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PROSPECTUS
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Filed Pursuant to Rule
424(b)(3)
Registration No. 333-165449
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CHINA
AGRITECH, INC.
3,151,536
Shares of Common Stock
This
prospectus relates to the resale of up to 3,151,536 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
April 16, 2010 the last reported market price of our common stock was
$17.97.
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 10 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 is April 27, 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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3
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The
Offering
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9
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Risk
Factors
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10
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Special
Note Regarding Forward Looking Statements
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19
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Use
of Proceeds
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20
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Selling
Stockholders
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20
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Plan
of Distribution
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23
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Legal
Matters
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25
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Experts
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25
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Where
You Can Find Additional Information
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26
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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
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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.
(“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”). For the nine months ended September 30, 2009,
approximately 65% of our revenues were derived from the sale of our liquid
organic fertilizer products, while approximately 35% of our revenues were
derived from the sale of our granular organic fertilizer products.
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:
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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 September 30 2009 was approximately 13,000 metric tons of organic liquid
compound fertilizers whereas our annual production capacity for granular
fertilizers as of September 30, 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 plan
to build and open between 30 and 50 branded large-scale distribution centers in
central and eastern provinces in 2010 to sell our own organic fertilizers and
third party sourced products, including seeds, pesticides, and other
agricultural products throughout the PRC, and hope to expand into southern and
western provinces in 2011. Each distribution center can cover 80 to 100
franchised retail stores under our management. We hope to use these locations
and franchised stores to introduce small 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. We believe that these
franchised stores will 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
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 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 product’s market share throughout the PRC by
establishing branded 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 bring strong profitability to us.
Expand the lines of our
products.
Beside our current organic fertilizers, we will 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 farmer’s
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:
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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 also 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 Sinochem Fertilizer Co., Ltd,
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.
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
. 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.
When our recently completed Xinjian facility commences commercial
production in early 2010 our organic granular compound fertilizer
production capacity will reach 200,000 metric
tons.
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Build &
Operate Franchised Retail Stores in the PRC
. We plan to
open between 30 and 50 large-scale distribution centers throughout the
PRC’s central provinces in 2010, and hope to expand into eastern and
western provinces in 2011. Each distribution center could cover
up to 100 franchised retail chain stores. We hope to use the
franchised retail chain stores to introduce small provincial farmers to
our products, educate them about the benefits of organic fertilizer over
chemical fertilizer, and teach them how to properly use our
products. We believe that these chain stores will
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.
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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 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.
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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. In June 2009 we entered
into a 6-year marketing and distribution agreement with Odyssey
International (Trading) Group Ltd., a Hong Kong corporation ("Odyssey")
that provides for Odyssey to have 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, Asian countries. and
overseas markets.
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Recent
Private Placement
On
October 19, 2009 we issued (i) an aggregate of 2,785,536 shares of common stock
(the “Investor Shares”) and (ii) warrants to purchase up to an aggregate of
1,857,024 shares of common stock (the “Warrant Shares”) at an initial exercise
price of approximately $5.38 per shareto Carlyle Asia Growth Partners IV, L.P.
and CAGP IV Co-Investment, L.P. (collectively, the “Carlyle Investors”) for a
purchase price of $15,000,000. The warrants issued to the Carlyle
Investors will become exercisable on April 19, 2010 and expire April 19,
2012. The number of shares of common stock and warrants issuable to
the Carlyle Investors was subject to adjustment if the Company failed to meet a
specified net income target for the fiscal year ended December 31,
2009. Since the Company met the net income target, no additional
shares of common stock or warrants will be issued.
We
granted the Carlyle Investors a one-year right of participation in future
offerings by us of shares of our common stock, debt or equity securities
convertible, exercisable or exchangeable into common stock, or debt securities.
The right of participation was granted individually, on a pro rata basis based
upon each investor’s original subscription amount, and collectively no less than
$5 million and no more than $10 million. In addition, we granted the Carlyle
Investors the right to collectively designate one person to serve as a member of
our board of directors. On December 23, 2009, we appointed Carlyle’s designee,
Zheng “Anne” Wang, to serve as a member of our Board of directors. On January 8,
2010, the board of directors also appointed Charles Law to serve as a member of
our board of directors. The board of directors determined that Mr. Law was an
“independent director” as that term is defined and determined in accordance with
Rule 5605(a)(2) of the Marketplace Rules of The NASDAQ Stock Market, LLC and
Section 10A(m)(3) of the Securities Exchange Act of 1934, as
amended.
In
connection with the transaction, we entered into a registration rights
agreement, pursuant to which the Company agreed to prepare and file a
registration statement covering the resale of the Investor Shares and Warrant
Shares (collectively, the “Registrable Securities”) no later than January 31,
2010. On February 1, 2010, we agreed with the Carlyle Investors to extend the
deadline for filing such registration statement until March 15, 2010. The
registration of 2,785,536 of the shares of common stock under this registration
statement, of which this prospectus forms a part, satisfies certain of our
obligations under the registration rights agreement.
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 10-59621278. Our website address is
www.chinaagritechinc.com.
THE
OFFERING
Common
stock offered by Selling Stockholders:
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3,151,536
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
10.
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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
December 2005, our subsidiary Pacific Dragon entered into a license agreement
with Mr. Yu Chang, our Chairman CEO and President, under which Mr. Chang granted
us an exclusive license to use his know-how in manufacturing Tailong organic
liquid compound fertilizer on a royalty-free basis. Under the license agreement,
Mr. Chang has the obligation to maintain the confidentiality of this technology
and is prohibited from licensing this technology to any third party or using the
technology for his own benefit.
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.
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.
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
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 also cause investors to lose confidence in our reported financial
information, which could have a material adverse effect on the price of our
common stock.
As
of September 30, 2009, we had approximately $40.6 million of accounts
receivable for our liquid fertilizers, or 42.5% 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 September 30, 2009, liquid organic fertilizers
made up approximately 65.1% of our revenue. As of September 30,
2009, we had approximately $40.6 million of accounts receivable from customers
of liquid fertilizers, or 42.5% 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 2008, we purchased approximately
14.8% of our humic acid from Harbin Hai Heng Chemical Distriution Co. Ltd.,
approximately 33.8% of our nitrogen, phosphorus and kalium from Beijing Zhongxin
Chemical Technology Development Co., and approximately 27.1% of our other
supplementary material from Shenzhen Hongchou Technology Company. Our
purchases through September 30, 2009 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 91.0% and 65.1% of our revenue for the year ended December 31, 2008 and for
the nine months ended September 30, 2009, respectively, while granular
fertilizer accounted for 9.0% and 34.9% of our revenue for the year ended
December 31, 2008 and September 30, 2009, 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, 2008,
approximately 64.9% 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.
Our
operating results will suffer if the price of raw materials increases and we
cannot pass the increased cost through to our customers.
The
primary raw materials included in our products are humic acid, nitrogen,
phosphorus, kalium and other supplementary material. The prices for these raw
materials are subject to market forces largely beyond our control, including
energy costs, organic chemical feedstock, market demand, and freight costs. The
prices for these raw materials may fluctuate significantly based upon changes in
these forces. Our operating results may be seriously harmed if we are unable to
pass any raw material price increases through to our customers due to lower
margins from our sales. If we are forced to increase prices of our products due
to increases in the prices of raw materials, the demand for our products could
decrease, which could materially harm our operations and financial
results.
If
we cannot renew our fertilizer registration certificate, which expires in 2012,
we will be unable to sell some of our products which will cause our sales
revenues to significantly decrease.
All
manufacturers of fertilizers produced in the PRC must be registered with the PRC
Ministry of Agriculture. No fertilizer can be manufactured without such
registration. There are two kinds of registrations: interim registration and
formal registration. The interim registration is valid for one year and applies
to fertilizers in the stages of in-the-field testing and test selling.
Fertilizers that have completed in-the-field testing and test selling must
obtain formal registration, which is valid for five years, and thereafter must
be renewed each five years. We have obtained a Formal Fertilizer Registration
Certificate covering all of our fertilizer products from the PRC Ministry of
Agriculture. Such certificate was issued on May 28, 2008 and will expire in
December 2012.
Our
belief is that the PRC Ministry of Agriculture generally will grant an
application for renewal in the absence of illegal activity by the applicant.
However, there is no guarantee that the PRC Ministry of Agriculture will grant
renewal of our Formal Fertilizer Registration Certificate. If we cannot obtain
the necessary renewal, we will not be able to manufacture and sell our
fertilizer products in China which will cause the termination of our commercial
operations.
The
markets in which we operate are highly competitive and fragmented and we may not
be able to maintain market share.
We
operate in highly competitive markets and compete with numerous local PRC
fertilizer manufacturers and we expect competition to persist and intensify in
the future. Our competitors are mainly domestic leaders in the fertilizer
markets in China. Our small local competitors may have better access in certain
local markets to customers and prospects, an enhanced ability to customize
products to a particular region or locality and more established local
distribution channels within a small region. We also compete with large PRC
national competitors who may have competitive advantages over us in certain
areas such as access to capital, technology, product quality, economies of scale
and brand recognition and may also be better positioned than us to develop
superior product features and technological innovations and to exploit and adapt
to market trends. Additionally, we may not be able to conduct in-depth research
and analysis on our current or new markets due to the lack of public or
third-party sources of competitive information available on our industry and
competitors in the PRC. Therefore, we may not have a clear estimate of the
current number of our direct competitor or such competitors' revenues or market
share.
In
addition, China's entry into the World Trade Organization may lead to increased
foreign competition for us. International producers and traders import products
into China that generally are of higher quality than those produced in the local
Chinese market. If they are localized and become recognized as the type of
fertilizer we produce, we may face additional competition. If we are not
successful in our marketing and advertising efforts to increase awareness of our
brands, our revenues could decline, which could have a material adverse effect
on our business, financial condition, results of operations and share price. We
cannot assure you that additional competitors will not enter our existing
markets, or that we will be able to compete successfully against existing or new
competition.
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 have renewed
product liability insurance to cover claims from personal injuries or property
damage caused by our products for the period from July 11, 2009 to July 10,
2010. 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 prospectusand 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
10 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 prospectusand 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.
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
“
Carlyle
Investors”)
On
October 19, 2009, we entered into a securities purchase agreement (the “Purchase
Agreement”) with the Carlyle Investors pursuant to which we issued to the
Carlyle Investors an aggregate of (i) 2,785,536 shares of common stock, par
value $0.001 per share (the “Investor Shares”), and warrants (collectively, 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 to the Carlyle Investors 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
Carlyle Investors agreed to extend the deadline for filing such registration
statement until March 15, 2010.
In
connection with the sale of the Shares, we entered into a registration rights
agreement with the to the Carlyle Investors 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 30
th
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 Carlyle Investors agreed to extend the
deadline for filing such registration statement until March 15,
2010.
The
registration of the Investor 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 , 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 (the “Financing Effectiveness
Period”). We will pay liquidated damages of 1.5% of the aggregate
purchase price paid by each holder pursuant to the purchase agreement per month,
payable in cash, up to a maximum of 4.5% of the aggregate subscription amount
paid by such holder pursuant to the purchase agreement, if the registration
statement is not filed within the foregoing time period, is not declared
effective within 90 days following the initial filing or 120 days if there is a
full review by the SEC, or ceases to be effective for more than 30 consecutive
calendar days or more than an aggregate of 45 calendar days during any 12-month
period prior to the expiration of the Financing Effectiveness
Period. However, no liquidated damages will be paid with respect to
any registrable securities that are not registered because the Company is not
permitted to include all registrable securities in any registration statement
due to any publicly-available SEC guidance or the Securities Act.
The Company
received a letter from the Financial Industry Regulatory Authority ("FINRA")
dated March 11, 2010 informing the Company that it is conducting a review of the
trading in the Company's common stock surrounding the October 20, 2009
announcement of the private placement investment made by the Carlyle Investors.
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. The Company is in the process of responding to
the letter.
Affiliate
and Employee Shares
Certain
of the Selling Stockholders are affiliates and/or employees of the
Company. Mr. Chang is our Chairman, Chief Executive Officer and
President, Ms. Teng is a director, Mr. Zhu is our Chief Operating
Officer and Ms. Min is the Executive Assistant to the Chief Executive
Officer.
Material
Relationships
Ms. Zheng
“Anne” Wang, who is a vice president of an affiliate of each of the Carlyle
Investors, is a member of our Board of Directors. She was appointed
pursuant to the terms of the Purchase Agreement, whereby we granted the
Investors 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
|
(2)
|
|
22.40
|
%
|
|
|
2,557,874
|
|
|
|
1,705,249
|
|
|
|
8.89
|
%
|
CAGP
IV Co-Investment, L.P.
|
|
|
379,437
|
(3)
|
|
2.17
|
%
|
|
|
227,662
|
|
|
|
151,774
|
|
|
|
|
*
|
Yu
Chang
|
|
|
6,811,888
|
(4)
|
|
|
38.97
|
%
|
|
|
141,000
|
|
|
|
6,670,888
|
|
|
|
38.16
|
%
|
Xiao
Rong Teng
|
|
|
637,886
|
(5)
|
|
|
3.65
|
%
|
|
|
80,000
|
|
|
|
557,886
|
|
|
|
3.19
|
%
|
Ming
Fang Zhu
|
|
|
112,360
|
(6)
|
|
|
|
*
|
|
|
70,000
|
|
|
|
42,360
|
|
|
|
|
*
|
Yau-Sing
Tang
|
|
|
182,401
|
(7)
|
|
|
1.04
|
%
|
|
|
50,000
|
|
|
|
132,401
|
|
|
|
|
*
|
Min
Zhang
|
|
|
58,192
|
(8)
|
|
|
|
*
|
|
|
25,000
|
|
|
|
14,572
|
|
|
|
|
*
|
Total
|
|
|
12,445,286
|
|
|
|
|
|
|
|
3,151,536
|
|
|
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(1)
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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
17,479,769
shares
of common stock outstanding as of
March
23, 2010
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Includes
2,557,874 shares of common stock owned outright and 1,705,249 shares of
common stock issuable upon exercise of a warrant held by Carlyle Asia
Growth Partners IV, L.P. The warrant is first exercisable on April 19,
2010 and expires on April 19, 2012.
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(3)
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Includes
227,662 shares of common stock owned outright and 151,775 shares of common
stock issuable upon exercise of a warrant held by CAGP IV Co-Investment,
L.P. The warrant is first exercisable on April 19, 2010 and expires on
April 19, 2012.
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(4)
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Includes
4,322,420 shares of our common stock held by China
Tailong.
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(5)
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Includes
261,750 of the 1,745,000 shares held by Sammi Holdings Limited. Ms. Teng
holds 15% of the registered shares of Sammi Holdings Limited. Also
includes 376,136 shares of our common stock directly owned by Ms. Teng, a
director of the Company.
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(6)
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Represents 112,360 shares of
common stock directly owned by Mr. Zhu, our Chief Operating
Officer.
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(7)
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Represents 182,401
shares of common stock directly owned by Mr. Tang, our Chief Financial
Officer.
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(8)
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Represents
58,192 shares of common stock directly owned by Ms. Min, our Board
Secretary.
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PLAN
OF DISTRIBUTION
We are
registering 3,151,536 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:
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·
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ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
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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;
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·
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
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an
exchange distribution in accordance with the rules of the applicable
exchange;
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·
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privately
negotiated transactions;
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·
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settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a
part;
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broker-dealers
may agree with the Selling Stockholders to sell a specified number of such
shares at a stipulated price per
share;
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a
combination of any such methods of
sale;
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through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
or
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any
other method permitted pursuant to applicable
law.
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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 of 1933, as amended (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 Company 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 Carlyle Investors against certain
losses, claims, damages and liabilities, including liabilities under the
Securities Act.
We agreed
with the Carlyle Investors 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 New York and 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:
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Annual
Report on Form 10-K for the fiscal year ended December 31, 2009, filed on
April 1, 2010 and
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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.
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All
documents subsequently filed with the Securities and Exchange Commission by us
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, after the
date of this registration statement (other than current reports or portions
thereof furnished under Items 2.02 or 7.01 of Form 8-K), prior to the
termination of this offering, shall be deemed to be incorporated by reference
herein and to be part of this prospectus from the respective dates of filing of
such documents. 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 Company’s 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) 10-59621278.
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.
3,151,536
Shares of Common Stock
CHINA
AGRITECH, INC.
PROSPECTUS
April
27, 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.
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