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, 2009.

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

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. 125,160,000 ordinary shares, par value US$0.0000001 per share, as of December 31, 2009.

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:

US GAAP þ		International Financial Reporting Standards as issued by the International Accounting Standards Board o		Other o

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			25
ITEM 4A. Unresolved Staff Comments			40
ITEM 5. Operating and Financial Review and Prospects			40
ITEM 6. Directors, Senior Management and Employees			58
ITEM 7. Major Shareholders and Related Party Transactions			66
ITEM 8. Financial Information			72
ITEM 9. The Offer and Listing			73
ITEM 10. Additional Information			74
ITEM 11. Quantitative and Qualitative Disclosures About Market Risk			80
ITEM 12. Description of Securities Other than Equity Securities			81
PART II			82
ITEM 13. Defaults, Dividend Arrearages and Delinquencies			82
ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			82
ITEM 15. Controls and Procedures			83
ITEM 16A. Audit Committee Financial Expert			85
ITEM 16B. Code of Ethics			85
ITEM 16C. Principal Accountant Fees and Services			85
ITEM 16D. Exemptions from the Listing Standards for Audit Committees			85
ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers			86
ITEM 16F. Change In Registrant’s Certifying Accountant			86
ITEM 16G. Corporate Governance			86
PART III			87
ITEM 17. Financial Statements			87
ITEM 18. Financial Statements			87
ITEM 19. Exhibits			87
Exhibit 4.22
Exhibit 4.23
Exhibit 4.24
Exhibit 4.25
Exhibit 4.26
Exhibit 4.27
Exhibit 4.28
Exhibit 4.29
Exhibit 4.30
Exhibit 4.31
Exhibit 4.32
Exhibit 4.33
Exhibit 4.34
Exhibit 4.35
Exhibit 4.36
Exhibit 4.37
Exhibit 4.38
Exhibit 4.39
Exhibit 4.40
Exhibit 4.41
Exhibit 4.42
Exhibit 4.43
Exhibit 4.44
Exhibit 4.45
Exhibit 4.46
Exhibit 4.47
Exhibit 4.48
Exhibit 4.49
Exhibit 4.50
Exhibit 4.51
Exhibit 4.52
Exhibit 4.53
Exhibit 4.54
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 and Guanli, our consolidated affiliated entities;

•

“P3A” refers to our consolidated affiliated entity, Taiyuan Primalights III Agriculture Development Co., Ltd., which is a limited liability company established in China;

•

“Guanli” refers to our consolidated affiliated entity, Shenzhen Guanli Agricultural Technology Co., Ltd., which is a limited liability company established in China;

•

“PGG Wrightson” refers to PGG Wrightson Group, in which we hold 19% equity interest;

•

“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 2010 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 potential acquisitions and divestitures, expanding into new sectors within the agricultural industry, expanding sales into new regions, 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;

•

trends and competition in the 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 (loss) per ADS) has been derived from our consolidated financial statements. Our consolidated statements of operations data for the years ended December 31, 2007, 2008 and 2009 and our balance sheets data as of December 31, 2008 and 2009 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. generally accepted accounting principles, or U.S. GAAP. Our consolidated statements of operations data for the years ended December 31, 2005 and 2006 and our consolidated balance sheets data as of December 31, 2005, 2006 and 2007 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 sheets data as of December 31, 2005, 2006, 2007, 2008 and 2009:

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 RMB6.8259 to $1.00, the noon buying rate in effect as of December 31, 2009. 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 June 25, 2010, the noon buying rate was RMB6.7911 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 a material reduction in revenues.

Our 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 that we produce could be materially adversely affected by extreme weather conditions or natural disasters, 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 the agricultural industry in Shanxi, 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 primarily from damage to our 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, Gansu and Xinjiang provinces, where we have the greatest concentration of our operations. In the event of a widespread failure of a seed crop in these provinces, we would likely sustain substantial loss of revenues and suffer substantial operating losses. We do not have insurance to protect against such risks 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 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 at our farms, the onset of disease 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 disease 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 field corn seed products and on contracts with production companies to produce our edible corn seed products. If we were unable to continue these arrangements or enter into new arrangements with other village collectives or other production companies, our total land acreage devoted to corn seed production would decrease and our growth would be inhibited.

In 2009 we had access to approximately 28,600 acres of farmland in seven provinces, mainly through contractual arrangements with village collectives. During 2009, we used approximately 14,500 acres for field 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 the collective. These leases generally have the remaining terms of 10 years, while the contracts to produce corn seeds are typically for one-year terms, covering one growing season. These leases provide that the collective must maintain the land, including providing electricity and irrigation. If the collective fails to maintain the land as required, we believe we can terminate the lease without penalty. We outsource the production of our edible corn seeds to production companies in Gansu and Xinjiang provinces. In the event that prices for other crops increase, these village collectives and production companies may decide to farm other crops in breach of our leases and seed production agreements with them or, following the 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 land, if a significant number of village collectives refuse to lease land to us upon the expiration of their current leases or if a significant number of production companies are unable to fulfill their contractual obligations to 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 seeds and our revenues. Such disruptions could also damage our relationships with our distributors and customers 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 the registration of land ownership and land-use rights is not well-developed in rural areas where we produce most of our corn seed. 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 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, both of which commenced on January 1, 2009, with village collectives with respect to two parcels of land of 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.

As of December 31, 2009, we had prepaid all of the rent due under certain leases granting access to approximately 13,500 acres of land. The leases have remaining terms of between approximately 10 and 28 years. If we lose our rights to this land, we may not be able to recoup the prepayments made.

There is a risk that the legality or validity of our leases will be disputed or challenged. If our leases are disputed or challenged, we may have to suspend our operations on such leased land. 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 and materially and adversely affect 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. After winning a motion to dismiss, we entered into a memorandum of understanding to settle all claims asserted in the class action lawsuit. If we are unable to reach a final class action settlement agreement approved by the Court, our financial condition, results of operations and liquidity, as well as our reputation may be materially and adversely affected.

On 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, or the Securities Act, 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 Agria executives relating to requests for additional compensation and a threatened resignation.

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.

On June 4, 2010, we entered into a memorandum of understanding with the lead plaintiff reflecting an agreement in principle and agreed to pay $3.75 million to settle all claims asserted in the class action lawsuit. The settlement amount is within the limit of our applicable insurance policies, and we do not expect the settlement to have any impact on Agria’s financial statements. However, if the settlement is not finalized for any reason, including failing to obtain a final approval from the court or failing to fulfill all the terms of the settlement (among other things), we may incur substantial monetary damages exceeding the amount of possible coverage under our directors and officers insurance policies, which could materially adversely affect our financial condition, results of operations, liquidity and our reputation. It may also divert the attention of our management from the normal business operations of our company.

The highly fragmented agriculture industry in China makes it difficult to evaluate our future prospects and results of operations.

You should consider our future prospects in light of the risks and uncertainties facing 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 we do;

•

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 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 ongoing strategic review may result in a refocusing and repositioning of the company’s business and operation, including potential acquisitions and divestitures. Future acquisitions or divestitures could materially change our business and materially and adversely affect our results of operations and financial condition.

In September 2009, we announced a strategic review of our business and operations. The purpose of this review is to reduce inherent risk in the business and to increase the value of shareholders’ equity. We provided an update on the ongoing strategic review in March 2010. This strategic review is now largely complete. For details of our key strategic priorities going forward, see “Item 4. Information on the Company—B. Business Overview—Senior Management Changes and Strategic Review.” While we will only take actions that are considered to be in the best interests of our shareholders, the strategic review may result in a refocusing and repositioning of our business and operations, including potential acquisitions and divestitures.

Our key strategic priorities require our ongoing efforts in pursuing strategic acquisitions, investments and strategic partnerships both in China and internationally. In January, 2010, we completed our strategic investment in 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 ($5.1 million) into Beijing Zhongnong Seed Industry Co., Ltd., or Zhongnong, a company wholly owned by CNAAS and its affiliates. In October 2009, we acquired Beijing Nong Ke Yu Seeds International Co., Ltd., or Nong Ke Yu, a company engaged in research, production and marketing of edible corn seeds, and in January 2010, we acquired Tianjin Beiao Seed Technology Development Co., Ltd., or BeOK, a company engaged in research, production and marketing of vegetable seeds. We are also at various stages of discussions regarding potential investments in seed companies with proprietary seed varieties.

Presented with appropriate opportunities, we may acquire businesses or assets that we believe complement our existing business. Any such acquisitions are 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 acquisition and integration 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.

P3A has historically been our principal operating entity with three production lines: corn seeds, sheep products and seedlings. P3A’s financial and operating performance has declined since 2007. For details of P3A’s financial and operating performance, please see “Item 5. Operating and Financial Review and Prospects—A. Operating Results.” We have reached an agreement in principle to divest P3A to Mr. Frank Xue, the president and a director of P3A. Through the proposed transaction, we would acquire Agria shares currently held by Mr. Xue constituting 11.5% of the issued and outstanding ordinary shares of Agria in exchange for the transfer of all of our interest in P3A to Mr. Xue. Immediately following the proposed transaction, Mr. Xue would hold approximately 6% of Agria shares. The leases with rent prepaid in full over nine parcels of land totaling approximately 13,500 acres currently held by P3A would be retained by our group. After this transaction is completed, we would cancel the shares acquired from Mr. Xue. Our audit committee, comprising entirely independent directors, is currently assessing whether the proposed transaction would be in the best interest of our shareholders. The audit committee has engaged external advisors, including a financial advisory firm, a valuation firm and legal counsel to assist them in assessing this transaction. Our board of directors will not approve the proposed transaction without the prior favorable recommendation of the audit committee. Our audit committee may be unable to conclude that the proposed transaction is in the best interest of our shareholders, in which case we may not consummate the transaction to sell our interest in P3A to Mr. Xue or any other potential investor.

Any acquisitions and divestitures may materially affect our operations and business mix. We may also incur costs, suffer losses or incur liabilities in connection with these acquisitions or divestitures. Any acquisitions and divestitures could also result in reduction in our ADS price as result of any of the foregoing or because of market reaction to a transaction and diversion of management’s attention from other concerns. Any such acquisition or divestiture could materially and adversely affect our business, results of operation and financial condition.

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

As a result of our recently announced strategic review, we may decide to increase production of certain or all existing products and produce new corn seed, sheep and seedling products. For example, in October 2009, we acquired Nong Ke Yu, a company engaged in research, production and marketing of edible corn seeds based in Beijing, and in January 2010, we acquired BeOK, a company engaged in research, production and marketing of vegetable seeds based in Tianjin. Such expansion would place substantial demands on our managerial, operational, technological and other resources. Our failure to manage our product offerings, operations and distribution channels effectively and efficiently could materially adversely affect our operating results.

As part of our development, we may expand the geographic areas in which we sell or produce our products. Expansion into new markets may present operating and marketing challenges that differ 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, our revenues could decline, our expenses could rise and our results of operations could be materially adversely affected.

Our senior management team has worked together for a short 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 time. For example, we appointed Xie Tao to be our chief executive officer and 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. 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 operating entities. 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 materially adversely affect 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 is currently the president and authorized legal representative of our primary operating entity, P3A. In addition, 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 in July 2008. Following the departure of Mr. Zhang, P3A lacked the operational management needed to navigate business issues as they arose. If Mr. Xue and/or additional management personnel of P3A resign from P3A in the future, the loss of their services in the absence of suitable replacements would result in a further decline in operational expertise within the current business and would materially adversely affect P3A’s operations and our business, financial condition and results of operations. In such an event, we would also need to incur significant additional expenses to recruit and train new personnel.

We rely on contractual arrangements with P3A and Guanli 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 have no equity ownership interest in P3A and Guanli and must rely on contractual arrangements to control and operate them. The contractual arrangements with P3A and Guanli may not be as effective in providing control over the entities as direct ownership. On occasion, disagreements have arisen between management of Agria and management of P3A. For example, in several instances, P3A management did not fully cooperate in responding to our requests in a timely manner, including our requests for information to allow the timely completion of the investigations conducted at the direction of our audit committee as well as our requests for provision of financial information. In addition, there were differences of opinion between us and management of P3A over the level of expenditure that could be incurred by P3A without prior approval of the board of Agria. In the future, P3A may fail to take actions required for our business despite its 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 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 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 their 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 their provinces, which could further adversely impact our sales. In addition, distributors may sell our products under another brand 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 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 sells inferior seeds produced by other companies under our brand name, our brand and reputation could be harmed, which could make marketing of our branded seeds more difficult.

Our operating results may fluctuate due to a number of factors, some of which are beyond our control, and you may not be able to rely on our historical operating results as an indication of our future performance.

Our operating results may fluctuate due to a number of factors, some of which are beyond our control. Our quarterly and annual revenues and costs and expenses as a percentage of our revenues may differ significantly from our historical rates. Our operating results in future quarters may fall below expectations. Business disruption in key sales periods may significantly impact our full year results. Any unexpected seasonal or other fluctuations could adversely affect our business and results of operations. Future acquisitions or divestitures may also materially change our business mix and adversely affect our results of operations and financial condition.

Our future profitability depends on our ability to secure sufficient orders from customers. An adverse change in market conditions may materially adversely affect 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 other reasons. As such, we may not be able 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 2010. 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.

Weak economic conditions could 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 in the development of agricultural business. In turn, this may limit their ability or lessen their willingness to use more expensive agricultural products, including the ones we produce. There are still great uncertainties regarding 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 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 materially adversely affect 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 within the corn seed industry in China or the privatization of corn seed producers that are currently operated by 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, 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, more privately-owned seed companies may emerge 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 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 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 seed industry, we normally produce seeds according to our production plan before we sell them to distributors, which are our direct customers. Chinese farmers, the end users of our 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 seeds that are not in demand. Unsold inventory could eventually be sold as field corn to end users at much lower prices than those of field 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 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 village collectives that grow field corn seeds for us so they can purchase 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 that may be less than 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 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 seed product on the market. Due to the uncertainties and complexities associated with seed and biotechnological research, seed products may not survive the development process, may not ultimately be commercially viable or may not pass government testing in the relevant provinces. 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 fewer 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 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 products. Even if we prevail in contesting such claims, this could result in substantial costs and divert our management’s 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’s resources.

We rely primarily on trademark, trade secret and copyright law and 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 materially adversely affect 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. The outcome of such litigation may not be in our favor. Such litigation may be costly and may divert management’s attention as well as consume resources which could otherwise have been devoted to our business. An adverse determination in any such litigation would 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 materially adversely affect our business, results of operations and financial condition.

Historically, implementation of PRC intellectual property laws has been lacking, primarily because of ambiguities in PRC law and difficulties of 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 in collaboration 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 right to claim authorship on the technological achievements and the right “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, 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 face risks and costs associated with our strategic partnership and investment that could negatively impact our business, results of operations and financial condition.

In October 2009, we entered into a strategic cooperation framework agreement with CNAAS, which provides 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 ($5.1 million) into Zhongnong, a company wholly owned by CNAAS and its affiliates. The strategic cooperation framework grants Zhongnong preferential rights to the commercialization of research undertaken by CNAAS. We may not realize the anticipated benefits of our strategic partnership and we face risks, uncertainties and disruptions associated with the integration process, such as diversion of our management’s attention from other business concerns. In addition, our operating results may suffer because of costs related to the strategic partnership and potential additional investments required to commercialize the research. Furthermore, notwithstanding Zhongnong’s preferential rights, CNAAS may partner with other companies in commercializing some of their research.

In January 2010, we completed our strategic investment in PGG Wrightson. We acquired a 19% equity interest and subscribed for convertible redeemable notes issued by PGG Wrightson in an aggregate principal amount of approximately NZ$33.9 million (approximately $24.2 million based on the exchange rate on December 31, 2009). PGG Wrightson, New Zealand’s largest rural services business, offers a wide range of products, services and solutions to farmers, growers and processors in New Zealand and internationally. Our minority interest in PGG Wrightson may not provide us effective control over PGG Wrightson. While we have board representation, we cannot cause PGG Wrightson to make decisions solely because they would be in our best interest or stop them from taking actions that may be detrimental to our interests. In addition, PGG Wrightson is a public company listed on the New Zealand Stock Exchange and is subject to a different set of rules and regulations from U.S. securities laws and the Corporate Governance Rules of the New York Stock Exchange. Therefore, even if PGG Wrightson and we intend to follow the same course of action, the different rules and regulations may hinder PGG Wrightson from doing so. Furthermore, returns from equity investments depend on the performance of PGG Wrightson’s share price, which is subject in part to factors outside our control and the control of PGG Wrightson. Additionally, the convertible redeemable notes issued by PGG Wrightson are an illiquid instrument and under the terms of the subscription agreement, the timing of conversion or redemption of the convertible redeemable notes and the form that the conversion will take are not within our control.

Any failure to successfully manage our strategic partnership and investment may have a material adverse effect on our business and results of operations.

We may not possess all of the licenses required to operate our business, or we may fail to maintain the licenses we currently hold. This could subject us to fines and other penalties, which could materially adversely affect 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, the approvals, permits or licenses required by governmental agencies may change without substantial advance notice, and we could fail to obtain the approvals, permits or licenses required to expand our business. 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 could offer. As a result, our business, results of operations and financial condition could be materially and adversely affected.

If sales of our self-developed Primalights III hybrid sheep are considered by relevant government authorities to constitute sales 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 require 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 sales of Primalights III hybrid sheep are considered by the relevant government authority to be sales 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 materially adversely affect our business.

We may be subject to product quality or liability claims, which may cause us to incur litigation expenses and to devote significant management time to defending such claims, and if such claims are determined adversely to us we may be required 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 lower quality 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. P3A’s ISO 9001/2000 International Quality Management System Certificate expired in July 2009 and was renewed in December 2009.

We may be subject to legal proceedings and claims from time to time relating to the quality of our products. 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 proceeding could subject us to significant liability. In addition, any such proceeding, even if ultimately determined in our favor, could damage our 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.

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

There have been periods of instability during which seed and other commodity prices and sales volumes have fluctuated significantly. Commodities can be affected by general economic conditions, weather, outbreaks of disease and factors affecting demand, such as the availability of financing, competition and trade restrictions. Our attempts to differentiate our products from those of other seed producers have not prevented some seed markets from having the characteristics of a commodity market. As a result, the price that we are able to demand for our seed depends on the amount of seed available from other producers. Therefore, prices may be volatile 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 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 produced by traditional methods. The production and commercial sale of genetically modified corn seed have not yet 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, 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 we do.

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

We may require additional cash resources in order to make acquisitions. In general, we do not know the cost of an acquisition until we analyze the opportunity, complete due diligence and begin negotiations. If the cost of any such acquisition 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 dilute 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 anticipated. As a result, our operating results and financial condition may be materially and adversely affected.

Failure to properly manage our storage system may damage our products, 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 independent counsel concluded that (i) it did not find any material inaccuracies with respect of the subject 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, we may be subject to future allegations. These allegations may be costly to address and even if unsubstantiated, may result in negative publicity or further disruption to our operations, which could materially adversely affect our business, results of operations, financial conditions and 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 significantly disrupted to the ongoing business operations of P3A during the investigation, and we may be subject to future allegations. 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 disrupt our operations, which could materially adversely affect our business, results of operations, financial condition and reputation.

Failure to achieve and maintain effective internal controls could materially adversely affect the trading price of our ADSs.

We are subject to reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, or SEC, 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 became subject to these requirements from the fiscal year ended 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.

Our management has concluded that our internal control over financial reporting was not effective as of December 31, 2009. 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, 2009. When finalizing the financial statements for the year end December 31, 2009, our auditors identified a material misstatement from the misapplication of U.S. GAAP on the presentation of expenses, recorded by our consolidated affiliate, comprising impairment charges to damaged inventories and long-lived assets caused by extreme weather conditions, which constituted a material weakness. As a result, an audit adjustment was required to reclassify non-operating expenses to operating expenses. Management recorded the audit adjustment, which did not result in any change to net income reported by us.

There is no assurance that we will be able to remediate this material weakness in time, if at all, and maintain effective internal controls over financial reporting in the future. If we fail to do so, we may not be able to produce reliable financial reports and prevent fraud and investors may lose confidence in the reliability of our financial statements, which would negatively impact the trading price of our ADSs. Our reporting obligations as a public company, including our efforts to comply with Section 404 of the Sarbanes-Oxley Act, will continue to place a significant strain on our management, operational and financial resources and systems for the foreseeable future.

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 share incentive plan and granted share options under the plan. We are required to account for share-based compensation 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 compensation 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 seed storage facilities; therefore, if a fire or other disaster damages some or all of our stored seeds, we will not receive any compensation.

We store a portion of our 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 seeds products, which could materially adversely affect 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 entities and their 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 entities, P3A and Guanli, and their shareholders, all PRC citizens, which enable us to, among other things, exercise effective control over the affiliated entities. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Arrangements with P3A and Its Shareholders, Contractual Arrangements with Guanli and Its Shareholders” and “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Contractual Arrangements with Agria Agriculture and Zhongyuan and Their Respective 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:

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revoking P3A or Guanli’s business and operating licenses;

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confiscating relevant income and imposing fines and other penalties;

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prohibiting or restricting P3A or Guanli’s operations in China;

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requiring us or P3A or Guanli to restructure P3A or Guanli’s ownership structure or operations;

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restricting or prohibiting our use of the proceeds from our initial public offering to finance our businesses and operations in China; or

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imposing conditions or requirements with which we or our subsidiaries or P3A or Guanli may not be able to comply.

The imposition of any of these penalties could materially adversely affect our ability to conduct our business.

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

The shareholders of P3A and Guanli, our consolidated affiliated entities in the PRC, may breach or refuse to renew the existing contractual arrangements with us that allow us to effectively control P3A and Guanli, and receive economic benefits from their operations. They may 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 Guanli and to receive the economic benefits of P3A and Guanli. If we cannot resolve any conflicts of interest or disputes that may arise between us and the shareholders of P3A and Guanli or if the shareholders breach our agreements with them, we would have to rely on legal proceedings, which may disrupt 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 materially adversely affect 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 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 that became effective on January 1, 2008, or 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 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 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).

On October 1, 2009, the Administrative Measures for Non-Residents Enjoying Tax Treaty Benefits (Trial Implementation) became effective. Under these measures, our Hong Kong subsidiary needs to obtain approval from the competent local branch of the State Administration of Taxation in order to enjoy the preferential withholding tax rate of 5% in accordance with the tax treaty. In February 2009, the State Administration of Taxation issued Notice No. 81. According to Notice No. 81, in order to enjoy the preferential treatment on dividend withholding tax rates, an enterprise must be the “beneficial owner” of the relevant dividend income, and no enterprise is entitled to preferential treatment pursuant to any tax treaties if such enterprise qualifies for such preferential tax rates through any transaction or arrangement, the major purpose of which is to obtain such preferential tax treatment. The tax authority in charge has the right to make adjustments to the applicable tax rates, if it determines that any taxpayer has enjoyed preferential treatment under tax treaties as a result of such transaction or arrangement. In October 2009, the State Administration of Taxation issued Notice No. 601 to provide guidance on the criteria to determine whether an enterprise qualifies as the “beneficial owner” of the PRC sourced income for the purpose of obtaining preferential treatment under tax treaties. Pursuant to Notice No. 601, the PRC tax authorities will review and grant tax preferential treatment on a case-by-case basis and adopt the “substance over form” principle in the review. Notice 601 specifies that a beneficial owner should generally carry out substantial business activities and own and have control over the income, the assets or other rights generating the income. Therefore, an agent or a conduit company will not be regarded as a beneficial owner of such income. Since the two notices were issued, it has remained unclear how the PRC tax authorities will implement them in practice and to what extent they will affect the dividend withholding tax rates for dividends distributed by our subsidiaries in China to our Hong Kong subsidiary. 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 the relevant tax authority determines that China Victory does not qualify as the “beneficial owner” of the dividend income it receives from our PRC subsidiaries and therefore is subject to the higher 10% withholding tax rate, 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 uncertainty remains regarding the interpretation and implementation of the 2008 EIT Law and the Implementing 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 incentives to high-technology companies and agricultural companies in order to encourage the development of the high-technology and agricultural industries. These 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 2008 EIT Law and its Implementing 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 that have already enjoyed preferential tax exemption or reduction for a specified term will continue to enjoy them until the expiration of such term. Uncertainty remains 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 to a maximum of 25% on our worldwide income, which could materially adversely affect 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, or VAT. Discontinuance of preferential treatments granted by the Chinese government to the seed industry could adversely affect our earnings.

In addition, subsidies may adversely affect 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. Because 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 materially and adversely affect 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 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 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, 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 materially adversely affect your investment.

The value of the Renminbi against the US 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 US 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 US dollar over the following three years. Since reaching a high against the US dollar in July 2008 until June 2010, however, the Renminbi has traded within a narrow band against the US dollar, remaining within 1% of its July 2008 high. As a consequence, the Renminbi has fluctuated sharply since July 2008 against other freely traded currencies, in tandem with the US dollar. In June 2010, the PRC government indicated that it would make the foreign exchange rate of the Renminbi more flexible. It is difficult to predict how fluctuating the exchange rate will be in the future.

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 are denominated in Renminbi and substantially all of our costs and expenses are 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 US dollars into Renminbi for our operations, appreciation of the Renminbi against the US dollar would adversely affect the Renminbi amount we receive from the conversion. Conversely, if we decide to convert our Renminbi into US dollars for the purpose of dividend distribution or for other business purposes, appreciation of the US dollar against the Renminbi would negatively affect the US 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 US dollars and earnings from and the value of any US dollar-denominated investments we make.

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, 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 materially adversely affect 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. Since 2009, 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 adversely affect 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, Guanli and their 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. Under the equity pledge agreement among Guanli, the shareholders of Guanli and Agria Brother, the shareholders of Guanli have pledged all of their equity interests in Guanli to Agria Brother. These equity pledge agreements were duly created by recording the pledges on the registers of shareholders of P3A and Guanli in accordance with the PRC Security Law and the PRC Contract Law. The purpose of the P3A equity pledge agreement 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. The purpose of the Guanli equity pledge agreement to guarantee Guanli’s performance of its obligations under the exclusive technology development, technical support and service agreement, the exclusive call option agreement and the loan agreement. 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 and Guanli have attempted to register the pledge, but the applications for registration have not been processed due to the lack of registration procedures. P3A and Guanli will continue to make efforts to register such pledge when the local Administration for Industry and Commerce implements registration procedures. If P3A or Guanli 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, or if Guanli breaches its obligations under the agreements with Agria Brother, there is a risk that Agria China or Agria Brother 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:

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announcement of securities law class action lawsuits against us and our directors and officers;

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delays in our periodic earnings announcements;

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announcements of technological or competitive developments;

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regulatory developments in our target markets affecting us, our customers or our competitors;

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actual or anticipated fluctuations in our quarterly operating results;

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changes in financial estimates by securities research analysts;

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changes in the economic performance or market valuations of other corn seed, sheep products or seedling companies;

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additions to or departures of our executive officers and key personnel;

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fluctuations in the exchange rates between the US dollar and RMB; and

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sales or anticipated 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 materially adversely affect the market price of our ADSs.

Substantial future sales or perceived sales of our ADSs in the public market or substantial cancellation of our ADSs 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. A substantial repurchase of our ADSs may adversely affect the liquidity of our shares. As of June 1, 2010, 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. 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. Risks associated with a substantial sale or cancellation of our ADSs could materially and adversely affect the market price of our ADSs and liquidity.

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, 2009. 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, 2009, 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.”

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 you may not have the opportunity to exercise a right to vote. Upon our written request, the depositary will mail to you a shareholder meeting notice that contains, among other things, a statement as to the manner in which you may give your voting instructions, 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 under any of the other situations specified under the deposit agreement. 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 dilute 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 shareholders, whose interests may differ from other shareholders.

As of June 1, 2010, our principal shareholder, Mr. Guanglin Lai, beneficially owns 38.8% of our total outstanding shares. In addition, as of June 1, 2010, certain key management of P3A beneficially owned an aggregate of 22.2% of our outstanding ordinary shares, with Messrs Zhixin Xue, Mingshe Zhang and Lv Yan holding 17.5%, 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 our officers pursuant to the terms of their service agreements, has 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.

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

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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; number of shares of the series; dividend rights, dividend rates, conversion rights, voting rights; and rights and terms of redemption and liquidation preferences.

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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.

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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.

By discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction, our memorandum and articles of association could deprive our shareholders of the opportunity to sell their shares at a premium over the prevailing market price.

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. We conduct most of our operations are 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.

As of December 31, 2009, we had access to approximately 28,600 acres of farmland and owned approximately 5,705 sheep and 1,576 goats in China.

We operate our seed business through two separate consolidated entities, P3A and Nong Ke Yu, which largely operate independently from each other. P3A also operate all of our sheep and seedling business. We acquired Nong Ke Yu in October 2009.

The P3A seed products primarily consist of corn seeds sold to farmers growing corn for animal feed, human consumption and industrial uses. Our products are grown in seven provinces in China through contractual arrangements with village collectives under which we provide farming, harvesting and other technical guidance and supervision to farmers. We process and package field corn seed products and sell them to local and regional distributors.

The Nong Ke Yu seed products primarily consist of corn seeds sold to farmers and food processing companies, which grow and process corns for human consumption. We outsource the production of these corn seeds to production companies located in Gansu and Xinjiang provinces and sell them through regional sales agents and directly to food processing companies which grow and process corns.

We buy and grow sheep in Shanxi province and sell them primarily to government-operated breed improvement and reproductive stations, breeding companies and other sheep reproduction stations and farms. Our seedling products primarily consist of Chinese dates and date seedlings that we sell directly to end users.

In line with other agriculture businesses, our business and results of operations are seasonal in nature.

We hold a 19.0% stake in the equity of and a convertible redeemable notes issued by PGG Wrightson, New Zealand’s largest agricultural services company, which offers a wide range of products, services and solutions to farmers, growers and processors in New Zealand and internationally. We have also entered into a strategic cooperation agreement with PGG Wrightson.

Senior Management Changes and Strategic Review

On September 14, 2009, we appointed Xie Tao as our chief executive officer and Christopher Boddington as our chief financial officer and 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.

On March 10, 2010, we announced an update to our strategic review. This strategic review is now largely complete and we have concluded the following as our key strategic priorities:

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Growing a focused seed business in China. We believe that the PRC government and the agricultural industry participants share the same goal of improving agricultural productivity, which is evidenced by strong foreign and domestic investment flowing into the agricultural industry in China. We consider that focusing on the seed sector will best position us to achieve sustainable growth in the future.

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Developing strong expertise in operational management. The agricultural sector in China is highly fragmented with many small companies whose growth potential is hindered by a lack of experienced operational management. Our investment in and strategic partnership with PGG Wrightson, which owns the largest seed company in the southern hemisphere gives us an access to a management team experienced in running modern international seed businesses. In June 2010, we also recruited Mr. Chuanli Zhou as the head of our seeds division. Mr. Zhou has over 20 years of experience in the seed industry in China and was previously the general manager of Shandong Denghai-PIONEER Seed Company, a joint venture between Pioneer Hi-Bred International Inc., a leading international agricultural company, and Shandong Denghai Seeds Co., Ltd.

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Acquiring proprietary technologies. The seed industry is a technology-centered business and companies with sufficient quantity and quality of proprietary technologies have a significant competitive edge. We will continue to leverage our recent investment in and partnership with CNAAS to develop proprietary technologies. We are also at various stages of discussions regarding potential investments in seed companies with proprietary seed producers.

P3A has historically been our principal operating entity with three production lines: corn seeds, sheep products and seedlings. P3A’s financial and operating performance has declined since 2007. For details of P3A’s financial and operating performance, please see “Item 5. Operating and Financial Review and Prospects—A. Operating Results.” We have reached an agreement in principle to divest P3A to Mr. Frank Xue, the president and a director of P3A. Through the proposed transaction, we would acquire Agria shares currently held by Mr. Xue constituting 11.5% of the issued and outstanding ordinary shares of Agria in exchange for the transfer of all of our interest in P3A to Mr. Xue. Immediately following the proposed transaction, Mr. Xue would hold approximately 6% of Agria shares. The leases with rent prepaid in full over nine parcels of land totaling 13,500 acres currently held by P3A would be retained by our group. After this transaction is completed, we would cancel the shares acquired from Mr. Xue.

Our audit committee, comprising entirely independent directors, is currently assessing whether the proposed transaction would be in the best interest of our shareholders. The audit committee has engaged external advisors, including a financial advisory firm, valuation firm and legal counsel to assist them in assessing this transaction. Our board of directors will not approve the proposed transaction without the prior favorable recommendation of the audit committee.

Our Products

We specialize in three categories of agriculture products in China: seeds, sheep products and seedlings. In 2009, sales of seed, sheep products and seedling and date products accounted for 60.1%, 21.7% and 17.5%, respectively, of our total revenues.

Seeds

Our seed business consists primarily of research and development, production, marketing and distribution of seeds.

We operate our seed business through two separate consolidated entities, P3A and Nong Ke Yu, which largely operate independently from each other. We acquired Nong Ke Yu in October 2009.

The P3A seed products primarily consist of corn seeds sold to farmers growing corn for animal feed, human consumption and industrial uses. Our products are grown in seven provinces in China through contractual arrangements with village collectives under which we provide farming, harvesting and other technical guidance and supervision to farmers. We process and package field corn seed products and sell them to local and regional distributors.

In 2009, our P3A seed business sold approximately 11,256 tons of field corn seed products. In addition to producing and selling our own products, this business also distributes corn seeds produced by other seed companies in China. The P3A seed business also produces and sells generic field corn seeds whose intellectual property rights have expired in China. As of December 31, 2009, the business had access to a total of approximately 14,500 acres of farmland in the Shanxi, Inner Mongolia, Gansu, Xinjiang, Ningxia, Shaanxi and Hainan provinces for production of corn seeds.

The P3A seed operations would be sold as part of the P3A divestiture in the event the transaction is consummated.

In October 2009, Guanli, one of our consolidated entities, acquired Nong Ke Yu, a Chinese company engaged in research and development and sales and distribution of edible corn seeds. Nong Ke Yu’s primary operations comprise the Nong Ke Yu seed business.

The Nong Ke Yu seed products primarily consist of corn seeds sold to farmers and food processing companies growing food for human consumption. We outsource the production of these corn seeds to production companies located in Gansu and Xinjiang provinces and sell them through regional sales agents and directly to food processing companies who grow and process corn. The primary seed product produced by Nong Ke Yu is JKN 2000, which is the market leader in the edible corn seed sector. We purchased the rights to the technology in June 2008.

In January 2010, Guanli acquired BeOK, a company based in Tianjin focused on research and development and sale of vegetable seeds. BeOK sells 18 varieties of vegetable seeds in six categories including broccoli, celery, chilies, Chinese cabbage, cucumber and tomato.

In 2010, we also commenced the sale of imported grass seed.

We are at various stages of discussions regarding potential investments in seed companies with proprietary seed varieties.

Sheep Products

In 2009, our sheep business consisted primarily of buying, raising and selling sheep and goats. As of December 31, 2009, we owned approximately 5,705 sheep and 1,576 goats.

In 2008 and previous years, our sheep business was also involved in the production and sale of frozen semen and embryos of sheep and goats. However, in 2008, we relocated our production of frozen semen and embryos to Youyu, Shanxi province. This transfer significantly disrupted our business and led to quality control problems. As a consequence, no revenues were generated from the sales of semen or embryos reported in 2009.

Our sheep products operations are conducted by P3A and would be sold as part of the P3A divestiture in the event the transaction is consummated. The land used by our sheep product operations comprises nine parcels of land totaling approximately 13,500 acres. We have prepaid the rent for this land in full. If the transaction to divest P3A is completed, under the terms of the agreement in principle, the rights to this land would be retained by us. We are currently assessing alternative uses for it.

Seedlings and Dates

Our seedling segment is undergoing a transitional process. Historically, our seedling products comprised Chinese date seedlings and approximately ten varieties of tree seedlings, including white bark pine seedlings. In 2010, we stopped producing date seedlings and as the remaining tree seedling business lacked critical scale to justify continued management and financial resources, we also ceased the production and sale of the other ten seedling varieties. In the future, we intend to use the date trees that previously produced Chinese date seedlings to produce Chinese date fruits.

Our seedlings operations are currently conducted by P3A and would be sold as part of the P3A divestiture in the event the transaction is consummated. We currently have no plans to re-enter the seedling business.

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.

As of December 31, 2009, our own research and development team consisted of 20 research professionals and staff in our seeds, sheep products and seedling businesses operated by P3A, and five research professionals and staff in our seed business operated by Nong Ke Yu.

Our P3A seeds business collaborates with a number of universities and research institutions to develop advanced technologies, including new varieties of seeds.

Our Nong Ke Yu seed business leases land in Beijing and shares experimental breeding stations with the Beijing Academy of Agricultural and Forestry Sciences in Beijing and Hainan where we participate in the development and testing of new strains 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. 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. In addition, we entered into an investment agreement with CNAAS and its affiliates to invest RMB35.0 million ($5.1 million) in Zhongnong, a company wholly owned by CNAAS and its affiliates. The strategic cooperation framework grants Zhongnong preferential rights to the commercialization of research undertaken by CNAAS.

We formed a long-term relationship with PGG Wrightson through a strategic cooperation agreement, under which PGG Wrightson and we have undertaken to work together to create value for both companies by advancing agricultural technology and developing new markets. The scope of cooperation includes:

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joint development and international commercialization of seed cultivars to which we and PGG Wrightson and their development partners have access;

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examination of additional funding lines through a third party source to enhance liquidity in, and development of, PGG Wrightson Finance;

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development of livestock demand in China and the export of livestock from New Zealand, Australia, South America and other markets to China to meet market demand;

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the establishment of livestock trading systems in China using PGG Wrightson’s technical expertise, particularly through the establishment of an auction system; and

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exploring the possibility of developing a rural services business in China, where there is currently no mature provider.

We have initiated the cooperation efforts, particularly in seed development and commercialization.

Between November 2009 and December 2009, through equity purchases and participation in a rights issue, we invested a total of NZ$83.9 million (approximately $60.0 million based on the exchange rate in effect on December 31, 2009), acquiring a 19% stake in PGG Wrightson.

On January 15, 2010, pursuant to a subscription agreement dated November 18, 2009, we subscribed for convertible redeemable notes issued by PGG Wrightson in an aggregate principal amount of approximately NZ$33.9 million (approximately $24.2 million based on the exchange rate in effect on December 31, 2009). Key features of the convertible redeemable notes are as follows:

Term. The convertible redeemable notes have a perpetual term.

Interest

Interest payable under the convertible redeemable notes is:

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for the period from January 15, 2010 to December 31, 2011, 8.0% per annum on the principal amount of the notes;

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for the period from January 1, 2012 to December 31, 2013, the two-year swap on December 31, 2011 plus a margin of 5.5%;

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for subsequent two-year periods commencing on January 1, 2014, January 1, 2016 and so on, the two-year swap at the start of the relevant two-year period plus a margin of 6.5%.

PGG Wrightson can suspend the interest payments at its sole discretion. Suspended interest accumulates and any suspended interest is payable on any subsequent interest payment date at the sole discretion of PGG Wrightson. At any time when there is suspended interest, PGG Wrightson may not declare or pay any dividend or make a distribution on its ordinary shares. Once payment of interest on the notes is resumed, PGG Wrightson may not declare or pay any dividend or make a distribution on its ordinary shares for a period of 12 months commencing on the date on which the payment of interest is resumed, unless all suspended and unpaid interest is paid.

Conversion and Redemption

Unless otherwise agreed by PGG Wrightson and us, PGG Wrightson may elect at its sole discretion to convert or redeem the notes at any time following 18 months after January 15, 2010.

In the event that PGG Wrightson elects to convert the notes into its ordinary shares, each note will be converted into 2.1 ordinary shares of PGG Wrightson, subject to PGG Wrightson’s shareholder approval.

In the event that PGG Wrightson elects to redeem the notes, we may choose whether the notes will be redeemed in cash or exchanged into ordinary shares of PGG Wrightson Finance, a wholly owned subsidiary of PGG Wrightson, which exchange is subject to PGG Wrightson’s shareholder approval.

If the notes are redeemed in cash, PGG Wrightson will pay us 102% of the principal amount of the notes if the redemption takes place on or before December 31, 2011, or 104%, with each subsequent two-year period cash redemption amount accreting at an additional 2%, if the redemption takes place during the two-year period after December 31, 2011.

If the notes are exchanged into ordinary shares of PGG Wrightson Finance, the exchange ratio at which each note is exchanged into PGG Wrightson Finance ordinary shares will be the greater of (1) 1/(net tangible assets per PGG Wrightson Finance share on December 31, 2009), and (2) 1/(net tangible assets per PGG Wrightson Finance share at the last day of the month immediately prior to the time of exchange), provided that the exchange ratio shall be between 30% to 50%, depending upon the performance of PGG Wrightson Finance. In addition to the exchange, PGG Wrightson will also pay Agria 2% of the principal amount of the notes to be redeemed if the redemption occurs on or before December 31, 2011, or 4%, with each subsequent two-year exchange period redemption payment accreting at an additional 2%, if the redemption occurs between January 1, 2012 and on or before December 31, 2013.

In the event that shareholder approval, or any other regulatory or other approval or consent required by either PGG Wrightson or us in order to effect the exchange of PGG Wrightson Finance ordinary shares, cannot be obtained, we will have the option to have PGG Wrightson redeem the notes in cash at the abovementioned cash redemption amount, or have PGG Wrightson pay us in cash the cash equivalent value of the ordinary shares of PGG Wrightson Finance sought to be transferred to us under the exchange arrangement.

In October 2009, we also entered into a strategic co-operation framework agreement with CNAAS, which provides 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 ($5.1 million) in 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.

In October 2009, we entered into an agreement to acquire Nong Ke Yu. Under the terms of the agreement, Guanli, our consolidated affiliated entity acquired 100% of the equity of Nong Ke Yu for RMB5.0 million ($0.7 million). Previously, in June 2008, we had purchased the production and sales rights to two corn seeds owned by Nong Ke Yu, JKN2000 and JKN120.

In January 2010, we entered into an agreement to acquire 100% of the equity of BeOK for RMB1.0 million ($0.1 million). BeOK is primarily engaged in the research and development and sale of vegetable seeds and is based in Tianjin.

Sales and Marketing

We market our P3A seeds products through pre-sale training, demonstrations and presentations to distributors, farmers and other potential customers. Our field corn seeds are primarily sold to distributors, who in turn sell them to farmers. As of December 31, 2009, we had approximately 70 distributors in China.

We market our Nong Ke Yu seed products through pre-sale training, demonstrations and presentations to distributors, farmers and manufacturers in the fresh corn processing business. Our edible corn seeds are primarily sold to distributors, who in turn sell them to farmers and corn-processing manufacturers, who plant the corn as raw materials for processing. As of December 31, 2009, we had approximately 47 distributors and 38 manufacturer customers in China.

We market our sheep products by arranging site visits for, and distributing manuals and information to, potential customers. In 2009, we had approximately 380 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 government poverty alleviation and good-breed promotion offices, which are government-owned and funded entities that sell the products to farmers.

During 2009, we had relationships with approximately 29 seedlings customers in China. We sold our white bark pine seedlings primarily to Taiyuan Relord Enterprise Development Group Co., Ltd., or Taiyuan Relord, which is a related party. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Other Transactions with P3A and Its Affiliates.”

As of December 31, 2009, our sales and marketing teams comprised over 50 employees.

Competition

The agricultural industry in China is highly fragmented, largely regional and competitive. We expect competition to increase and intensify. In particular, we face significant competition in our corn seed business segment in Shanxi province. 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 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.

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

On 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 Securities Act, 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 Agria executives relating to requests for additional compensation and a threatened resignation.

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.

On June 4, 2010, we entered into a memorandum of understanding with the lead plaintiff reflecting an agreement in principle and agreed to pay $3.75 million to settle all claims asserted in the class action lawsuit. The settlement amount is within the limit of our applicable insurance policies, and we do not expect the settlement to have any impact on Agria’s financial statements. However, if the settlement is not finalized for any reason, including failing to obtain a final approval from the court or failing to fulfill all the terms of the settlement (among other things), we may incur substantial monetary damages exceeding the amount of possible coverage under our directors and officers insurance policies, which could materially adversely affect our financial condition, results of operations, liquidity and our reputation. It may also divert the attention of our management from the normal business operations of our company.

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 under PRC laws and regulations. The Agriculture Law was revised on December 28, 2002, effective 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 promote the use of seed resources; to control the selection, production and use of seeds and 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 receive provincial approval are only permitted to be marketed and distributed within the province that granted the approval.

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 are 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, or 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, submitting 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.

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 maintain 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 are, 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, and in December 1988, the Land Administration Law of the PRC was similarly amended.

Under the Interim Regulations of the People’s Republic of China on Grant and Transfer of the Right to Use State-owned Urban Land, or 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 the 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 the state had granted land use rights relating to a particular area of land, 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 be 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, or 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 be 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 of 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 village 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

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, the selection and breeding of new breeds of crops and the development and production of seeds fall 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 PRC Patent Law, which was adopted on March 12, 1984 and 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 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 2008 EIT Law and the Implementing Rules effective on January 1, 2008, dividends payable by a foreign-invested enterprise to its foreign investors who are non-resident enterprises 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.

On October 1, 2009, the Administrative Measures for Non-Residents Enjoying Tax Treaty Benefits (Trial Implementation) became effective. Under these measures, our Hong Kong subsidiary needs to obtain approval from the competent local branch of the State Administration of Taxation in order to enjoy the preferential withholding tax rate of 5% in accordance with the tax treaty. In February 2009, the State Administration of Taxation issued Notice No. 81. According to Notice No. 81, in order to enjoy the preferential treatment on dividend withholding tax rates, an enterprise must be the “beneficial owner” of the relevant dividend income, and no enterprise is entitled to preferential treatment pursuant to any tax treaties if such enterprise qualifies for such preferential tax rates through any transaction or arrangement, the major purpose of which is to obtain such preferential tax treatment. The tax authority in charge has the right to make adjustments to the applicable tax rates, if it determines that any taxpayer has enjoyed preferential treatment under tax treaties as a result of such transaction or arrangement. In October 2009, the State Administration of Taxation issued Notice No. 601 to provide guidance on the criteria to determine whether an enterprise qualifies as the “beneficial owner” of the PRC sourced income for the purpose of obtaining preferential treatment under tax treaties. Pursuant to Notice No. 601, the PRC tax authorities will review and grant tax preferential treatment on a case-by-case basis and adopt the “substance over form” principle in the review. Notice 601 specifies that a beneficial owner should generally carry out substantial business activities and own and have control over the income, the assets or other rights generating the income. Therefore, an agent or a conduit company will not be regarded as a beneficial owner of such income. Since the two notices were issued, it has remained unclear how the PRC tax authorities will implement them in practice and to what extent they will affect the dividend withholding tax rates for dividends distributed by our subsidiaries in China to our Hong Kong subsidiary. 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 the relevant tax authority determines that our Hong Kong subsidiary is a conduit company and does not qualify as the “beneficial owner” of the dividend income it receives from our PRC subsidiaries, the higher 10% withholding tax rate may apply to such dividends.

Pursuant to the 2008 EIT 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 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 PRC income tax on our global income.

Moreover, under the EIT law, if we are classified as a PRC resident enterprise and such income is deemed to be sourced from within the PRC, foreign ADS holders may be subject to a 10% withholding tax upon dividends payable by us and gains realized on the sale or other disposition of ADSs or ordinary shares.

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.

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, the State Administration for Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission, or 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 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 special purpose vehicles 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:

We conduct our business through contractual agreements with our consolidated affiliated entities, P3A, Guanli, Shenzhen Agria Agricultural Co., Ltd., or Agria Agriculture, and Shenzhen Zhongyuan Agriculture Co., Ltd., or Zhongyuan, which hold the requisite licenses and permits for conducting agricultural business. Our contractual arrangements with P3A, Guanli, Agria Agriculture and Zhongyuan and their respective shareholders enable us to:

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exercise effective control over P3A, Guanli, Agria Agriculture and Zhongyuan;

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receive substantially all of the earnings and other economic benefits from P3A, Guanli, Agria Agriculture and Zhongyuan to the extent permissible under PRC law in consideration for the services provided by Agria China and Agria Brother; and

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have an exclusive option to purchase all or part of the equity interests in P3A, Guanli, Agria Agriculture and Zhongyuan in each case when and to the extent permitted by PRC law.

In addition, the shareholders of P3A and Guanli have executed a letter of undertaking to remit all of the dividends and other distributions received from P3A to Agria China and from Guanli to Agria Brother, respectively, 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 or Guanli at any time to enter into agreements with us on terms substantially similar as the existing contractual agreements between us and the current shareholders of P3A or Guanli. We have the legal obligation to provide funding for all losses incurred by P3A, Guanli, Agria Agriculture and Zhongyuan.

D. Property, Plants and Equipment

Our principal executive offices are located in Beijing. As of December 31, 2009, we operated farms, breeding centers, propagation centers and other facilities on approximately 28,600 acres of land, mostly through lease of land use rights as well as acquisition of land use rights.

As of December 31, 2009, we leased approximately 14,500 acres of land for our P3A seed product production, primarily from village collectives. These leases typically have approximately 10 years remaining unexpired. We have entered into long-term lease agreements with local government and village collectives for 13,500 acres of land for our sheep business with approximately 10 to 28 years remaining unexpired. We acquired and leased land use rights of approximately 400 acres of land for seedling production. These leases typically are for terms ranging from 10 to 46 years. Production of our Nong Ke Yu seed products is primarily outsourced to third parties. In addition, we lease approximately 200 acres of land for our Nong Ke Yu business, which are generally used for seed testing and production. These leases typically have terms of 19 years.

A. Operating Results

In July 2008, the former general manager of P3A and a key member of management of the corn seed division of P3A resigned from P3A. The departure of the general manager caused significant disruption to P3A and in particular to the corn seeds sector which was his primary area of expertise. This disruption continued throughout 2009 and following the departure of the general manager, P3A lacked the operational management needed to navigate a number of business issues as they arose. These issues included the following:

During 2009, our seeds division encountered particularly strong competition in the major sales area of P3A in Shanxi province, including competition from one competitor who aggressively targeted our customer base. Through adopting a competitive price policy, we attempted to rebuild our customer base towards the end of 2009 with some limited success.

During 2009, we supplied RMB24.4 million ($3.6 million) worth of seeds to approximately 20 distribution agents. Following the transaction, our market intelligence raised concerns that these agents would not pay the amount owed to us. We reclaimed the seeds and did not recognize these sales. Due to the seasonal nature of demand for corn seeds, we were unable to resell these reclaimed corn seeds immediately. They were stored and subsequently sold to other customers later in the year.

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, 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 to 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.

These allegations caused significant disruption to the ongoing business operations of P3A during the period of the investigation which lasted through most of 2009. Additionally, the local tax authorities became aware of the investigation and restricted P3A’s ability to issue official tax invoices to customers until the investigation was complete. This in turn significantly reduced the ability of customers to purchase seeds from P3A.

During November 2009, there was heavy snow fall in Shanxi province which rendered our corn seed inventory with a book value of RMB5.4 million ($0.8 million) unsalable. This reduced the quantity of seeds available for sale. This amount is included general and administrative expenses.

China suffered a comparatively poor corn harvest in 2009 caused by lower than average rainfall in many regions. This reduced the quantity of seeds available for sale. In addition, as a result of the poor harvest and increased competition in the local market place, we provided support to three of our key customers in strategically important locations by offering a waiver of RMB6.0 million ($0.9 million). The remaining outstanding balances owed to us by these customers were reviewed by us for collectability. We did not consider there was a collection issue with these outstanding balances. This was one-off in nature and has reduced our accounts receivable by RMB6.0 million ($0.9 million) in 2009. We do not intend to provide further waivers in the future.

In September 2009, we acquired Nong Ke Yu, an edible corn seeds business engaged in research, development, distribution and sales of seeds to grow edible corn for human consumption. Due to the seasonal nature of this business, no material revenue was derived from Nong Ke Yu in 2009.

Our corn seed revenue in 2009 included a royalty income of RMB3.0 million ($0.4 million) from Nong Ke Yu relating to the purchase and subsequent rental of production and sales rights to two corn seeds JKN2000 and JKN120 for the period prior to the acquisition of Nong Ke Yu.

These factors contributed to the decrease in sales volumes of corn seeds from 27,655 tons in 2008 to 11,256 tons in 2009.

Meanwhile, the average price of corn seeds increased from RMB9.2 per kg in 2008 to RMB9.6 per kg in 2009. This was caused by a general increase in market prices for corn seeds during the year, which was partially offset by the adoption of a more competitive pricing policy to rebuild our customer base.

In March 2008, a fire broke out in one of our corn seeds warehouse which led to a loss of approximately RMB8.2 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.

This together with the departure of the former general manager of P3A contributed to the decrease in sales volumes of corn seeds from 41,973 tons in 2007 to 27,655 tons 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 relating to the purchase and subsequent rental of production and sales rights to two corn seeds JKN2000 and JKN120.

In 2008 and previous years, in addition to our sheep sales, our sheep product business included the production and sale of frozen semen and embryos. However, in 2008, our sheep product business was relocated to Youyu, Shanxi province. This transfer caused significant disruption to the production of frozen semen and embryos and led to quality control problems caused primarily by more severe weather conditions at the new production base. As a consequence, there were no revenues generated from the sale of semen or embryos recognized in 2009. During 2009, we restarted our semen and embryos production on a trial basis. The output of these trial production was provided to prospective customers free of charge and the cost was charged to inventory write down as part of cost of sales.

Many of the sheep we sell are supplied to us by farmers who have bred the sheep using our embryo and semen products. Due to the business disruption in the embryo and semen segments in 2008 and 2009, fewer sheep of sufficient quality were available for purchase and eventual resale.

As a result, sheep sales fell by 58.2% from RMB91.9 million in 2008 to RMB38.4 million ($5.6 million) in 2009. The number of sheep sold fell from 43,260 in 2008 to 16,790 in 2009.

In 2008, we sold 7.8 million straws of frozen semen, which generated sales of RMB52.5 million. In 2008, we sold 3,797 straws of embryos, which generated sales of RMB4.1 million.

As a result of the quality issues caused by the relocation of our sheep semen and embryo production base to Youyu in 2008, we did not meet our contractual requirements and sales of 9.6 million straws of frozen semen, representing RMB64.3 million in contract value and 4,059 straws of embryos representing RMB4.4 million in contract value were not recognized in 2008. Associated sub-standard inventory amounting to RMB13.9 million was included in the inventory write down totaling RMB16.7 million in cost of revenues.

The sales of frozen semen fell from RMB167.6 million in 2007 to RMB52.5 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 in 2008. The number of straws of embryos fell from 9,430 in 2007 to 3,797 in 2008.

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

Seedling Revenue

In the three years ended December 31, 2009, our seedling business generated revenues primarily from the production and sale of Chinese date and white bark pine seedlings.

Our seedling business is currently undergoing a process of transition. Historically, our seedling products comprised Chinese date seedlings and approximately ten varieties of tree seedlings, including white bark pine seedlings. In 2010, we stopped producing date seedlings and as the remaining tree seedling business lacked critical scale to justify continued management and financial resources, we also ceased the production and sale of the other ten seedling varieties. In the future, it is intended that the date trees that previously produced Chinese date seedlings will produce Chinese date fruits.

In 2009, seedling sales of RMB8.7 million ($1.3 million) were not recognized. These seedlings were sold with a survivability assurance condition in the sales contract but subsequently died.

Sales of seedlings decreased from RMB62.5 million in 2008 to RMB31.0 million ($4.5 million) in 2009. The number of seedlings sold decreased from 25.5 million in 2008 to 14.0 million in 2009.

Revenues from our seedling segment decreased by 12.6% from RMB71.5 million in 2007 to RMB62.5 million in 2008, primarily due to a reduction in the number of varieties of seedlings sold.

Cost of Revenues and Gross Margins

Cost of revenues and gross margins for 2009 are analyzed below on a segmental basis.

Total cost of revenues decreased by 49.0% from RMB277.9 million in 2008 to RMB141.8 million ($20.8 million) in 2009. The decrease was primarily due to reduced volumes of business. Our gross profit decreased by 81.5% from RMB190.2 million in 2008 to RMB35.1 million ($5.1 million) in 2009.

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. During 2009, we used approximately 14,500 acres for field 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 the collective. These leases generally have the remaining terms of 10 years, while the contracts to produce corn seeds are typically for one-year terms, covering one growing season. Our contractual agreements generally contain terms ranging from one 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 revenues for the corn seed business fell from RMB153.0 million in 2008 to RMB67.2 million ($9.8 million) in 2009. Our gross margin for corn seed sales fell from 40.5% in 2008 to 37.5% in 2009, because our fixed costs, primarily amortization of land use rights, did not decrease in line with the decline in our revenue in 2009.

Cost of revenues for our corn seed business fell from RMB203.7 million in 2007 to RMB153.0 million in 2008. Gross margin of corn seed sales fell from 40.7% in 2007 to 40.5% in 2008 primarily due to product mix and pricing changes during 2008.

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 relocation of semen and embryo production base as noted above caused significant disruption to the business. Our cost of revenues included expenses of RMB22.5 million ($3.3 million) relating to the recommencement of the semen and embryo business.

The cost of revenues for our sheep products fell from RMB74.7 million in 2008 to RMB34.6 million ($5.1 million) in 2009. Gross margin for our sheep products fell from 49.7% to 9.9%.

Cost of revenues from our sheep product segment increased from RMB72.7 million in 2007 to RMB74.7 million in 2008. Gross margin for our sheep products fell from 71.6% to 49.7%.

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 fell from RMB33.4 million in 2008 to RMB17.5 million ($2.6 million) in 2009. The seedlings gross margin fell from 46.5% to 43.5%.

Cost of revenues from our seedling segment increased from RMB20.5 million in 2007 to RMB33.4 million in 2008. 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 of our RMB16.7 million inventory write-down charge in 2008 related to seedlings. Gross margin for this segment fell from 71.4% in 2007 to 46.5% in 2008.

Operating Expenses and Income

Selling Expenses. During the three-year period ended December 31, 2009, our sales and marketing expenses primarily consisted 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 RMB18.6 million in 2008 to RMB5.7 million ($0.8 million) in 2009. This decrease was due to reduced selling activities.

Selling expenses fell from RMB36.4 million in 2007 to RMB18.6 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.

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.

Our general and administrative expenses decreased from RMB897.0 million in 2008 to RMB133.2 million ($19.5 million) in 2009. The decrease was due to general and administrative expenses in 2008 of RMB768.5 million relating to a non-cash charge arising from the arrangements between Brothers Capital Limited, or BCL, and certain employees of P3A. Excluding this RMB768.5 million non-cash charge, our general and administrative expenses increased from RMB128.5 million in 2008 to RMB133.2 million ($19.5 million) in 2009.

Our general and administrative expenses in 2009 included expenses caused by a very heavy snowfall that damaged irreparably fixed assets with a net book value of RMB20.7 million ($3.0 million) and inventories with a net book value of RMB7.5 million ($1.1 million). Our general and administrative expenses also included expense caused by the drought that damaged seedlings of RMB6.3 million ($0.9 million).

Our general and administrative expenses in 2009 also included legal and professional fees of RMB28.8 million ($4.2 million). This amount included expenses of RMB7.1 million ($1.0 million) incurred during the acquisition of our interest in PGG Wrightson.

Our stock-based compensation charge within general and administrative expenses decreased from RMB68.6 million in 2008 to RMB14.6 million ($2.1 million) in 2009.

Our general and administrative expenses increased from RMB25.7 million in 2007 to RMB897.0 million in 2008. General and administrative expenses in 2008 included an amount of RMB768.5 million relating to a non-cash charge arising from the arrangements between BCL and certain employees of P3A announced to the market in June 2008. This non-cash charge is not expected to recur in the future. After accounting for such arrangements, the remaining increase in our general and administrative expenses from 2007 to 2008 amounted to RMB102.8 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 a U.S. public company.

The charges in relation to bad debts of RMB12.8 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 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 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 in November 2007, the impact of increased costs associated with being a public company in 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.

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 fell from RMB20.2 million in 2008 to RMB14.5 million ($2.1 million) in 2009 due to a reduction in sheep product related research and development expenses of RMB5.9 million. Our research and development expenses incurred in 2009 were primarily in connection with the development of new corn seed varieties.

Research and development expenses increased from RMB3.1 million in 2007 to RMB20.2 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.

Share-based Compensation Expenses. Since we adopted the 2007 share incentive plan in July 2007, options to purchase a total of 9,949,900 ordinary shares were granted to our officers, directors and employees and remained outstanding as of December 31, 2009. 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 9,949,900 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, December 5, 2008 and October 13, 2009 and remained outstanding, total unrecognized compensation costs are estimated to be approximately $2.5 million as of December 31, 2009 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 loss from operations improved from a loss of RMB745.6 million in 2008 to a loss of RMB118.4 million ($17.3 million) in 2009.

As a result of the foregoing factors, our operating profit from operations decreased by 341.6% from a profit of RMB308.6 million in 2007 to a loss of RMB745.6 million in 2008.

Unrealized Loss on Investment

The unrealized loss on investments of RMB0.5 million ($0.1 million) in 2009, compared to nil in 2008, represented the difference between the initial investment cost of PGG Wrightson and the fair value of the investment based on the share price of PGG Wrightson as of December 31, 2009.

Other Income

We recorded RMB4.3 million ($0.6 million) of other income in 2009, which was primarily attributable to RMB2.8 million ($0.4 million) underwriting fee received as part of our participation in the rights issue undertaken by PGG Wrightson and a RMB0.4 million ($0.1 million) income recognized in connection with a lawsuit won by P3A relating to a dispute over delayed entry to new premises in Shanxi.

Income (Loss) Before Income Tax

As a result of the foregoing factors, our pre-tax income improved from a pre-tax loss of RMB725.4 million in 2008 to a pre-tax loss of RMB124.4 million ($18.2 million) in 2009.

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 in 2008.

Income Tax

Our income tax decreased from RMB25.6 million in 2008 to RMB10.9 million ($1.6 million) in 2009 as a result of our reduced taxable profits.

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

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 year ended December 31, 2007. In 2008, our subsidiary in Hong Kong had a taxable profit of RMB1.4 million subject to taxation at a rate of 25%. In 2009, none of our subsidiaries in Hong Kong had any assessable profits that would be subject to the profit tax. 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 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. Upon effectiveness of the 2008 EIT Law on January 1, 2008 and based on Jin Di Shui Gao Xing Fa (2009)2 issued by Local Tax Bureau of Taiyuan, P3A was approved to be exempted from PRC income tax since January 1, 2008 unless the scope of its operation has been changed. The tax exemption status is subject to annual inspection by end of each May. Although P3A is still in process of conducting its annual inspection with the local tax bureau for 2009, we believe P3A qualifies for tax exemption. 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%. 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 EIT at the rate of 25% on their worldwide income. According to 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—Risks Related to Doing Business in China—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 materially adversely affect 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 our 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 variable interest entities for which the Company is the primary beneficiary. All significant intercompany transactions and balances between the Company, its subsidiaries and its variable interest entities 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, 2007, 2008 and 2009 amounted to RMB0.4 million, RMB0.9 million and RMB0.2 million ($25,000), 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 collectability 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 after delivery of the seedlings. Since 2009, the additional fee billable upon meeting specified growth criteria is not provided in the terms of contract. In 2009, the sales contracts for seedlings did not specify any explicit growth criteria. Instead, we obtained customer approval indicating their acceptance of the products received. Accordingly, revenues for these contracts have been recognized upon receipt of customer acceptance assuming all other revenue recognition criteria were met. To the extent payment is received from the customer in advanced of meeting the revenue recognition criteria, we record such amount as deferred revenue.

Business Combinations and Intangible Assets Including Goodwill

We account for business combinations using the purchase method of accounting and accordingly, we record assets and liabilities of the acquired entities at their estimated fair values at the acquisition date. Goodwill represents the excess of the purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets. We do not amortize the goodwill balance. Substantially all of the goodwill is not deductible for tax purposes. The primary drivers that generate goodwill are the value of synergies between the acquired entities and us and the acquired assembled workforce, neither of which qualifies as an identifiable intangible asset. Identifiable intangible assets with finite lives are amortized over their useful lives.

Impairment of Long-lived Assets

We evaluate our long-lived assets or asset group, including finite-lived intangibles and goodwill, for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount of a group of long-lived assets may not be recoverable. When these events occur, we evaluate the impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, we would recognize an impairment loss based on the excess of the carrying amount of the asset group over its fair value based on discounted cash flows.

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, 2009, RMB3.3 million ($0.5 million) of related interest and penalties were recorded.

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, 2009, we had RMB737.8 million ($108.1 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.”

As of December 31, 2009, we had RMB8.8 million ($1.3 million) in outstanding short-term bank loans and borrowings, which bore weighted-average interest rates of 10.2% per annum. These short-term bank loans and borrowings have terms of twelve months and expire in December 2010. These loans were guaranteed by a related party, Taiyuan Relord.

Besides cash and cash equivalent, inventories and accounts receivable are the other two principal components of our current assets. Our inventories were RMB59.9 million, RMB48.5 million and RMB73.4 million ($10.7 million) as of December 31, 2007, 2008 and 2009, respectively. Our inventories increased by RMB24.9 million ($3.6 million) from December 31, 2008 to December 31, 2009, primarily due to our purchase of Nong Ke Yu and its associated inventory of RMB21.4 million ($3.1 million) held as of December 31, 2009. Our inventories decreased by RMB11.4 million from December 31, 2007 to December 31, 2008, primarily due to our reduced levels of activity.

Our current accounts receivable were RMB200.8 million, RMB162.8 million and RMB109.3 million ($16.0 million) as of December 31, 2007, 2008 and 2009, respectively. Our accounts receivable decreased by RMB53.5 million ($7.8 million) from December 31, 2008 to December 31, 2009, primarily due to our reduced levels of activity. Our accounts receivable decreased by RMB37.9 million from December 31, 2007 to December 31, 2008, primarily due to reduced trading volumes and an increase to bad debt provision.

We incurred capital expenditures of RMB178.9 million, RMB350.8 million and RMB8.9 million ($1.3 million) in 2007, 2008 and 2009, respectively. Our capital expenditures were made primarily to acquire 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 incurred acquisition expenditures of RMB421.1 ($61.7 million) in connection with our acquisition of a 19.0% interest in PGG Wrightson, New Zealand’s largest agricultural services company that is listed on the New Zealand Stock Exchange, and a 100% of equity interest in Nong Ke Yu, a seeds distribution business based in Beijing.

We also invested RMB7.0 million ($1.0 million) into Zhongnong that has been recognized as an investment.

Our acquisition of Nong Ke Yu for RMB5.0 million ($0.7 million) resulted in net cash in flow of RMB0.5 million ($0.1 million) as a result of acquired cash balances of RMB5.5 million ($0.8 million).

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 used in operating activities in the year ended December 31, 2009 was RMB6.3 million ($0.9 million), primarily as a result of the decrease in our revenue. The decrease in accounts receivable caused cash inflow of RMB47.4 million ($6.9 million). The increase in our inventories caused cash outflow of RMB34.9 million ($5.1 million).

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

Investing Activities

Net cash used in investing activities was RMB430.0 million ($63.0 million) due primarily to the following factors: (1) we incurred capital expenditure of RMB8.9 million ($1.3 million) in 2009 primarily to acquire property, plant and equipment, other assets and intangible assets, and (2) we incurred acquisition expenditures of RMB414.6 ($60.7 million) in connection with our acquisition of a 19.0% interest in PGG Wrightson, New Zealand’s largest agricultural services company that is quoted on the New Zealand Stock Exchange. Our acquisition of Nong Ke Yu for RMB5.0 million ($0.7 million) resulted in net cash inflow of RMB0.5 million ($0.1 million) as a result of acquired cash balances of RMB5.5 million ($0.8 million).

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

Financing Activities

Net cash used in our financing activities was RMB2.0 million ($0.3 million) in 2009, resulting primarily from loan proceeds and repayment of existing loans and the repurchase of shares.

Net cash used in our financing activities was RMB13.6 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.

Recently Issued Accounting Pronouncements

In May 2010, the FASB issued Accounting Standards Update No. 2010-19, “Foreign Currency Issues: Multiple Foreign Currency Exchange Rates.” The guidance provides clarification of accounting treatment when reported balances in an entity’s financial statements differ from their underlying US dollar denominated values due to different rates being used for remeasurement and translation. The guidance indicates that upon adopting highly inflationary accounting for Venezuela, since the US dollar is now the functional currency of a Venezuelan subsidiary, there should no longer be any differences between the amounts reported for financial reporting purposes and the amount of any underlying US dollar denominated value held by the subsidiary. Therefore, any differences between these should either be recognized in the income statement or as a cumulative translation adjustment, if the difference was previously recognized as a cumulative translation adjustment. We do not expect the provisions of this new standard to have a material effect on our financial position, results of operations or cash flows.

In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-18 (ASU 2010-18), Receivables (Topic 310): Effect of a Loan Modification When the Loan is Part of a Pool That Is Accounted for as a Single Asset-a consensus of the FASB Emerging Task Force. The amendments in this Update are effective for modifications of loans accounted for within pools under Subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early application is permitted. We do not expect the provisions of this new standard to have a material effect on our financial position, results of operations or cash flows.

In April 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-13 (ASU 2010-13), Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades — a consensus of the FASB Emerging Issues Task Force. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Earlier application is permitted. We are currently assessing the impact, if any, of this new standard on our consolidated financial statements.

In February 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-09 (ASU 2010-09), Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements. This amendment addresses both the interaction of the requirements of this Topic with the SEC’s reporting requirements and the intended breadth of the reissuance disclosure provision related to subsequent events (paragraph 855-10-50-4). All of the amendments in this Update are effective upon issuance of the final Update, except for the use of the issued date for conduit debt obligors. That amendment is effective for interim or annual periods ending after June 15, 2010. We are currently assessing the impact, if any, of this new standard on our consolidated financial statements.

In February 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-08 (ASU 2010-08), Technical Corrections to Various Topics. This amendment eliminated inconsistencies and outdated provisions and provided the needed clarifications to various topics within Topic 815. The amendments are effective for the first reporting period (including interim periods) beginning after issuance (February 2, 2010), except for certain amendments. The amendments to the guidance on accounting for income taxes in reorganization (Subtopic 852-740) should be applied to reorganizations for which the date of the reorganization is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. For those reorganizations reflected in interim financial statements issued before the amendments in this Update are effective, retrospective application is required. The clarifications of the guidance on the embedded derivates and hedging (Subtopic 815-15) are effective for fiscal years beginning after December 15, 2009, and should be applied to existing contracts (hybrid instruments) containing embedded derivative features at the date of adoption. We are currently assessing the impact, if any, of this new standard on our consolidated financial statements.

In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This amendment to Topic 820 has improved disclosures about fair value measurements on the basis of input received from the users of financial statements. This is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early adoption is permitted. We are currently assessing the impact, if any, of this new standard on our consolidated financial statements.

In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-04 (ASU 2010-04), Accounting for Various Topics—Technical Corrections to SEC Paragraphs. We do not expect the provisions of this new standard to have a material effect on our financial position, results of operations or cash flows.

In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current U.S. GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other U.S. GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. We are currently assessing the impact, if any, of this new standard on its consolidated financial statements.

In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a potential limitation on the total amount of cash that all shareholders can elect to receive in the aggregate is considered a share issuance that is reflected in EPS prospectively and is not a stock dividend for purposes of applying Topics 505 and 260. This update is effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. We do not expect the provisions of this new standard to have a material effect on our financial position, results of operations or cash flows.

In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167. This update is effective on a prospective basis for milestone achieved in fiscal years and interim periods within those years beginning on or after June 16, 2010. Early adoption is permitted. We are currently assessing the impact, if any, of this new standard on our consolidated financial statements.

In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update addressed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than a combined unit and will be separated in more circumstances under existing U.S. GAAP. This amendment has eliminated that residual method of allocation. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. We do not expect the provisions of this new standard to have a material effect on our financial position, results of operations or cash flows.

In June 2009, the FASB issued SFAS No. 167 (ASC Topic 810), “Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 amends the consolidation guidance applicable to variable interest entities. The provisions of SFAS 167 significantly affect the overall consolidation analysis under FASB Interpretation No. 46(R). SFAS 167 is effective as of the beginning of the first fiscal year that begins after November 15, 2009. SFAS 167 will be effective for the Company beginning in 2010. We are currently assessing the impact, if any, of this new standard on our consolidated financial statements.

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

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.

Our expenses incurred in connection with company-sponsored research and development were RMB3.1 million in 2007, RMB20.3 million in 2008 and RMB14.5 million ($2.1 million) in 2009. We believe that our future success depends on our ability to provide high quality and advanced products to our customers. 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 2009 was primarily incurred in connection with fees paid to our research partners.

D. Trend Information

See “Item 3. Key Information,” “Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects—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, 2009:

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, 2009.

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:

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

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changes in our revenues, cost and expense items;

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

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our strategy to expand our research and development capability;

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

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

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