfood.org.cn/sites/GREENFOOD. The contents of this website are not incorporated by reference herein.

Our Growth Strategy

We believe that our increased capacity to produce organic granular compound fertilizer products, which have a lower price point and greater market appeal than our premier organic liquid compound fertilizer products, makes us well positioned to expand sales and increase revenues. We have focused on the expansion of our granular production because the market for organic granular fertilizer is almost ten times larger than the current market for organic liquid fertilizer due to the familiarity and tradition of farmers’ using granular fertilizers. In addition, the per unit amount of granular fertilizer used for sowing coverage is much higher than the amount used for liquid fertilizer.

Our goal is to further expand our products’ market share throughout the PRC by building and operating branded, large-scale distribution centers, and engage franchisees to own and operate retail chain stores which will sell our own branded products (e.g., organic fertilizers) and international and local sourced products (e.g., seeds, pesticides and other agricultural products). Our growth strategy includes the following strategies:

Continue Organic Growth Initiatives. We believe that the current fertilizer market is fragmented and represents an excellent opportunity for us to gain additional market share from our competitors, mainly chemical fertilizer manufacturers. We intend to establish branded chain stores by converting our current offices into a flagship store and distribution center and inviting our current distributors to join in our line as franchisees to operate chain stores under our brand. We also intend to leverage our strong brand, quality customer services and quality of our products to gain incremental business in the fertilizer market. Finally, we strongly believe that as we continue to grow, economies of scale and enforced brand awareness will allow us to continue to be profitable.

Expand the lines of our products. Beside our current organic fertilizers, we will seek to source, either internally or locally, other agricultural products, like seeds, pesticides, agricultural equipments and tools to expand the lines of our products to meet all the necessities of farmers in the PRC. All these products will be sold through our branded chain stores directly to farmers, who are the end customers.

Capitalize upon Strong Industry Dynamics in the PRC. Continued economic growth in the PRC, coupled with evolving government policy on preservation of farmlands by promoting use of organic fertilizers on one hand and improvement of farmers’ income on another hand, present us with significant future growth opportunities. We believe that with continued strong government commitment, we will continue to benefit from it.

Execute Strategic Acquisitions. We intend to acquire certain domestic targets that are accretive and synergistic to our growth strategy.

Competitive Advantages

We believe we are well-positioned to continue to be the largest manufacturer of organic compound fertilizers in the PRC and to become a leading distributor of organic compound fertilizers in the PRC and beyond. We believe we have several competitive advantages, including the following:

Well established brand name products;

Established distribution channel in northern and eastern provinces of the PRC; and

Food grown with our products may be eligible to receive a AA Green Food rating.

Our Competitive Strengths

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

Strong Market Position. We are a leading manufacturer of fertilizer products and, more specifically, organic fertilizer products in liquid form, in the PRC.

Recognized and Certified Product Offerings. Our Tailong liquid brand of fertilizer products was 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 Ministry of Agriculture.

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. Since 2007 we have sold our Green Vitality products to a subsidiary of Sinofert Holdings Limited, the PRC’s largest integrated agricultural company, which utilizes its own distribution network to distribute our 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 the PRC 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 the PRC 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 the PRC’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. Over the past year we added an organic granular compound fertilizer to our product lines and constructed a granular fertilizer line near each of our existing factories, located in Harbin, Beijing and Xinjiang.

Expand Our Domestic Operation. We intend to build or acquire additional organic granular fertilizer factories in strategic locations in the PRC to serve new agricultural areas in Hebei and Sichuan provinces. Our recently completed Xinjian facility commenced commercial production in 2010, bringing our organic granular compound fertilizer production capacity to approximately 200,000 metric tons.

Build & Operate Franchised Retail Stores in the PRC. We currently plan to build and operate approximately 10 and 45 branded large-scale distribution centers in central and eastern provinces in 2010 and 2011, respectively, to sell our organic fertilizers and third party sourced products, including seeds, pesticides, and other agricultural products to franchised retail stores, and intend to expand into southern and western provinces starting 2012. We anticipate that each distribution center will cost approximately $1 million to build and can supply 80 to 100 franchised retail stores in its geographic area. Because we do not expect that the distribution centers will sell products on a retail basis, we intend to initially engage our current distributors to become the franchisees of such retail stores. We will not own the retail stores and will not receive any franchise fees from the stores, but we will provide product sourcing, training, expertise and logistic services to our franchisees In return, the retail stores will be required to commit to sell our organic fertilizers, together with third party products sourced by us. We believe that our planned distribution centers and franchised retail stores in the PRC could enable us to introduce farmers, especially individual farmers, to our products, educate them about the benefits of organic fertilizer over chemical fertilizer, and teach them how to properly use our products in a more cost effective manner. We believe that these franchised stores could also introduce our products to a vast network of farmers who otherwise operate outside of our existing distribution network and outside of the reach of traditional advertising media. Our anticipated schedule of building and operating these branded distribution centers depends upon a variety of factors, many of which are outside of our control. Accordingly, our current build-out schedule, may change.

Enhance Brand Awareness. Our 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 to combine these marketing efforts with our planned retail store expansion into locations that have little or no current exposure to our products. We believe that this strategy will allow us to expand our distribution and sales outside of our traditional base in northeast regions of the PRC and capture a larger market share.

Increase Sales into Select Foreign Markets. We plan to leverage our product offerings and brand reputation to expand our product sales into select markets outside of the PRC. We are currently negotiating with Odyssey International (Trading) Group Ltd., a Hong Kong corporation (“Odyssey”) to define the specific terms and conditions of the exclusive marketing and distribution rights we granted them for the Company’s Lvlingbao series of organic liquid compound fertilizers in certain target markets, including, but not limited to, Central and South America, South Africa and Asian countries. In the event that the terms are not finalized, the Company will have to seek to terminate the agreement and find a new third party distributor to market its products outside the PRC.

Overview

We manufacture and sell organic liquid compound fertilizers; organic granular compound fertilizers and related agricultural products in the PRC. Our annual liquid fertilizer production capacity in 2008 was approximately 13,000 metric tons of organic liquid compound fertilizers. We commenced sales of our organic granular compound fertilizers in the third quarter of 2008. Until September 2009, our annual production capacity for granular fertilizers was approximately 150,000 metric tons, consisting of 100,000 metric tons in Anhui and 50,000 metric tons in Harbin. In September 2009, we expanded our annual production capacity for granular fertilizers to approximately 200,000 metric tons by completing another 50,000 granular plant in Xinjiang. Our Xinjiang granular plant commenced its commercial production in the second quarter of 2010.

For three months ended March 31, 2010, our revenue primarily derived from sale of our organic fertilizer. As of March 31, 2010, approximately 53% of our revenues were derived from the sale of our liquid organic fertilizer products, while approximately 47% of our revenues were derived from the sale of our granular organic fertilizer products. Revenue from sales of liquid fertilizer has a lower cost of revenue than that of granular fertilizer. Our cost of revenue primarily consists of the cost of our raw materials, direct labor and manufacturing overhead expenses.

For the period March 31, 2010 we achieved net revenue of $15.3 million, representing 110% higher than same period for last fiscal year which recorded $7.3 million. Our gross profit increased by $3 million for the period.

Results of Operations - Three Months Ended March 31, 2010 and 2009

The following table summarizes the results of our operations during the three-month period ended March 31, 2010 and 2009 and provides information regarding the dollar and percentage increase or (decrease) from the 2010 fiscal period to the 2009 fiscal period:

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

	Three Months Ended March 31,						Dollar ($) Increase			Percentage (%) Increase
	2010			2009			(Decrease)			(Decrease)

Net Revenue		15,354			7,347			8,007			109
Cost of Revenue		(8,970	)		(3,979	)		4,991			125
Gross Profit		6,384			3,368			3,016			90
Selling Expenses		(560	)		(405	)		155			38
Operating and Administrative Expenses		(1,562	)		(984	)		578			59
Income From Operations		4,262			1,979			2,283			115
Other (Expenses)/Income
Change in fair value of warrants		(9,477	)		-			(9,477	)		N/A
Others		11			2			9			450
Income Tax		(1,161	)		(714	)		447			63
Net (loss)/ income		(6,365	)		1,267			(7,632	)		N/A
Net income attributable to non-controlling interest in a subsidiary		-			(214	)		214			100
Net (loss)/income attributable to common stockholders		(6,365	)		1,053			(7,418	)		N/A
(Loss)/Earning per Share
- Basic		(0.37	)		0.09
- Diluted		(0.37	)		0.09
Weighted average shares outstanding*
- Basic		17,002,542			12,349,808
- Diluted		17,002,542			12,349,808

*	As retroactively adjusted for the 1-for-4 reverse stock split on September 8, 2009 and the 2-for-1 forward stock split on February 1, 2010.

Net Revenue.

Our net revenue rose to $15.3 million for the three-month period ended March 31, 2010, an increase of approximately $8 million, or 109% as compared to $7.3 million for the same period in 2009. The increase in our net revenues was mainly attributable to the successful launch of our new product, organic granular compound fertilizers in the second quarter of fiscal year 2009.

Our new organic granular compound fertilizers contributed $7.2 million to our net revenue for the three-month period ended March 31, 2010, whereas there was no sale of this new product in the same period of 2009.

Our traditional organic liquid compound fertilizer products reported net revenue of $8.1 million for the three-month period ended March 31, 2010, increased by $0.8 million, or 11% as compared to $7.3 million for the same period in 2009. The increase in net revenue from our traditional organic liquid compound fertilizer products is mainly attributable to the expansion of our customer base to newly established markets in the central and southern regions of China.

Cost of Revenue.

Our cost of revenue for the three-month period ended March 31, 2010 increased by $5 million, or 125%, as compared to the same period in 2009. Our cost of revenue primarily consists of the cost of our raw materials, direct labor and manufacturing overhead expenses. Our cost of revenue generally increased as a result of increased sales.

Gross Profit.

Our gross profit for the three-month period ended March 31, 2010 increased by $3 million or 90%, generally in line with increased sales. Overall gross profit margin for the three-month period ended March 31, 2010 was 42%, as compared to 46% for the same period in 2009. The slight decrease was due to the introduction of our new organic granular fertilizer products in the second quarter of 2009.

Our new organic granular compound fertilizer products recorded a gross profit margin of 29% for the three-month period ended March 31, 2010, whereas our traditional organic liquid fertilizer products recorded a gross profit margin of 53%, as compared to 46% for the same period in 2009. The increase in the gross profit margin of our traditional organic liquid fertilizer products was mainly attributable to improvements in our inventory management and manufacturing costs control processes.

Selling Expenses.

Our selling expenses consist primarily of advertising and promotion expenses, freight charges and related compensation. Our selling expenses were $0.6 million for the three-month period ended March 31, 2010 as compared to $0.4 million for the same period in 2009. The increase in selling expenses was mainly due to increases in sales commission which is driven by increased in sales. Notwithstanding the increase in selling expenses, leveraging on well established sales network, there was a decrease in selling expenses as a percentage to net revenue, from approximately 6% for three months ended March 31, 2009 to approximately 4% for three months ended March 31, 2010.

Operating and Administrative Expenses.

Our operating and administrative expenses were $1.6 million for three-month period ended March 31, 2010, increased by $0.58 million, representing a 59% increase as compared to $0.98 million for the same period in 2009. Operating and administrative expenses consisted primarily of staff costs, such as salaries and bonus, stock-based compensation expenses for management, professional fees, audit fees, rental and others. The increase in operating and administrative expenses was primarily due to non-cash compensation charge of $0.15 million as a result of the amortization of the stock options granted to our directors and management under our option plan. In addition, to recognize our staff’s contributions to our growing operating results, we increased the staff bonus paid during the first quarter of 2010 by approximately $0.1 million as compared to the first quarter of 2009. Increased legal and professional fees, listing fees and audit fees have also been incurred as a result of the successful listing of our shares on the NASDAQ Global Market.

Income From Operations.

Income from operations was $4.3 million for the three-month period ended March 31, 2010, as compared to $2 million for the same period in 2009, an increase of approximately $2.3 million, or 115%.

The growth in income from operations was primarily attributable to the increase in net revenue as higher sales, which was in turn attributable to the sales generated from our new organic granular compound fertilizer products and appropriate measures to contain operating expenses.

Other (Expense) Income.

Other (expenses)/ income consisted of the change in fair value of warrant classified as derivatives, interest income and exchange gain/loss. The increase in other expenses was mainly attributable to a non-cash charge of $9.5 million resulting from the change in fair value of warrants classified as derivative instruments.

Income tax.

The Company incurred income tax expenses of $1.2 million for the three–month period ended March 31, 2010, an increase of $0.5 million or 63% from $0.7 million for the same period in 2009. In excluding the non-deductible charge for the change in fair value of warrants of $9.5 million, our effective tax rate for the three-month period ended March 31, 2010 would have been 27%, as compared to 36% for the same period in 2009. The decrease in our effective tax rate was because our gross profit increased at a much greater rate than other non-deductible expenses such as professional fees incurred by the parent company in the U.S. where no future tax benefit is expected to be realized.

Net (Loss)/Income.

We recorded a net loss was $6.4 million for the three-month period ended March 31, 2010 as compared to a net income of $1.3 million for the same period in 2009. If excluding the non-cash charge resulting from the change in fair value of the warrants of $9.5 million, we would have recorded a net income of $3.1 million, an effective increase of $1.8 million, or 72% growth, as compared to the same period in 2009.

Liquidity and Capital Resources

As of March 31, 2010, we had cash and cash equivalents of $28.7 million, an increase of $8.4 million, or 41% from $20.3 million as at December 31, 2009. The increase was mainly attributable to the cash flows of $8.3 million generated from our operating activities for the recent three months. Our current assets totaled $101.3 million as of March 31, 2010, while our current liabilities (excluding warrant liabilities of $29.6 million) totaled $7.3 million, which results in a current ratio of 13.9.

We had no bank loans or other interest bearing borrowings outstanding as of March 31, 2010.

We believe that our currently available working capital will be sufficient to maintain our operations at the current level and for the next twelve months.

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

Results of Operations (continued)

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

	Three months Ended March 31
(in thousands of U.S. dollars)	2010			2009
Net cash generated/ (used) in operating activities		8,349			(5,405	)
Net cash used in investing activities		(45	)		(1,001	)
Net cash provided by financing activities		—			—
Effect of exchange rate changes on cash and cash equivalents		54			(63	)
Net increase/(decrease) in cash and cash equivalent		8,357			(6,469	)
Cash and cash equivalents at the beginning of the period		20,313			11,952
Cash and cash equivalents at the end of the period		28,671			5,483

Operating Activities

We generated $8.3 million of net cash from operating activities for the three-month period ended March 31, 2010, as compared to net cash of $5.4 million used in operating activities for the same period in 2009. The increase in cash generated from operating activities was mainly due to the decrease in advances to our suppliers and the increase in account payables.

Critical Accounting Policies

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

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

Inventories. Inventories are valued at the lower of cost (determined on a weighted average basis) or net marketvalue. Our management compares the cost of inventories with the net realizable value and an allowance is made for inventories with the net realizable value and an allowance is made for inventories with net realizable value, if lower than the cost.

Impairment. We apply the provisions of ASC 360-10-35, “Impairment or Disposal of Long-Lived Assets Subsections” (formerly Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets’), issued by the Financial Accounting Standards Board (“FASB”). ASC Impairment or Disposal of Long-Lived Assets Subsections require 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.

Fixed Assets. We test long-lived assets, including property, plant and equipment and intangible assets subject to periodic amortization, for recoverability at least annually or more frequently upon the occurrence of an event or when circumstances indicate that the net carrying amount is greater than its fair value. Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. We consider historical performance and future estimate results in our evaluation of potential impairment and then compare the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, we measure the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally measured by discounting expected future cash flows at the rate we utilize to evaluate potential investments. We estimate fair value based on the information available in making whatever estimates, judgments and projections are considered necessary.

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

Stock-based Compensation. The Company accounts for stock-based compensation arrangements in accordance with ASC 718-10 (formerly SFAS No. 123R “Share-Based Payment”) and measures the cost of services received as consideration for equity instruments issued or liabilities incurred in share-based compensation transactions based on the grant-date fair value of the equity instruments issued or the liabilities settled, net of any amount that an employee pays for that instrument when it is granted. The Company recognizes compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that the compensation cost recognized for any date must at least equal the portion of the grant-date value of the award that is vested at that date. No compensation cost is recognized for awards that do not vest (i.e. awards for which the requisite service is not rendered). If an award is cancelled, any previously unrecognized compensation cost is recognized immediately at the cancellation date. However, if the cancellation is accompanied by the concurrent grant of a replacement award, an incremental compensation cost is recognized and measured as the excess of the fair value of the replacement award over the fair value of the cancelled award at the cancellation date.

Off-Balance Sheet Arrangements

None.

ITEM 3 Quantitative and Qualitative Disclosures About Market Risk

We do not use derivative instruments for any speculative, trading or hedging purposes. As of March 31, 2010, we did not have any interest bearing investment or borrowings. Because most of our transactions including sales and purchases are denominated and settled in RMB, any exchange rate change of RMB against U.S. dollar could have an effect on our financial results which are reported in U.S. dollars. If the RMB were to depreciate against the U.S. dollar, amounts reported in U.S. dollars would correspondingly be reduced. If the RMB were to appreciate against the U.S. dollar, amounts reported in U.S. dollars would correspondingly be increased.

ITEM 4 Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness, as of March 31, 2010, of the design and operation of our disclosure controls and procedures, as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of such date, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting.

There has been no change in our internal control over financial reporting during the first quarter of 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 1A. RISK FACTORS

Not applicable to smaller reporting companies

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

None

ITEM 3. DEFAULT UPON SENIOR SECURITIES

None

ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

Exhibit No.		Description
31.1		Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		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

SIGNATURES

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

	CHINA AGRITECH, INC.



Date: May 7 , 2010	By: /s/ Yu Chang
	Yu Chang
	Chief Executive Officer, President, Secretary and Chairman



Date: May 7, 2010	By: /s/ Yau-Sing Tang
	Yau-Sing Tang
	Chief Financial Officer and Controller (Principal Financial Officer)

EXHIBIT INDEX

Exhibit
Number	Description

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

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

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

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