UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

(Mark One)

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008.

OR

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

OR

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                     

Commission file number: 001-33766

(Name, Telephone, Email and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 125,800,000 ordinary shares, par value US$0.0000001 per share, as of December 31, 2008.

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

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

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

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 o Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

 

 

TABLE OF CONTENTS

INTRODUCTION			1
PART I			2
ITEM 1. Identity of Directors, Senior Management and Advisers			2
ITEM 2. Offer Statistics and Expected Timetable			2
ITEM 3. Key Information			2
ITEM 4. Information on the Company			24
ITEM 4A. Unresolved Staff Comments			35
ITEM 5. Operating and Financial Review and Prospects			35
ITEM 6. Directors, Senior Management and Employees			51
ITEM 7. Major Shareholders and Related Party Transactions			59
ITEM 8. Financial Information			63
ITEM 9. The Offer and Listing			64
ITEM 10. Additional Information			65
ITEM 11. Quantitative and Qualitative Disclosures About Market Risk			71
ITEM 12. Description of Securities Other than Equity Securities			72
PART II			72
ITEM 13. Defaults, Dividend Arrearages and Delinquencies			72
ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			72
ITEM 15. Controls and Procedures			72
ITEM 16A. Audit Committee Financial Expert			75
ITEM 16B. Code of Ethics			75
ITEM 16C. Principal Accountant Fees and Services			76
ITEM 16D. Exemptions from the Listing Standards for Audit Committees			76
ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.			76
ITEM 16F. Change in Registrant’s Certifying Accountant			77
ITEM 16G. Corporate Governance			77
PART III			77
ITEM 17. Financial Statements			77
ITEM 18. Financial Statements			78
ITEM 19. Exhibits			78
Exhibit 4.20
Exhibit 4.21
Exhibit 8.1
Exhibit 12.1
Exhibit 12.2
Exhibit 13.1
Exhibit 13.2
Exhibit 15.1
Exhibit 15.2
Exhibit 15.3
Exhibit 15.4

INTRODUCTION

Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to:

	•		“we,” “us,” “our company,” “the Company,” “our” and “Agria” refer to Agria Corporation, a Cayman Islands company, and its predecessor entities, subsidiaries and, unless the context indicates otherwise, P3A, a consolidated affiliated entity;
	•		“P3A” refers to our consolidated affiliated entity, Taiyuan Primalights Agriculture Development Co., Ltd., which is a limited liability company established in China;
	•		“China” or “PRC” refers to the People’s Republic of China, excluding, for purposes of this annual report, Taiwan, Hong Kong and Macau;
	•		“shares” or “ordinary shares” refers to our ordinary shares, and “preferred shares” refers to our series A redeemable convertible preferred shares, all of which were converted into our ordinary shares upon the completion of our initial public offering on November 13, 2007;
	•		“ADSs” refers to our American depositary shares, each of which represents two ordinary shares;
	•		all references to “RMB” or “Renminbi” are to the legal currency of China; all references to “$,” “US$,” “dollars” and “US dollars” are to the legal currency of the United States;
	•		“breeder sheep” refers to pure breed sheep that are used primarily in rapid reproduction or artificial reproduction methods to spread desired genes widely in a flock and have received official variety recognition in China or another country; and
	•		“upstream” refers to the production and sale of agricultural products (e.g., seeds, sheep semen and sheep embryos) to be used by other participants in the agricultural industry to produce other agricultural products, such as corn and sheep, which in turn are used to manufacture products such as animal feed, mutton and wool.

FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts can be forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

You can identify forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations, estimates and projections about future events and financial trends that we believe may affect our financial condition, results of operations, liquidity, business strategy and financial needs. We believe that the following important factors, among others, in some cases have affected, and in the future could affect our consolidated results and could cause our actual consolidated results for 2009 and any other future period to differ materially from those described in any forward-looking statements made by us:

	•		our future business development, results of operations and financial condition;
	•		changes in our revenues, cost and expense items;
	•		our anticipated development strategies, which may include expanding sales into new regions, increasing the farmland to which we have access, and expanding our product offerings;
	•		our strategy to expand our research and development capability;

	•		the growth in demand in China for high-quality corn seeds, sheep and seedlings;
	•		our ability to attract customers and end users and enhance our brand recognition;
	•		future changes in government regulations affecting our business, including regulation of genetically modified corn;
	•		trends and competition in the corn seed, sheep and seedling industries; and
	•		our ability to retain and motivate existing management and other key personnel and to recruit and integrate additional qualified personnel into our operations.

You should thoroughly read this annual report and the documents that we refer to in this annual report with the understanding that our actual future results may be materially different from or worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections of this annual report include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors 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.

You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The following selected consolidated financial information (except for earnings per ADS) has been derived from our consolidated financial statements. Our consolidated statement of operations data for the years ended December 31, 2006, 2007 and 2008 and our balance sheet data as of December 31, 2007 and 2008 included elsewhere in this annual report have been derived from our consolidated financial statements for the relevant periods which have been audited by Ernst & Young Hua Ming, an independent registered public accounting firm, and are prepared and presented in accordance with U.S. GAAP. Our consolidated statement of operations data for the years ended December 31, 2004 and 2005 and our consolidated balance sheet data as of December 31, 2004, 2005 and 2006 have been derived from our audited consolidated financial statements, which are not included in this annual report. Our historical results do not necessarily indicate results expected for any future periods.

The following table presents a summary of our consolidated balance sheet data as of December 31, 2005, 2006, 2007 and 2008:

Exchange Rate Information

Our business is conducted in China and substantially all of our revenues are denominated in RMB. However, periodic reports made to shareholders are expressed in US dollars using the then current exchange rates. This annual report contains translations of RMB amounts into US dollars at specific rates solely for the convenience of the reader. The conversion of RMB into US dollars in this annual report is based on the noon buying rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from RMB to US dollars and from US dollars to RMB in this annual report were made at a rate of RMB6.8225 to $1.00, the noon buying rate in effect as of December 31, 2008. We make no representation that any RMB or US dollar amounts could have been, or could be, converted into US dollars or RMB, as the case may be, at any particular rate, at the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. On December 21, 2009, the noon buying rate was RMB6.8284 to $1.00.

B. Capitalization and Indebtedness

Not Applicable.

C. Reasons for the Offer and Use of Proceeds

Not Applicable.

D. Risk Factors

Risks Related to Our Business

Extreme weather conditions and other natural or man-made disasters could damage our production, which would cause us to suffer losses of production and a material reduction in revenues.

Our corn seeds, sheep products and seedlings are produced primarily on leased land and through a network of multiple village collectives and production companies in Shanxi and other provinces in China. Our production bases are invariably subject to the risks associated with agriculture, including extreme weather conditions and other natural disasters such as drought, flood, snowstorm, earthquake, pestilence, plant diseases and insect infestations. The quality, cost and volume of corn seeds, sheep products and seedlings produced could be materially adversely affected by extreme weather conditions or natural disasters, thereby harming our sales and profitability. For example, in November 2009, unexpected snow storms across northern China caused severe damage and disruptions to wide sections of agricultural industry in Shanxi area, where our operations concentrate. Man-made disasters, such as arson or other acts that may adversely affect our inventory in the winter storage season, may also damage our products or our production facilities. For instance, in March 2008, a fire broke out in one of our corn seeds warehouse, which led to a substantial loss of RMB8.2 million ($1.2 million) comprising primarily of corn seed inventory and property, plant and equipment. Furthermore, natural or man-made disasters may cause farmers to migrate from their farmland, which would decrease the number of end users of our products. We are particularly susceptible to disasters or other incidents in Shanxi province, where we have the greatest concentration of our operations. In the event of a widespread failure of a seed crop in Shanxi province, we would likely sustain substantial loss of revenues and suffer substantial operating losses. We do not have insurance to protect against such a risk and we are not aware of the availability of any such insurance in China.

An outbreak of disease in livestock and/or food scares in China would materially and adversely affect our sheep business.

Any major outbreak of disease in livestock in China, such as foot and mouth disease, is likely to result in significant disruptions to our business operations. A major epidemic within our farms, the onset of diseases and the preventive culling of our livestock could result in considerable losses to our flocks, which would materially and adversely affect our business and our profitability. Adverse publicity and concerns resulting from an outbreak of diseases in livestock may discourage consumers from purchasing mutton or related products. Such a reduction in demand would adversely impact our financial performance, regardless of whether our livestock has been directly affected by any disease.

We primarily rely on arrangements with village collectives to produce our corn seed products. If we were unable to continue these arrangements or enter into new arrangements with other village collectives, our total land acreage devoted to corn seed production would decrease and our growth would be inhibited.

In 2008 we had access to approximately 22,000 acres of farmland in seven provinces mainly through contractual arrangements with village collectives. During 2008, we used approximately 8,000 acres for corn seed production. Because we are legally prohibited from owning farmland, we typically lease the land owned by a village collective and enter into a seed production agreement with that village collective. These leases typically are 12 years in length, while the contracts to produce corn are typically one year in length, covering one growing season. These leases provide for a minimum condition to the land including electricity supply and irrigation. If leased land does not reach the required condition, we believe the lease can be forfeited without penalty. In the event that prices for other crops increase, these village collectives may decide to farm other crops in breach of our leases and seed production agreements with them, or following expiration of our leases, lease the land to our competitors or other parties. If the land policy changes so that we are unable to continue to lease the land, if a significant number of village collectives refuse to lease the land to us upon the expiration of their current leases, or if we are unable to find new village collectives willing to lease their land to us and produce corn seeds for us, our business and results of operations would be materially and adversely affected. Any of these disruptions could materially and adversely affect our supply of corn seeds and our revenues. Such disruptions could also damage distributor relationships and farmer loyalty if we cannot supply them with the quantities and varieties of seeds that they expect. Moreover, due to competition for land suitable for leasing, we may be unable to lease the same land or other land at commercially reasonable prices. In the event that we have to pay more to lease land or are unable to lease sufficient land, our results of operations may be materially and adversely affected.

If our rights to lease land from village collectives were subject to a dispute, or if their legality or validity were challenged, our operations could be disrupted.

PRC law provides for the registration of land ownership and land-use rights and for the issuance of certificates evidencing land ownership or the right to use land. See “Item 4. Information on the Company—B. Business Overview—Regulation—Land Use Rights.” However, the administrative system for registration of land ownership and land-use rights is not well-developed in rural areas where most of our corn seed production bases are located. As a result, we are generally not able to verify the ownership or land-use rights of the parties from whom we have leased land through the land registry system. Despite our efforts to obtain representations from the village collectives that they own the land, possess land-use rights or have the right to sub-contract the land-use right on behalf of the holder of such rights, there is nevertheless a risk that they have not legally and validly granted the right to use the land to us.

In addition, under PRC law, if a village collective plans to enter into a lease with a party that does not belong to the collective, the contract must first be approved by at least two thirds of the members of the village assembly or representatives of the villagers. The lease must then be submitted to the township government for approval before it becomes effective. There is a risk that the village collectives with which we have entered into leases, and which have generally advised us that the required village assembly meetings were convened and the leases were approved by the township government, have in fact not undertaken all required actions prior to entering into leases with us.

In 2007 and 2008, P3A entered into two contractual leases with village collectives with respect to two parcels of land of approximately 5,931 acres in aggregate for a term of 30 years. However, PRC contract law provides that the term of these contractual leases cannot exceed 20 years. As a result, unless the parties are able to renegotiate or otherwise agree to extend the remainder term of the lease, these contractual leases may be subject to termination after the initial 20-year term.

There is a risk that the legality or validity of our leases will be subject to dispute or challenge in the future. If our leases become subject to a dispute or challenge, our operations on such land could be suspended. We could also lose our rights to use such land which would in turn reduce the amount of corn seeds we are able to sell, having a material and adverse effect on our business, financial condition and results of operations.

We are subject to a consolidated class action lawsuit alleging that we failed to disclose certain information in our initial public offering registration statement. If the plaintiffs in this consolidated class action lawsuit against us are successful, our financial condition, results of operations and liquidity, as well as our reputation may be materially and adversely affected.

As of February 3, 2009, a consolidated class action lawsuit in the United States District Court for the Southern District of New York was filed, alleging violations various sections of the U.S. Securities Act of 1933, against us, our executive officers, our directors and other defendants. The lawsuit alleges that our initial public offering registration statement and prospectus failed to disclose certain alleged discussions between two executives relating to requests for additional compensation and a threatened resignation. We are vigorously defending this consolidated class action. On December 1, 2009, the U.S. District Court for the Southern District of New York dismissed the consolidated class action against the Company and the underwriters defendants, and the Court issued a judgment in favor of the Company and the underwriter defendants. Plaintiffs are attempting to challenge the court’s order dismissing the case against Agria and the underwriter defendants. Also, plaintiffs are pursuing these same claims against certain former and current officers and directors of Agria. We plan to move to dismiss these claims against the officers and directors based on grounds that caused the court to dismiss the case against Agria, as well as additional defenses. However, the outcome of this class action is uncertain. Also, the defense of this lawsuit may be costly, and we may incur substantial costs and expenses in doing so. It may also divert the attention of our management from the normal business operations of our company. If the plaintiffs in this consolidated class action lawsuit against us are successful, it may result in substantial monetary damages exceeding the amount of possible coverage under our directors and officers insurance policy, which could have a material adverse effect on our financial condition, results of operations, and liquidity as well as our reputation.

Our limited operating history makes it difficult to evaluate our future prospects and results of operations.

We have a limited operating history. Our consolidated affiliated entity, P3A, commenced operations in 2000 and first achieved profitability in 2002. Accordingly, you should consider our future prospects in light of the risks and uncertainties experienced by early stage companies in the highly fragmented agricultural industry in China. Some of these risks and uncertainties relate to our ability to:

	•		maintain our competitive position in China and compete in each of our business segments with Chinese and international companies, many of which have longer operating histories and greater financial resources than us;
	•		continue to offer commercially successful corn seeds, sheep products, seedling and other products to attract and retain direct customers and ultimate users;
	•		retain access to the farmland we currently use for production of our products and obtain access to additional farmland for expansion;
	•		continue our existing arrangements with village collectives that grow our corn seed products and enter into new arrangements with additional village collectives;
	•		maintain effective control of our costs and expenses; and
	•		retain and motivate our management and skilled technical staff and recruit and integrate additional qualified personnel into our operations.

If we are unsuccessful in addressing any of these risks and uncertainties, our business, financial condition and results of operations may be materially and adversely affected.

The strategic review recently announced may result in a refocusing and repositioning of the company’s business and operations and may be subject to execution risk.

In September 2009, the company announced a strategic review of its business and operations. The purpose of this review is to reduce inherent risk in the business and to increase the value of shareholders’ equity. The strategic review may result in a refocusing and repositioning of our business and operations.

One of our key strategies focuses on furthering our ongoing efforts in pursuing strategic acquisitions, investments and strategic partnerships both in China and internationally. In October 2009, we entered into agreements to invest in, and form a strategic partnership with, PGG Wrightson, New Zealand’s largest rural services business, which offers a wide range of products, services and solutions to farmers, growers and processors in New Zealand and internationally. In October 2009, we also entered into a strategic cooperation framework agreement with China National Academy of Agricultural Sciences, or CNAAS, providing for future cooperation across the spectrum of agricultural research. In addition, we entered into an investment agreement with CNAAS and its affiliates to invest RMB35.0 million into Beijing Zhongnong Seed Industry Co., Ltd., or Zhongnong, a company wholly owned by CNAAS and its affiliates.

While actions will only be taken that are considered by management to be in the shareholders’ best interests, any repositioning is invariably subject to associated execution risk including issues relating to the integration of new operations and personnel, geographical coordination, retention of key management personnel, systems integration and the reconciliation of corporate cultures. The repositioning activities could cause the diversion of management’s attention or resources from our existing business or cause a temporary interruption of, or loss of momentum in, our business. We could also lose key personnel from the acquired companies. There may be unforeseen or hidden liabilities or we may not be able to generate sufficient revenue to offset new costs of acquisitions, investments and strategic partnerships. The execution of international expansion of our operations exposes us to a number of additional risks including difficulties in staffing and managing overseas operations, fluctuations in foreign currency exchange rates, increased costs associated with maintaining the ability to understand local trends, difficulties and costs relating to compliance with the different commercial, legal and regulatory requirements of the overseas locations in which we operate, failure to develop appropriate risk management and internal control structures tailored to overseas operations, inability to obtain, maintain or enforce intellectual property rights, unanticipated changes in economic conditions and regulatory requirements in overseas environment. These risks associated with strategic repositioning, future acquisitions, investments and strategic partnerships could have a material and adverse effect on our business, results of operations, financial condition or liquidity.

Our senior management team has worked together for a short period of time, which may make it difficult for you to evaluate their effectiveness and ability to address future challenges to our business.

Due to our recent restructuring and additions to our corporate management team, certain of our senior management have worked together at our company for only a short period of time. For example, we appointed Xie Tao to be our chief executive officer, Christopher Boddington to be our chief financial officer in September 2009 and John Layburn to be our chief strategy and compliance officer in October 2009. As a result, it may be difficult for you to evaluate the effectiveness of our senior management, on an individual or collective basis, and their ability to address future challenges to our business. In addition, we may not be able to successfully execute our plan to recruit qualified candidates with substantial experience in the global agricultural industry to join our senior management team in the future. Even if we are able to recruit qualified senior management personnel, such new senior management personnel may not be able to work with our existing management to effectively execute our growth strategy and address future challenges to our business.

Our business depends substantially on the continuing efforts of our management, and our business may be severely disrupted if we lose their services.

Our future success depends significantly upon the continued services of our management, including the management of our primary operating entity, P3A. We rely on our management’s experience in product development, business operations, and sales and marketing, as well as on their relationships with distributors and relevant government authorities. If one or more of our key management personnel is unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all. The loss of the services of our key management personnel, in the absence of suitable replacements, could have a material adverse effect on our operations and financial condition, and we may incur additional expenses to recruit and train personnel. Each member of our management team has entered into an employment agreement with us, which contains confidentiality and non-competition provisions. If disputes arise between our management and us in light of the uncertainties within the PRC legal system, there is a risk that some of the provisions of these agreements may not be enforced or enforceable in China, where our managers reside and hold most of their assets.

In recent years, there has been significant turnover of our directors and senior management including those at P3A. Effective April 1, 2008, Mr. Zhixin Xue resigned from his former positions as our chief operating officer and director. Mr. Xue currently is the president and authorized legal representative of our primary operating entity, P3A. If Mr. Xue and/or other management personnel of P3A decide to resign from P3A in the future, the loss of their services in the absence of suitable replacements would have a material adverse effect on P3A’s operations, which in turn may materially adversely affect our business, financial condition and results of operations. In such an event, we would also need to incur additional expenses to recruit and train new personnel.

We rely on contractual arrangements with P3A for our China operations, which may not be as effective in providing control over our operating entity as direct ownership.

Because PRC regulations currently restrict foreign ownership of corn seed companies directly in China, we are dependent on P3A, in which we have no equity ownership interest and must rely on contractual arrangements to control and operate P3A. The contractual arrangements with P3A may not be as effective in providing control over the entity as direct ownership. On occasions there have been disagreements between management of Agria and management of P3A. For example, there have been incidents where the P3A management did not provide full cooperation in responding to our requests in a timely manner. This included the provision of information to allow the timely completion of the investigations conducted at the direction of our audit committee and data to allow the completion of our annual financial statements for the year ended December 31, 2008. In the future, P3A may fail to take actions required for our business despite their contractual obligation to do so. P3A is able to transact business with parties not affiliated with us. If P3A fails to perform under its agreements with us, we may have to rely on legal remedies under Chinese law, which we cannot be sure would be available. In addition, we cannot be certain that the individual equity owners of P3A would always act in our best interest.

Our growth prospects may be materially and adversely affected if we are unable to develop or acquire new products.

The majority of our products are upstream products ultimately used by farmers in China. The profitability of our business depends on sustained and recurring orders from our direct customers, which include distributors, breed improvement and reproductive stations, or BIRSs, and other intermediaries. Reorder rates are uncertain due to several factors, many of which are beyond our control. These factors include changing customer preferences, competitive price pressures, failure to develop new products to meet the evolving demands of farmers in China, the development of higher-quality products by our competitors and general economic conditions. If we are unable to develop or acquire additional products that meet the demands of farmers in China, or if our competitors develop products that are favored by farmers in China, our growth prospects may be materially and adversely affected and our revenues and profitability may decline.

One or more of our distributors could engage in activities that are harmful to our brand and to our business.

Outside of Shanxi province, our corn seed products are sold primarily through distributors, and those distributors are responsible for ensuring that our products have the appropriate licenses to be sold to farmers in those provinces. If those distributors do not obtain the appropriate licenses, their sales of our products in those provinces may be illegal, and we may be subject to government sanctions, including confiscation of illegal revenues and a fine of between two and three times the amount of such illegal revenues. Unlicensed sales in a province may also cause a delay for our other distributors in receiving a license from the authorities for that province, which could further adversely impact our sales in that province. In addition, distributors may sell our products under another brand that is licensed in a particular province if our product is not licensed there. If our products are sold under another brand, the purchasers will not be aware of our brand name, and we will be unable to cross-market other corn seed varieties or other products as effectively to these purchasers. Moreover, our ability to provide appropriate customer service to these purchasers will be negatively affected, and we may be unable to develop our local knowledge of the needs of these purchasers and their environment. Furthermore, if any of our distributors sell inferior corn seeds produced by other companies under our brand name, our brand and reputation could be harmed, which could make marketing of our branded corn seeds more difficult.

Any plans to increase our production capacity and expand into new markets may not be successful, which could adversely affect our operating results.

Implementation of our recently announced strategic review may result in decisions to further our expansion efforts with increased production of certain or all existing products and new corn seed, sheep and seedling products. This expansion has placed and will continue to place substantial demands on our managerial, operational, technological and other resources. If we fail to manage our product offerings, operations and distribution channels effectively and efficiently, we could suffer a material and adverse effect on our operations and our ability to capitalize on new business opportunities, either of which could materially and adversely affect our operating results.

As part of our development, we may expand the geographic areas in which our products are produced or sold. Expansion into new markets may present operating and marketing challenges that are different from those that we currently encounter in our existing markets. If we are unable to anticipate the changing demands that expanding operations will impose on our production systems and distribution channels, or if we fail to adapt our production systems and distribution channels to changing demands in a timely manner, we could experience a decrease in revenues and an increase in expenses and our results of operations could be adversely affected.

Our operating results may fluctuate due to a number of factors beyond our control and you may not be able to rely on our historical operating results as an indication of our future performance. We expect that our revenues in 2009 will decline compared to 2008 and there is a risk that we may have a net loss in 2009.

Our operating results may fluctuate due to a number of factors, many of which are beyond our control. Our quarterly and annual revenues and costs and expenses as a percentage of our revenues may be significantly different from our historical rates. Our operating results in future quarters may fall below expectations. Business disruption in key sales periods may have a particularly significant impact on our full year results. Any unexpected seasonal or other fluctuations could adversely affect our business and results of operations.

In 2008, our production of sheep semen and embryos was relocated to Youyu. The transfer caused significant disruption to this business and led to quality control problems. As a consequence, we do not expect there to be any significant sales of semen or embryos reported for 2009. In addition, revenues generated from our corn seed business have declined since 2007 and this trend has continued throughout 2009. Furthermore, the allegations made by a former employee of P3A caused significant disruptions to the business operations of P3A until the investigation in connection with these allegations was completed in December 2009. Therefore, we expect that our revenues in 2009 will decline compared to 2008 and there is a risk that we may have a net loss in 2009.

In addition, our future sustainability and level of profitability depend on our ability to secure sufficient orders from customers. An adverse change in market conditions may have material and adverse effects on our operating results if we cannot adjust our operating and marketing strategy to respond to such changes. Our results of operations may be materially and adversely affected by reduced orders and profit margins in the event of a slowdown in market demand, an increase in business competition, a decrease in government subsidies to farmers, increased costs, or for other reasons. As such, there is a risk that we will not be able to continue to maintain a similar level of profitability and you may not be able to rely on our historical operating results as an indication of our future performance.

A severe or prolonged downturn in the global or Chinese economy could materially and adversely affect our revenues and results of operations.

Recent global market and economic conditions have been unprecedented and challenging with tight credit conditions and recession in most major economies continuing into 2009. Continued concerns about the systemic impact of potential long-term and wide-spread recession, energy costs, geopolitical issues, the availability and cost of credit, and the global housing and mortgage markets have contributed to increased market volatility and diminished expectations for economic growth around the world. The grim economic outlook has negatively affected business and consumer confidence and contributed to volatility of unprecedented levels.

The current deterioration in economic conditions has had and could continue to have a negative impact on agricultural production and the rural economy in China, with global agricultural commodity demand and prices slumping. Lower commodity prices reduce farmers’ income and weaken their confidence for the future development of agricultural business. In turn, this may limit their abilities or lessen their willingness to use more expensive agricultural products including the ones we produce. There are still great uncertainties regarding the economic conditions and the demand for agricultural commodities. Continued turbulence in the international markets and economies and prolonged declines in agricultural commodity demand and prices in China may adversely affect our business, revenues and results of operations.

We have limited insurance coverage on our assets in China and any uninsured loss or damage to our property, business disruption or litigation may result in our incurring substantial costs.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited insurance products. Other than automobile insurance on certain vehicles and property and casualty insurance for some of our assets, we do not have insurance coverage on our other assets or inventories, nor do we have any business interruption, product liability or litigation insurance for our operations in China. We have determined that the costs of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. Any uninsured loss or damage to property, business disruption or litigation may result in our incurring substantial costs and the diversion of our resources, which may have a material adverse effect on our results of operations, financial condition and/or liquidity.

The Chinese agricultural market is highly competitive and our growth and results of operations may be adversely affected if we are unable to compete effectively.

The agricultural market in China is highly fragmented, largely regional and highly competitive and we expect competition to increase and intensify within the sector. We face significant competition in our corn seed and sheep lines of business. Many of our competitors have greater financial, research and development and other resources than we have. Competition may also develop from consolidation of other market forces within the corn seed industry in China, or the privatization of corn seed producers that are currently operated by the local governments in China. According to the Opinion on Enhancement of Market Supervision regarding Seed Administration Reform issued by the General Office of the PRC State Council in May 2006, the local government agricultural administrative offices were required to separate their governmental administrative functions from seed production activities by the end of June 2007 and, therefore, there may be more privately-owned seed companies in the future. Our competitors may be better positioned to take advantage of industry consolidation and acquisition opportunities than we are. The reform and restructuring of state-owned equity in seed enterprises will likely lead to the reallocation of market share in the seed industry, and our competitors may increase their market share by participating in the restructuring of the state-owned seed companies. Such privatization would likely result in increased numbers of market participants with more efficient and commercially viable business models. In addition, the PRC government currently restricts foreign ownership of any domestic seed development and production business to no more than 50%. When and if such restrictions are lifted, multinational corporations engaged in the seed business may expand into the agricultural market in China. These companies have significantly greater financial, technological and other resources than we do and may become our major competitors in China. As competition intensifies, our margins may be compressed by more competitive pricing in the short term and may continue to be compressed in the long term and we may lose our market share and experience a reduction in our revenues and profit.

If we are unable to estimate farmers’ future needs accurately and to match our production levels to meet the demand of our direct customers, our business, financial condition and results of operations may be materially and adversely affected.

Due to the nature of the corn seed industry, we normally produce corn seeds according to our production plan before we sell them to distributors, which are our direct customers. Chinese farmers, the end users of our corn seeds, generally make purchasing decisions for our products based on market prices, economic and weather conditions as well as other factors that we and our distributors may not be able to anticipate accurately in advance. If we fail to accurately estimate the volume and types of products sought by farmers, we may produce more seeds that are not in demand by our distributors resulting in aged seeds. In the event we decide not to sell the aged seeds due to concerns about the quality of these seeds, this aged inventory could eventually be sold as corn to end users at much lower prices than those of corn seeds. Aged inventory could result in asset impairment, which would cause us to suffer a loss and incur an increase in our operating expenses. Conversely, if we underestimate demand, we may not be able to satisfy our distributors’ demand for corn seeds, and as a result damage our customer relations and end-user loyalty. Failure to estimate farmers’ future needs and to match our production to our direct customers’ demands may materially and adversely affect our business, financial condition and results of operations.

If we are not able to recover all of the advances paid to contracted village collectives or if a substantial number of our customers fail to pay for our products, our liquidity and financial condition may be materially and adversely affected.

We provide cash advances to the contracted village collectives which grow corn seeds for us in return for their purchase of fertilizer and other production materials. At the end of the growing season, after we take delivery of corn seeds, we credit the advances against the purchase prices payable to the village collectives. If the village collectives fail to produce or deliver the contracted amounts of corn seeds by the end of each growing season, we may not be able to recover all of the advances paid to the village collectives and our financial condition may be materially and adversely affected.

Our sales contracts provide for upfront payments, which may be up to 100% of the purchase price, depending upon the payment history and creditworthiness of each customer. Typically, the balance is due within 240 days of delivery. As a result, some of our customers have 240 days of credit to pay after we deliver our corn seeds. In some instances, longer periods of credit have been and may continue to be granted to certain customers. These customers may not have ready access to additional sources of credit and therefore may have limited ability to withstand economic downturns. Lack of credit could prevent them from fulfilling their purchasing commitments with us, which in turn may cause liquidity issues for us and materially and adversely affect our financial condition.

The resources we devote to research and development may not result in commercially viable or competitive products.

Our success depends in part on our ability to develop new products. Research and development in the corn seed, sheep and seedling industries is generally expensive and prolonged. For example, seed development takes at least five years, as measured from the selection of the variety of seed for product development to the launch of a new corn seed product on the market. Due to the uncertainties and complexities associated with seed and biotechnological research, corn seed products under development may not survive the development process, may not ultimately be commercially viable, or may not pass government testing in the relevant provinces. As a further example, a new breed of sheep takes at least several generations to stabilize. We expect to apply for official variety recognition when our Primalights III hybrid sheep stabilizes and becomes eligible for application. We have not yet begun the application process for the title of official breeder sheep, and it may take several years to complete and may not be successful. In addition, we have significantly less financial resources than many of our international competitors. If the resources we devote to research and development do not result in products that survive the development stage, do not result in products that we can sell to our customers, or do not pass government testing, our results of operations may be materially and adversely affected.

We may be subject to intellectual property rights claims or other claims in the future which could result in substantial costs and divert our financial and management resources away from our business.

We are subject to the risk that the products, technology and processes that we have developed in collaboration with institutes and universities will infringe upon patents, copyrights, trademarks or other third-party intellectual property rights. We may be subject to legal proceedings and claims relating to the intellectual property of others. If any such claims arise in the future, litigation or other dispute resolution proceedings may be necessary to allow us to retain our ability to offer our current and future products. Even if we prevail in contesting such claims, this could result in substantial costs and diversion of our management resources and attention. If we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property rights, incur additional costs to license or develop alternative products and be forced to pay fines and damages, any of which could materially and adversely affect our business and results of operations.

Failure to protect our intellectual property rights may undermine our competitive position, and legal action to protect our intellectual property rights may be costly and divert our management resources.

We rely primarily on trademark, trade secret, copyright law and other contractual restrictions to protect our intellectual property. These afford only limited protection, and the actions we take to protect our intellectual property rights may not be adequate. Third parties may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could have a material adverse effect on our business, financial condition or operating results. Preventing unauthorized use of proprietary technology can be difficult and expensive. Also, litigation may be necessary to enforce our intellectual property rights, protect our trade secrets or determine the validity and scope of the proprietary rights of others. There is a risk that the outcome of such litigation will not be in our favor. Such litigation may be costly and may divert management attention as well as expend other resources which could otherwise have been devoted to our business. An adverse determination in any such litigation will impair our intellectual property rights and may harm our business, prospects and reputation. In addition, we have no insurance coverage against litigation costs and would bear all costs arising from such litigation to the extent that we are unable to recover them from other parties. The occurrence of any of the foregoing may have a material adverse effect on our business, results of operations and financial condition.

Historically, implementation of PRC intellectual property-related laws has been lacking, primarily because of ambiguities in the PRC laws and difficulties in enforcement. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as those in the United States or other countries, which increases the risk that we may not be able to adequately protect our intellectual property.

Our rights to some of the technologies used in our sheep business and developed through collaborations with Shanxi Agriculture University are limited in scope. If we are unable to continue to employ these technologies, our sheep business could suffer, which could materially and adversely affect our results of operations.

We cooperate with Shanxi Agriculture University in research and development for our sheep business. Under a number of our agreements with Shanxi Agriculture University, the university holds the rights to claim authorship on the technological achievements and the rights “to apply for awards” for the technologies developed. We have the exclusive right to use, further develop and commercialize these technologies developed by Shanxi Agriculture University under these agreements. If Shanxi Agriculture University were to dispute our exclusive rights to use, further develop and commercialize these technologies, we may lose our ability to continue to employ such technologies in our sheep business. If this were to occur, our sheep operations could suffer and our results of operations could be adversely affected.

We may not possess all of the licenses required to operate our business, or may fail to maintain the licenses we currently hold. This could subject us to fines and other penalties, which could have a material adverse effect on our results of operations.

We are required to hold a variety of permits and licenses to conduct our corn seed, sheep and seedling businesses in China. We may not possess all of the permits and licenses required for each of our business segments. In addition, there may be circumstances under which the approvals, permits or licenses granted by the governmental agencies are subject to change without substantial advance notice, and it is possible that we could fail to obtain the approvals, permits or licenses that are required to expand our business as we intend. If we fail to obtain or to maintain such permits or licenses, or if renewals are granted with onerous conditions, we could be subject to fines and other penalties and be limited in the number or the quality of the products that we would be able to offer. As a result, our business, results of operations and financial condition could be materially and adversely affected.

If the sale of our self-developed Primalights III hybrid sheep is considered by relevant government authorities to constitute the sale of breeder sheep, we may be ordered to stop selling Primalights III hybrid sheep and be subject to other penalties.

We sell breeder sheep as well as our self-developed Primalights III hybrid sheep to our customers. We expect to apply for official variety recognition when our Primalights III hybrid sheep stabilizes and becomes eligible for application. According to the PRC Animal Husbandry Law, which became effective on July 1, 2006, any new variety of livestock is subject to examination and approval by the National Commission for Livestock and Poultry Genetic Resources and can be marketed and sold as a new variety only after the variety is approved and announced by the Ministry of Agriculture. Before obtaining such approval, we are not allowed to market or sell Primalights III hybrid sheep as breeder sheep, but only as ordinary hybrid sheep. According to informal inquiries with relevant PRC authorities, we do not need to acquire additional licenses if we only sell ordinary hybrid sheep. In the past, we sold our Primalights III hybrid sheep together with our breeder sheep under our form contract for breeder sheep, and farmers may use our Primalights III hybrid sheep to breed sheep. Under applicable PRC law, if any person sells any kind of livestock as a new variety before obtaining necessary approval, such person may be ordered to stop selling the livestock and pay a fine of up to three times the proceeds received from prior illegal sales, and all the proceeds received from prior illegal sales may be confiscated. If our sale of Primalights III hybrid sheep is considered by the relevant government authority to be a sale of breeder sheep, we may be ordered to stop selling them, be subject to confiscation of the livestock and any illegal gains, or be subject to additional fines, all of which may have a material and adverse effect on our business.

We may be subject to product quality or liability claims relating to our products, which may cause us to incur litigation expenses and to devote significant management time to defending such claims and, if determined adversely to us, could require us to pay significant damage awards.

In addition to the genetic traits and the quality of our products, the performance of our products depends on climate, geographic conditions, cultivation method, farmers’ degree of knowledge and other factors. At the same time, the viability of some farmland in China has deteriorated due to toxic and hazardous materials from farmers’ overuse of herbicides. Moreover, different production methods might result in inconsistent quality. These factors can result in sub-optimal production yields. Farmers generally attribute sub-optimal production yields to poor quality of agricultural raw materials. In addition, inconsistent quality of products may also result in the unwillingness of consumers to purchase products or pay for products already purchased that they consider to be sub-standard. Our ISO 9001/2000 International Quality Management System Certificate expired in July 2009 and has yet to be renewed.

We may be subject to legal proceedings and claims from time to time relating to our seed quality. The defense of these proceedings and claims could be both costly and time-consuming and significantly divert the efforts and resources of our management. An adverse determination in any such proceedings could subject us to significant liability. In addition, any such proceeding, even if ultimately determined in our favor, could damage our market reputation and prevent us from maintaining or increasing sales and market share. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase of our products.

Corn seed prices and sales volumes may decrease in any given year with a corresponding reduction in sales, margins and profitability.

There have in the past and maybe in the future periods of instability during which time corn seed and other commodity prices and sales volumes may fluctuate greatly. Commodities can be affected by general economic conditions, weather, disease outbreaks and factors affecting demand, such as availability of financing, competition and trade restrictions. Our attempts to differentiate our products from those of other corn seed producers have not prevented the corn seed market from having the characteristics of a commodity market. As a result, the price that we are able to demand for our corn seed is dependent on the size of the supply of our corn seed and the corn seed of other producers. Therefore, the potential exists for fluctuation in supply, and consequently in price, in our own markets, even in the absence of significant external events that might cause volatility. As a result, the amount of revenue that we receive in any given year is subject to change. As production levels are determined prior to the time that the volume and the market price for orders is known, we may have too much or too little product available, which may materially and adversely affect our revenues, margins and profitability.

The advent of the genetic modification of corn seeds in China could adversely affect our business, causing us to lose business opportunities, market share and revenues.

We currently rely upon traditional methods of creating corn seed hybrids to develop new products. There has been a worldwide increase in the development and application of genetically modified agricultural products to increase the quality and quantity of crop yields. Advances in technology are increasingly allowing the use of gene modification to produce seeds that are superior to those that are produced by traditional methods. Currently, the production and commercial sale of genetically modified corn seed have not obtained public acceptance and are not encouraged by government authorities in China. However, if government attitude changes to encourage genetically modified corn seeds, demand may develop for these products, and we expect that we will need to produce genetically modified products to meet customer demands.

Should the Chinese government change its attitude with respect to genetically modified corn seeds, there is a risk that our current steps to respond to the potential competitive threat posed by genetically modified agricultural products, including our research and development activities with respect to genetically modified corn seeds, may not allow us to compete successfully. In particular, our competitors may have more advanced technology or may market genetically modified seed more successfully than us.

Our future growth prospects may be affected if we are unable to obtain additional capital to finance future acquisitions.

We may require additional cash resources in order to make acquisitions. In general, the cost of an acquisition is unknown until the opportunity is analyzed, due diligence has been completed and negotiations are underway. If the cost of any such acquisition that our management deems appropriate exceeds our cash resources, we will need to seek additional cash resources, and may seek to sell additional equity or debt securities or borrow under credit facilities. The sale or issuance of additional equity securities could result in dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We may not be able to obtain financing in amounts or on terms acceptable to us, if at all. We may also not be able to secure or repay debt incurred to fund acquisitions, especially if the acquisition does not result in the benefits we anticipated. As a result, our operating results and financial condition may be materially and adversely affected.

Failure to properly manage our storage system may result in damage to products in storage, thereby resulting in operating losses.

Corn seed and seedling storage entails significant risks associated with the storage environment, including moisture, temperature and humidity levels, deviations in which may result in damage to corn seeds and seedlings in stock. Our semen and embryo products for our sheep business are generally stored in a frozen state and any problems affecting the temperatures or conditions under which they are stored could damage these products. Any significant damage to the products we have in storage could materially and adversely affect our results of operations.

Our consolidated affiliated entity, P3A, was the subject of various allegations of financial improprieties. Although (i) no material inaccuracies with respect of the sheep transaction as recorded by P3A were found; and (ii) no evidence of P3A falsifying its financials among the contracts and underlying documents covering the period reviewed was found by an independent international counsel, we may be subject to additional allegations in the future. These allegations may be costly to address and even if unsubstantiated, may result in negative publicity or further disruption to our operations, which could have a material adverse effect on our business, results of operations and financial conditions as well as reputation.

In December 2008, a former employee made various allegations against P3A. These allegations related to the number of sheep purchased by P3A in August 2008 and the price that P3A paid for these sheep, and the authenticity of certain of P3A’s sales contracts, bank statements and tax invoices. Our audit committee retained an independent international counsel, DLA Piper UK LLP, or DLA Piper, to conduct investigations of these allegations. DLA Piper completed its investigation in December 2009 and in its report concluded that (i) it did not find any material inaccuracies with respect of the sheep transaction as reported by P3A; and (ii) it did not find any evidence of P3A falsifying its financials among the contracts and underlying documents covering the period which they reviewed, from July 1, 2006 to June 30, 2007.

These allegations caused significant disruption to the ongoing business operations of P3A during the investigation, and we may be subject to additional allegations in the future. Steps taken to address such allegations can be costly and may also divert the attention of our management from the normal business operations of our company. In addition, such allegations, even if unsubstantiated, may result in negative publicity or further disruption to our operations, which could have a material adverse effect on our business, results of operations and financial conditions as well as our reputation.

Failure to achieve and maintain effective internal controls could have a material and adverse effect on the trading price of our ADSs.

We are subject to reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, as required under Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, has adopted rules requiring public companies to include a report of management on the effectiveness of such companies’ internal control over financial reporting in their annual reports. In addition, an independent registered public accounting firm for a public company must report the effectiveness of our company’s internal control over financial reporting. We started to be subject to these requirements from the fiscal year ended December 31, 2008.

Our management has concluded that our internal control over financial reporting was not effective as of December 31, 2008. See “Item 15. Controls and Procedures.” Our independent registered public accounting firm has issued an attestation report, which has concluded that our internal control over financial reporting was not effective as of December 31, 2008.

Prior to our initial public offering in November 2007, we were a young, private company with limited accounting and other resources with which to adequately address our internal controls and procedures. As a result, during the audit of our financial statements for the three years ended December 31, 2006, we and our independent registered public accounting firm identified a number of control deficiencies, including two material weaknesses, as defined in the Public Company Accounting Oversight Board’s Audit Standard No. 5. The material weaknesses identified by us and our independent auditors were our inadequate personnel, processes and documentation to address reporting requirements under U.S. GAAP, and our inadequate independent oversight over financial reporting due to the lack of an independent audit committee. During the audit of our consolidated financial statements for the year ended December 31, 2007, we and our independent registered public accounting firm identified a number of control deficiencies, including a material weakness, in our internal control over financial reporting. The material weakness observed was inadequate personnel, processes and documentation to address reporting requirements under U.S. GAAP.

As of December 31, 2008, we and our independent registered public accounting firm identified a number of control deficiencies, including a material weakness, in our internal control over financial reporting. The material weakness observed was that controls designed to ensure that significant transactions, accounting estimates, and other adjustments were properly reviewed, analyzed and monitored by sufficient and appropriate accounting staff on a timely basis did not operate effectively.

If we fail to implement measures to remediate these material weaknesses and other control deficiencies in time to meet the deadline imposed by Section 404 of the Sarbanes-Oxley Act, we will not be able to conclude, on an ongoing basis, that we have effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal control over financial reporting is necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, any failure to achieve and maintain effective internal control over financial reporting could result in our inability to conclude we have effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act, which may cause the loss of investor confidence in the reliability of our financial statements, which in turn could negatively impact the trading price of our ADSs. Furthermore, we may need to expend significant costs and expend significant management and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements.

If we grant additional employee share options, restricted shares or other share incentives in the future, our net income could be adversely affected.

We have adopted a 2007 share incentive plan and granted share options under the plan. We are required to account for share-based compensations in accordance with Financial Accounting Standards Board Statement No. 123(R), Share-Based Payment, which requires a company to recognize, as an expense, the fair value of share options and other share-based compensations to employees based on the fair value of equity awards on the date of the grant, with the compensation expense recognized over the period in which the recipient is required to provide service in exchange for the equity award. If we grant additional options, restricted shares or other equity incentives in the future, we could incur significant compensation charges equal to the fair value of the additional options, restricted shares and other equity incentives, and our net income could be adversely affected.

We do not maintain insurance on our corn seed storage facilities; therefore, if a fire or other disaster damages some or all of our stored corn seeds, we will not receive any compensation.

We store a portion of our corn seed products from February to September. We do not maintain insurance on our storage facilities. A fire or other natural or man-made disaster may damage our stored products, particularly if such event occurs shortly before the peak season for the sales of corn seeds products, which could have an adverse effect on our operating results and financial condition.

Risks Related to Doing Business in China

If the Chinese government finds that the agreements that establish the structure for operating our Chinese businesses do not comply with Chinese governmental restrictions on foreign investment in the seed industry, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.

Most of our operations are conducted through our contractual arrangements with our affiliated entity and its shareholders in China. PRC regulations currently restrict foreign ownership of corn seed companies. For a description of these regulations, see “Item 4. Information on the Company—B. Business Overview—Regulation—Seed Law, Animal Husbandry Law and Other Relevant Regulations—Seed Law and Other Relevant Regulations.” We have entered into contractual arrangements with the affiliated entity, P3A, and its shareholders, all PRC citizens, which enable us to, among other things, exercise effective control over the affiliated entity. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Arrangements with P3A and Its Shareholders.”

If we or either of our PRC subsidiaries or affiliated entities or our corporate structure is found to be in violation of any existing or future PRC laws or regulations (for example, if we are deemed to be holding equity interests in an entity in which direct foreign ownership is restricted), the relevant PRC regulatory authorities, including the State Administration of Industry and Commerce, the State Administration of Foreign Exchange, or SAFE, and relevant agencies of the Ministry of Commerce, would have broad discretion in dealing with such violations, including:

	•		revoking P3A’s business and operating licenses;
	•		confiscating relevant income and imposing fines and other penalties;
	•		prohibiting or restricting P3A’s operations in China;
	•		requiring us or P3A to restructure P3A’s ownership structure or operations;
	•		restricting or prohibiting our use of the proceeds from our initial public offering to finance our businesses and operations in China; or
	•		imposing conditions or requirements with which we or our subsidiaries or P3A may not be able to comply.

The imposition of any of these penalties could result in a material and adverse effect on our ability to conduct our business.

The shareholders of P3A may breach our agreements with them or may have potential conflicts of interest with us, and we may not be able to enter further agreements to derive economic benefits from P3A, which may materially and adversely affect our business and financial condition.

The shareholders of P3A, our consolidated affiliated entity in the PRC, may breach or refuse to renew the existing contractual arrangements with us that allow us to effectively control P3A, and receive economic benefits from its operations. There is a risk that they will not always act in the best interests of our company. We do not have existing arrangements to address potential conflicts of interest between these individuals and our company. We rely on these individuals to abide by the contract laws of China and to honor their contracts with us in order for us to effectively control P3A and to receive the economic benefits of P3A. If we cannot resolve any conflicts of interest or disputes that may arise between us and the shareholders of P3A or if the shareholders breach our agreements with them, we would have to rely on legal proceedings, which may result in disruption to our business. There is also substantial uncertainty as to the outcome of any such legal proceedings.

Any limitation of PRC law and regulations on the ability of our subsidiaries and affiliated entity to distribute dividends or make other payments to us could have a material adverse effect on our ability to conduct our business.

Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries and our affiliated entity in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital, and to further set aside a portion of its after-tax profits to fund the employee welfare fund at the discretion of the shareholders’ meeting or the board. These reserves are not distributable as cash dividends. Furthermore, if our subsidiaries and our affiliated entity in China incur debt on their own behalf in the future, the loan agreements governing that debt may restrict their ability to pay dividends or make payments to us according to the contractual agreements. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements we currently have in place in a manner that would materially and adversely affect our subsidiaries’ ability to pay dividends and other distributions to us. Any limitation on the ability of our subsidiaries and our affiliated entity to distribute dividends or other payments to us could materially limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, or otherwise fund and conduct our business.

Pursuant to the new PRC enterprise income tax law which became effective on January 1, 2008, the 2008 EIT Law, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered as a resident enterprise and will be subject to a PRC income tax on its global income. According to the implementing rules of the 2008 EIT Law, or the Implementing Rules, “de facto management bodies” refer to “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.” On April 22, 2009, the State Administration of Taxation promulgated a circular setting out the criteria for determining whether “de facto management bodies” are located in China for overseas incorporated, domestically controlled enterprises. However, as this circular only applies to enterprises incorporated under the laws of foreign countries or regions that are controlled by PRC enterprises or groups of PRC enterprises, it remains unclear how the tax authorities will determine the location of “de facto management bodies” for overseas incorporated enterprises that are not controlled by PRC enterprises or groups of PRC enterprises like us. Accordingly, we may be considered a resident enterprise and may therefore be subject to a PRC income tax on our global income. If we are considered a resident enterprise and earn income other than dividends from our PRC subsidiaries, such PRC income tax on our global income could significantly increase our tax burden and materially and adversely affect our cash flow and profitability.

Under the applicable PRC tax laws in effect before January 1, 2008, dividend payments to foreign investors made by foreign-invested enterprises are exempt from PRC withholding tax. Pursuant to the 2008 EIT Law and the Implementing Rules which are effective as of January 1, 2008, however, dividends generated after January 1, 2008 and payable by a foreign-invested enterprise to its foreign investors will be subject to a 10% withholding tax if the foreign investors are considered as non-resident enterprises without any establishment or place within China or if the dividends payable have no connection with the establishment or place of the foreign investors within China, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where we are incorporated, does not have such a tax treaty with China. China Victory International Holdings Limited, or China Victory, our wholly owned subsidiary and the direct holder of 100% equity interest in Aero-Biotech Science & Technology Co., Ltd., or Agria China, and Agria Brother Biotech (Shenzhen) Co., Ltd., or Agria Brother, is incorporated in Hong Kong. According to the Arrangement between Mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and

Prevention of Fiscal Evasion in August 2006, or the Mainland and Hong Kong Taxation Arrangement, and the Notice in Relation to the Dispatch of Schedule of Agreed Tax Rates on Dividends issued by the State Administration of Taxation (State Taxation Circular No. 112 (2008)), dividends paid by a foreign-invested enterprise in China to its direct holding company in Hong Kong will be subject to withholding tax at a rate of 5% (if the foreign investor owns directly at least 25% of the shares of the foreign-invested enterprise). Under the 2008 EIT Law and the Implementing Rules, if China Victory is regarded as a resident enterprise, the dividends payable to China Victory from Agria China and Agria Brother will be exempt from the PRC income tax. If China Victory is regarded as a non-resident enterprise and therefore is subject to a 5% withholding tax for any dividends payable to it from Agria China, the amount of funds available to us to meet our cash requirements, including the payment of dividends to our shareholders, could be reduced correspondingly.

In addition, because there remains uncertainty regarding the interpretation and implementation of the 2008 EIT Law and the Implementation Rules, if we are regarded as a PRC resident enterprise, then any dividends to be distributed by us to our non-PRC shareholders or any gains realized by non-PRC shareholders or ADS holders from transfer of our shares or ADSs may be subject to PRC withholding tax. If we are required under the 2008 EIT Law to withhold PRC income tax on the above dividends or gains, the investment in our shares or ADSs may be materially and adversely affected.

We benefit from certain PRC government incentives. Expiration of, changes to, disputes over or challenges against these incentives or protectionism arising from the incentives could adversely affect our operating results.

Prior to January 1, 2008, companies established in China were generally subject to a state and local enterprise income tax, or the EIT, at statutory rates of 30% and 3%, respectively. However, the Chinese government has provided various incentives to high-technology companies and agricultural companies in order to encourage the development of the high-technology and agricultural industries. Such incentives include reduced tax rates, subsidies and other measures. For example, P3A, our consolidated affiliated entity, qualified as a “key technology enterprise” pursuant to the Shanxi Province 1311 Agricultural High Technology Project implemented by Shanxi province in 2002. As a result, P3A has been exempted from the EIT since 2002 based on the approval of the local tax authority in Shanxi. Agria China, our wholly-owned subsidiary established in March 2007 in China, was initially granted a full exemption from the EIT for the fiscal years 2007 to 2009. As a result of the EIT law and its Implementation Rules, Agria China’s EIT exemption ended on December 31, 2007, and Agria China is subject to EIT at a rate of 25% from 2008 onwards.

Under the 2008 EIT Law, the Implementing Rules, the State Council circulars on implementation of enterprise tax transition preferential policy and relevant rules, foreign-invested enterprises, such as our subsidiary, Agria China, and domestic companies would be subject to EIT at a uniform rate of 25%. Preferential tax treatments will continue to be granted to entities that are classified as “high and new technology enterprises strongly supported by the State” or conduct business in encouraged sectors, whether foreign-invested enterprises or domestic companies. Furthermore, enterprises that were established and already enjoyed preferential tax exemption or reduction for a specified term will continue to enjoy them until the expiration of such term. There is still uncertainty with respect to their interpretation and implementation. If the PRC central government challenges the tax exemption enjoyed by P3A as a result of the Shanxi province 1311 Agricultural High Technology Project, our effective tax rate will likely increase up to a maximum of 25% on our worldwide income, which could have a material adverse effect on our financial condition and results of operations.

The PRC government has in recent years reduced taxes and increased subsidies and other support across the agricultural industry. For instance, the government subsidizes farmers for their seed purchases, and has increased spending on rural infrastructure. Sales of agricultural products from producers to intermediaries or to farmers are exempt from PRC value-added tax. Discontinuance of preferential treatments granted by the Chinese government to the seed industry could adversely affect our earnings.

In addition, subsidy policies may have an adverse effect on our ability to market our products, especially in provinces other than Shanxi where we are planning to increase our sales. Farmers can buy corn seeds designated as “high-quality” at subsidized prices, but the designation of seeds as “high-quality” is at the discretion of the local government, companies owned by the local government and local private seed companies. It is possible that out of local protectionism, this policy could result in preferential treatment for local seed producers, with locally produced seeds being designated as “high-quality”, while ours are not designated as such. If such preferential treatment were to occur, the price for our seeds to farmers in those provinces would be higher than the subsidized local seeds, and our sales in those provinces could suffer, which could have a material and adverse effect on our results of operations.

Uncertainties with respect to the PRC legal system could adversely affect us.

We conduct our business primarily through our subsidiaries and affiliated entity in China. Our operations in China are governed by PRC laws and regulations. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in China, and in particular, laws applicable to wholly foreign-owned enterprises. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value.

Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until some time after the violation. In addition, any litigation in China, regardless of outcome, may be protracted and result in substantial costs and diversion of resources and management attention.

SAFE regulations relating to offshore investment activities by PRC residents may increase our administrative burden and restrict our overseas and cross-border investment activity. If our shareholders and beneficial owners who are PRC residents fail to make any required applications and filings under such regulations, we may be unable to distribute profits and may become subject to liability under PRC laws.

SAFE has promulgated several regulations, including Circular No. 75 issued in November 2005 and the implementation rules issued in May 2007, requiring registrations with, and approvals from, PRC government authorities in connection with direct or indirect offshore investment activities by PRC residents. These regulations apply to our shareholders and beneficial owners who are PRC residents.

The SAFE regulations require registration of direct or indirect investments made by PRC residents in offshore companies. In the event that a PRC shareholder with a direct or indirect stake in an offshore parent company fails to make the required SAFE registration, the PRC subsidiaries of that offshore parent company may be prohibited from making distributions of profit to the offshore parent and from paying the offshore parent proceeds from any reduction in capital, share transfer or liquidation in respect of the PRC subsidiaries. Further, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for foreign exchange evasion.

We have requested our shareholders and beneficial owners who are PRC residents to make the necessary applications and filings as required under these regulations and under any implementing rules or approval practices that may be established under these regulations. However, due to the lack of implementing rules and uncertainty concerning the reconciliation of the new regulations with other approval requirements, it remains unclear how these regulations, and any future legislation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. There is a risk that not all of our shareholders and beneficial owners who are PRC residents will comply with our request to make or obtain any applicable registration or approvals required by these regulations or other related legislation. The failure or inability of our PRC resident shareholders and beneficial owners to receive any required approvals or make any required registrations may subject us to fines and legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, as a result of which our acquisition strategy and business operations and our ability to distribute profits to you could be materially and adversely affected. See “Item 4. Information on the Company—B. Business Overview—Regulation—Foreign Exchange.”

In addition, under the Implementation Rules of the Administrative Measures for Individual Foreign Exchange, or the Individual Foreign Exchange Rules, issued on January 5, 2007 by SAFE, PRC citizens who are granted shares or share options by an overseas listed company according to its employee share option or share incentive plan are required, through the PRC subsidiary of such overseas listed company or any other qualified PRC agent, to register with SAFE and complete certain other procedures related to the share option or other share incentive plan. Foreign exchange income received from the sale of shares or dividends distributed by the overseas listed company may be remitted into a foreign currency account of such PRC citizen or be exchanged into Renminbi. Our PRC citizen employees who have been granted share options, or PRC option holders, are subject to the Individual Foreign Exchange Rules. If we or our PRC citizen employees fail to comply with these regulations, we or our PRC option holders may be subject to fines and legal sanctions.

Restrictions on currency exchange may limit our ability to utilize our revenues effectively.

The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive all of our revenues in RMB. Under our current structure, our income is primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries and our affiliated entity to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB are to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The PRC government may also, at its discretion, restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

Fluctuation in the value of the Renminbi may have a material adverse effect on your investment.

The value of the Renminbi against the U.S. dollar, Euro and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy caused the Renminbi to appreciate approximately 21.5% against the U.S. dollar over the following three years. Since reaching a high against the U.S. dollar in July 2008, however, the Renminbi has traded within a narrow band against the U.S. dollar, remaining within 1% of its July 2008 high but never exceeding it. As a consequence, the Renminbi has fluctuated sharply since July 2008 against other freely traded currencies, in tandem with the U.S. dollar. For example, the Renminbi appreciated approximately 27% against the Euro between July 2008 and November 2008. It is difficult to predict how long the current situation may last and when and how it may change again.

Our revenues and costs are mostly denominated in Renminbi, while a significant portion of our financial assets are denominated in US dollars. Substantially all of our sales contracts were denominated in Renminbi and substantially all of our costs and expenses is denominated in Renminbi. We rely entirely on dividends and other fees paid to us by our subsidiaries and our affiliated entity in China. To the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of dividend distribution or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue which will be exchanged into U.S. dollars and earnings from and the value of any U.S. dollar-denominated investments we make in the future.

Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited so that we may not be able to successfully hedge our exposure at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on your investment.

We face risks related to health epidemics and other outbreaks or acts of terrorism in China, which could result in reduced demand for our products or disrupt our operations.

Our business could be materially and adversely affected by an outbreak of H1N1 influenza A, avian flu, severe acute respiratory syndrome or another epidemic, or an act of terrorism. From time to time, there have been reports on the occurrences of avian flu in various parts of China, including a few confirmed human cases and deaths. Recently, human cases of H1N1 influenza A virus infection have been identified internationally. Any prolonged recurrence of H1N1 influenza A, avian flu, severe acute respiratory syndrome or other adverse public health developments in China or elsewhere in Asia may have a material and adverse effect on our business operations. In addition, terrorist attacks, such as those that took place on September 11, 2001, geopolitical uncertainty and international conflicts, could have an adverse effect on our business operations. Any of these events could adversely affect China’s economy and cause an immediate and prolonged drop in consumer demand. An immediate and prolonged drop in consumer demand could severely disrupt our business operations and adversely affect our results of operations. Furthermore, a significant portion of our revenues are derived from government customers, which may reduce their spending on our products during a crisis, which could adversely affect our results of operations and could probably be difficult to recover once the threat has subsided.

The PRC Property Rights Law may affect the perfection of the pledge in our pledge agreement with P3A and its shareholders.

Under the equity pledge agreement among P3A, the shareholders of P3A and Agria China, the shareholders of P3A have pledged all of their equity interests in P3A to Agria China. This equity pledge agreement was duly created by recording the pledge on P3A’s register of shareholders in accordance with the PRC Security Law and the PRC Contract Law. The purpose of such pledge is to guarantee P3A’s performance of its obligations under the exclusive technology development, technical support and service agreement, exclusive consultancy service agreement and proprietary technology license agreement with Agria China. However, according to the PRC Property Rights Law, which became effective as of October 1, 2007, a pledge is not effective without being registered with the relevant local Administration for Industry and Commerce. It remains unclear whether P3A was required to register the pledge created before October 1, 2007 under the PRC Property Rights Law. P3A has attempted to register the pledge, but the application for registration has not been processed due to the lack of registration procedures. P3A will continue to make efforts to register such pledge when the local Administration for Industry and Commerce implements registration procedures. If P3A is unable to do so, the pledge itself may be deemed ineffective under the PRC Property Rights Law. If P3A breaches its obligations under the agreements with Agria China, there is a risk that Agria China may not be able to successfully enforce the pledge and would need to resort to legal proceedings to enforce its contractual rights.

Risks Related to the ADSs

The trading price of our ADSs has been and continues to be highly volatile.

The trading price of our ADSs may be highly volatile and subject to wide fluctuations in response to factors including the following:

	•		announcement of securities law class action lawsuits against us and our directors and officers;
	•		delay in our periodic earnings announcements;
	•		announcements of technological or competitive developments;
	•		regulatory developments in our target markets affecting us, our customers or our competitors;
	•		actual or anticipated fluctuations in our quarterly operating results;
	•		changes in financial estimates by securities research analysts;
	•		changes in the economic performance or market valuations of other corn seed, sheep products or seedling companies;
	•		additions or departures of our executive officers and key personnel;

	•		fluctuations in the exchange rates between the US dollar and RMB; and
	•		sales or perceived sales of additional ADSs.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also have a material adverse effect on the market price of our ADSs.

Substantial future sales or perceived sales of our ADSs in the public market could cause the price of our ADSs to decline.

Additional sales of our ADSs in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline. As of June 30, 2009, we had 125,160,000 ordinary shares outstanding, of which 48,830,000 ordinary shares were represented by 24,415,000 ADSs. All ADSs are freely transferable without additional registration requirements under the Securities Act of 1933, or the Securities Act. Since the 180-day lock-up period of our initial public offering has expired, the remaining ordinary shares not represented by ADSs are available for sale subject to the volume and other restrictions as applicable under Rule 144 and Rule 701 under the Securities Act.

You may not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote.

Except as described in this annual report and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching to the shares represented by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee to vote the shares represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote and it is possible that you will not have the opportunity to exercise a right to vote. Upon our written request, the depositary will mail to you a shareholder meeting notice which contains, among other things, a statement as to the manner in which your voting instructions may be given, including an express indication that such instructions may be given or deemed given to the depositary to give a discretionary proxy to a person designated by us if no instructions are received by the depositary from you on or before the response date established by the depositary. However, no voting instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we inform the depositary that (i) we do not wish such proxy given, (ii) substantial opposition exists, or (iii) such matter materially and adversely affects the rights of shareholders.

Under our deposit agreement, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings if you do not vote, unless we have instructed the depositary that we do not wish a discretionary proxy to be given or any of the other situations specified under the deposit agreement takes place. The effect of this discretionary proxy is that you cannot prevent ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may be more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings and you may not receive cash dividends if it is impractical to make them available to you.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

In addition, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute that property and you will not receive that distribution.

We are a Cayman Islands company and because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than that under U.S. law, you may have less protection for your shareholder rights than you would under U.S. law.

Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Cayman Islands Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.

As a result of all of the above, public shareholders of our company may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders of our company than they would as shareholders of a U.S. public company.

We are controlled by a small group of existing shareholders, whose interests may differ from other shareholders.

As of September 30, 2009, our principal shareholder, Mr. Guanglin Lai, beneficially owned 38.8% of our total outstanding shares. In addition, as of September 30, 2009, certain key management of P3A beneficially owned an aggregate of 22.0% of our outstanding ordinary shares, with Messrs Zhixin Xue, Mingshe Zhang and Lv Yan holding 17.4%, 2.3% and 2.3% of our outstanding ordinary shares, respectively. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of our ADSs. In addition, because these shareholders could collectively control our company, they would be able to take actions that may not be in the best interests of other shareholders. These actions may be taken even if they are opposed by our other shareholders. We do not have any existing arrangements with any of our shareholders to address potential conflicts of interests between these shareholders and our company, and none of our shareholders other than the beneficial owners of our shareholders in their capacity as our officers pursuant to the terms of their service agreements have entered into non-compete agreements. There is a risk that our existing shareholders may not always act in the best interests of our company.

Our memorandum and articles of association contain anti-takeover provisions that could adversely affect the rights of holders of our ordinary shares and ADSs.

We have included certain provisions in our memorandum and articles of association that could limit the ability of others to acquire control of our company, and deprive our shareholders of the opportunity to sell their shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transactions.

Our articles include the following provisions that may have the effect of delaying or preventing a change of control of our company:

	•		Our board of directors has the authority to establish from time to time one or more series of preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares, the terms and rights of that series, including the designation of the series; the number of shares of the series; the dividend rights, dividend rates, conversion rights, voting rights; and the rights and terms of redemption and liquidation preferences.
	•		Our board of directors may issue a series of shares without action by our shareholders to the extent of available authorized but unissued preferred shares. Accordingly, the issuance of preferred shares may adversely affect the rights of the holders of the ordinary shares. Issuance of preference shares may dilute the voting power of holders of ordinary shares.
	•		Subject to applicable regulatory requirements, our board of directors may issue additional ordinary shares or rights to acquire ordinary shares without action by our shareholders to the extent of available authorized but unissued shares.

You may have difficulty enforcing judgments obtained against us.

We are a Cayman Islands company and most of our assets are located outside of the United States. Most of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts.

We may have been a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs or ordinary shares.

Based on the price of our ADSs and the value and composition of our assets, we believe that we were likely a “passive foreign investment company,” or PFIC, for U.S. federal income tax purposes for our taxable year ended December 31, 2008. In addition, it is possible that one or more of our subsidiaries were also PFICs for such year. A non-U.S. corporation will be considered a PFIC for any taxable year if either (1) at least 75% of its gross income is passive income or (2) at least 50% of the value of its assets is attributable to assets that produce or are held for the production of passive income. We must make a separate determination after the close of each taxable year as to whether we were a PFIC for that year. Because the value of our assets for purposes of the PFIC test generally will be determined based on the market price of our ADSs or ordinary shares, our PFIC status will depend in large part on the market price of the ADSs or ordinary shares, which may fluctuate significantly. If we were a PFIC for the taxable year ended December 31, 2008, certain adverse U.S. federal income tax consequences could apply to U.S. Holders (as defined in “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation”) of our ADSs or ordinary shares with respect to any “excess distribution” received from us and any gain from a sale or other disposition of the ADSs or ordinary shares. See “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—Passive Foreign Investment Company.”

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

We are a Cayman Islands incorporated holding company that conducts substantially all of our operations in China through our contractual arrangements with P3A, which is our consolidated affiliated entity, and through our wholly-owned subsidiaries in China. We commenced operations in January 2004 by acquiring the business of P3A, a limited liability company incorporated under the laws of the PRC in 2000. We established a holding company, Agria Group Limited, under the laws of the British Virgin Islands in July 2005 to facilitate our future international fund-raising activities. We formed Agria China in Beijing, China as a wholly-owned subsidiary under the laws of the PRC in March 2007 to focus on research and development and other corporate activities. We incorporated Agria Corporation under the laws of the Cayman Islands in May 2007. Agria Corporation became the holding company of Agria Group Limited in June 2007 when all of the shareholders of Agria Group Limited exchanged their shares in Agria Group Limited for shares of Agria Corporation on a pro rata basis. In April 2008, we formed Agria Brother Biotech (Shenzhen) Co., Ltd., or Agria Brother, in Shenzhen, China, as a wholly-owned subsidiary under the laws of the PRC to engage in research and development and other activities. We formed Southrich Limited, our wholly-owned subsidiary held directly by Agria Group Limited, in September 2009 under the laws of the British Virgin Islands. Agria (Singapore) Pte. Ltd., our wholly-owned subsidiary held directly by Southrich Limited, was incorporated in November 2009 under the laws of Singapore.

B. Business Overview

Overview

We are engaged in research and development, production and sale of three different types of upstream agricultural products. We offer corn seeds, sheep products and seedling products. Our total revenues decreased from RMB670.8 million in 2007 to RMB468.1 million ($68.6 million) in 2008 while our net income decreased from RMB142.2 million in 2007 to a loss of RMB751.0 million ($110.1 million) in 2008.

As of December 31, 2008, we had access to approximately 22,000 acres of farmland and owned approximately 8,430 sheep in China. As of December 31, 2008, we grew corn seed products in seven provinces in China through contractual arrangements with village collectives and seed production companies under which we provide farming, harvesting and other technical guidance and supervision to farmers. We process and package corn seed products and then sell them to local and regional distributors. We produce sheep products in Shanxi province and sell these products primarily to government-operated BIRSs, breeding companies and other sheep reproduction stations and farms. Our corn seed and sheep products are ultimately sold to and used by farmers in 14 provinces in China. Our seedling products primarily consist of white bark pine and date seedlings and we sell them directly to end users. Our business is seasonal in nature.

Senior Management Changes and Strategic Review

On September 14, 2009, we announced the appointment of Xie Tao as our chief executive officer and Christopher Boddington as our chief financial officer and also announced that Xie Tao would lead the management team to conduct a comprehensive strategic review of our company. On October 23, 2009, John Layburn joined our company as the chief strategy and compliance officer.

The strategic review is currently ongoing and the results will be announced once it is completed.

It is expected that the strategic review will refocus the business on segments of the agricultural sector with the following attributes:

	•		where we expect to be able to add value both to our shareholders and to the wider agricultural sector in China;
	•		where we can leverage the world class operational management skills to which we have access through our investment in and strategic co-operation with PGG Wrightson; and
	•		where we expect to generate profitable growth through a combination of organic growth and targeted acquisitions, generating acceptable levels of return on investment.

Our Products

We specialize in three types of products: corn seeds, sheep products and seedlings. In 2008, sales of corn seed, sheep and seedling products accounted for 54.9%, 31.7% and 13.4%, respectively, of our total revenues.

Corn Seeds

In 2008, we sold approximately 27,655 tonnes of corn seed products. In addition to producing and selling our own products, we distribute corn seeds produced by other seed companies in China. We also produce and sell generic corn seeds whose intellectual property rights have expired in China. As of December 31, 2008, we had access to a total of approximately 8,000 acres of farmland in the Shanxi, Inner Mongolia, Gansu, Xinjiang, Ningxia, Shaanxi and Hainan provinces for production of our corn seeds.

Sheep Products

In 2008, our sheep business consisted primarily of the production and sale of frozen semen, embryos and sheep. In 2008, sales of our frozen semen, embryos and sheep accounted for 35.3%, 2.8% and 61.9%, respectively, of our total revenues from our sheep business.

Our frozen sheep semen products are primarily used for artificial insemination to produce breeder sheep or sheep for mutton or wool. Sheep semen is collected and frozen in plastic straws. In 2008, we sold approximately 7.8 million straws of frozen semen.

Our sheep embryo products are primarily used for embryo transplants to produce breeder sheep or sheep for mutton or wool. Embryos are collected from pregnant breeder ewes and are frozen in plastic straws. In 2008, we sold a total of approximately 3,797 straws of embryos.

In 2008, our production of sheep semen and embryos was relocated to Youyu, Shanxi province.

As of December 31, 2008, we owned approximately 8,430 sheep and operated two breeding bases which occupy 13,550 acres of land in Shanxi province where we maintain propagation bases and pasture land for our flocks.

Seedlings

We primarily produce and sell dates and white bark pine seedlings.

Dates

We use tissue culture technology to conduct virus-free rapid propagation for the production of date seedlings. In addition, since date trees are usually very tall, which makes it difficult for nutrients to reach their higher branches, we use grafting techniques to lower their height.

White Bark Pine

We produce seedlings for evergreen white bark pine. Evergreen white bark pine is one of the preferred plants for urban plantation in the northern part of China because it does not turn brown or gray in the winter, unlike many other pine species found in this part of China. The China Forestry Bureau forbids the transplanting of natural forest, and therefore, all such trees must be cultivated from seedlings.

Research and Development

We conduct research and development both through our in-house research and development team and in cooperation with various universities and research institutions. See “—Intellectual Property.” We have also acquired a number of technologies from third parties. Our own research and development team currently consists of 12 research professionals and staff. We collaborate with a number of universities and research institutions to develop advanced technologies, including new varieties of corn seeds. In October 2009, we entered into a strategic cooperation framework agreement with CNAAS, providing for future cooperation across the spectrum of agricultural research.

Investments and Strategic Partnerships

In October 2009, we entered into agreements to invest in, and form a strategic partnership with, PGG Wrightson, New Zealand’s largest rural services business, which offers a wide range of products, services and solutions to farmers, growers and processors in New Zealand and internationally. We have agreed to invest in PGG Wrightson through the placement of new equity representing 13.0% of PGG Wrightson’s share capital, at 88 cents per share, at a value of NZ$36.0 million. In November 2009, we agreed to subscribe for convertible redeemable notes having an aggregate principal amount of approximately NZ$32.5 million issued by PGG Wrightson. In December 2009, we participated in a rights issue at 45 cents per share which in total increased our holding in PGG Wrightson to 19%.

In October 2009, we also entered into a strategic co-operation framework agreement with CNAAS, which provided for future co-operation across the spectrum of agricultural research. In addition, we also entered into an investment agreement with CNAAS and its affiliates, to invest RMB35.0 million into Zhongnong, a company wholly owned by CNAAS and its affiliates. Zhongnong has priority rights to accept the transfer of all existing and future cultivated seed varieties owned by CNAAS and its affiliates for the purposes of commercialization.

Established in 1957, CNAAS is the largest agricultural research organization in China. It comprises 39 research institutes across the country covering all major areas of the agricultural sector including advanced research in the development of both horticulture and livestock. CNAAS employs over 5,000 scientists and research engineers, many of whom have been awarded national academic accolades. It also encompasses the Graduate School of the Chinese Academy of Agricultural Sciences, the only agricultural research institution in China that can confer Ph.D. level degrees in agricultural sciences. Through its network of research institutes, CNAAS controls one of the largest seed banks in the world.

Sales and Marketing

We market our corn seed products through pre-sale training, demonstrations and presentations to distributors, farmers and other potential customers. Our corn seeds are primarily sold to distributors, who in turn sell them to the farmers. As of December 31, 2008, we had approximately 100 distributors in China, who usually place orders two months before deliveries.

We market our sheep products by arranging site visits for, and distributing manuals and information to, potential customers. In 2008, we had approximately 370 direct customers for our sheep products in China, the majority of which were intermediary customers who planned to resell the products to final customers. Our primary distribution model for our sheep products in Shanxi province is through BIRSs and government poverty alleviation and good-breed promotion offices, which are government-owned and funded entities that sell the products to farmers.

In 2008, we had relationships with approximately 30 seedlings customers in China. We typically sell our white bark pine seedlings to Taiyuan Relord, which is a related party. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Arrangements with P3A and Its Shareholders.”

As of December 31, 2008, our sales and marketing team was comprised of over 50 employees.

Competition

The agricultural industry in China is highly fragmented, largely regional and competitive. We expect competition to increase and intensify. We face significant competition in our corn seed business segment. Many of our competitors have greater financial, research and development and other resources than we have.

We compete with both domestic and multinational companies in the corn seed business. The market is highly fragmented and intensively competitive. We also compete with small domestic seed companies in the geographic areas in which they operate. These seed companies operate only in their respective local markets and sell seeds to local customers. However, they are often well established within their locales, have local government support and understand local farmers’ needs, giving them a competitive advantage in their locales. Our sheep and seedling businesses compete with various local sheep farms and seedling companies, respectively.

Intellectual Property

Many elements of our proprietary information, such as production processes, technologies, know-how and data are not patentable in China. We rely primarily on a combination of trade secrets, trademarks, and confidentiality agreements with employees and third parties to protect our intellectual property. While we cannot assure you that our efforts will deter others from misappropriating our intellectual property rights, we will continue to create and protect our intellectual property rights in order to maintain our competitive position. In June 2008, we purchased the production and sales rights to two corn seeds, JKN2000 and JKN120. We receive royalty income for these seeds as we allow third parties to produce and sell these seeds.

Insurance

Other than automobile insurance on certain vehicles and property and casualty insurance for some of our assets, director and officer liability insurance and employee benefit insurance, we do not have insurance coverage on our assets or inventories, nor do we have any business interruption, product liability or litigation insurance for our operations in China. See “Item 3. Key Information — D. Risk Factors—Risks Related to Our Business— We have limited insurance coverage on our assets in China and any uninsured loss or damage to our property, business disruption or litigation may result in our incurring substantial costs.”

Legal Proceedings

As of February 3, 2009, a consolidated class action lawsuit in the United States District Court for the Southern District of New York was filed, alleging violations of various sections of the U.S. Securities Act of 1933, against us, our executive officers, our directors and other defendants. The lawsuit alleges that our initial public offering registration statement and prospectus failed to disclose certain alleged discussions between two executives relating to requests for additional compensation and a threatened resignation. We are vigorously defending this consolidated class action. On December 1, 2009, the U.S. District Court for the Southern District of New York dismissed the consolidated class action against the Company and the underwriters defendants, and the Court issued a judgment in favor of the Company and the underwriter defendants. Plaintiffs are attempting to challenge the court’s order dismissing the case against Agria and the underwriter defendants. Also, plaintiffs are pursuing these same claims against certain former and current officers and directors of Agria. We plan to move to dismiss these claims against the officers and directors based on grounds that caused the court to dismiss the case against Agria, as well as additional defenses. However, the outcome of this class action is uncertain. Also, the defense of this lawsuit may be costly, and we may incur substantial costs and expenses in doing so. It may also divert the attention of our management from the normal business operations of our company. If the plaintiffs in this consolidated class action lawsuit against us are successful, it may result in substantial monetary damages exceeding the amount of possible coverage under our directors and officers insurance policy, which could have a material adverse effect on our financial condition, results of operations, and liquidity as well as our reputation.

Payment of Cash and Shares by BCL to P3A Management Team

In February 2008, BCL, our largest shareholder solely owned by Mr. Guanglin Lai, paid $9 million in cash to Mr. Zhixin Xue, the president and authorized legal representative of P3A, who received the payment on behalf of members of the P3A management comprising Messrs Zhixin Xue, Mingshe Zhang and Lv Yan. BCL also agreed to deposit the remaining cash and a share transfer form into an escrow account administered by a third-party banking institution. The release of the remaining $9 million cash and the share transfer to Mr. Xue and key members of P3A management comprising Messrs Zhixin Xue, Mingshe Zhang and Lv Yan were consummated in June 2008.

To enhance P3A’s corporate governance, Mr. Xue, Mr. Lai and Mr. Zhaohua Qian, then a director of Agria and BCL, agreed that P3A’s articles of association would be amended to create a board of directors for P3A and to provide that P3A’s legal representative, who is currently Mr. Xue, shall have no authority to act on behalf of P3A except as approved by P3A’s board of directors. We are currently in the process of taking all the necessary steps to give full effect of the arrangement, including but not limited to appointment of a new chairman for P3A, and Mr. Xue has agreed to use his best efforts to effect such appointment. Mr. Xue has entered into a new employment agreement with P3A to serve as its president or any other position appointed by P3A’s board of directors for an initial term of three years. P3A’s articles of association were subsequently amended to reflect the terms agreed upon in the above-mentioned agreements entered into in June 2008.

Payment of cash and shares by BCL to members of the P3A management team as compensation to reward their contribution resulted in material non-cash compensation charges in the profit and loss account of RMB768.5 million ($112.6 million) on our consolidated financial statements for 2008. If we lose the services of one or more of our key management personnel, including P3A management personnel, and are unable to find suitable replacements, our operations and financial condition may be materially and adversely affected. See “Item 3. Key Information—D. Risk Factors—Our business depends substantially on the continuing efforts of our management, and our business may be severely disrupted if we lose their services.”

Regulation

Agriculture Law

On July 2, 1993, the PRC promulgated the Agriculture Law which sets forth certain principles and various measures designed to ensure the steady development of the agricultural industry. For example, the production and operation of agricultural products that affect the health of people or animals, such as seeds, must meet registration and approval requirements of the PRC laws and regulations. The Agriculture Law was revised on December 28, 2002, effective on March 1, 2003.

Seed Law, Animal Husbandry Law and Other Relevant Regulations

Seed Law and Other Relevant Regulations

The crop seed business is a highly regulated industry in the PRC. In July 2000, the Seed Law was enacted to foster the use of seed resources; to control the selection, production and use of seeds and to regulate related business operations; to protect the legal rights of producers, business operators and users of seeds; to promote seed quality; to drive the industrialization processes of seeds and to accelerate the development of the planting and forestry industries. The Seed Law became effective on December 1, 2000 and was amended on August 28, 2004.

Under the Seed Law, major crop seeds and tree varieties are subject to examination and approval as a pre-condition of their popularization. An applicant may apply directly for examination and approval at either the national or provincial level. Committees composed of professional experts have been established separately by the State Council’s agriculture and forestry administrative departments and the provincial governments for the examination and approval of crop and tree varieties. Major crop seed varieties that are verified and approved by the State Council’s committee and the National Crop Variety Examination and Approval Committee may be marketed and distributed nationwide. Varieties that received provincial approval are only permitted to be marketed and distributed within the approved province.

For seed production, a permission-based system is currently in practice pursuant to the Administrative Regulation on Permission of Production and Operation of Crop Seeds, which was issued on February 26, 2001 and revised on July 1, 2004. A company engaged in the production of seeds must obtain a production license, which is issued at either the provincial or the local level, entitling the licensee to engage in seed production in the permitted area. The level of issuing authority required for a production license varies based on the types of seeds to be produced. The production license also specifies the types of seeds the license holder may produce, the geographic region where seeds can be produced and the term of the production license.

For seed distribution, a company must obtain a distribution license in order to distribute seeds in permitted areas. Generally, a distribution license may be issued at the county level or above. A seed company must obtain a distribution license from the provincial government to distribute major crop seeds in that province, and a distribution license from the national government for national distribution.

Animal Husbandry Law and Other Relevant Regulations

According to the PRC’s Animal Husbandry Law which was promulgated on December 29, 2005 and became effective on July 1, 2006, popularization of any new variety of livestock is subject to examination and approval by the National Commission of Animal Genetic Resources. Approved varieties will be announced by the Ministry of Agriculture and be eligible for popularization.

Pursuant to the Animal Husbandry Law, entities or individuals engaged in production of breeder livestock or poultry, or engaged in the commercial production of new born livestock or poultry, must obtain a Permit for the Production and Business Operation of Breeding Livestock and Poultry (the “Husbandry Permit”). Entities and individuals engaged in the production of ova, frozen sperm, embryos or other genetic materials must obtain a Husbandry Permit from the State Council’s stockbreeding and veterinary administrative departments through their respective provincial agencies. The approval level of the Husbandry Permit varies depending on the permitted scope and content.

In addition to the Animal Husbandry Law, the Administrative Regulation of Breeders was issued on April 15, 1994. These regulations specify conditions and requirements that must be satisfied by breeding farms regarding their technologies, facilities, quarantine measures, livestock and poultry inspection systems and livestock and poultry distribution. We believe our sheep farms meet the conditions required under the applicable regulations.

Supervision of Agricultural Products Quality and Safety

On March 10, 2005, the Ministry of Agriculture issued the Administrative Measures for the Supervision and Spot Check of Agricultural Seed Quality, which became effective on May 1, 2005, and which permit the government’s administrations of agriculture at the county level or above to organize relevant seed administration and seed quality inspection institutions to sample and inspect agricultural seeds that are produced and sold. A seed production and operation company that does not meet inspection standards must recall any seeds that have been sold. Such companies may not conduct sales until they meet inspection standards. A legal representative of the seed company must circulate information on the inspection to all employees, and the company must determine why the seeds failed to meet inspection standards and implement corrective measures. Such measures include improving quality control processes, submission of rectification reports and submitting to subsequent examinations by the administration of agriculture. Our seeds have not been recalled in any inspections by the government authorities thus far.

Under the PRC Law on Agricultural Product Quality Safety, issued on April 29, 2006 and declared effective on November 1, 2006, an entity engaged in the production of agricultural products must establish production records and retain data relating to production for 2 years.

Under the PRC Law on Animal Epidemic Prevention, issued on July 3, 1997 and revised on August 30, 2007, animals and/or animal products to be sold or transported require quarantine certificates and quarantine inspection marks or seals. Shanxi province’s Regulations on Animal Epidemic Prevention require business operators to report to their local supervisory institutions or animal quarantine officers of animal epidemic prevention where such operators are domiciled, and to submit to inspections and quarantines of animals and animal products. The level of inspection varies depending on the uses for such animals or animal products.

Under the Regulations on Plant Quarantine, issued on January 3, 1983 and revised on May 13, 1992, plants and plant products listed in quarantine catalogues are subject to quarantine inspections before they are transported from a county administration area where an epidemic occurs. Plant seeds, seedlings or other propagating materials are subject to quarantine inspections prior to transportation.

Land Use Rights

All land in the PRC is either state-owned or collectively owned, depending on the location of the land. All land in the urban areas of a city or town is state-owned, and all land in the rural areas of a city or town and all rural land is, unless otherwise specified by law, collectively owned. The state has the right to reclaim land in accordance with law if required for the benefit of the public. Although all land in the PRC is owned by the state or by collectives, private individuals and businesses and other organizations are permitted to hold, lease and develop land for which they are granted land use rights.

National Legislation on Land

In April 1988, the constitution of the PRC was amended by the National People’s Congress to allow for the transfer of land use rights for value. In December 1988, the Land Administration Law of the PRC was amended to permit the transfer of land use rights for value.

Under the Interim Regulations of the People’s Republic of China on Grant and Transfer of the Right to Use State-owned Urban Land (“Interim Regulations on Grant and Transfer”) promulgated in May 1990, local governments at or above the county level have the power to grant land use rights for specific purposes and for a definite period to a land user pursuant to a contract for the grant of land use rights against payment of a grant premium.

Under the Interim Regulations on Grant and Transfer, all local and foreign enterprises are permitted to acquire land use rights unless the law provides otherwise. The state may not reclaim lawfully granted land use rights prior to expiration of the term of grant. If public interest requires repossession by the state under special circumstances during the term of grant, compensation will be paid by the state. A land grantee may lawfully transfer, mortgage or lease its land use rights to a third party for the remainder of the term of grant.

Upon expiration of the term of grant, renewal is possible subject to the execution of a new contract for the grant of land use rights and payment of a premium. If the term of the grant is not renewed, the land use rights and ownership of any buildings erected on the land will revert to the state without compensation.

Transfer and Lease of State-owned Land Use Rights

After land use rights relating to a particular area of land have been granted by the state, unless any restriction is imposed, the party to whom such land use rights have been granted may transfer, lease or mortgage such land use rights for a term not exceeding the term which has been granted by the state. The difference between a transfer and a lease is that a transfer involves the vesting of the land use rights by the transferor in the transferee during the term for which such land use rights were vested in the transferor. A lease, on the other hand, does not involve a transfer of such rights by the lessor to the lessee. Furthermore, a lease, unlike a transfer, does not usually involve the payment of a premium. Instead, a rent is payable during the term of the lease. Land use rights cannot be transferred, leased or mortgaged if the provisions of the land grant contract, with respect to the prescribed period and conditions of investment, development and use of the land, have not been complied with. In addition, different areas of the PRC have different conditions which must have been fulfilled before the respective land use rights can be transferred, leased or mortgaged.

All transfers, mortgages and leases of land use rights must be evidenced by a written contract registered with the relevant local land bureau at the municipality or the county level. Upon a transfer of land use rights, all rights and obligations contained in the contract pursuant to which the land use rights were originally granted by the state are deemed to be incorporated as part of the terms and conditions of such transfer, depending on the nature of the transaction.

Under Article 38 of the PRC Law on Administration of Urban Real Estate (the “Urban Real Estate Law”) issued on July 5, 1994 and revised on August 30, 2007, real property that has not been registered and for which a title certificate has not been obtained in accordance with the law cannot be transferred. Under Article 39 of the Urban Real Estate Law, if land use rights are acquired by means of grant, the following conditions must have been met before the land use rights may be transferred: (1) the premium for the grant of land use rights must have been paid in full in accordance with the land grant contract and a land use rights certificate must have been obtained; (ii) investment or development must have been made or carried out in accordance with terms of the land grant contract; (iii) more than 25% of the total amount of investment or development must have been made or completed; and (iv) where the investment or development involves a large tract of land, conditions for use of the land for industrial or other construction purpose must have been confirmed.

Regulation on Collective-owned Land

According to the PRC Law on Land Administration, adopted by the National People’s Congress on June 25, 1986 and amended on August 28, 2004, land in rural and suburban areas, except for that stipulated by law as being owned by the state, is collectively owned by rural residents. Land collectively owned by rural residents is contracted to and operated by members of the respective collective economic entity for uses such as plantation, forestry, livestock husbandry or fishery production. Before any land collectively owned by rural residents is contracted to a unit or individual not from the collective economic entity, at least two-thirds of the members of the villager committee meeting or at least two-thirds of the villager representatives must agree, and it must be submitted to the people’s government at the township level for approval. The land use rights of collectively owned land must not be granted, assigned or leased to any party for any non-agricultural uses.

Foreign Ownership Restrictions in the Seed Industry

Currently, the PRC restricts foreign ownership of domestic businesses engaged in the seed industry. According to the Foreign Investment Industrial Guidance Catalogue, which became effective on December 1, 2007, selection and breeding of new breeds of crops and development and production of seeds falls into the category of a restricted foreign investment industry. In addition, the breeding and planting of China’s rare and peculiar breeds (including quality gene cultivation, animal husbandry and aquatic products) and the production and development of genetically modified plant seeds, breeding livestock and poultry and aquatic seedlings are considered prohibited foreign investment industries. PRC law currently prohibits a foreign entity or person from owning over 50% of any seed development and production business in China and prohibits a foreign entity or person from owning any sheep business in China.

In accordance with the Regulation on the Approval and Registration of Foreign Investment Enterprises in the Agricultural Seed Industry, issued and effective on September 8, 1997, investors may establish foreign-invested crop seed companies provided that they have satisfied the following requirements: (i) the company’s PRC investors must have obtained necessary approvals for crop seed production and operation and submitted the business to any necessary examinations; (ii) the foreign investors must be equipped with relatively advanced research breeding capabilities, seed production technologies and good corporate management, and possess a positive business reputation; (iii) the investors must be able to introduce or adopt outstanding domestic or foreign species or seed resources and advanced seeds technologies and facilities; (iv) the registered capital of companies engaged in the production of cereal, cotton and oil products seeds must be no less than $2 million, and the registered capital of companies engaged in the production of other crop seeds must be no less than $0.5 million; and (iv) the company’s PRC investors’ equity ownership in the foreign-invested cereal, cotton and oil products seeds enterprises must be more than 50%. Pursuant to this regulation, foreign investors are not permitted to establish foreign-invested crop seed distribution enterprises or wholly foreign-owned crop seed enterprises in China.

We engage in the seed production business through contractual arrangements with our consolidated affiliated entity, P3A. See “Item 4. Information on the Company—A. History and Development of the Company.” Our wholly-owned subsidiaries in China, Agria China and Agria Brother, do not engage in the seed production business.

Intellectual Property

The PRC Trademark Law, adopted on August 23, 1982 and revised on October 27, 2001, protects the proprietary rights of registered trademarks. The State Administration for Industry and Commerce’s Trademark Office handles trademark registrations and grants an initial term of ten years to registered trademarks. Upon the initial term’s expiration, a second term of ten years may be granted under a renewal. Trademark license agreements must be filed with the Trademark Office or a regional office. In addition, if a registered trademark is recognized as a well-known trademark, the proprietary right of the trademark holder may be extended beyond the registered scope of products and services to which the trademark relates.

Under the Patent Law of PRC, which was revised on December 27, 2008, animal and plant varieties may not be protected under patents, but the production methods of animal and plant varieties may be patented. Producers of plant and animal varieties may seek protection for their rights to new varieties under the Protection of New Varieties of Plants Regulation.

The Protection of New Varieties of Plants Regulation was promulgated by the State Council on March 20, 1997, and became effective on October 1, 1997. The administrative departments of the State Council in charge of agriculture and forestry are, according to their respective functions, jointly responsible for the acceptance and examination of applications for the rights to new varieties of plants and grant such rights to new varieties of plants which satisfy the requirements under the regulations. An entity or individual that has completed the production, sale or dissemination of a new variety of plant which has been granted a variety right will have an exclusive right in its protected variety. Unless otherwise provided for in these regulations, without a license from the owner of the variety right, no other entity or individual may use such variety for commercial purposes.

Foreign Currency Exchange

Under the Foreign Currency Administration Rules promulgated on January 29, 1996 and amended on August 5, 2008, the foreign exchange incomes of domestic entities and individuals can be remitted into China or deposited abroad, subject to the conditions and time limits to be issued by SAFE. According to the Foreign Currency Administration Rules, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Conversion of Renminbi for capital account items, such as direct investment, loan, securities investment, derivative transactions and repatriation of investment, however, is still subject to the approval of, and/or the registration with, SAFE or its local branches.

Dividend Distribution

The principal regulations governing distribution of dividends of wholly foreign-owned enterprises include the Wholly Foreign-owned Enterprise Law, promulgated by the National People’s Congress on April 12, 1986 and amended on October 31, 2000, and the Wholly Foreign-owned Enterprise Law Implementing Rules, promulgated by the National People’s Congress on December 12, 1990 and amended on April 12, 2001. Under these regulations, wholly foreign-owned enterprises in the PRC may pay dividends only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. Additionally, wholly foreign-owned enterprises are required to set aside at least 10% of their after-tax profits each year, if any, to contribute to certain reserve funds until the cumulative amounts in such reserve funds have reached 50% of the registered capital of such enterprises. These reserves are not distributable as cash dividends.

Pursuant to the new PRC enterprise income tax law and its implementation regulations effective on January 1, 2008, dividends payable by a foreign-invested enterprise to its foreign investors will be subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. According to the Mainland and Hong Kong Special Administrative Region Arrangement on Avoiding Double Taxation or Evasion of Taxation on Income agreed between the Mainland and Hong Kong Special Administrative Region in August 2006 and the Notice in Relation to the Dispatch of Schedule of Agreed Tax Rates on Dividends issued by the State Administration of Taxation (State Taxation Circular No. 112 (2008)), dividends payable by a foreign-invested enterprise to its foreign investors will be subject to a 5% tax provided that such foreign investor directly owns at least 25% of the equity interests of the foreign-invested enterprise. Although the new tax law contemplates the possibility of exemptions from withholding taxes for China-sourced income of foreign-invested enterprises, the PRC tax authorities have not promulgated any related implementation rules and it remains unclear whether we would be able to obtain exemptions from PRC withholding taxes for dividends distributed to us by Agria China.

Pursuant to the new PRC enterprise income tax law which became effective on January 1, 2008, an enterprise established outside of the PRC with “de facto management bodies” within the PRC is considered as a resident enterprise and will be subject to PRC income tax on its global income. According to the implementation regulations, “de facto management bodies” refer to “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.” On April 22, 2009, the State Administration of Taxation promulgated a circular setting out the criteria for determining whether “de facto management bodies” are located in China for overseas incorporated, domestically controlled enterprises. However, as this circular only applies to enterprises incorporated under the laws of foreign countries or regions that are controlled by PRC enterprises or groups of PRC enterprises, it remains unclear how the tax authorities will determine the location of “de facto management bodies” for overseas incorporated enterprises that are not controlled by PRC enterprises or groups of PRC enterprises like us. Accordingly, we may be considered a resident enterprise and may therefore be subject to PRC income tax on our global income.

Foreign Exchange

In October 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Return Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or SAFE Notice 75, which became effective as of November 1, 2005, and was further supplemented by an implementation notice issued by SAFE on November 24, 2005. SAFE Notice 75 suspends the implementation of two prior regulations promulgated in January and April of 2005 by SAFE. SAFE Notice 75 states that PRC residents, whether natural or legal persons, must register with the relevant local SAFE branch prior to establishing or taking control of an offshore entity established for the purpose of overseas equity financing involving onshore assets or equity interests held by them. The term “PRC legal person residents” as used in SAFE Notice 75 refers to those entities with legal person status or other economic organizations established within the territory of the PRC. The term “PRC natural person residents” as used in SAFE Notice 75 includes all PRC citizens and all other natural persons, including foreigners, who habitually reside in the PRC for economic benefit. The SAFE implementation notice of November 24, 2005 further clarifies that the term “PRC natural person residents” as used under SAFE Notice 75 refers to those “PRC natural person residents” defined under the relevant PRC tax laws and those natural persons who hold any interests in domestic entities that are classified as “domestic-funding” interests.

PRC residents are required to complete amended registrations with the local SAFE branch upon: (i) injection of equity interests or assets of an onshore enterprise to the offshore entity, or (ii) subsequent overseas equity financing by such offshore entity. PRC residents are also required to complete amended registrations or filing with the local SAFE branch within 30 days of any material change in the shareholding or capital of the offshore entity, such as changes in share capital, share transfers, long-term equity or debt investments, and granting security interests. PRC residents who have already incorporated or gained control of offshore entities that have made onshore investment in the PRC before SAFE Notice 75 was promulgated must register their shareholding in the offshore entities with the local SAFE branch on or before March 31, 2006.

Under SAFE Notice 75, PRC residents are further required to repatriate into the PRC all of their dividends, profits or capital gains obtained from their shareholdings in the offshore entity within 180 days of their receipt of such dividends, profits or capital gains. The registration and filing procedures under SAFE Notice 75 are prerequisites for other approval and registration procedures necessary for capital inflow from the offshore entity, such as inbound investments or shareholders loans, or capital outflow to the offshore entity, such as the payment of profits or dividends, liquidating distributions, equity sale proceeds, or the return of funds upon a capital reduction.

In May 2007, SAFE issued the Operating Procedures of Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Return Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or SAFE Notice 106, which became effective as of May 29, 2007. SAFE Notice 106 provided detailed operating procedures for implementing SAFE Notice 75. Under SAFE Notice 106, establishing or taking control of an offshore special purpose company without prior registration with the relevant local SAFE branch will be deemed as evasion of foreign exchange control or other illegal acts, and may be subject to penalties according to regulations on foreign exchange control and other relevant regulations.

New M&A Rule

On August 8, 2006, six PRC regulatory agencies, namely, the PRC Ministry of Commerce, the State Assets Supervision and Administration Commission, or SASAC, the State Administration for Taxation, the State Administration for Industry and Commerce, the CSRC, and SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006. This New M&A Rule purports, among other things, to require offshore special purpose vehicles, or SPVs, formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. On September 21, 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted to it by SPVs seeking CSRC approval of their overseas listings.

While the application of this new regulation remains unclear, we believe, based on the advice of our PRC counsel, Commerce & Finance Law Offices, that CSRC approval was not required in the context of our initial public offering because we established our PRC subsidiaries by means of direct investment other than by merger or acquisition of PRC domestic companies. The regulation also establishes more complex procedures for acquisitions conducted by foreign investors which could make it more difficult to pursue growth through acquisitions.

C. Organizational Structure

The following diagram illustrates our corporate structure, including our principal subsidiaries, as of the date of this annual report:

According to the Foreign Investment Industrial Guidance Catalogue, which became effective on December 1, 2007, selection and breeding of new breeds of crops and development and production of seeds falls into the category of a restricted foreign investment industry. In addition, the breeding and planting of China’s rare and peculiar breeds (including quality gene cultivation, animal husbandry and/or aquatic products), and the production and development of genetically modified plant seeds, breeding livestock and poultry and aquatic seedlings are considered prohibited foreign investment industries.

PRC law currently prohibits a foreign entity or person from owning over 50% of any seed development and production business in China and prohibits a foreign entity or person from owning any sheep business in China. We conduct our corn seed, sheep and seedling businesses through contractual agreements with our consolidated affiliated entity, P3A, which holds the requisite licenses and permits for these businesses. Our contractual arrangements with P3A and its shareholders enable us to:

	•		exercise effective control over P3A;
	•		receive substantially all of the earnings and other economic benefits from P3A to the extent permissible under PRC law in consideration for the services provided by Agria China; and
	•		have an exclusive option to purchase all or part of the equity interests in P3A in each case when and to the extent permitted by PRC law.

In addition, P3A’s shareholders have executed a letter of undertaking to remit all of the dividends and other distributions received from P3A to Agria China, subject to satisfaction of their personal income tax and other statutory obligations arising from receiving such dividends or other distributions. We will require every person who holds the equity interests in P3A at any time to enter into agreements with us on terms substantially similar as the existing contractual agreements between us and P3A’s current shareholders.

D. Property, Plants and Equipment

Our principal executive offices are located in Beijing. As of December 31, 2008, we operated farms, breeding centers, propagation centers and other facilities on approximately 22,000 acres of land, mostly through lease of land use rights as well as acquisition of land use rights.

As of December 31, 2008, we leased approximately 8,000 acres of land for our corn seed production, primarily from village collectives. These leases are typically for terms of 12 years. We entered into long-term lease agreements with local government and village collectives for 13,350 acres of land for our sheep business with average terms of 15 years. We acquired and leased land use rights of 360 acres of land for seedling production. These leases are for terms ranging from 10 to 46 years.

A. Operating Results

The following table sets forth our corn seed sales volume and revenues, in absolute amounts and as percentages of our revenues from corn seeds and our total revenues for each of the three years ended December 31, 2006, 2007 and 2008:

In March 2008, a fire broke out in one of our corn seeds warehouse which led to a loss of approximately RMB8.2 million ($1.2 million) comprising RMB7.8 million of corn seed inventory and RMB0.4 million of property, plant and equipment. This fire contributed to reduced corn seed sales in 2008.

In July 2008, Mr. Mingshe Zhang, the former general manager of P3A and a key member of management of the corn seed division of P3A resigned from P3A.

These factors contributed to the decrease in sales volumes of corn seeds from 41,973 tonnes in 2007 to 27,655 tonnes in 2008. Meanwhile, the average price of corn seeds increased from RMB8.2 per kg to RMB9.2 per kg.

Our corn seed revenue in 2008 included a royalty income of RMB3.0 million ($0.4 million) relating to the purchase and subsequent rental of production and sales rights to two corn seeds JKN2000 and JKN120.

Revenues from our corn seed segment increased by 39.9% from RMB245.6 million in 2006 to RMB343.7 million in 2007, primarily due to an increase in the sales volume of our corn seeds from 31,101 tonnes to 41,973 tonnes and an increase in the average selling price by 3.8% from 2006 to 2007.

Sheep Product Revenues

In the three years ended December 31, 2008, we generated revenues from the production and sale of frozen sheep semen, sheep embryos and sheep. Our revenues from sales of our sheep products are determined by the total sales volume and average selling prices of the products we sell.

The following table sets forth our revenues derived from sales of each of these products in absolute amounts and as percentages of our revenues from sheep products and our total revenues for the three years ended December 31, 2008:

In 2008, our production of sheep semen and embryos was relocated to Youyu, Shanxi province. This transfer caused significant disruption to this business and led to quality control problems. As a result of these problems, we did not meet our contractual requirements and sales of 9.6 million straws of frozen semen, representing RMB64.3 million ($9.4 million) in contract value and 4,059 straws of embryos representing RMB4.4 million ($0.6 million) in contract value were not recognized in 2008. Associated sub-standard inventory amounting to RMB13.9 million ($2.0 million) was included in the inventory write down totaling RMB16.7 million ($2.4 million) in cost of revenues.

The sales of frozen semen fell from RMB167.6 million in 2007 to RMB52.5 million ($7.7 million) in 2008. The number of straws of frozen semen sold also declined from 25 million in 2007 to 7.8 million in 2008.

The sale of embryos fell from RMB10.3 million in 2007 to RMB4.1 million ($0.6 million) in 2008. The number of straws of embryos fell from 9,430 in 2007 to 3,797 in 2008.

Production problems have continued at Youyu during 2009. The company does not now expect there to be any significant sales of semen or embryos reported for 2009.

Sales of sheep increased from RMB77.6 million in 2007 to RMB91.9 million ($13.5 million) in 2008. The number of sheep sold increased from 36,545 in 2007 to 43,260 in 2008.

Revenues from our sheep product segment increased by 32.3% from RMB193.1 million in 2006 to RMB255.5 million in 2007, primarily due to (1) an increase of RMB47.2 million in revenues from frozen semen, as a result of an increase in sales volume by 22.0% from 20.5 million straws to 25.0 million straws, as we continued to develop the Shanxi and Inner Mongolia markets and expanded into other provinces, as well as an increase in average selling price from frozen semen by 14.5% from 2006 to 2007 and (2) an increase of RMB14.4 million in revenues from sheep sales.

Seedling Revenue

In the three years ended December 31, 2008, our seedling segment generated revenues primarily from the production and sale of date and white bark pine seedlings.

Sales of seedlings decreased from RMB71.5 million in 2007 to RMB62.5 million ($9.2 million) in 2008. The number of seedlings sold decreased from 26.4 million in 2007 to 25.5 million in 2008.

Revenues from our seedling segment increased by 40.2% from RMB51.0 million in 2006 to RMB71.5 million in 2007, primarily due to (1) a significant increase in sales volumes of our date seedlings; and (2) an increase in sales of our white bark pine seedlings.

Cost of Revenues and Gross Margins

Cost of revenues and gross margins for 2008 are analyzed below on a segmental basis.

Total cost of revenues increased by 43.2% from RMB207.4 million in 2006 to RMB296.9 million in 2007. The increase was due primarily due to an increase in the cost of revenues from our corn seed segment and sheep product segment and, to a lesser extent, our seedling segment. Our gross profit increased by 32.4% from RMB282.3 million in 2006 to RMB373.9 million in 2007.

Corn Seed Segment

Cost of revenues for our corn seed segment primarily consists of the costs that we pay to the village collectives for the seeds they are contracted to grow for us, amortization of purchased technology know-how, depreciation of building and equipment and direct labor cost. At the beginning of each growing season, we provide parent seeds to the village collectives to grow for us under contractual arrangements. Our contractual agreements generally contain terms ranging from five to twelve years. We also provide advances to the village collectives for their purchase of fertilizer and other production materials. At the end of the growing season, after we take delivery of corn seeds, we credit the advances against the costs and recognize the balance as cost of inventory and subsequently recognize this balance as cost of revenues upon sales of corn seeds. If the village collectives fail to produce or deliver the contracted amounts of corn seeds by the end of each growing season, we may not be able to recover all of the advances we paid and our financial condition could suffer.

Our cost of corn seed revenues fell from RMB203.7 million in 2007 to RMB153.0 million ($22.4 million) in 2008. Our gross margin for corn seed sales fell from 40.7% in 2007 to 40.5% in 2008 as a result of product mix and pricing changes during 2008.

Cost of revenues from our corn seed segment increased by 40.8% from RMB144.7 million in 2006 to RMB203.7 million in 2007, where gross profit from this segment increased by 38.8% from RMB100.9 million in 2006 to RMB 140.0 million in 2007, primarily due to an increase in our sales. Gross margin of this segment in both 2006 and 2007 were similar.

Sheep Product Segment

Cost of revenues for our breeder sheep and Primalights III hybrid sheep primarily consists of cost of feeds, depreciation of buildings and equipment, amortization of purchased technology know-how, other materials used to raise sheep and direct labor costs. Feeds are the ingredients used to feed the purebred foreign sheep and the domestic sheep. Depreciation cost primarily consists of depreciation of fences, corrals, sorting pens, lambing pens, water facilities and handling facilities. Direct labor cost comprises the salaries and compensation for our employees who care for the sheep.

Cost of revenues for sales of our frozen semen and embryos mainly consists of cost of feeds, depreciation of breeder sheep and equipment and materials used to collect semen and embryos and direct labor cost. Depreciation cost primarily consists of depreciation of breeder sheep and depreciation of building structure such as fences, corrals, sorting pens, lambing pens, water and handling facilities, raw materials used for semen and embryo collection and preservation, medical supplies, mineral additives and consumables. Direct labor cost comprises the salaries and compensation for our employees who care for the sheep and who collect semen and embryos.

The transfer of semen and embryo production as noted above caused significant disruption to the business. Consequently, separately identified in the cost of sheep product revenues is an inventory write-down of RMB13.9 million ($2.0 million) relating to defective product. Of this amount, RMB11.6 million ($1.7 million) relates to semen products and the balance to embryo products.

The cost of revenues for our sheep products rose from RMB72.7 million in 2007 to RMB74.7 million ($10.9 million) in 2008. The gross margin for our sheep products fell from 71.6% to 49.7%.

Cost of revenues from our sheep product segment increased by 39.1% from RMB52.3 million in 2006 to RMB72.7 million in 2007, which was in line with the increase in revenues from our sheep product segment. Gross profit from this segment increased by 29.9% from RMB140.8 million in 2006 to RMB182.8 million in 2007 due to the significant increase in sales volume of frozen semen and Primalights III hybrid sheep.

Seedling Segment

Cost of revenues for our seedling segment primarily consists of depreciation of trees and equipment, cost of nutritional and medical materials used to grow seedlings and direct labor cost. Depreciation cost includes depreciation of nurseries, water facilities, harvesting equipment and other machinery used to grow and harvest seedlings. Raw materials used to grow seedlings include mineral additives and other consumables. Direct labor cost comprises salaries and compensation for our staff who attend to the seedlings on a regular basis.

The seedlings cost of revenues rose from RMB20.5 million in 2007 to RMB33.4 million ($4.9 million) in 2008. The seedlings gross margin fell from 71.4% to 46.5%. During 2008, exceptionally high levels of fertilizer were applied to the land used for seedling production and this has contributed significantly to the reduction in gross margin. RMB2.8 million ($0.4 million) of our RMB16.7 million ($2.4 million) inventory write-down charge in 2008 related to seedlings.

Cost of revenues from our seedling segment increased by 97.5% from RMB10.4 million in 2006 to RMB20.5 million in 2007, primarily due to the increase in depreciation of trees and cost of nutritional and medical materials, as a result of the increase in sales of volume of our existing seedling products and new seedling products. Gross profit from this segment increased by 25.5% from RMB40.7 million in 2006 to RMB51.0 million in 2007. This was a smaller increase than the increase in revenue due to the higher percentage of sales of new seedling products with lower profit margins.

Operating Expenses

Selling Expenses. Our sales and marketing expenses primarily consist of our expenses of advertising in newspapers, on television and in magazines, salaries and compensation for our sales personnel, promotion expenses and other related marketing expenses.

Selling expenses fell from RMB36.4 million in 2007 to RMB18.6 million ($2.7 million) in 2008. This decrease was due to a reduction in sales commission as a result of reduced sales and a reduction in entertaining expenses.

Our selling expenses increased by 159.7% from RMB14.0 million in 2006 to RMB36.4 million in 2007. This increase resulted primarily from expansion of our sales activities in support of our current and anticipated sales growth.

General and Administrative Expenses. Our general and administrative expenses primarily consist of compensation and benefits for administrative, finance and human resources personnel, depreciation, provisions for bad debts, travel and other expenses associated with our corporate and administrative activities.

General and administrative expenses in 2008 includes an amount of RMB768.5 million ($112.6 million) relating to a non-cash charge arising from the arrangements between Brothers Capital and certain employees of P3A announced to the market in June 2008. This non cash charge is not expected to recur in the future.

Our general and administrative expenses increased by RMB871.3 million ($127.7 million) from 2007 to 2008. After accounting for the arrangements above, the remaining increase in our general and administrative expenses from 2007 to 2008 amounted to RMB102.8 million ($15.1 million). This increase was contributed to by charges in relation to bad debts, loss on disposal of fixed assets, expense in relation to a warehouse fire and full year impact of costs associated with being an SEC listed business.

The charges in relation to bad debts of RMB12.8 million ($1.9 million) in 2008 related to corn seed and seedling products where provisions have been made for amounts invoiced in 2008 but that remained outstanding as of September 30, 2008. In 2008, we incurred a loss of RMB7.5 million ($1.1 million) on the disposal of fixed assets compared to RMB0.9 million in 2007 and a charge (within general and administrative expenses) of RMB8.2 million ($1.2 million) in relation to the warehouse fire that occurred in March 2008.

As a public company, we incur a significantly higher level of costs than we did as a private company. As we began trading our ADSs on the New York Stock Exchange, or the NYSE, in November 2007, the impact of increased costs associated with being a public company on 2007 was minimal and 2008 represented the first full year of these charges that included the cost of our board of directors, additional office rental, insurance, and professional fees.

Our general and administrative expenses increased by 244.3% from RMB7.5 million in 2006 to RMB25.7 million in 2007. The increase resulted primarily from (1) amortization of the share-based compensation charges in 2007; (2) increased public company costs; and (3) increased cost of Agria China, including salaries and benefits, depreciation of office buildings and daily operation expenses.

Research and Development Expenses. Research and development expenses primarily consist of expenses related to development of our proprietary products, salaries and benefits of our research and development personnel, fees paid to our research partners, costs of raw materials used in our research and development activities, as well as other overhead incurred by our research and development personnel.

Research and development expenses increased from RMB3.1 million in 2007 to RMB20.2 million ($3.0 million) in 2008. Our research and development expenses in 2008 were incurred in connection with six projects with the Ministry of Agriculture, CNAAS and Inner Mongolia Hongxing Biotechnology Company Limited.

Our research and development expenses decreased by 17.8% from RMB3.7 million in 2006 to RMB3.1 million in 2007. The decrease was primarily caused by the shift in timing of projects from 2007 to 2008.

Government Grants. Government grants consist of the grants that P3A receives from the local government authorities in connection with its operations in the agricultural industry. The amount and timing of government grants are determined at the discretion of the relevant government authorities. Government grants are recognized as other operating income upon receipt and when all the conditions relating to the grants are met.

The company did not receive any government grants that were expensed in 2007 or in 2008.

We recognized RMB80,000 (2007:nil) government grants in 2006. The amount and timing of government grants were determined at the discretion of the relevant government authorities.

Share-based Compensation Expenses. Since we adopted the 2007 share incentive plan in July 2007, options to purchase a total of 8,844,500 ordinary shares were granted to our officers, directors and employees and remained outstanding as of December 31, 2008. We had not granted any options or other equity incentives to any employee, director or consultant before July 2007.

We determine share-based compensation expenses based on the fair value of the options as of the date of grant and amortize such expenses over the vesting period of the options. A change in the amount of share-based compensation expenses will primarily affect our operating expenses, net income and earnings per share.

For the options to purchase 8,844,500 ordinary shares that were granted to our officers, directors and employees on July 4, 2007, July 19, 2007, December 7, 2007, February 1, 2008, May 27, 2008, June 5 2008, June 12, 2008, September 5, 2008 and December 5, 2008 and remained outstanding, total unrecognized compensation costs are estimated to be approximately $5.4 million as of December 31, 2008 based on an assessment of the fair value of the awarded options. The compensation expenses are to be recognized as a charge to expense over the vesting period of two to four years from the respective grant dates.

Operating Profit (Loss). As a result of the foregoing factors, our operating profit from operations decreased from a profit of RMB308.6 million in 2007 to a loss of RMB745.6 million ($109.3 million) in 2008.

As a result of the foregoing factors, our operating profit from operations increased by 20.0% from RMB257.1 million in 2006 to RMB308.6 million in 2007.

Income (Loss) Before Income Tax. As a result of the foregoing factors, our pre-tax income decreased by 340.8% from RMB301.2 million in 2007 to a pre-tax loss of RMB725.4 million ($106.3 million) in 2008.

As a result of the foregoing factors, our net income increased by 18.6% from RMB253.9 million in 2006 to RMB301.2 million in 2007.

Income tax. Our income tax decreased from RMB159.0 million in 2007 to RMB25.6 million ($3.7 million) in 2008 as a result of our reduced taxable profits.

Our income tax increased from nil in 2006 to RMB159.0 million in 2007. The increase resulted primarily from the impact of recognizing a deferred income tax expense of RMB157.6 million relating to P3A.

Taxation

We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.

Hong Kong Income Tax

Our subsidiary in Hong Kong did not have any assessable profits that would be subject to the profit tax for the two years ended December 31, 2006 and 2007. In 2008, China Victory had a taxable profit of RMB1.4 million ($0.2 million) subject to taxation at a rate of 25%. In addition, dividend payments are not subject to withholding tax in Hong Kong.

PRC Enterprise Income Tax

On March 16, 2007, the National People’s Congress of China enacted the a new tax law, the 2008 EIT Law, which became effective on January 1, 2008. Under the new tax law, foreign invested enterprises and domestic companies are subject to EIT at a uniform rate of 25% and any tax exemption, reduction and preferential treatments which are applicable only to foreign invested enterprises will be revoked. P3A, our consolidated affiliated entity, qualified as a “key technology enterprise” under the Shanxi province 1311 Agricultural High Technology Project implemented by Shanxi province in 2002, and therefore P3A has been exempted from EIT since 2002 based on the approval of the local tax authority in Shanxi. Agria China, our wholly-owned subsidiary established in March 2007 in China, was initially granted a “tax holiday” for a full exemption from EIT for the fiscal years 2007 to 2009. As a result of the new EIT law passed in March 2008 and its related implementation rules, our “tax holiday” exemption ceased on December 31, 2007, and Agria China has been subject to EIT at a rate of 25% since January 1, 2008. Agria Brother, our wholly-owned subsidiary established in April 2008 in Shenzhen, China is subject to EIT at a rate of 25%. Shenzhen Guanli Agricultural Technology Co., Ltd., or Guanli, our consolidated affiliated entity established in November 2008, is subject to EIT at a rate of 25%.

Under the new tax law, enterprises organized under the laws of jurisdictions outside China with their de facto management bodies located within China may be considered PRC resident enterprises and therefore subject to PRC enterprise income tax at the rate of 25% on their worldwide income. According to the implementing rules of the 2008 EIT Law, or the Implementing Rules, “de facto management bodies” refer to “establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise.” We may be considered a resident enterprise and may therefore be subject to a 25% PRC income tax on our global income. Virtually all of our income is currently sourced from China. See “Item 3. Key Information — D. Risk Factors — Any limitation of PRC law and regulations on the ability of our subsidiaries and affiliated entity to distribute dividends or make other payments to us could have a material adverse effect on our ability to conduct our business.”

PRC Value-Added Tax (VAT)

In accordance with the relevant tax laws in the PRC, VAT is levied on the invoiced value of sales and is payable by purchasers. A PRC company is required to remit the VAT it collects to the tax authorities but may deduct the VAT it has paid on eligible purchases. P3A has been exempt from VAT since 2002 pursuant to the relevant PRC regulations and policies regarding the VAT applicable to producers of certain agricultural products.

Critical Accounting Policies

We prepare financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (i) the reported amounts of our assets and liabilities, (ii) the disclosure of our contingent assets and liabilities at the end of each fiscal period and (iii) the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Significant estimates reflected in the Company’s financial statements include, but are not limited to, allowance for doubtful accounts, useful lives of fixed assets, intangible assets, and imputed interest on related party loans. Some of our accounting policies require a higher degree of judgment than others in their application.

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors that should be considered when reviewing our financial statements. We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.

Principles of Consolidation

The consolidated financial statements include the financial statements of the Company, its subsidiaries and VIEs for which the Company is the primary beneficiary. All significant intercompany transactions and balances between the Company, its subsidiaries and its VIEs are eliminated upon consolidation.

Accounts Receivable

An allowance for doubtful accounts is recorded in the period in which a loss is determined to be probable based on an assessment of specific evidence indicating troubled collection, historical experience, account balance aging and prevailing economic conditions. An accounts receivable is written off after all collection efforts have ceased.

Property, Plant and Equipment, Intangible Assets and Other Assets (“Long-lived Assets”)

Property, plant and equipment are stated at cost and are depreciated using the straight-line method over the estimated useful lives of the assets as follows:

Repair and maintenance costs are charged to expense when incurred, whereas the cost of renewals and betterments that extend the useful life of fixed assets are capitalized as additions to the related assets. Retirement, sale and disposals of assets are recorded by removing the cost and accumulated depreciation with any resulting gain or loss reflected in the consolidated statements of operations.

All facilities purchased or constructed which require a period of time before completion are accounted for as construction-in-progress. Construction-in-progress is recorded at acquisition cost, including cost of facilities, installation costs and interest costs. Capitalization of interest costs ceases when the asset is substantially complete and ready for its intended use. Interest capitalized for the year ended December 31, 2006, 2007 and 2008 amounted to RMB329,756, RMB358,937 and RMB861,976 ($126,343), respectively.

Revenue Recognition

Our primary business activity is to produce and sell corn seeds, sheep products and seedlings. The Company records revenue when the criteria of Staff Accounting Bulletin Topic 13 “Revenue Recognition” are met. These criteria include all of the following: persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is reasonably assured.

More specifically, our sales arrangements are evidenced by individual sales agreements for each transaction. The customer takes title and assumes the risks and rewards of ownership of the products upon delivery of products which generally occurs at shipping point. Other than warranty obligations, we do not have any substantive performance obligations to deliver additional products or services to the customers. The product sales price stated in the sales contract is final and not subject to adjustment. We generally do not accept sales returns and do not provide customers with price protection. We assess a customer’s creditworthiness before accepting sales orders. Based on the above, we record revenue related to product sales upon delivery of the product to the customers.

For certain sales transactions involving seedlings, the customer will pay an additional fee if the seedlings meet specified growth criteria pursuant to the terms of the contract. These growth criteria represent contingent performance conditions. Accordingly, the contingent fee is not recognized as revenue until the growth criteria and all other revenue recognition criteria are met, which generally takes place from one month to six months of delivery of the seedlings. To the extent payment is received from the customer in advanced of meeting the revenue recognition criteria, we record such amount as deferred revenue.

Income Taxes

We account for income tax using the balance sheet method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

Uncertainty on Income Taxes

In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for uncertainty in Income Taxes, an interpretation of FAS 109, Accounting for Income Taxes” (“FIN 48”), which became effective on January 1, 2007 for us. FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is more likely than not of being realized upon ultimate settlement. Our adoption of FIN 48 did not result in any adjustment to the opening balance of our retained earnings as of January 1, 2007.

We have elected to classify interest due on any underpayment of income taxes, if and when required, in interest expense and penalties, if and when required, to other operating expenses. As of December 31, 2008, no interests or penalties have been incurred.

B. Liquidity and Capital Resources

Our principal sources of liquidity have been cash generated from operating activities and from financing activities, consisting of proceeds from our initial public offering in November of 2007, bank borrowings and loans from related parties. As of December 31, 2008, we had RMB1.2 billion ($172.5 million) in cash and cash equivalents, which is the main component of our current assets. Our cash and cash equivalents consist of cash on hand and bank deposits, which are unrestricted as to withdrawal or use. Although we consolidate the results of P3A, we can only receive cash payments from P3A pursuant to our contractual arrangements with P3A and its shareholders. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Arrangements with P3A and Its Shareholders.”

Besides cash and cash equivalent, inventories and accounts receivable are the other two principal components of our current assets. Our inventories were RMB58.0 million, RMB59.9 million and RMB48.5 million ($7.1 million) as of December 31, 2006, 2007 and 2008, respectively. Our inventories decreased by RMB11.4 million ($1.7 million) from December 31, 2007 to December 31, 2008, primarily due to our reduced levels of activity. Our inventories increased by RMB1.9 million from December 31, 2006 to December 31, 2007, primarily due to an increase of RMB8.8 million of our seedling products, The increase was partly offset by decrease of RMB6.7 million of our corn seeds products inventory, primarily due to the increase in sales of our corn seeds products in 2007.

Our current accounts receivable were RMB156.4 million, RMB200.8 million and RMB162.8 million ($23.9 million) as of December 31, 2006, 2007 and 2008, respectively. Our accounts receivable decreased by RMB37.9 million ($5.6 million) from December 31, 2007 to December 31, 2008, primarily due to reduced trading volumes and an increase to bad debt provision. The increase from 2006 to 2007 was primarily due to (1) an increase in our sales of corn seeds and sheep products; (2) the shift in our payment terms for sales of seedlings and sheep products. In 2006, when selling seedling and sheep products, we generally required our customers to make variable upfront payments, which may be up to 100% of the purchase prices; starting from 2007, in order to maintain our market share and competitive position, we no longer require such upfront payments from our major customers and our long-term customers.

We incurred capital expenditures of RMB70.5 million, RMB178.9 million and RMB350.8 million ($51.4 million) in 2006, 2007 and 2008, respectively. Our capital expenditures were made primarily to acquire land use rights for our production base, property, plant and equipment, other assets and technologies. Our capital expenditures are funded by cash provided from operating activities and the proceeds from our 2007 capital raising.

We have not encountered any difficulties in meeting our cash obligations to date. We believe that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions that we may pursue, or any amounts we may pay in the class action lawsuits against us. If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities, issue debt securities or borrow from lending institutions. We cannot assure you that financing will be available in the amounts we need or on terms acceptable to us, if at all. Any sale of additional equity securities, including convertible debt securities, would dilute our shareholders. The incurrence of debt would divert cash from working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.

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

Operating Activities

Net cash provided by operating activities in the year ended December 31, 2008 was RMB209.1 million ($30.6 million), resulting primarily from the sales of our products. Although we recorded a net loss of RMB751.0 million ($110.1 million) for the year ended December 31, 2008, there were significant non-cash charges, including the P3A settlement of RMB768.5 million ($112.6 million), stock-based compensation charges of RMB45.3 million ($6.6 million), amortization and depreciation of RMB26.4 million ($3.9 million), inventory write-down of RMB16.6 million ($2.4 million) and bad debt charges of RMB12.8 million ($1.9 million).

Net cash provided by operating activities in the year ended December 31, 2007 was RMB259.4 million, resulting primarily from (1) our net income of RMB142.2 million, (2) an add-back of non-cash expenses including deferred taxation of RMB157.0 million, depreciation of fixed assets and other assets of RMB11.2 million and amortization of share-based compensation charge of RMB13.3 million respectively and (3) an increase in our other payables and accruals of RMB14.3 million as a result of increase in salary of RMB2.7 million and increase in business tax payable of RMB3.1 million. The foregoing effects were offset in part by (1) an increase in accounts receivable of RMB40.9 million due to a significant increase in our sales and the longer credit terms provided to selected customers in order to attract bigger orders from them, (2) a decrease of RMB18.2 million in accounts payable due primarily to the decrease in our inventory purchases and (3) an increase in prepayments and other current assets of RMB24.5 million primarily due to the prepayment made for a research and development project and an acquisition of corn seeds.

Net cash provided by operating activities in 2006 was RMB162.1 million. Net cash provided by our operating activities in 2006 resulted primarily from (1) our net income of RMB253.9 million, (2) an add-back of non-cash expenses including depreciation of property, plant and equipment and other assets of RMB8.9 million and amortization of intangible assets of RMB4.5 million, respectively, and (3) a decrease in our inventories of RMB24.7 million as a result of the increase in our sales of corn seeds and seedlings and the decrease in our inventory purchases from farmers in order to lower our storage costs. The foregoing effects were offset in part by (1) an increase in accounts receivable of RMB90.8 million due to a significant increase in our sales and the longer credit terms provided to selected customers in order to attract bigger orders from them, (2) a decrease of RMB29.2 million in accounts payable due primarily to the decrease in our inventory purchases from farmers and (3) an increase in prepayments and other current assets of RMB14.5 million primarily due to the increase in advances to village collectives.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2008 was RMB337.6 million ($49.5 million), due primarily to the prepayments for acquisition of property, plant and equipment and intangible assets of RMB256.4 million ($37.6 million) and acquisition of property, plant and equipment and other assets of RMB69.2 million ($10.1 million).

Net cash used in investing activities for the year ended December 31, 2007 was RMB196.4 million, due primarily to (1) cash outflows for purchases of property, plant and equipment and other assets of RMB67.6 million and (2) acquisition of intangible assets such as land use rights and technology of RMB119.1 million.

Net cash used in investing activities in 2006 was RMB51.3 million, due primarily to the cash outflows from purchases of fixed assets and other assets of RMB43.7 million, and acquisition of intangible assets such as land use rights and technology of RMB16.2 million. These cash outflows were offset in part by our receipt of proceeds of RMB9.5 million from the disposal of fixed assets and other assets.

Financing Activities

Net cash used in our financing activities was RMB13.6 million ($2.0 million)in 2008, resulting primarily from loan proceeds and repayment of existing loans and the repurchase of shares.

Net cash provided by our financing activities was RMB1,296.1 million for the year ended December 31, 2007, resulting primarily from (1) the net proceeds from our initial public offering of RMB1,333.0 million, (2) the net proceeds from issuance of preferred shares and ordinary share redemption rights of RMB76.2 million and (3) the proceeds of bank borrowings of RMB34.8 million. These cash inflows were partly offset by (1) our repayment of bank loans of RMB58.0 million, (2) our dividend payment of RMB56.8 million and (3) a decrease in amounts due to shareholders of RMB30.0 million as a result of our repayment of a shareholder’s loan.

Net cash used in our financing activities was RMB97.4 million in 2006, resulting primarily from our dividend payment to shareholders of RMB110.4 million, and our repayment of bank loans and loans from P3A’s record shareholders of RMB22.3 million and RMB10.0 million, respectively. These cash outflows were partly offset by new bank loans of RMB45.3 million.

Recently Issued Accounting Pronouncements

On December 4, 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS 141 (R)”). In comparison to current practice in US GAAP, the most significant changes to business combination accounting pursuant to SFAS 141(R) include requirements to:

(i)

Recognize, with certain exceptions, 100 percent of the fair values of assets acquired, liabilities assumed, and noncontrolling interests in acquisitions of less than a 100 percent controlling interest when the acquisition constitutes a change in control of the acquired entity.

(ii)

Measure acquirer shares issued in consideration for a business combination at fair value on the acquisition date.

(iii)

Recognize contingent consideration arrangements at their acquisition-date fair values, with subsequent changes in fair value generally reflected in earnings.

(iv)

With certain exceptions, recognize preacquisition loss and gain contingencies at their acquisition-date fair values.

(v)

Capitalize in-process research and development (IPR&D) assets acquired.

(vi)

Expense, as incurred, acquisition-related transaction costs.

(vii)

Capitalize acquisition-related restructuring costs only if the criteria in SFAS 146 are met as of the acquisition date.

(viii)

Recognize changes that result from a business combination transaction in an acquirer’s existing income tax valuation allowances and tax uncertainty accruals as adjustments to income tax expense.

SFAS 141 (R) is effective for business combination transactions for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We are currently assessing the impact, if any, of this new standard on our consolidated financial statements.

On December 4, 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 requires that a noncontrolling interest in a consolidated subsidiary be displayed in the consolidated statement of financial position as a separate component of equity. Under SFAS 160, gains or losses should not be recognized on sales of noncontrolling interests in subsidiaries. Differences between sale proceeds and the consolidated basis of outstanding noncontrolling interests should be accounted for as charges or credits to consolidated paid-in-capital. SFAS 160 carries forward the provisions of Accounting Research Bulletin No. 51, Consolidated Financial Statements, related to consolidation purpose and policy, and certain consolidation procedure topics. Statement 160 is effective for the first annual reporting period beginning on or after December 15, 2008. We are currently assessing the impact, if any, of this new standard on its consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures About Derivative Instruments and Hedging Activities, an amendment of FASB Statement No.133 (“SFAS 161”). SFAS161 requires enhanced disclosures to help investors better understand the effect of an entity’s derivative instruments and related hedging activities on its financial position, financial performance, and cash flows. Statement 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We are currently assessing the impact, if any, of this new standard on its consolidated financial statements.

In June 2009, the FASB issued SFAS No. 168 “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162” (SFAS 168), which will be effective for interim and annual periods ending after September 15, 2009. The FASB Accounting Standards Codification (“Codification”) will become the source of authoritative GAAP recognized by the FASB. Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws continue to be sources of authoritative GAAP for SEC registrants. All existing FASB accounting standards and guidance are superseded as described in SFAS 168. Subsequently, instead of issuing new accounting standards in the form of statements, FASB staff positions, and Emerging Issues Task Force (“EITF”) abstracts, the FASB will issue Accounting Standards Updates that will update the Codification. We are currently assessing the impact, if any, of this new standard on its consolidated financial statements.

In November 2007, the Emerging Issues Task Force (“EITF”) issued EITF Issue 07-01, Accounting for Collaborative Arrangements or EITF No. 07-01. EITF 07-1 provides guidance for determining if a collaborative arrangement exits and establishes reporting requirements for revenues and costs generated from transactions between parties within a collaborative arrangement, as well as between the parties in a collaborative arrangement and third parties, and provide guidance for financial statement disclosures of collaborative arrangements. EITF 07-1 is effective for fiscal years beginning after December 15, 2008, and is required to be applied retrospectively to all prior periods where collaborative arrangements existed as of the effective date. Accordingly, we are required to adopt EITF 07-1 beginning January 1, 2009. We do not expect the adoption of EITF 07-01 to have an impact on our consolidated financial statements.

In February 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13 (“FSP 157-1”) and FSP 157-2, Effective Date of FASB Statement No. 157 (“FSP 157-2”). FSP 157-1 amends SFAS No. 157 to remove certain leasing transactions from its scope, and was effective upon initial adoption of SFAS No. 157. FSP 157-2 delays the effective date of SFAS No. 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until the beginning of the first quarter of fiscal 2009. We do not expect the adoption of FSP 157-1 to have an impact on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosure about Derivative Instruments and Hedging Activities (“SFAS 161”), an amendment of FASB Statement No. 133. This new standard requires enhanced disclosure to help investors better understand the effect of an entity’s derivative instruments and related hedging activities on its financial position, financial performance, and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning on or after November 15, 2008, with early application encouraged. We do not expect the adoption of SFAS 161 to have an impact on our consolidated financial statements.

In April 2008, the FASB issued FSP No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) and applies to (1) intangible assets that are acquired individually or with a group of other assets and (2) both intangible assets acquired in business combinations and asset acquisitions. FSP 142-3 also requires entities to disclose information for all intangible assets, recognized as of and subsequent to the effective date of FSP 142-3 to provide effects of the entity’s intent or ability to renew or extend the arrangement associated with the intangible assets on expected cash flows associated with the intangible assets. FSP 142-3 is effective for intangible assets acquired after December 15, 2008 and early application is prohibited. We are currently evaluating whether the adoption of FSP 142-3 will have a significant effect on our consolidated financial position, results of operations or cash flows.

In May 2008, the FASB issued FSP APB No. 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (“FSP APB 14-1”). FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The effective date of FSP APB 14-1 is for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years and it does not permit earlier application. However, the transition guidance requires retroactive application to all periods presented. We do not expect the adoption of FSP APB 14-1 to have an impact on our consolidated financial statements.

In June 2008, the EITF issued EITF Issue No. 07-5, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-5”). EITF 07-5 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which would qualify as a scope exception under SFAS 133, Accounting for Derivative Instruments and Hedging Activities . EITF 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008. EITF 07-5 does not permit early adoption for an existing instrument. We do not expect the adoption of EITF 07-5 to have an impact on our consolidated financial statements.

In June 2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP EITF 03-6-1”). FSP EITF 03-6-1 is issued to clarify that unvested share-based payment awards with a right to receive nonforfeitable dividends are participating securities. FSP EITF 03-6-1 also provides guidance on how to allocate earnings to participating securities and compute the basic earnings per share using the two-class method. FSP EITF 03-6-1 is effective for fiscal years beginning after 15 December 2008 and interim periods within those fiscal years. We are currently evaluating whether the adoption of FSP EITF 03-6-1 will have a significant effect on our consolidated financial position, results of operations or cash flows.

In November 2008, the FASB ratified the consensus reached in EITF Issue No. 08-6, Equity Method Investment Accounting Considerations (“EITF 08-6”). EITF 08-6 is issued to address questions that have arisen regarding the application of the equity method subsequent to the issuance of SFAS 141(R) and SFAS 160. EITF 08-6 is effective for fiscal years beginning on or after December 15, 2008 and interim periods within those fiscal years. We are currently evaluating whether the adoption of EITF 08-6 will have a significant effect on our consolidated financial position, results of operations or cash flows.

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”), which amends guidance regarding consolidation of variable interest entities to address the elimination of the concept of a qualifying special purpose entity. SFAS 167 also replaces the quantitative based risks and rewards calculation for determining which enterprise has a controlling financial interest in a variable interest entity with an approach focused on identifying which enterprise has the power to direct the activities of the variable interest entity, and the obligation to absorb losses of the entity or the right to receive benefits from the entity. Additionally, SFAS 167 requires any enterprise that holds a variable interest in a variable interest entity to provide enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. SFAS 167 is effective for interim and annual reporting periods beginning after November 30, 2009. We are currently evaluating whether the adoption of SFAS 167 will have a significant effect on our consolidated financial position, results of operations or cash flows.

In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13 (“ASU 2009-13”), Multiple-Deliverable Revenue Arrangements . ASU 2009-13 amends ASC sub-topic 605-25, Revenue Recognition: Multiple-Element Arrangements , regarding revenue arrangements with multiple deliverables. These updates addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, and how the arrangement consideration should be allocated among the separate units of accounting. These updates are effective for fiscal years beginning after June 15, 2010 and may be applied retrospectively or prospectively for new or materially modified arrangements. In addition, early adoption is permitted. We do not expect the adoption of ASU 2009-13 to have an impact on our consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-14 (“ASU 2009-14”), Certain Revenue Arrangements That Include Software Elements . ASU 2009-14 amends the scope of ASC sub-topic 985-605, Software: Revenue Recognition , to exclude all tangible products containing both software and non-software components that function together to deliver the product’s essential functionality. ASU 2009-14 is effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010 and shall be applied on a prospective basis. Early application is permitted as of the beginning of an entity’s fiscal year. We do not expect the adoption of ASU 2009-14 to have an impact on our consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-15 (“ASU 2009-15”), Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing . ASU 2009-15 amends ASC sub-topic 470-20, Debt: Debt with Conversion and Other Options , to include the accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing. ASU 2009-15 is effective for fiscal years beginning on or after December 15, 2009 and shall be applied retrospectively for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15, 2009 and for arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. Early adoption is not permitted. We do not expect the adoption of ASU 2009-15 to have an impact on our consolidated financial statements.

In May 2009, the FASB issued FASB Statement No. 165 “Subsequent Events” (“SFAS 165”). SFAS 165 sets forth the period after the balance sheet date during which management shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. We are currently evaluating the impact, if any, that the adoption of SFAS 165 will have on our consolidated financial statements.

C. Research and Development, Patents and Licenses, etc.

We spent RMB3.7 million in 2006, RMB3.1 million in 2007 and RMB20.3 million ($3.0 million) in 2008 on company-sponsored research and development. We believe that our future success depends on our ability to provide high quality and advanced products to our customers. We place strong emphasis on research and development to enhance the quality and competitiveness of our products. We conduct research and development both through our in-house research and development team and in cooperation with various universities and research institutions. We have also acquired a number of technologies from third parties.

Research and development expenses primarily consist of expenses related to development of our proprietary products, salaries and benefits of our research and development personnel, fees paid to our research partners, costs of raw materials used in our research and development activities, as well as other overhead incurred by our research and development personnel.

Our research and development expenditure in 2008 was incurred in connection with six projects with the Ministry of Agriculture, CNAAS and Inner Mongolia Hongxing Biotechnology Company Limited.

D. Trend Information

See Items 3 “Key Information,” 4 “Information on the Company” and 5.A “Operating Results—Results of Operations” for information on material trends affecting our business and results of operations.

E. Off-Balance Sheet Commitments and Arrangements

We have not entered into any derivative contracts that are indexed to our own shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

F. Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual obligations as of December 31, 2008:

Other than the obligations set forth above, we did not have any long-term debt obligations, operating lease obligations, purchase obligations or capital commitments as of December 31, 2008.

G. Safe Harbor

This annual report on Form 20-F contains forward-looking statements that relate to future events, including our future operating results and conditions, our prospects and our future financial performance and condition, all of which are largely based on our current expectations and projections. The forward-looking statements are contained principally in the sections entitled “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects.” These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “may,” “will,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” “is/are likely to” or other similar expressions. These forward-looking statements include:

•

our future business development, results of operations and financial condition;

•

changes in our revenues, cost and expense items;

•

our anticipated development strategies, including expanding sales into new regions, increasing the farmland to which we have access, and expanding our product offerings;

•

our strategy to expand our research and development capability;

•

the growth in demand in China for high-quality corn seeds, sheep and seedlings;

•

our ability to attract customers and end users and enhance our brand recognition;

•

future changes in government regulations affecting our business, including regulation of genetically modified corn;

•

trends and competition in the corn seed, sheep and seedling industries; and

•

our ability to retain and motivate existing management and other key personnel and to recruit and integrate additional qualified personnel into our operations.

The accuracy of these forward-looking statements may be impacted by a number of known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward- looking statements. We would like to caution you not to place undue reliance on these statements and you should read these statements in conjunction with the risk factors disclosed in the section entitled “Item 3. Key Information—D. Risk Factors.” Except as required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

ITEM 6.		DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Mr. Guanglin Lai has served as the chairman of our board of directors since June 2007. Mr. Lai also served as our co-chief executive officer from September 2007 to June 2008 and as our chief executive officer from November 2008 to September 2009. Mr. Lai is a director of BCL, which is our largest shareholder. In 2002, Mr. Lai founded Ace Choice Management Limited, a company that specializes in promoting business and investment activities between the PRC and other countries. From 2000 to 2002, Mr. Lai was managing director of Shenzhen Keding Venture Capital Management Co., Ltd., a venture investment management company. Mr. Lai is the chairman of the board of directors and chairman and a member of the nomination committees of China Pipe Group Limited, a Hong Kong-listed company that manufactures construction and energy related pipes in Asia. Mr. Lai holds a bachelor’s degree in accounting from Monash University, Melbourne, Australia and is a certified public accountant in Australia.

Mr. Gary Kim Ting Yeung has served as our director since September 2007. Mr. Yeung served as our chief financial officer from August 2007 to March 2009. Prior to joining us, Mr. Yeung was an audit senior manager at PricewaterhouseCoopers, or PwC. Mr. Yeung worked at PwC from 1991 until January 2007. While at PwC, Mr. Yeung participated in various assignments, including statutory annual audits, financial due diligence and preparing PRC companies for listings of their shares on overseas markets such as the United States, Hong Kong and Singapore. Mr. Yeung is a fellow of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants. Mr. Yeung holds a bachelor’s degree in accounting from the University of Ulster.

Mr. Terry McCarthy has served as an independent director and chairman of our audit committee since September 2007. He is currently a director and served as the chairman of the audit committee from 2006 to 2009 and the interim chief financial officer from March 2009 to November 2009 for Solarfun Power Holdings Co., Ltd., a Nasdaq-listed company, as well as a director and chairman of the audit committee of Hisoft Technology International Limited, a privately held company based in China. From 1985 to 2006, Mr. McCarthy worked for Deloitte & Touche LLP in San Jose, California in various roles such as a managing partner, tax partner-in-charge and client services partner. From 1993 to 1995, he managed a national reengineering program and software development project for Deloitte and participated in the acquisition and development of Deloitte’s tax software company. Beginning in 1999, he worked extensively with companies entering the China market and, from 2003 to 2006, he was deputy managing partner of the Deloitte US Chinese Services Group. He received a bachelor’s degree from Pennsylvania State University, an MBA degree from the University of Southern California and a master’s degree in taxation from Golden Gate University.

Dr. Shangzhong Xu has served as our independent director since September 2007. Dr. Xu has been the director of the Research Institute of Genetic Breeding and a researcher at the Beijing Research Institute of Husbandry Veterinary Science of the Chinese Agricultural Scientific Academy since 1978. Dr. Xu specializes in animal genetic breeding and its industrialization, breeding planning, breeder evaluation and marker genes. He established the open nucleus breeding system to conduct breeding selection. Dr. Xu has also been the managing director of the Genetic Breeding Branch and Genetic Marker Branch of the China Husbandry Veterinary Science Association since 1989. Dr. Xu received his Ph.D degree in animal genetic breeding from Beijing Agricultural University and took advanced courses at Michigan State University.

Dr. Jiuran Zhao has served as our independent director since September 2007. Since 1997, Dr. Zhao has served as the managing director of the Maize Center of the Agricultural and Forestry Scientific Research Academy in China. Dr. Zhao is also a director of Shangdong Denghai Seeds Co., Ltd., a company listed on the Shenzhen Stock Exchange. From 1986 to 1997, Dr. Zhao worked at the Crop Center of the Agricultural and Forestry Scientific Research Academy, where he began as a researcher, became a vice director and later became the director. Dr. Zhao specializes in the genetic breeding and industrialization of maize and other varieties of crops as well as DNA fingerprint techniques. He is also an agricultural consultant to the Beijing municipal government, the director of the maize expert group of the Ministry of Culture of China, a vice director of the China Crop Association, the leader of the National Maize Cultivation Group, a member of the Examination Committee of the Plantation New Variety of the Ministry of Culture and an expert for The International Union for the Protection of New Varieties of Plants. Dr. Zhao received his Ph.D. degree in crop genetic breeding from China Agricultural University.

Mr. Joo Hai Lee has served as our independent director since November 2008. Mr. Lee has 32 years of experience in accounting and auditing. Mr. Lee joined BDO Patrick Tay & Partners/BDO International Singapore in 1983 and became a partner there in 1986. He is a member of the Institute of Chartered Accountants in England and Wales, the Institute of Certified Public Accountants of Singapore, the Malaysian Institute of Accountants and the Singapore Institute of Directors.

Mr. Sean Shao has served as our independent director since November 2008 and chairman of our compensation committee since November 2008. He currently serves as the chairman of the audit committee of China Biologic Products, Inc., a Nasdaq-listed biopharmaceutical company based in China, China Recycling Energy Corporation, an energy recycling system design company listed on the OTC Bulletin Board, Yongye International, Inc., a Chinese agricultural company listed on the Nasdaq and China Nuokang Bio-Pharmaceutical, Inc., a biopharmaceutical company listed on the Nasdaq. He has served as the chief financial officer of Trina Solar Limited since August 2006, where he assisted them in listing on the NYSE in December 2006. Prior to that, Mr. Shao served from September 2005 to August 2006 as the chief financial officer of ChinaEdu Corporation, a Chinese educational service provider, and from August 2004 to September 2005 as the chief financial officer of Watchdata Technologies Ltd., a Chinese security software company. Prior to that, Mr. Shao worked at Deloitte Touche Tohmatsu CPA Ltd. from 1994 to 2004. Mr. Shao received his master’s degree in health care administration from the University of California at Los Angeles and his bachelor’s degree in art from East China Normal University. Mr. Shao is a member of the American Institute of Certified Public Accountants.

Mr. Xie Tao has served as our chief executive officer since September 2009. Prior to joining us, Mr. Xie engaged in advisory practice at PricewaterhouseCoopers for 22 years where he led PricewaterhouseCoopers China market corporate finance practice and served on the firm’s governing board. Mr. Xie has extensive experience in China related cross-border investments and M&A and has helped structure many well-known Chinese businesses. Mr. Xie received his bachelor’s degree in physics from Beijing University in China and was a member of the UK Chartered Associate of Certified Accountants.

Mr. Frank Yue Zhao became our chief operating officer in November 2008 after serving as the deputy general manager of Shenzhen Agria from September 2008 to November 2008. Mr. Zhao has more than 20 years of experience in business management. He previously served as the managing director of Yetop International Investment Co., Ltd. in Hong Kong, responsible for the firm’s investments in the Chinese hydropower industry. Prior to that, Mr. Zhao served as the executive director and president of Lianhong Investment Co. Ltd, responsible for investments in land development, technology, chemicals and transportation. Mr. Zhao earlier served as the vice president of Bossen International Ltd., the executive vice president of Bocom Group, the vice president of Compass Pacific Holdings Limited, the chief operating officer of Compass Pacific Automotive Co., Ltd. He also held executive level positions with Yatton Group, a subsidiary of Esquel Enterprises Ltd. Mr. Zhao received his bachelor’s degree in information system management and his master’s degree in industrial business administration from Tsinghua University in China and received his master’s degree in economics from the State University of New York at Buffalo.

Mr. Christopher Boddington has served as our chief financial officer since September 2009. Prior to joining us, Mr. Boddington engaged in advisory practice at PricewaterhouseCoopers for ten years with a significant amount of time in China. Mr. Boddington brings extensive experience in domestic and cross-border transactions as well as business restructuring. Mr. Boddington holds a bachelor’s degree in aeronautical engineering from Kingston Polytechnic and is a member of the Institute of Chartered Accountants in England and Wales.

Mr. John Layburn has served as our chief strategy officer since October 2009. Prior to joining us, Mr. Layburn worked for PricewaterhouseCoopers, the international accounting and consulting firm, for eleven years. He was initially based out of PricewaterhouseCoopers London office, followed by four years in the Beijing office. Mr. Layburn has served a wide range of clients ranging from large multi-national companies to entrepreneurial investors advising on strategic reviews, turnaround situations, and investment and divestment processes. While in China, he has specialized in advising both multinational companies on their business activities in China and Chinese companies on their overseas operations. Mr. Layburn holds a masters degree in mathematics from Oxford University.

Dr. Weizhong Wang has served as our chief strategy officer, focusing on the corn seed business, since September 2007. From 2000 to 2007, Dr. Wang served as chairman and president of Denong Seed Science and Technology Development Company, a company that engages in the development, production and marketing of corn, rice, cotton and other agricultural products in China. Dr. Wang holds a Ph.D. degree in agricultural economics from the Chinese Academy of Agriculture.

Mr. Kean Seng U has served as our head of corporate and legal affairs since December 2008. Mr. U has extensive experience in advising multi-national corporations and sovereign entities on direct investments in the People’s Republic of China entities. Mr. U previously practiced as a partner in the Singaporean firm of Shooklin & Bok LLP and led a corporate finance team in Allen & Overy Shooklin & Bok, JLV, an international law venture partnership with London-based Allen & Overy LLP. Currently, Mr. U sits as independent and non-executive directors of several publicly listed corporations. Mr. U received his bachelor of laws degree with honors from Monash University in Australia. He is a barrister and solicitor of the Supreme Court of Victoria in Australia, an advocate and solicitor of the Supreme Court of Singapore and a solicitor of England and Wales. In addition to his extensive legal knowledge, Mr. U also has a degree in economics and accounting from Monash University in Australia.

Mr. David Pasquale has served as our Senior Vice President since February 2008 and is responsible for developing, implementing and leading our investor relations, corporate and crisis communications initiatives. Prior to joining Agria, Mr. Pasquale worked with U.S.-listed public companies domiciled in China, Singapore, Korea and Taiwan. He most recently served as executive vice president at a leading investor relations and public relations firm based in New York City, where he was instrumental in driving the firm’s growth from September 1999 through January 2008. He previously worked at Citigate Dewe Rogerson, The Hudson Stone Group and N.W. Ayer & Partners, all based in New York City. Mr. Pasquale holds a bachelor of science, cum laude , from Providence College. He is an active member of the National Investor Relations Institute.

Mr. Zhixin Xue has served as the president of P3A since May 2008. Mr. Xue resigned as our chief operating officer and director in March 2008 after serving as our chief operating officer since June 2007 and as our director since August 2007. Mr. Xue also serves as the chairman of the board of Taiyuan Relord, one of the former shareholders of P3A. Mr. Xue was selected as one of the “National Outstanding Entrepreneurs” in 2005, was named as one of the “Outstanding Entrepreneurs of Shanxi Province” in 2005 and one of the “Outstanding Entrepreneurs of Taiyuan” successively from 2002 to 2005 by the local government of Taiyuan, Shanxi province. Mr. Xue is a member of the Shanxi Committee of the Chinese People’s Political Consultative Conference, a political advisory body in China. Mr. Xue holds a bachelor’s degree in medicine from Shanxi Medical College.

Dr. Geoffrey Duyk served as our director starting in August 2007 and resigned in May 2009. Mr. Zhaohua Qian served as our director starting in June 2007 and resigned in November 2008. Mr. Kenneth Hua Huang served as our co-chief executive officer starting in July 2007 and resigned in November 2008. Mr. Raymond Cheuk Kwong Lo was appointed as our acting chief financial officer in April 2009 and resigned in September 2009. Dr. Juliana H. Xu served as our chief technology officer starting in May 2007 and resigned in March 2009.

We have entered into employment agreements with each of our senior executive officers.

B. Compensation of Directors and Executive Officers

For the year ended December 31, 2008, we paid an aggregate of approximately RMB11.0 million ($1.6 million) to our directors and executive officers in cash or benefits in kind. This included approximately RMB0.8 million ($0.2 million) of bonus payments to directors and executive officers. These bonuses were provided in our agreements with directors and executive officers on an individual basis.

During the year ended December 31, 2008 certain of our directors and executive officers were granted options to purchase a total of 2,200,000 shares at a weighted average exercise price of $2.49 per ordinary share.

Share Incentives

2007 Share Incentive Plan. We have adopted the 2007 Share Incentive Plan to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants and promote the success of our business. Our board of directors has authorized the issuance of up to 15,000,000 ordinary shares upon exercise of awards granted under our plan, plus an increase of 5,000,000 shares when and if the 15,000,000 ordinary shares plan has been fully used pursuant to the awards granted under the plan and the board approves such increase.

Since December 31, 2008, options to purchase a total 2,340,000 ordinary shares have been granted to our directors and executive officers and options to purchase 268,000 ordinary shares that were previously granted to certain of our directors, executive officers and employees have been cancelled following the termination of their services or employment with Agria. As of the date of this annual report, options to purchase a total of 10,916,500 ordinary shares have been granted to our directors and executive officers and other individuals as a group, including certain of our former directors and officers, with exercise prices of $0.92, $1.00, $2.18, $2.40, $3.15, $3.80, $3.83, $4.80 or $5.21 per share and a term of ten years to exercise from the date of grant, and remained outstanding.

In June 2008, Messrs. Lai, Qian and Xue agreed to contribute their options for no consideration to purchase a total of 2,200,000 ordinary shares to a new management retention plan to be established for the benefit of our employees, including employees of P3A.

The following paragraphs summarize the terms of our 2007 Share Incentive Plan:

Plan Administration . Our board of directors, or a committee designated by our board or directors, will administer the plan. The committee or the full board of directors, as appropriate, will determine the provisions and terms and conditions of each option grant.

Award Agreements. Options and other share incentives granted under our plan are evidenced by an award agreement, as applicable, that sets forth the terms, conditions and limitations for each grant. In addition, the award agreement also provides that securities granted are subject to a 180-day lock-up period following the effective date of a registration statement filed by us under the Security Act, if so requested by us or any representative of the underwriters in connection with any registration of the offering of any of our securities.

Eligibility. We may grant awards to employees, directors and consultants of our company or any of our related entities, which include our subsidiaries or any entities in which we hold a substantial ownership interest.

Acceleration of Options upon Corporate Transactions. The outstanding options will accelerate upon occurrence of a change-of-control corporate transaction where the successor entity does not assume our outstanding options under the plan. In such event, each outstanding option will become fully vested and immediately exercisable, and the transfer restrictions on the awards will be released and the repurchase or forfeiture rights will terminate immediately before the date of the change-of-control transaction, provided that the grantee’s continuous service with us shall not be terminated before that date.

Term of the Options. The term of each option grant shall be stated in the stock option agreement, provided that the term shall not exceed 10 years from the date of the grant.

Vesting Schedule. In general, the plan administrator determines, or the stock option agreement specifies, the vesting schedule. The share options have a vesting term of two to four years.

Transfer Restrictions. Options to purchase our ordinary shares may not be transferred in any manner by the optionee other than by will or the laws of succession and may be exercised during the lifetime of the optionee only by the optionee.

Termination of the Plan. Unless terminated earlier, the plan will terminate automatically in 2017. Our board of directors has the authority to amend or terminate the plan subject to shareholder approval to the extent necessary to comply with applicable law. However, no such action may (i) impair the rights of any optionee unless agreed by the optionee and the plan administrator or (ii) affect the plan administrator’s ability to exercise the powers granted to it under our plan.

C. Board Practices

Our board of directors currently consists of seven directors. A director is not required to hold any shares in the company by way of qualification. A director may vote with respect to any contract or transaction in which he or she is materially interested provided the nature of the interest is disclosed prior to its consideration and any vote on such contract or transaction. The directors may exercise all the powers of the company to borrow money, mortgage its undertaking, property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party.

In 2008, our board held meetings or passed resolutions by unanimous written consent 29 times.

Committees of the Board of Directors

We have established three committees under the board of directors: the audit committee, the compensation committee and the corporate governance and nominating committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.

Audit Committee. Our audit committee consists of Mr. Terry McCarthy, Mr. Joo Hai Lee and Mr. Sean Shao, all of whom satisfy the independence requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange and meet the independence standards under Rule 10A-3 under the Securities Exchange Act of 1934, as amended. In addition, the board of directors has determined that Mr. Sean Shao’s simultaneous service on the audit committee of five public companies would not impair his ability to effectively serve on our audit committee. Mr. McCarthy is the chair of our audit committee. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:

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selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;

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reviewing with the independent auditors any audit problems or difficulties and management’s response;

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reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;

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discussing the annual audited financial statements with management and the independent auditors;

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reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;

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annually reviewing and reassessing the adequacy of our audit committee charter;

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meeting separately and periodically with management and the independent auditors; and

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reporting regularly to the board of directors.

In 2008, our audit committee held meetings or passed resolutions by unanimous written consent 13 times.

Compensation Committee. Our compensation committee consists of Mr. Sean Shao, Dr. Jiuran Zhao and Dr. Shangzhong Xu., all of whom satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. Mr. Shao is the chair of our compensation committee. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee will be responsible for, among other things:

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reviewing and recommending to the board total compensation packages for our senior executives;

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approving and overseeing the total compensation packages for our chief executive officer;

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reviewing and recommending director compensation to the board; and

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periodically reviewing and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.

In 2008, our compensation committee held meetings or passed resolutions by unanimous written consent six times.

Corporate Governance and Nominating Committee. Our corporate governance and nominating committee consists of Mr. Joo Hai Lee, Dr. Shangzhong Xu and Mr. Terry McCarthy, all of whom satisfy the “independence” requirements of Section 303A of the Corporate Governance Rules of the New York Stock Exchange. Mr. Lee is the chair of our corporate governance and nominating committee. The corporate governance and nominating committee assists the board of directors in selecting qualified individuals to become our directors and in determining the composition of the board and its committees. The corporate governance and nominating committee is responsible for, among other things:

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selecting and recommending nominees for election or re-election to the board or appointments to fill any vacancy;

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annually reviewing with the board the current composition of the board with regards to characteristics such as independence, age, skills, experience and availability of service to us;

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periodically advising the board with regard to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any remedial action to be taken; and

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monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

In 2008, our corporate governance and nominating committee held meetings or passed resolutions by unanimous written consent three times.

Duties of Directors

Under Cayman Islands law, our directors have a fiduciary duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess with such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association.

Terms of Directors and Officers

Our officers are elected by and serve at the discretion of the board of directors. Except for one director who is subject to an initial term of two years, our directors are not subject to a term of office and hold office until their resignation, death or incapacity or until their respective successors have been elected and qualified in accordance with our shareholders agreement and our articles of association. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors or (ii) dies or is found by our company to be or become of unsound mind.

D. Employees

We had 283, 422 and 619 full-time employees and 235, 185 and no temporary employees as of December 31, 2006, 2007 and 2008, respectively. Our temporary employees are usually hired seasonally because of the seasonality of our business. The following table sets forth the number of employees for each of our three business segments and our corporate offices as of December 31, 2008:

		Number of full-				Percentage of
		time Employees				Total Employees
Seed Department			103				17	%
Breeding Department			294				47	%
Seedling Department			98				16	%
Administration			124				20	%
Total			619				100	%

We have entered into employment agreements with our full-time employees. Generally our management and research and development staff have signed non-compete agreements with us and are prohibited from engaging in any activities that compete with our business during the period of their employment with us. Furthermore, the employment contracts with our officers or managers generally include a covenant that prohibits them from engaging in any activities that compete with our business for periods ranging from six months to three years after the period of their employment with us. None of our employees are registered under collective bargaining agreements. None of our employees is a member of a labor union.

If we lose the services of one of more of our key management personnel, including P3A management personnel, and are unable to find suitable replacements, our operations and financial condition may be materially and adversely affected. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business—Our business depends substantially on the continuing efforts of our management, and our business may be severely disrupted if we lose their services” and “Item 4. Information on the Company—B. Business Overview—Payment of Cash and Shares by BCL to P3A Management Team.”

E. Share Ownership

The following table sets forth information with respect to the beneficial ownership of our ordinary shares, as of the date of this report, by:

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each of our directors and executive officers; and

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each person known to us to own beneficially more than 5% of our ordinary shares.

The calculations in the shareholder table below are based on 125,160,000 ordinary shares issued and outstanding as of September 30, 2009. 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, we have included shares that the person has the right to acquire within 60 days after September 30, 2009, including through the exercise of any option, warrant or other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.