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Filed
pursuant to Rule 424(b)(3)
Registration
No. 333-170031
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CHINA
AGRITECH, INC.
1,857,024
Shares of Common Stock
This
prospectus relates to the resale of up to 1,857,024 of our shares (the “Shares”)
of common stock, par value $0.001 per share, for sale by the selling
stockholders set forth herein (the “Selling Stockholders”).
The
Selling Stockholders or their pledgees, donees, transferees or other
successors-in-interest, may offer the shares from time to time through public or
private transactions at prevailing market prices, at prices related to
prevailing market prices or at privately negotiated prices. We will not receive
any proceeds from the sale of the Shares. The Selling Stockholders will sell the
Shares in accordance with the “Plan of Distribution” set forth in this
prospectus. The Selling Stockholders will bear all commissions and
discounts, if any, attributable to the sales of Shares. We will bear all costs,
expenses and fees in connection with the registration of the
Shares.
Our
common stock is traded on the NASDAQ Global Market under the symbol “CAGC.” On
November 22, 2010 the last reported market price of our common stock was
$11.65.
The
Selling Stockholders and any broker-dealer executing sell orders on behalf of
the Selling Stockholders, may be deemed to be ‘‘underwriters’’ within the
meaning of the Securities Act of 1933. Commissions received by any broker-dealer
may be deemed to be underwriting commissions under the Securities Act of 1933.
See ‘‘Plan of Distribution.’’
Investing
in our common stock involves significant risks. You should invest in our common
stock only if you can afford to lose your entire investment. For a discussion of
some of the risks involved, see “Risk Factors” beginning on page 7 of this
prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date
of this prospectus
November
22, 2010
This
prospectus is not an offer to sell any securities other than the shares of
common stock offered hereby. This prospectus is not an offer to sell securities
in any circumstances in which such an offer is unlawful.
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with different information. We are not making
an offer of these securities in any state where the offer is not permitted. You
should not assume that the information contained in this prospectus is accurate
as of any date other than the date on the front of this
prospectus.
This
prospectus does not contain all the information provided in the registration
statement we filed with the SEC. For further information about us or our
securities offered hereby, you should refer to that registration statement,
which you can obtain from the SEC as described below under “Where You Can Find
More Information.”
TABLE
OF CONTENTS
PROSPECTUS
SUMMARY
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1
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THE
OFFERING
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6
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RISK
FACTORS
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7
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SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS
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15
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USE
OF PROCEEDS
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15
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SELLING
STOCKHOLDERS
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16
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PLAN
OF DISTRIBUTION
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18
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LEGAL
MATTERS
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19
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EXPERTS
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19
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WHERE
YOU CAN FIND ADDITIONAL INFORMATION ABOUT US
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20
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PROSPECTUS
SUMMARY
Unless
otherwise mentioned or unless the context requires otherwise, when used in this
prospectus, the terms “China Agritech,” “Company,” “we,” “us,” and “our” refer
to China Agritech, Inc. and its wholly owned subsidiaries. “China” and the “PRC”
refer to the People’s Republic of China.
The share
information contained herein gives retroactive effect to the 2-for-1 forward
stock split effected on February 1, 2010.
We will
provide to each person, including any beneficial owner, to whom a prospectus is
delivered, a copy of any or all of the information that has been incorporated by
reference in the prospectus but not delivered with the prospectus. You may
request a copy of these filings, excluding the exhibits to
such filings which we have not specifically incorporated by reference
in such filings, at no cost, by writing us at the following address: China
Agritech, Inc., Room 3F No. 11 Building, Zhonghong International Business
Garden, Future Business Center, Chaoyang North Road, Chaoyang District, Beijing,
PRC 100024, and our telephone number is +86 10-59621278.
Our
Company
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., Agritech
Fertilizer Limited, China Tailong Holdings Company Limited (“Tailong”), Pacific
Dragon Fertilizer Co. Ltd., Xinjiang Agritech Agriculture Resources Co., Ltd
(“Xinjiang Agritech”), YiNong Agricultural Co., Ltd (“YiNong”) and BengBu
Agritech Fertilizer Co. Ltd. (“BengBu”). We acquired BengBu in the fourth
quarter of 2009, and we recently formed YiNong and its parent holding
companies, China Agritech Investments, Ltd. a BVI company, and Diamond King
Group, Ltd., a Hong Kong company, to operate our distribution
centers.
Our main
products include spray, water-flush, dip and granular fertilizer products and
other customized, crop specific fertilizers that are tailored to our customer’s
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:
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promote photosynthesis, root
system growth and transmission of nutrients to
seeds;
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equilibrate absorption of
nutrients to speed a plant’s
maturity;
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eliminate the damage of harmful
radicals to plants;
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increase protein and vitamin
content levels;
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accelerate the accumulation of
photosynthesis materials and cell
concentration;
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increase plants’ reservation
ability to resist drought, resistance and the utilization rate of basic
fertility; and
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foster the development of plant
life along with neutral or acidic
pesticides.
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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 March 30, 2010 was approximately 13,000 metric tons of organic liquid
compound fertilizers whereas our annual production capacity for granular
fertilizers as of June 30, 2010 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 2010 and 2011, respectively, in central and
eastern provinces of the PRC to sell our organic fertilizers and third party
sourced products, including seeds, pesticides, and other agricultural products
to franchised retail stores. 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, to
educate them about the benefits of organic fertilizer over chemical fertilizer,
and to teach them how to properly use our products in a more cost effective
manner. 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 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 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 :
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
. Besides 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’ incomes on another
hand, presents us with significant future growth opportunities.
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 one of 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:
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Well established brand name
products;
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Established distribution channel
in northern and eastern provinces of the PRC;
and
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Food grown with our products may
be eligible to receive a AA Green Food
rating.
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Our Competitive
Strengths
We
believe that the following competitive strengths enable us to compete
effectively in the fertilizer market in the PRC:
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Strong
Market Position
. We are a leading
manufacturer of fertilizer products and, more specifically, organic
fertilizer products in liquid form, in the
PRC.
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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 have been certified by the Ministry of
Agriculture.
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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.
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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.
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Broad
Customer Base
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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.
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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:
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Capitalize
on our brand reputation to increase sales of new and existing
products
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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.
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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.
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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 2010 and 2011, respectively, in central and eastern provinces of the
PRC to sell our organic fertilizers and third party sourced products, including
seeds, pesticides, and other agricultural products to franchised retail
stores. 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, to educate them about the benefits of
organic fertilizer over chemical fertilizer, and to teach them how to properly
use our products in a more cost effective manner. 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.
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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 markets within the
PRC 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.
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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 our 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, we will have to seek to terminate the
agreement and find a new third party distributor to market its products
outside the PRC.
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April
2010 Offering
On April 29, 2010, we consummated an
underwritten public offering of 1,429,450 shares of our common stock which
included 186,450 shares subject to the underwriter
’
s over-allotment option. Total gross
proceeds from the offering were approximately
$23.0
million.
Corporate
Structure
China
Agritech, Inc. is a holding company with no operations. We are the
parent company to our operating subsidiaries, Pacific Dragon, Anhui Agritech,
Beijing Agritech and Xinjiang Agritech, which are located in the
PRC.
Our
executive offices are located in the PRC at Room 3F No. 11 Building, Zhonghong
International Business Garden, Future Business Center, Chaoyang North Road,
Chaoyang District, Beijing, PRC 100024 and our telephone number is +86
10-59621220. Our website address is www.chinaagritechinc.com.
THE
OFFERING
Common
stock offered by Selling Stockholders:
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1,857,024
Shares
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Use
of proceeds:
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We
will not receive any of the proceeds from the sale of the Shares by the
Selling Stockholders.
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NASDAQ
Global Market symbol:
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CAGC
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Risk
factors:
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The
securities offered by this prospectus are speculative and involve a high
degree of risk and investors purchasing securities should not purchase the
securities unless they can afford the loss of their entire investment. See
“Risk Factors” beginning on page 7 of this
prospectus.
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RISK
FACTORS
Investing
in our securities involves risk. The prospectus supplement applicable to a
particular offering of securities will contain a discussion of the risks
applicable to an investment in China Agritech and to the particular types of
securities that we are offering under that prospectus supplement. Before making
an investment decision, you should carefully consider the risks described below
and the risks described under “Risk Factors” in the applicable prospectus
supplement, or risks any updated in our Quarterly Reports on Form 10-Q, together
with all of the other information appearing in or incorporated by reference into
this prospectus and any applicable prospectus supplement, in light of your
particular investment objectives and financial circumstances. Our business,
financial condition or results of operations could be materially adversely
affected by any of these risks. The trading price of our securities could
decline due to any of these risks, and you may lose all or part of your
investment.
Risks
Related To Our Business
If
we fail to effectively expand our current operations and capacity to satisfy
demand for our granular fertilizer products, our results of operations and
business prospects could be impaired.
We
believe that over the next year demand for our granular fertilizer products will
outgrow our present production capacity of 200,000 metric tons. Our future
success depends on our ability to expand our business to address the growth in
demand for our granular 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 lose our existing customers our revenues could
decrease and accordingly our overall financial performance could be
significantly impaired. In addition, we currently rely on
distributors to distribute our products to multiple end users.
Our
ability to add production capacity and increase output is subject to significant
risks and uncertainties, including:
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the
availability of additional funding to build manufacturing facilities and
purchase raw materials on favorable terms or at
all;
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our
management and minimization of delays and cost overruns caused by problems
with our suppliers of raw materials and third-party vendors;
and
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our
receipt of any necessary government approvals or permits that may be
required to expand our operations in a timely manner or at
all.
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If we
cannot successfully implement additional production capacity increases
efficiently and cost-effectively, we will be unable to satisfy any increased
demand for our granular fertilizers, which could significantly impair our
financial performance.
If our
projections regarding the future market demand for our products are inaccurate,
our operating results and our overall business may suffer.
We have
made significant capital investments in anticipation of rapid growth in the
organic compound fertilizer market in the PRC. The expansion of our internal
manufacturing capabilities has required significant up-front fixed costs.
Additionally, we plan on allocating future working capital to build branded
chain stores in 2010 in order to add new distribution channels to sell our
products in new markets throughout the PRC. If market demand for our products
does not increase as quickly as we have anticipated and align with our expanded
manufacturing capacity, we may be unable to offset these costs and to achieve
economies of scale, and our operating results may be adversely affected as a
result of high operating expenses, reduced margins and underutilization of
capacity. Our ability to meet such excess customer demand could also depend on
our ability to raise additional capital and effectively scale our manufacturing
operations.
If
we cannot protect the proprietary formula and manufacturing processes for our
concentrated organic liquid and granular 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 organic liquid and granular 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. Only certain of our key employees have knowledge of our proprietary
technology and formulas. This could in turn result in a decrease of our market
share and hurt our operating results.
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.
The license
agreement covering the core technology our fertilizer products has an initial
term of three years with a one time three year renewal period and if it is not
renewed thereafter, we will not have the rights to use the technology necessary
to manufacture its current core products.
In April
2010 the PRC Operating Companies entered into a new license agreement
with Yu Chang, our Chairman, CEO and President, pursuant to which Mr. Chang
granted the PRC Operating Companies an exclusive license to use the
know-how to enable us to manufacture the Tailong and Green Vitality organic
liquid compound fertilizers on a royalty-free basis. The initial term of
the license agreement is three years with an automatic renewal
period for another three years. The failure to renew this
agreement thereafter have a material adverse impact on our financial
condition and operations if the technology licensed under the agreement is still
needed by us to manufacture our principal products.
Despite
these precautions, the legal regime protecting intellectual property rights in
the PRC 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 or know-how 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 formulas
and processes, we will incur significant expense and further could not guarantee
a favorable outcome.
Our
proprietary fertilizer formulas may become obsolete which could materially
adversely affect the competitiveness of our future fertilizer
products.
The
production of our fertilizer products is based on our proprietary fertilizer
formulas. Our future success will depend upon our ability to address the
increasingly sophisticated needs of our customers by supporting existing and
emerging humic acid fertilizer products and by developing and introducing
enhancements to our existing products and new products on a timely basis that
keep pace with evolving industry standards and changing customer requirements.
If our proprietary formula becomes obsolete as our competitors develop better
products than ours, our future business and financial results could be adversely
affected.
We
are still in the process of negotiating the final terms and conditions with
our exclusive marketing agent outside the PRC and to the extent that the
agreement is not finalized, this may negatively impact our ability to sell our
products overseas.
In June
2009 we entered into a six-year marketing and distribution agreement with
Odyssey pursuant to which Odyssey was granted the exclusive marketing and
distribution rights 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 August
2010, the Company reached an agreement with Odyssey to market our Lvlingbao
series of organic liquid compound fertilizers in Asian countries, including
Thailand and Indonesia, after first obtaining the relevant import licenses from
these countries. We and Odyssey have agreed to suspend the negotiation of the
final terms and conditions of the agreement until the relevant import licenses
are obtained. In the event that we cannot negotiate the final terms and
conditions of the agreement, we will have to terminate the agreement in a manner
so as not to adversely affect us and find another third party to market our
products outside of the PRC. We can give no assurance that the terms and
conditions of any agreement will be negotiated successfully. Our
inability to successfully negotiate such terms and conditions could adversely
effect our ability to market our products outside the PRC. Because of the
exclusivity we granted to Odyssey, in the event we are unable to negotiate terms
with Odyssey and unable to terminate the agreement, we may be unable to market
our products outside the PRC.
We
may be subject to more stringent governmental regulation on our
products.
The
manufacture and sale of our agricultural products in the PRC is regulated by the
PRC Ministry of Agriculture and the local government of the Provinces in which
our factories are situated. The legal and regulatory regime governing our
industry is evolving, and we may become subject to different, including more
stringent, requirements than those currently applicable to us. While we believe
a more stringent standard will have more of an adverse impact on those
manufacturers with poor quality products, we cannot assure you any regulatory
change will not adversely affect our business.
Potential
environmental liability could have a material adverse effect on our operations
and financial condition.
To our
knowledge, neither the production nor the sale of our products constitutes
activities, or generate materials that create any environmental hazards or
violate the current PRC environmental laws. Although it has not been alleged by
PRC government officials that we have violated any current environmental
regulations, we cannot assure you that the PRC government will not amend the
current PRC environmental protection laws and regulations in a way that could
adversely impact us. Our business and operating results may be materially and
adversely affected if we were to be held liable for violating existing
environmental regulations or if we were to increase expenditures to comply with
environmental regulations affecting our operations.
If
we fail to maintain an effective system of internal control over financial
reporting, we may not be able to accurately report our financial results. As a
result, current and potential investors could lose confidence in our financial
reporting, which could harm our business and have an adverse effect on our stock
price.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to
annually furnish a report by our management on our internal control over
financial reporting. Such report must contain, among other matters, an
assessment by our principal executive officer and our principal financial
officer on the effectiveness of our internal control over financial reporting,
including a statement as to whether or not our internal control over financial
reporting is effective as of the end of our fiscal year. This assessment must
include disclosure of any material weakness in our internal control over
financial reporting identified by management. In addition, under current SEC
rules, we will be required to obtain an attestation from our independent
registered public accounting firm as to our internal control over financial
reporting for our annual report on Form 10-K for our fiscal year ending December
31, 2010. Performing the system and process documentation and evaluation needed
to comply with Section 404 is both costly and challenging. During the course of
our testing we may identify deficiencies which we may not be able to remediate
in time to meet the deadline imposed by the Sarbanes-Oxley Act of 2002 for
compliance with the requirements of Section 404. In addition, if we fail to
maintain the adequacy of our internal controls, as such standards are modified,
supplemented or amended from time to time, we may not be able to ensure that we
can conclude on an ongoing basis that we have effective internal controls over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of
2002.
Failure to achieve and maintain an effective internal control
environment could cause investors to lose confidence in our reported financial
information, which could have a material adverse effect on the price of our
common stock.
During
the course of our evaluation of the disclosure controls and procedures as
of June 30, 2010 and in connection with the preparation of our Quarterly Report
on Form 10-Q for the quarter ended June 30, 2010, management discovered it was
necessary to adjust the previously reported results for the first quarter ended
March 31, 2010 as a result of two accounting errors, which were our failure
to account for 326,600 shares of common stock awarded to directors and officers
for services during the quarter ended March 31, 2010 and incorrectly accounting
for certain intercompany transactions for the quarter ended March 31,
2010.
As a
result of these errors, management subsequently concluded that there was a
material weakness in its disclosure controls and procedures and internal
controls over financial reporting as of March 31, 2010. Management has
identified this material weakness to be inadequate supervision and review of the
financial reporting process relating to the preparation of US GAAP based
financial statements. As a result, management has determined it was necessary to
make changes in its internal controls over financial reporting, which would
specifically entail providing further training to our finance team to improve
their reporting skill levels with respect US GAAP technical issues.
Additionally, management will enhance controls over the review of its US
GAAP prepared financial statements prior to their release giving added
emphasis to the identification and accounting of unusual
transactions.
As
of June 30, 2010, we had approximately $42 million of accounts
receivable for our liquid fertilizers, or 28% of our total
assets.
We sell
approximately 80% of our organic liquid fertilizer in northern provinces of the
PRC. In these provinces, we typically extend our customers credit for
their purchase of our products to allow them to use the proceeds of their
harvests to repay us for their purchase of our products, which typically spans
from six to nine months. As of June 30, 2010, liquid organic fertilizers made up
approximately 53% of our revenue. As of June 30, 2010, we had approximately $42
million of accounts receivable from customers of liquid fertilizers, or 28% of
our total assets. If customers responsible for a significant amount
of accounts receivable were to become insolvent or otherwise unable to pay for
products and services, or to make payments in a timely manner, our business,
results of operations or financial condition could be materially adversely
affected. A natural disaster, such as a wildfire, flood or drought, or an
economic or industry downturn could materially adversely affect the collection
of these accounts receivable, which could result in longer payment cycles,
increased collection costs and defaults in excess of management’s expectations.
A significant deterioration in our ability to collect on accounts receivable
could also impact the cost or availability of financing available to us. Working
capital management, including prompt and diligent billing and collection, is an
important factor in our results of operations and liquidity. We cannot assure
you that natural disasters, system problems, industry trends or other issues
will not extend our collection period, adversely impact our working
capital.
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
Chairman. Mr. Chang has extensive experience in the organic compound fertilizer
industry and is directly involved in all of our business operations. Mr. Chang
has an employment agreement with our subsidiary, Pacific Dragon, which
automatically renewed on January 5, 2008 for a term of three years.
We currently have no employment agreement with Mr. Chang and Mr. Chang is not
obligated to devote any specified number of hours to working for
us. There can be no assurance that we will be able to reach an
agreement with Mr. Chang on terms favorable to us, if at all. 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 do not maintain key-person insurance on any of
our executive officers.
We
depend heavily on skilled research and development 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 individuals with the requisite
experience we may not be able to produce enough products 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.
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 and we have only
non-binding supply agreements. In fiscal year 2009, we purchased approximately
17% of our humic acid from Harbin Hai Heng Chemical Distribution Co. Ltd.,
approximately 18% of our nitrogen, phosphorus and kalium from Beijing Zhongxin
Chemical Technology Development Co., and approximately 15% of our other
supplementary material from Shenzhen Hongchou Technology Company. Our
purchases through June 30, 2010 were from similar sources and in similar
amounts, and for the 2010 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 for our fertilizer
products. We have entered into written agreements with all of these suppliers,
each under supply agreements that expire in December 2010. 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. When these supply agreements expire
in December 2010, we may be unable to negotiate new agreements with these
suppliers on terms favorable to us, or at all. 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 inability 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.
We
rely on a limited number of products to achieve most of our
revenues.
We derive
a substantial percentage of our revenues from a limited number of products, and
we expect these products to continue to account for a large percentage of our
revenues in the near term. For example, our liquid organic fertilizer accounted
for 62% and 53% of our revenue for the year ended December 31, 2009 and for the
six months ended June 30, 2010, respectively, while granular fertilizer
accounted for 38% and 47% of our revenue for the year ended December 31, 2008
and the six months ended June 30, 2010, respectively. Continued
market acceptance of these products is, therefore, critical to our future
success. Our business, operating results, financial condition, and cash flows
could therefore be adversely affected by: a decline in demand for even a limited
number of our products; a failure to achieve continued market acceptance of our
key products; export restrictions or other regulatory or legislative actions
which could limit our ability to sell those products to key customer or market
segments; an improved version of products being offered by a competitor in the
market in which we participate; increased pressure from competitors that offer
broader product lines; technological change that we are unable to address with
our products; or a failure to release new or enhanced versions of our products
on a timely basis. This may impact our ability to maintain or expand
our business with certain customers.
Our
liquid and granular fertilizer sales have seasonal variations and adverse
weather conditions could reduce demand for our products.
We
experience seasonal variations in our revenues and our operating costs. The peak
selling season for our liquid fertilizer products is from April through
September. Periods of cold weather may delay the application of the liquid
fertilizer, or render it unnecessary, thereby reducing demand for such
fertilizer products. During the fiscal year ended December 31, 2009,
approximately 61% of our annual liquid fertilizer sales volume came from the
second and third fiscal quarters, when demand for our liquid fertilizer products
typically peaks during planting season and prior to harvest. We believe that the
peak selling season for our granular fertilizer products is from October through
March. Although the peak selling seasons for our liquid and
granular do not overlap, we may still experience seasonal variations,
and we cannot assure you that sales of our granular fertilizer products will
mitigate the seasonal impact of liquid fertilizer sales.
If
we are unable to design, manufacture, and market products in a timely and
efficient manner, we may not remain as competitive.
Some of
our products are characterized by continuing technological advancement, changes
in customer requirements, and evolving product standards. Accordingly, we devote
a substantial amount of resources to product development. To compete
successfully, we must develop and offer new and/or improved products that
provide increasingly higher levels of performance and reliability. New
technologies may be untested or unproven. In some instances, product
requirements or specifications may be modified. As a result, we may experience
technological and other performance difficulties, which may result in delays,
setbacks and cost overruns. Product development is highly uncertain and we
cannot assure you that we will successfully develop new products. Our inability
to develop and offer new and/or improved products or to achieve customer
acceptance of these products could limit our ability to compete in the market or
to grow revenues at desired rates of growth.
Our
ability to attract new customers in the PRC depends on the continued transition
from the use of less expensive chemical fertilizers to organic fertilizers that
we sell.
We
estimate that approximately 90% of the fertilizer products used in the PRC today
are chemical fertilizers, rather than organic fertilizers. Farmers in
the PRC have been using chemical fertilizers for decades, and we believe that
our growth depends on our ability to convince these farmers to switch to organic
fertilizers, such as our products, despite the increased cost of such
products. Many prospective customers are rural farmers that are
isolated and, we believe, lack an understanding of the environmental and health
benefits of our organic fertilizer products. Even if these potential
customers are aware of the benefits of our products, we believe that the
increased cost of our products as compared to chemical fertilizers may be
prohibitive for some rural farmers. While we may take steps, though
our distributors, to educate users of chemical fertilizers about the benefits of
our products, we believe that it will be difficult to convince significant
numbers of small farmers, some of who use no fertilizer at all, to purchase our
products. If we cannot continue to drive the transition to organic
fertilizer products in the provinces that we serve, our sales will stagnate and
our financial results will suffer.
Our
entry into foreign markets exposes us to changes in foreign regulations and
other risks inherent to international business, any of which could effect our
results of operations.
In June
2009, we granted exclusive marketing and distribution rights for certain of our
Lvlingbao liquid organic fertilizer products to Odyssey International (Trading)
Group Ltd. (“Odyssey”), which plans to market our products in Central and South
America, South Africa and certain Southeast Asian
countries. Distributing our products in these markets presents risks
including:
·
|
volatility
in general economic, social and political
conditions;
|
·
|
differing
tax rates, tariffs, exchange controls or other similar
restrictions;
|
·
|
changes
in currency rates;
|
·
|
inability
to repatriate income or capital;
|
·
|
changes
in, and compliance with, domestic and foreign laws and regulations which
impose a range of restriction on operations, trade practices, trade
partners and investment decisions;
|
·
|
seizure
of our products by foreign
governments;
|
·
|
boycotts
and embargoes that may be imposed by the international community on
countries in which we operate;
|
·
|
disruptions
due to civil war, election outcomes, shortages of commodities, power
interruptions or inflation; the imposition of unexpected taxes or other
payments on revenues.
|
Any of
these risks could limit our ability to operate or have a negative impact on our
profitability.
We
have granted exclusive rights to market and distribute our Lvlingbao line of
liquid organic compound fertilizers to Odyssey International
(Trading) Group Ltd. (“Odyssey”) and their efforts to market and distribute our
products are outside of our control.
In June
2009 we granted Odyssey the exclusive right to market and distribute our
Lvlingbao III liquid organic compound fertilizers in Guangdong, Guangxi and
Hainan provinces within the PRC, as well as Central and South America, South
Africa and certain Southeast Asian countries. The revenue we earn
from the sale of our products under the agreement depends heavily on Odyssey’s
efforts. Odyssey has significant discretion in determining the efforts and
resources it applies to the marketing and sale of our products, and Odyssey has
a significant number of other clients whose products it distributes.
Furthermore, regardless of the effort and resources they invest, Odyssey may not
be effective in distributing or marketing our products. A
disagreement between us and Odyssey could lead to lengthy and expensive dispute
resolution proceedings as well as to extensive financial and operational
consequences to us, and have a material adverse effect on our business, results
of operations and financial condition. If our relationship with Odyssey were to
terminate, we may not be able to enter into another distribution and marketing
agreement with a company with similar resources to distribute our products and
perform on acceptable terms or at all. As a result, we could experience delays
in our ability to distribute our products and increased expenses, all of which
would have a material adverse affect on our business, results of operations and
financial condition.
We
do not presently maintain business disruption insurance. Any disruption of the
operations in our factories would damage our business and disrupt our production
and have a material adverse effect on our business, financial position on
results of operations.
Our
business could be materially and adversely affected by power shortages, natural
disasters, terrorist attacks or other events in the PRC. For example, in early
2008, parts of the PRC suffered a wave of strong snow storms that severely
impacted public transportation systems and the power supply in those areas. In
May 2008, Sichuan Province in the PRC suffered a strong earthquake measuring
approximately 8.0 on the Richter scale that caused widespread damage and
casualties. The May 2008 Sichuan earthquake may have a material adverse effect
on the general economic conditions in the areas affected by the earthquake. In
July 2008, explosive devices were detonated on several buses in Kunming, Yunnan
Province of the PRC, which resulted in disruptions to public transportation
systems in Kunming and casualties. Any future natural disasters, terrorist
attacks or other events in the PRC could cause a reduction in usage of, or other
severe disruptions to, public transportation systems and could have a material
adverse effect on our business and results of operations.
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, demands for our products will be reduced. In
addition, in some cases, we allow our distributors to purchase our products
partially on credit. The distributors, in turn, may sell the fertilizer to
farmers on credit. If any natural disaster occurs, reduced 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.
While we
have property damage insurance and automobile insurance, we do not carry
business disruption insurance, which is not readily available in the PRC. Any
disruption of the operations in our factories would have a significant negative
impact on our ability to manufacture and deliver products, which would cause a
potential diminution in sales, the cancellation of orders, damage to our
reputation and potential lawsuits.
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 are in the
process of renewing our products liability insurance policy which covers claims
from personal injuries or property damage caused by our products for the period
from July 11, 2010 to July 10, 2011. Our insurance coverage was limited to
approximately $585,000 (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 prospectus, 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.
SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS
This
prospectus , including the documents that we incorporate by reference, may
contain forward-looking statements within the meaning of 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”).
Forward-looking statements include those that express plans, anticipation,
intent, contingency, goals, targets or future development and/or otherwise are
not statements of historical fact. Any forward-looking statements are based on
our current expectations and projections about future events and are subject to
risks and uncertainties known and unknown that could cause actual results and
developments to differ materially from those expressed or implied in such
statements.
In some
cases, you can identify forward-looking statements by terminology, such as
“expects,” “anticipates,” “intends,” “estimates,” “plans,” “believes,” “seeks,”
“may,” “should”, “could” or the negative of such terms or other similar
expressions. Accordingly, these statements involve estimates, assumptions and
uncertainties that could cause actual results to differ materially from those
expressed in them. Any forward-looking statements are qualified in their
entirety by reference to the risk factors described herein and those included in
any accompanying prospectus supplement or in any document incorporated by
reference into this prospectus.
You
should read this prospectus and the documents that we reference herein and
therein and have filed as exhibits to the registration statement, of which this
prospectus is part, completely and with the understanding that our actual future
results may be materially different from what we concurrently expect. You should
assume that the information appearing in this prospectus and any document
incorporated herein by reference is accurate as of its date only. Because the
risk factors referred to above, as well as the risk factors referred to on page
7 of this prospectus and incorporated herein by reference, could cause actual
results or outcomes to differ materially from those expressed in any
forward-looking statements made by us or on our behalf, you should not place
undue reliance on any forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which it is made, and we undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time, and it
is not possible for us to predict which factors will arise. In addition, we
cannot assess the impact of each factor on our business or the extent to which
any factor, or combination of factors, may cause actual results to differ
materially from those contained in any forward-looking statements. We qualify
all of the information presented in this prospectus and any document
incorporated herein by reference, and particularly our forward-looking
statements, by these cautionary statements.
USE
OF PROCEEDS
We will
not receive any proceeds from the sale of the Shares by the Selling
Stockholders.
SELLING
STOCKHOLDERS
We are
registering for resale shares of our common stock that are currently issued and
outstanding. We are registering the shares to permit the Selling Stockholders
and their pledgees, donees, transferees and other successors-in-interest that
receive their shares from a Selling Stockholder as a gift, partnership
distribution or other non-sale related transfer after the date of this
prospectus to resell the shares when and as they deem appropriate in the manner
described in the “Plan of Distribution.”
Private
Placement with Carlyle Asia Growth Partners, IV, LP and CAGP IV Co-Investment,
L.P. (the “Selling Stockholders”)
On
October 19, 2009, we entered into a securities purchase agreement (the “Purchase
Agreement”) with the Selling Stockholders pursuant to which we issued to the
Selling Stockholders an aggregate of (i) 2,785,536 shares of common stock, par
value $0.001 per share (the “Investor Shares”), and warrants (the “Warrants”) to
purchase up to 1,857,024 shares of common stock, par value $0.001 per share (the
“Warrant Shares”), at an initial exercise price of approximately $5.38 per
share, which is subject to adjustment. The aggregate purchase price was
$15,000,000.
In
connection with the sale of the Shares, we entered into a registration rights
agreement with the Selling Stockholders pursuant to which we agreed to file a
registration statement covering the resale of the Investor Shares and Warrant
Shares (collectively, the “Registrable Securities”), with the SEC. We agreed to
file such registration statement on the earlier of (i) the 30th calendar day
following the completion by us of an offering of shares of our common stock,
debt equity securities convertible, exercisable or exchangeable into common
stock, or debt securities or (ii) January 31, 2010. On February 1, 2010, the
Selling Stockholders agreed to extend the deadline for filing such registration
statement until March 15, 2010. The Investor Shares were registered for resale
in May 2010 (Registration No. 333-165449).
On
June 17, 2010, the Selling Stockholders exercised the Warrants and we
issued the Selling Stockholders the Warrant Shares. The registration
of the Warrant Shares on the registration statement of which this prospectus
forms a part, satisfies our current obligation under the registration rights
agreement. We are required to keep the registration statement continuously
effective under the Securities Act of 1933, as amended (the “Securities Act”),
until such date as is the earlier of the date when all of the securities covered
by the registration statement have been sold or the date on which such
securities may be sold without any restriction pursuant to Rule
144.
We
received a letter from the Financial Industry Regulatory Authority (“FINRA”)
dated March 11, 2010 informing us that it is conducting a review of the trading
in our common stock surrounding the October 20, 2009 announcement of the private
placement investment made by the Selling Stockholders. FINRA has indicated that
its inquiry should not be construed as an indication that it has determined any
violations of FINRA rules or NASD rules or federal securities laws have
occurred. We have responded to the letter and has not received any indication
from FINRA as to the status of its review.
Material
Relationships
Ms. Zheng
“Anne” Wang, who is a vice president of an affiliate of each of the Selling
Stockholders, is a member of our Board of Directors. She was
appointed pursuant to the terms of the Purchase Agreement, whereby we granted
the Selling Stockholders the right to collectively designate one person to serve
as a member of our board of directors.
Broker-Dealer
Affiliations
None of
the Selling Stockholders is a broker-dealer or an affiliate of a broker-dealer.
Each Selling Stockholder may offer for sale all or part of the Shares from time
to time. The table below assumes that the Selling Stockholders will sell all of
the Shares offered for sale. A Selling Stockholder is under no obligation,
however, to sell any Shares pursuant to this prospectus.
The
following table sets forth:
·
|
the
name of the Selling Stockholders,
|
·
|
the
number of shares of our common stock that the Selling Stockholders
beneficially owned prior to the offering for resale of the Shares under
this prospectus,
|
·
|
the
maximum number of shares of our common stock that may be offered for
resale for the account of the Selling Stockholders under this prospectus,
and
|
·
|
the
number and percentage of shares of our common stock to be beneficially
owned by the Selling Stockholders after the offering of the Shares
(assuming all of the offered Shares are sold by the Selling
Stockholders).
|
Name of Selling
Stockholder
|
|
Shares of
Common Stock
Beneficially
Owned Prior
to Offering(1)
|
|
|
Percentage
Ownership
Before
Offering
|
|
|
Maximum
Number of
Shares to
be Sold
|
|
|
Shares of
Common Stock
Beneficially
Owned After
Offering
|
|
|
Percentage
Ownership
After
Offering
|
Carlyle
Asia Growth Partners IV, L.P.
|
|
|
4,263,123
|
|
|
|
20.5
|
%
|
|
|
1,705,249
|
|
|
|
2,557,874
|
|
|
|
12.3
|
%
|
CAGP
IV Co-Investment, L.P.
|
|
|
379,437
|
|
|
|
1.8
|
%
|
|
|
151,775
|
|
|
|
227,662
|
|
|
|
1.1
|
%
|
Total
|
|
|
|
|
|
|
|
|
|
|
1,857,024
|
|
|
|
|
|
|
|
—
|
|
(1)
|
Beneficial
ownership is determined in accordance with the rules and regulations of
the SEC. In computing the number of shares beneficially owned by a person
and the percentage ownership of that person, securities that are currently
convertible or exercisable into shares of our common stock, or convertible
or exercisable into shares of our common stock within 60 days of the date
hereof are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of any
other person. Except as indicated in the footnotes to the following table,
each stockholder named in the table has sole voting and investment power
with respect to the shares set forth opposite such stockholder’s name. The
percentage of beneficial ownership is based on 20,766,343 shares of common
stock outstanding as of November 22,
2010.
|
PLAN
OF DISTRIBUTION
We are
registering 1,857,024 shares of our common stock on behalf of the Selling
Stockholders. We are required to pay certain fees and expenses that
we incur incident to the registration of the shares of the common stock. As used
in this prospectus, “Selling Stockholders” includes the Selling Stockholders
named in the table above and pledgees, donees, transferees or other
successors-in-interest selling shares received from a named selling stockholder
as a gift, partnership distribution or other non-sale-related transfer after the
date of this prospectus. The Selling Stockholders may, from time to time, sell
any or all of their shares of common stock on the Nasdaq Global Market or any
other stock exchange, market or trading facility on which the shares are traded
or in private transactions. These sales may be at fixed or negotiated prices.
The Selling Stockholders will act independently of us in making decisions with
respect to the timing, manner and size of each sale. A selling stockholder may
use any one or more of the following methods when selling shares:
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a
part;
|
·
|
broker-dealers
may agree with the Selling Stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
·
|
a
combination of any such methods of
sale;
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
or
|
·
|
any
other method permitted pursuant to applicable
law.
|
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or
discounts from the Selling Stockholders (or, if any broker-dealer acts as agent
for the purchaser of shares, from the purchaser) in amounts to be negotiated,
but, except as set forth in a supplement to this prospectus, in the case of an
agency transaction not in excess of a customary brokerage commission in
compliance with FINRA Rule 2440; and in the case of a principal transaction a
markup or markdown in compliance with FINRA IM-2440.
In
connection with the sale of the common stock or interests therein, the Selling
Stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of the common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
Selling Stockholders and any broker dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Each selling stockholder has informed the us
that it does not have any written or oral agreement or understanding, directly
or indirectly, with any person to distribute the common stock. In no
event shall any broker-dealer receive fees, commissions and markups which, in
the aggregate, would exceed eight percent (8.0%).
Because
Selling Stockholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act. In addition, any securities covered by this prospectus
which qualify for sale pursuant to Rule 144 under the Securities Act may be sold
under Rule 144 rather than under this prospectus. There is no underwriter or
coordinating broker acting in connection with the proposed sale of the resale
shares by the Selling Stockholders.
The
Shares will be sold only through registered or licensed brokers or dealers if
required under applicable state securities laws. In addition, in certain states,
the resale shares may not be sold unless they have been registered or qualified
for sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under
applicable rules and regulations under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), any person engaged in the distribution of the
resale shares may not simultaneously engage in market making activities with
respect to the common stock for the applicable restricted period, as defined in
Regulation M, prior to the commencement of the distribution. In
addition, the Selling Stockholders will be subject to applicable provisions of
the Exchange Act and the rules and regulations thereunder, including Regulation
M, which may limit the timing of purchases and sales of shares of the common
stock by the Selling Stockholders or any other person. We will make copies of
this prospectus available to the Selling Stockholders and have informed them of
the need to deliver a copy of this prospectus to each purchaser at or prior to
the time of the sale (including by compliance with Rule 172 under the Securities
Act).
We have
agreed to indemnify the Selling Stockholders Selling Stockholders against
certain losses, claims, damages and liabilities, including liabilities under the
Securities Act. We agreed with the Selling Stockholders to keep this prospectus
effective until the earlier of (i) the date on which the shares may be resold by
the Selling Stockholders without registration and without regard to any volume
limitations by reason of Rule 144(e) under the Securities Act or any other rule
of similar effect or (ii) all of the shares have been sold pursuant to the
prospectus or Rule 144 under the Securities Act or any other rule of similar
effect.
LEGAL
MATTERS
Certain
legal matters governed by the laws of the State of Delaware with respect to the
validity of the offered securities will be passed upon for us by Loeb & Loeb
LLP, New York, New York.
EXPERTS
The
consolidated balance sheet of China Agritech, Inc. and Subsidiaries as of
December 31, 2009 and 2008, and the related consolidated statements of
income, stockholders’ equity and comprehensive income, and cash flows for the
years then ended have been audited by Crowe Horwath LLP, an independent
registered public accounting firm, as set forth in their report which is
incorporated by reference, and have been so incorporated in reliance upon the
report of such firm given on the authority of such firm as experts in accounting
and auditing.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The
following documents filed by us with the Securities and Exchange Commission are
incorporated by reference in this prospectus:
·
|
Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, filed on
April 1, 2010;
|
·
|
Current
Report on Form 8-K filed on January 8,
2010;
|
·
|
Current
Report on Form 8-K filed on April 28,
2010;
|
·
|
Current
Report on Form 8-K filed on April 29,
2010;
|
·
|
Current
Report on Form 8-K filed on May 5,
2010;
|
·
|
Quarterly
Report on Form 10-Q for the period ended March 31, 2010 filed May 10,
2010;
|
·
|
Current
Report on Form 8-K, filed on May 21,
2010
|
·
|
Quarterly
Report on Form 10-Q for the period ended June 30, 2010, filed on August
16, 2010
|
·
|
Current
Report on Form 8-K filed on September 13, 2010;
and
|
·
|
The
description of our Common Stock set forth in our Registration Statement on
Form 8-A (Registration No. 001-34458) filed with the SEC on September
15, 2009, including any amendments thereto or reports filed for the
purpose of updating such
description.
|
We also
incorporate by reference all documents we file under Section 13(a), 13(c), 14 or
15(d) of the Exchange Act (a) after the initial filing date of the registration
statement of which this prospectus is a part and before the effectiveness of the
registration statement and (b) after the effectiveness of the registration
statement and before the filing of a post-effective amendment that indicates
that the securities offered by this prospectus have been sold or that
deregisters the securities covered by this prospectus then remaining
unsold. Any statement contained herein or in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes hereof to the extent that a statement in any
other subsequently filed document which is also incorporated or deemed to be
incorporated herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this prospectus.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION ABOUT US
We have
filed a registration statement on Form S-3 with the SEC for the securities we
are offering by this prospectus. This prospectus does not include all of the
information contained in the registration statement. You should refer to the
registration statement and its exhibits for additional information. We will
provide to each person, including any beneficial owner, to whom a prospectus is
delivered, a copy of any or all of the information that has been incorporated by
reference in the prospectus but not delivered with the prospectus. We
will provide this information upon oral or written request, free of
charge. Any requests for this information should be made by calling
or sending a letter to the Secretary of the Company, c/o China Agritech, Inc.,
at the our office located 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 (86) 10-59621220.
We are
required to file annual and quarterly reports, current reports, proxy
statements, and other information with the SEC. We make these documents publicly
available, free of charge, on our website at www.bioaobo.com as soon as
reasonably practicable after filing such documents with the SEC. You can read
our SEC filings, including the registration statement, on the SEC’s website at
http://www.sec.gov. You also may read and copy any document we file with the SEC
at its public reference facility at:
Public
Reference Room
100 F
Street N.E.
Washington,
DC 20549.
Please
call the SEC at 1-800-732-0330 for further information on the operation of the
public reference facilities.
1,857,024
Shares of Common Stock
CHINA
AGRITECH, INC.
PROSPECTUS
NOVEMBER
22
, 2010
We
have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in or incorporated by reference
into this prospectus. You must not rely on any unauthorized information. If
anyone provides you with different or inconsistent information, you should not
rely on it. This prospectus does not offer to sell any shares in any
jurisdiction where it is unlawful. Neither the delivery of this prospectus, nor
any sale made hereunder, shall create any implication that the information in
this prospectus is correct after the date hereof.