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Filed pursuant to Rule 424(b)(4)
Registration No. 333-169839
PROSPECTUS
 
10,871,599 American Depositary Shares
 
(LE GAGA LOGO)
 
Le Gaga Holdings Limited
 
Representing 543,579,950 Ordinary Shares
 
 
This is the initial public offering of American depositary shares of Le Gaga Holdings Limited. Each ADS represents 50 of our ordinary shares. We are offering 9,200,000 ADSs, and the selling shareholders are offering an additional 1,671,599 ADSs.
 
We have received approval for listing the ADSs on the NASDAQ Global Select Market under the symbol “GAGA.”
 
Investing in our ADSs involves risks.  See “Risk Factors” beginning on page 11 of this prospectus.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
                 
    Per ADS   Total
 
Public offering price
  $ 9.50     $ 103,280,191  
Underwriting discounts and commissions(1)
  $ 0.665     $ 7,229,613  
Proceeds, before expenses, to us
  $ 8.835     $ 81,282,000  
Proceeds before expenses to the selling shareholders
  $ 8.835     $ 14,768,577  
 
 
(1) We have agreed to reimburse the underwriters for expenses they incur in connection with the roadshow for this offering. Please see “Underwriting” beginning on page 145 of this prospectus.
 
The underwriters may also purchase up to an additional 1,630,740 ADSs from certain selling shareholders at the public offering price, less underwriting discounts and commissions, to cover over-allotments, if any, within 30 days from the date of this prospectus.
 
Delivery of the ADSs will be made on or about November 3, 2010.
 
BofA Merrill Lynch UBS Investment Bank
Piper Jaffray Oppenheimer & Co.
 
The date of this prospectus is October 28, 2010.


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A leading China based greenhouse vegetable producer operating a combined area of approximately 1,200 hectares of farms

 


 

 
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You should rely only on the information contained in this prospectus. We and the selling shareholders have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus. We and the selling shareholders are offering to sell, and seeking offers to buy, our ADSs only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of our ADSs.
 
Until November 22, 2010 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.


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PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in the ADSs, you should carefully read the entire prospectus, including our financial statements and related notes included in this prospectus and the information set forth under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In this prospectus, unless the context otherwise requires, “we,” “us,” “our company,” and “our” refer to Le Gaga Holdings Limited, any entity carrying on Le Gaga’s current business prior to the restructuring transactions through which Le Gaga became our listing vehicle, and their respective subsidiaries; “China” or “PRC” refers to the People’s Republic of China, excluding Taiwan, Hong Kong and Macau; “shares” or “ordinary shares” refers to our ordinary shares; “ADSs” refers to American depositary shares, each representing 50 ordinary shares; “Renminbi” or “RMB” refers to the legal currency of China; and “$” or “U.S. dollars” refers to the legal currency of the United States. References to a “year” or “quarter” are to a calendar year or quarter, unless otherwise indicated. References in this prospectus to a “fiscal” year are to our fiscal year ended or ending March 31.
 
Our Company
 
We are one of the largest greenhouse vegetable producers in China as measured by the area of greenhouse coverage, according to a report commissioned by us from Frost & Sullivan, an independent market research firm, and we believe we are one of the fastest growing major vegetable producers in China. We grow vegetables in open fields as well as by using greenhouses. As of June 30, 2010, our greenhouses covered approximately 20.9% of our total arable land. According to the Frost & Sullivan report, we have the highest greenhouse coverage ratio among major vegetable producers in China. We focus on applying advanced agricultural know-how to grow safe and consistently high-quality vegetables. We sell over 100 varieties of vegetables to wholesalers, institutional customers and supermarket chains in China and Hong Kong. Our customers include leading international hypermarket chain Walmart and the top three Hong Kong supermarket chains, Wellcome, ParknShop and Vanguard, each with stringent vendor qualification requirements. We have established and rely on a comprehensive database in planning each stage of the crop cultivation process, from seed selection to crop production to harvesting, taking into account customer preferences and market and meteorological conditions. Combining the use of our proprietary planning system, our advanced horticultural know-how and greenhouse cultivation, we have been able to better control crop cycles and harvest schedules to capture attractive market opportunities.
 
We operated 16 farms with an aggregate area of 18,850 mu (1,257 hectares) in the Chinese provinces of Fujian, Guangdong and Hebei as of June 30, 2010. Fourteen of our farms, with an aggregate area of 14,868 mu (991 hectares), are located in Fujian and Guangdong near our target markets in southern China. These areas offer a favorable climate for year-around crop cultivation, which provides a stable and reliable supply of vegetables desired by many of our customers. We also operate two farms in Hebei province to produce vegetables that grow best in a cooler climate. By the end of the fiscal year ending March 31, 2011,we plan to add another 2,000 mu (133 hectares) of arable land in areas adjacent to our existing production bases in Fujian and Guangdong and increase our greenhouse land area by 2,600 mu (173 hectares) to approximately 6,500 mu (433 hectares).
 
We use greenhouses to grow vegetables in most of our Fujian and Guangdong farms. Our greenhouses are sturdy structures equipped with retractable walls to regulate temperature without the use of energy supply and temperature control systems. Greenhouses protect our crops from adverse weather conditions, such as typhoons and rainstorms, that are common in the summer in southern China. They also create a favorable microclimate that, together with our horticultural know-how, allows us to grow and sell high-priced vegetables of superior quality and uniform size, color and ripeness that are desired by consumers, as well as off-season vegetables during the winter, which enables us to avoid selling into a highly commoditized market. Compared to open-field farming, greenhouse cultivation improves our production yield, profit margins and return on our investment expenditures. Accordingly, our greenhouses have contributed to a significantly higher percentage of our revenues than would be suggested by their percentage coverage of our arable land.


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Through years of research, development and production experience, we have accumulated proprietary horticultural know-how for each step of the crop cultivation process. We have formulated this know-how into standardized production processes for each type of vegetable we produce. Each process is broken down into simple steps to allow for uniform application of our horticultural know-how across all production bases, while minimizing the time for training farm workers. Each year we test grow more than 3,000 varieties of seeds supplied by domestic and international seed companies to identify new varieties with superior quality and production yield. We have established a research center and a plant tissue culture center in Fujian and devote significant resources to research and development. We also collaborate with domestic research institutions, universities and industry experts to develop cultivation techniques and improve production yield.
 
We have systematically gathered, collected and analyzed market information, seed information, meteorological information, as well as vegetable supply information in China. We have gathered a large volume of data on historical vegetable price movements and weather patterns in various regions of China, which helps us to plan our crop cultivation and harvests. We are collaborating with the Beijing Research Center for Information Technology in Agriculture, or Beijing IT, a research institute affiliated with the Ministry of Agriculture, to develop an advanced information management system and database to better organize and utilize our know-how.
 
In the fiscal years ended March 31, 2008, 2009 and 2010, our revenue was RMB153.6 million, RMB199.0 million and RMB280.5 million ($41.4 million), respectively, representing a compound annual growth rate, or CAGR, of 35.1%. Our profit for the year increased from RMB38.4 million in the fiscal year ended March 31, 2008 to RMB60.4 million in the fiscal year ended March 31, 2009 and to RMB110.2 million ($16.3 million) in the fiscal year ended March 31, 2010, representing a CAGR of 69.4%. For the three months ended June 30, 2010, our revenue was RMB83.3 million ($12.3 million) and our profit was RMB23.5 million ($3.5 million), compared to revenue of RMB53.8 million and profit of RMB28.3 million for the three months ended June 30, 2009.
 
Our Industry
 
Agriculture is a very important industry in China’s economy, contributing 18.1% of China’s GDP in 2009. According to Frost & Sullivan, farming is the largest component of the agriculture industry, contributing 47.7% of the sector output. Within the farming industry, vegetable farming has grown from RMB505 billion in 2005 to RMB876 billion in 2009, representing a CAGR of 14.8%, and is expected to further grow at a CAGR of 8.0% from 2009 to 2014.
 
China is the largest producer of vegetables by volume globally. In 2009, China produced 602.0 million tonnes of vegetables. China’s large vegetable production volume is due to the Chinese population’s predominantly vegetable-based diet, the availability of arable lands and the Chinese society’s traditional emphasis on farming. However, the overall productivity of China’s vegetable farming is low, as its vegetable farming industry is highly fragmented with production predominantly carried out by individual farmers and small scale vegetable production companies who do not have access to advanced horticultural techniques, effective plant nutrients and pesticides, efficient logistics or sufficient financial resources. The vegetable farming industry in China has the following other characteristics:
 
  •  increasing vegetable prices;
 
  •  rising demand for arable land; and
 
  •  robust domestic vegetable consumption.
 
A number of key factors will continue to drive the strong growth of the vegetable farming industry in China:
 
  •  rising disposable income per capita in both rural and urban areas;
 
  •  increasing nutritional awareness and need for a balanced diet;


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  •  favorable government policies and practices; and
 
  •  wider adoption of greenhouses.
 
Greenhouse farming is becoming a popular method of vegetable cultivation in China despite its capital intensive nature compared to open-field farming. Greenhouse farming allows producers to produce high-quality vegetables with a significantly increased production yield. Other advantages of greenhouse farming include more efficient resource utilization and greater crop variety. Greenhouse vegetable production in China has increased significantly over the last few years, from 154.6 million tonnes of greenhouse vegetables in 2005 to 186.0 million tonnes in 2009, representing a CAGR of 4.7%, and is estimated to reach 276.0 million tonnes by 2014. Greenhouse vegetable production as a percentage of total vegetable production increased from 27.4% in 2005 to 30.9% in 2009 and is expected to reach 39.4% in 2014.
 
The greenhouse vegetable production industry in China still remains highly fragmented and intensely competitive involving various participants, including individual farmers, state-owned agriculture companies and private vegetable production companies. Greenhouse vegetable production companies achieve significantly higher production yields due to their advanced facilities and economies of scale. A number of large-scale greenhouse vegetable producers have emerged in the past few years.
 
Competitive Strengths
 
We believe that the following strengths give us a competitive edge over our competitors:
 
  •  leading greenhouse vegetable producer in China;
 
  •  effective production planning and operations based on market intelligence;
 
  •  proprietary horticultural know-how applied standardized production processes;
 
  •  strategically located production bases;
 
  •  strong brand recognition and reputation for quality, food safety and supply reliability; and
 
  •  experienced management team.
 
Strategies
 
Our goal is to become the largest greenhouse vegetable producer of high-quality and safe vegetables with strong brand recognition by consumers across China. To achieve our goal, we intend to:
 
  •  increase our greenhouse coverage and arable land area;
 
  •  strengthen our brand building efforts;
 
  •  expand and broaden our sales, marketing and distribution network;
 
  •  continue to devote research and development efforts to enhance our horticultural know-how; and
 
  •  recruit and train more farm managers and technical personnel.
 
Risks and Challenges
 
Our business is subject to numerous risks, as more fully described in the section entitled “Risk Factors” immediately following this prospectus summary. These include:
 
  •  our reliance on arrangements with farmer households, local villagers’ committees or local governments to lease farmland or forestland;
 
  •  the legality or validity of our leases of farmland or forestland;
 
  •  extreme weather conditions, natural disasters, crop diseases, pests and other natural conditions;
 
  •  the susceptibility of our business to the potential climate change globally and in China;


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  •  risks of product contamination and product liability claims as well as negative publicity associated with food safety issues in China;
 
  •  our dependence on key employees;
 
  •  labor shortage and rising labor cost; and
 
  •  our ability to comply with U.S. public reporting requirements, including maintenance of an effective system of internal controls over financial reporting.
 
Corporate Structure
 
The following diagram illustrates our shareholding and corporate operating structure as of the date of this prospectus.
 
(FLOW CHART)
 
 
* We are in the process of liquidating this entity.
 
Corporate Information
 
Our principal executive offices are located at Unit 1105, The Metropolis Tower, 10 Metropolis Drive, Hung Hom, Kowloon, Hong Kong. The telephone number is +852-3162-8585 and the fax number is +852-3167-7227. Our registered address in the Cayman Islands is located at the offices of Maples Corporate Services Limited, P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., 400 Madison Avenue, Suite 4D, New York, New York 10017.
 
Investors should contact us for any inquiries through the address and telephone number of our principal executive offices. Our corporate website address is www.legaga.com.hk. The information contained on our website is not a part of this prospectus.


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The Offering
 
ADSs we are offering 9,200,000 ADSs
 
ADSs the selling shareholders are offering 1,671,599 ADSs
 
ADSs outstanding immediately after this offering 10,871,599 ADSs
 
Ordinary shares outstanding immediately after this offering 2,293,591,000 ordinary shares
 
The ADSs Each ADS represents 50 ordinary shares, par value $0.01 per share.
 
• The depositary will be the holder of the ordinary shares underlying your ADSs.
 
• If we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares, after deducting its fees and expenses.
 
• You may turn in your ADSs to the depositary in exchange for ordinary shares underlying your ADSs. The depositary will charge you fees for exchanges.
 
• We may amend or terminate the deposit agreement for any reason without your consent, and if you continue to hold your ADSs, you agree to be bound by the deposit agreement as amended.
 
To better understand the terms of the ADSs, you should carefully read the “Description of American Depositary Shares” section of this prospectus. We also encourage you to read the deposit agreement, which is an exhibit to the registration statement of which this prospectus is a part.
 
Use of Proceeds We estimate that the net proceeds from this offering will be approximately $77.4 million. We expect to use the net proceeds from this offering to fund the construction and improvement of our greenhouses and other agricultural facilities and the enhancement of our research and development capability, including the development of our information system.
 
We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.
 
Reserved Share Program At our request, the underwriters have reserved for sale, at the initial public offering price, up to 8% of the ADSs offered by this prospectus for sale to some of our directors, officers, employees, business associates and related persons. See “Underwriting — Reserved Share Program.”
 
NASDAQ Global Select Market symbol GAGA
 
The number of ordinary shares outstanding immediately after this offering:
 
  •  is based on 1,833,591,000 shares outstanding as of the date of this prospectus, assuming the conversion of all outstanding preferred shares into 703,997,000 ordinary shares upon the closing of this offering;


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  •  excludes 198,416,001 ordinary shares issuable upon the exercise of share options outstanding as of the date of this prospectus with exercise prices ranging from $0.0729 to $0.08 per share and a weighted average exercise price of $0.0765 per share; and
 
  •  excludes additional ordinary shares reserved for future grants under our share incentive plans.
 
Unless otherwise indicated, all information in this prospectus:
 
  •  assumes the issuance and sale by us of 460,000,000 ordinary shares in the form of ADSs in this offering at the initial public offering price;
 
  •  gives effect to the 1,000-for-1 exchange of our shares for China Linong’s shares to establish our company as our listing vehicle; and
 
  •  assumes no exercise by the underwriters of their option to purchase up to an additional 1,630,740 ADSs from certain selling shareholders representing 81,537,000 ordinary shares.


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Summary Combined Financial and Operating Data
 
We have derived our summary combined income statement data for the years ended March 31, 2008, 2009 and 2010 and our combined balance sheet data as of March 31, 2010 from our audited combined financial statements included elsewhere in this prospectus. We have derived our summary combined income statement data for the three months ended June 30, 2009 and 2010 and our summary combined balance sheet data as of June 30, 2010 (except for the “as adjusted” data) from our unaudited condensed combined interim financial statements, which are included elsewhere in this prospectus and have been prepared on the same basis in all material respects as our audited combined financial statements. Our financial information for the three months ended June 30, 2009 and 2010 includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the periods presented. Our combined financial statements have been prepared in accordance with International Financial Reporting Standards, or IFRS. The historical operating results presented below are not necessarily indicative of the results that may be expected for any future reporting period. You should read the summary combined financial data set forth below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with the combined financial statements and related notes included in this prospectus.
 
                                                             
      Year Ended March 31,   Three Months Ended June 30,
      2008     2009   2010   2009   2010
      RMB     RMB   RMB   $   RMB   RMB   $
      (In thousands, except per share and per ADS data)
Combined Income Statement Data:
                                                           
Revenue
      153,559         198,995       280,512       41,364       53,838       83,317       12,286  
Cost of inventories sold
      (129,228 )       (174,288 )     (238,277 )     (35,136 )     (43,776 )     (79,251 )     (11,686 )
Changes in fair value less costs to sell related to:
                                                           
                                                             
Crops harvested during the year/period
      52,689         80,795       119,009       17,549       10,611       20,018       2,952  
Growing crops on the farmland at the year/period end
      17,558         16,548       33,734       4,974       25,036       27,552       4,063  
                                                             
                                                             
Total changes in fair value less costs to sell of biological assets
      70,247         97,343       152,743       22,523       35,647       47,570       7,015  
                                                             
Results from operating activities
      40,874         60,067       111,700       16,471       28,447       23,551       3,473  
Profit for the year/period
      38,445         60,413       110,202       16,250       28,297       23,495       3,465  
                                                             
Earnings per ordinary/preferred share (in cents)(1)
                                                           
Basic
      2.85         3.61       6.52       0.96       1.69       1.34       0.20  
                                                             
Diluted
      2.85         3.57       6.43       0.95       1.67       1.32       0.19  
                                                             
Earnings per ADS (in cents)
                                                           
Basic
      142.50         180.50       326.00       48.00       84.50       67.00       10.00  
                                                             
Diluted
      142.50         178.50       321.50       47.50       83.50       66.00       9.50  
                                                             
Other Financial Data:
                                                           
Adjusted cost of inventories sold(2)
      (63,602 )       (75,661 )     (102,565 )     (15,124 )     (20,661 )     (29,794 )     (4,393 )
Adjusted profit for the year/period(3)
      33,824         61,697       93,171       13,739       15,765       25,431       3,750  
Adjusted EBITDA(4)
      52,849         89,042       135,603       19,998       24,516       40,025       5,902  
 


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    As of March 31, 2010   As of June 30, 2010
    Actual   Actual   As Adjusted(5)
    RMB   $   RMB   $   RMB   $
    (In thousands)
 
Combined Balance Sheet Data:
                                               
Cash
    139,207       20,527       179,268       26,435       726,643       107,151  
Total current assets
    223,929       33,021       258,857       38,171       806,232       118,887  
Total non-current assets
    414,525       61,126       456,184       67,269       456,184       67,269  
Total assets
    638,454       94,146       715,041       105,440       1,262,416       186,156  
Total non-current liabilities
    35,700       5,264       83,066       12,249       83,066       12,249  
Total current liabilities
    22,710       3,349       25,453       3,753       25,453       3,753  
Total liabilities
    58,410       8,613       108,519       16,002       108,519       16,002  
Total equity
    580,044       85,533       606,522       89,438       1,153,897       170,154  
 
                     
    As of March 31,   As of June 30,
    2008   2009   2010   2009   2010
 
Selected Operating Data:
                   
Total arable land area(6)
  17,103 mu
(1,140 hectares)
  16,525 mu
(1,102 hectares)
  18,850 mu
(1,257 hectares)
  17,038 mu
(1,136 hectares)
  18,850 mu
(1,257 hectares)
Total greenhouse land area
  2,668 mu
(178 hectares)
  3,117 mu
(208 hectares)
  4,420 mu
(295 hectares)
  3,157 mu
(210 hectares)
  3,941 mu
(263 hectares)
Greenhouse land area as a percentage of total arable land area
  15.6%   18.9%   23.4%   18.5%   20.9%
 
                     
    Year Ended March 31,   Three Months Ended June 30,
 
  2008   2009   2010   2009   2010
 
Total production output
  57,085 tonnes   69,240 tonnes   98,076 tonnes   20,653 tonnes   29,267 tonnes
Production yield(7)(8)
  3.6 tonnes per mu   3.9 tonnes per mu   5.4 tonnes per mu   1.2 tonnes per mu   1.6 tonnes per mu
Revenue-per-mu(7)(9)
  RMB9,611   RMB11,167   RMB15,497
($2,285)
  RMB3,160   RMB4,420
($652)
 
 
(1) Holders of our ordinary shares and preferred shares have equal rights to receive dividends from our earnings. Preferred shares will automatically convert into ordinary shares on an one-to-one basis upon the completion of this offering. The automatic conversion is not expected to result in retrospective adjustments to the reported amounts of basic and diluted earnings per share for the fiscal years ended March 31, 2008, 2009 and 2010 and the three months ended June 30, 2009 and 2010 since the weighted average number of shares used in the calculation of basic and diluted earnings per share includes both ordinary and preferred shares.
 
(2) Adjusted cost of inventories sold is defined as cost of inventories sold before biological assets fair value adjustment. We are primarily engaged in agricultural activities of cultivating, processing and distributing vegetables and have therefore adopted International Accounting Standard 41 “Agriculture,” or IAS 41, in accounting for biological assets and agricultural produce. Unlike the historical cost accounting model, IAS 41 requires us to recognize in our income statements the gain or loss arising from the change in fair value less costs to sell of biological assets and agricultural produce for each reporting period. Cost of inventories sold determined under IAS 41 reflects the deemed cost of agricultural produce, which is based on their fair value (less costs to sell) at the point of harvest. Biological assets fair value adjustment is the difference between the deemed cost of the agricultural produce and the plantation expenditure we incurred to cultivate the produce to the point of harvest. Although an “adjusted” cost of inventories sold excluding these fair value adjustments is a non-IFRS measure, we believe that separate analysis of the cost of inventories sold excluding these fair value adjustments adds clarity to the constituent parts of our cost of inventories sold and provides additional useful information for investors to assess our cost structure. Set forth below is a reconciliation of adjusted cost of inventories sold to the most directly comparable IFRS measure, cost of inventories sold.
 

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    Year Ended March 31,   Three Months Ended June 30,
    2008   2009   2010   2009   2010
    RMB   RMB   RMB   $   RMB   RMB   $
    (In thousands)
 
Cost of inventories sold
    (129,228 )     (174,288 )     (238,277 )     (35,136 )     (43,776 )     (79,251 )     (11,686 )
Less: biological assets fair value adjustment
    (65,626 )     (98,627 )     (135,712 )     (20,012 )     (23,115 )     (49,457 )     (7,293 )
                                                         
Adjusted cost of inventories sold
    (63,602 )     (75,661 )     (102,565 )     (15,124 )     (20,661 )     (29,794 )     (4,393 )
                                                         
 
(3) Adjusted profit for the year/period is defined as profit for the year/period before the net impact of the biological assets fair value adjustment. As discussed in note (2) above, IAS 41 requires us to recognize in our income statements the gain or loss arising from the change in fair value less costs to sell of biological assets and agricultural produce for each reporting period, and to recognize as cost of inventories sold at the deemed cost based on their fair value (less costs to sell) at the point of harvest. We believe that separate analysis of the net impact of these fair value adjustments adds clarity to the constituent part of our results of operations and provides additional useful information for investors to assess the operating performance of our business. Set forth below is a reconciliation of adjusted profit for the year/period to the most directly comparable IFRS measure, profit for the year/period.
 
                                                         
    Year Ended March 31,   Three Months Ended June 30,
    2008   2009   2010   2009   2010
    RMB   RMB   RMB   $   RMB   RMB   $
    (In thousands)
 
Profit for the year/period
    38,445       60,413       110,202       16,250       28,297       23,495       3,465  
Adjustments for net impact of biological assets fair value adjustment:
                                                       
Add: biological assets fair value adjustment included in cost of inventories sold
    65,626       98,627       135,712       20,012       23,115       49,457       7,293  
Less: changes in fair value less costs to sell of biological assets
    (70,247 )     (97,343 )     (152,743 )     (22,523 )     (35,647 )     (47,570 )     (7,015 )
                                                         
Net impact of biological assets fair value adjustment
    (4,621 )     1,284       (17,031 )     (2,511 )     (12,532 )     1,887       278  
                                                         
Adjusted profit for the year/period
    33,824       61,697       93,171       13,739       15,765       25,382       3,743  
                                                         
 
(4) Adjusted EBITDA is defined as EBITDA (earnings before net finance income (expense), income tax expense (benefit), depreciation and amortization), as further adjusted to exclude the effects of non-cash share-based compensation and the impact of biological assets fair value adjustment under IAS 41. Although the nature of many of these income and expense items is recurring, we have historically excluded such impact from internal performance assessments. We believe that separate analysis and exclusion of the impact of biological assets fair value adjustment under IAS 41 adds clarity to the constituent parts of our performance and provides additional useful information for investors to assess the operating performance of our business.
 
   We believe adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. You should use adjusted EBITDA as a supplemental analytical measure to, and in conjunction with, our IFRS financial data. In addition, we believe that adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of adjusted EBITDA generally eliminates the effects of financing and income taxes and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to overall operating performance. We use these non-IFRS financial measures for planning and forecasting and measuring results against the forecast. Using several measures to evaluate the business allows us and investors to assess our relative performance against our competitors and ultimately monitor our capacity to generate returns for our shareholders.

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   Set forth below is a reconciliation of adjusted EBITDA to the most directly comparable IFRS measure, profit for the year/period.
 
                                                         
    Year Ended March 31,   Three Months Ended June 30,
    2008   2009   2010   2009   2010
    RMB   RMB   RMB   $   RMB   RMB   $
    (In thousands)
 
Profit for the year/period
    38,445       60,413       110,202       16,250       28,297       23,495       3,465  
Add:
                                                       
Amortization of lease prepayments
    33       87       104       15       26       26       4  
Depreciation
    11,401       24,464       35,057       5,170       7,309       10,500       1,548  
Finance costs
    43             709       105       181       115       17  
Income tax expense
    2,635       200       890       131                    
Share-based compensation
    5,162       3,140       5,773       851       1,266       4,061       599  
Biological assets fair value adjustment included in cost of inventories sold
    65,626       98,627       135,712       20,014       23,115       49,457       7,293  
                                                         
Less:
                                                       
Finance income
    249       546       101       15       31       59       9  
Changes in fair value less costs to sell of biological assets
    70,247       97,343       152,743       22,523       35,647       47,570       7,015  
                                                         
Adjusted EBITDA
    52,849       89,042       135,603       19,998       24,516       40,025       5,902  
                                                         
 
(5) As adjusted to give effect to (i) the issuance of 79,593,999 ordinary shares in October 2010 pursuant to the exercise of share options at a weighted average exercise price of $0.04153 per share, and (ii) the issuance and sale of 460,000,000 ordinary shares in the form of ADSs by us in this offering at the initial public offering price, after deducting estimated underwriting discounts, commissions and estimated offering expenses payable by us, or estimated net cash proceeds of approximately $77.4 million, without giving effect to the intended use of proceeds.
 
(6) Total arable land area excludes land that we used on a temporary basis.
 
(7) For the purposes of calculating production yield and revenue-per-mu, average land area within each reporting period also includes land that we use on a temporary basis to generate the production output and revenue.
 
(8) Production yield is calculated by dividing total production output by average arable land within each reporting period.
 
(9) Revenue-per-mu is calculated by dividing revenue by average arable land within each reporting period.


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RISK FACTORS
 
Investing in our ADSs involves a high degree of risk. You should carefully consider the risks described below with all of the other information included in this prospectus before deciding to invest in our ADSs. If any of the following risks actually occur, they may materially harm our business and our financial condition and results of operations. In these circumstances, the market price of our ADSs could decline and you could lose all or part of your investment.
 
Risks Related to Our Business
 
We primarily rely on arrangements with farmer households, local villagers’ committees or local governments to lease farmland or forestland. If we were unable to continue these arrangements or enter into other new arrangements on commercially reasonable terms, or at all, our growth would be slowed down or inhibited.
 
As of June 30, 2010, we leased farmland and forestland with an aggregate area of 18,850 mu (1,257 hectares). Because we are legally prohibited from owning farmland or forestland, we typically lease the farmland or forestland from farmer households, the local villagers’ committees or the local governments who act on the behalf of farmer households. Most of our leases have terms of 10 to 20 years. If relevant governmental land policy changes so that we are no longer able to continue to lease the farmland or forestland, a significant number of farmer households, local villagers’ committees or local governments refuse to lease the farmland or forestland to us upon the expiration of their current leases on commercially reasonable terms, or at all, or we are unable to find new farmer households, local villagers’ committees or local governments that are willing to lease their farmland or forestland to us on commercially reasonable terms, or at all, our growth rate would be materially and adversely affected. Any of these disruptions could materially and adversely affect our production and revenue. Such disruptions could also damage customer relationships and loyalty if we cannot supply them with the quantities and varieties of vegetables that they expect.
 
If the legality or validity of our leases of agricultural land is challenged, our operations could be disrupted.
 
Under PRC law, agricultural land is collectively owned by the farmers in a village or rural collective and ownership is evidenced by the relevant title certificate. The right to operate and manage such agricultural land is vested in the relevant local villagers’ committee or rural collective who divides the land into parcels and contracts the rights to operate such parcels of land to individual farmer households or, subject to the approval of local governments and the requisite vote of the farmer households, to any entity or person outside that village or rural collective. The right to operate the land is evidenced by the relevant operating right certificates. See “Regulations — Land Use Rights” for a more detailed description of the land regime.
 
We typically lease agricultural land from the local villagers’ committees or the local governments who act on the farmer households’ behalf. A lessor has no right to lease out agricultural land if it does not have land ownership, operation rights or consent of the holder of the operation rights.
 
The administrative system for the registration of agricultural land ownership and operation right is underdeveloped in areas where some of our production bases are located. In some areas, there are no established procedures for the issue of ownership certificates or operation right certificates. However, in some of these areas, our lessors have received governmental confirmations evidencing their rights to lease the land to us for operation. As of the date of this prospectus, approximately 32% of our total land area had no ownership certificates or related governmental confirmations issued by local authorities. As of the date of this prospectus, approximately 12% of the total land area we leased still had no operation right certificates or related governmental confirmations issued by local authorities. We cannot assure you that the governmental confirmations with respect to the lessors’ land ownership or land operating rights would not be revoked or otherwise rendered defective in any respect. The absence of title certificates or operating right certificates also subjects us to the risk that we do not have valid leases.


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For leases not directly entered into with the holders of the operation right, authorization letters or consents from the holders of the operation right must be obtained. As of the date of this prospectus, authorization letters or consents had not been obtained for approximately 30% of the total land area we leased. Failure to obtain the authorization letters or consents for the remaining land could render such leases unenforceable. Additionally, leases must also be filed with the local villagers’ committee, rural collective or local government. In addition, all leases are subject to the preemptive rights of other farmers in the same village or rural collective. If the preemptive rights are not exercised within two months from the date on which we start using the parcels of land, it is very likely that the PRC courts will not enforce such preemptive rights, although we cannot give any assurance in this regard. As of the date of this prospectus, two months or more have passed since we started using most of the land we leased from the local villagers’ committees or local governments, and we have not received any claim from person purporting to assert the pre-emption rights.
 
If the legality or validity of our leases become subject to disputes or challenges, we may need to suspend our farming operations on the respective farmland areas. We may incur costs and losses if we are required to remove our improvements, such as greenhouses, from the farmland. We could also lose our rights to use the land and our business, financial condition and results of operations could be materially and adversely affected.
 
We may face proceedings or claims for unpaid rent from farmer households.
 
We lease farmland or forestland either directly from farmer households or from the local villagers’ committees or the local governments who act on the farmer households’ behalf. For land directly leased from local farmer households, we pay rent directly to such farmer households. For land that we lease through local villagers’ committees or the local governments who act on behalf of farmer households, we pay rent in cash or by bank transfer semi-annually or annually in advance to the local committees or governments, which in turn distribute the rent to the farmer households. We are unable to ensure that such rent has been or will be distributed to these farmer households by the local villagers’ committees or the local governments on a timely basis or at all. If the local villagers’ committees fail to distribute the rent to the farmer households, we may be held liable for the unpaid rent. As such, we may face proceedings or claims for unpaid rent from the farmer households affected, which may adversely affect our business operations and financial position. While we have not received any complaints relating to the payment of rent in the past, we cannot assure you that such proceedings or claims will not arise in the future.
 
Extreme weather conditions, natural disasters, crop diseases, pests and other natural conditions can create substantial volatility for our business and results of operations.
 
Production of fresh vegetables is vulnerable to extreme weather conditions such as windstorms, hailstorms, drought, temperature extremes and typhoons in southern China, as well as natural disasters such as earthquakes, forest fires and floods. Our production site is particularly susceptible to weather conditions in the summer months, especially the typhoon season (between the months of June and October) in southern China. Unfavorable conditions can reduce both crop size and crop quality. In extreme cases, entire harvests may be lost in some geographic areas. These factors can create substantial volatility relating to our business. We take into account the possibility of the occurrence of these adverse seasonal weather conditions in making our production plans to mitigate such risks. However, such events may occur at any time of the year, and the occurrence of any of these events may create the volatility for our business and results of operations.
 
Our production is also vulnerable to crop diseases and pest infestations, which may vary in severity, depending on the stage of production at the time of infection or infestation, the type of treatment applied and climatic conditions. For example, tomato yellow leaf curl virus, cubensis and powdery mildew are major diseases that affect vegetable cultivation in most of our production bases. The costs to control these diseases and other infestations vary depending on the severity of the damage and the extent of the plantings affected. Moreover, available technologies to control such infestations may not continue to be effective. These infestations can increase costs, decrease revenues and lead to additional expenses, which may have a material and adverse effect on our business, results of operations and financial condition.


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Our business is susceptible to potential climate change globally and in China.
 
Agriculture is extremely vulnerable to climate change, including large-scale changes such as global warming. Global warming is projected to have significant impacts on conditions affecting agriculture, including temperature, carbon dioxide concentration, precipitation and the interaction of these elements. Higher temperatures may eventually reduce yields of desirable crops while encouraging weed and pest proliferation. Increased atmospheric carbon dioxide concentration may lead to a decrease in global crop production. Changes in precipitation patterns increase the likelihood of short-run crop failures and long-run production declines. While crop production in the temperate zones may reap some benefit from climate change, crop production in the tropical and subtropical zones appear more vulnerable to the potential impacts of global warming. Even a high level of farm-level adaptation in the agricultural sector will not entirely mitigate such negative effects. Fourteen of our farms, 14,868 mu (991 hectares) in aggregate, are located in Fujian and Guangdong, which are tropical and subtropical areas. Our production in these farms is particularly susceptible to climate change in these areas. Rapid and severe climate changes may decrease our crop production, which may materially and adversely affect our business, results of operations and financial condition.
 
Water or power shortage or other calamities could disrupt our production and have a material adverse effect on our business, financial position and results of operations.
 
Our production requires a continual supply of utilities such as water and electricity. We use spring water or underground water to irrigate our crops. Our production facilities are all situated in China, and the PRC authorities may ration the supply of utilities. Interruptions of water or electricity supply could result in temporary shutdowns of our irrigation system, electrical system and storage and packing facilities. Any major suspension or termination of water or electricity or other unexpected business interruptions could have a material and adverse impact on our business, financial condition and results of operations. Additionally, other calamities at our production facilities, especially at our greenhouses, may result in the breakdown of or damage to our facilities and loss of our crops, could impair our ability to timely produce products, which could have a material adverse effect on our business, financial position and results of operations.
 
Our business is sensitive to fluctuations in market prices and demand for our products.
 
Fresh vegetables are highly perishable and generally must be brought to market and sold very shortly after harvest. The selling price for a certain type of vegetable depends on factors such as supply of and demand for such vegetable and the availability and quality of such vegetable in the market. Conditions affecting vegetable growth in various parts of China, including weather conditions such as windstorms, floods, droughts and freezes and diseases and pests, are primary factors affecting the supply and quality of different types of vegetables.
 
Oversupply of certain types of vegetables without a corresponding increase in consumer demand may decrease the prices for our products. General public concerns regarding the quality, safety or health risks associated with particular vegetables could reduce demand and prices for some of our products. Market demand for our products may also be adversely affected by negative publicity concerning food safety of vegetables produced by other vegetables producers in our target markets. Such negative publicity may lead to a loss of consumer confidence and a decrease in the demand and prices for our products. However, even if market prices are unfavorable, produce items which are ready to be, or have been harvested must be brought to market promptly. A decrease in the selling price received for our products due to the factors described above could have a material and adverse effect on our business, results of operations and financial condition.
 
We may not be able to accurately predict and successfully adapt to changes in market demand.
 
We plan our production schedule and crop selection based on our analysis and estimate of market demand. Demand for our products depends primarily on consumer-related factors such as demographics, local preferences and food consumption trends, macroeconomic factors such as the condition of the economy and the level of consumer confidence, as well as seasonal factors such as weather and festivities. To remain


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competitive, we must continually monitor and adapt to the changing market demand. Our failure or inability to follow or adapt to changes in market demand in a timely manner, if at all, may have a material and adverse effect on our business and our results of operation.
 
We are subject to the risk of product contamination and product liability claims as well as negative publicity associated with food safety issues in China.
 
Consumption of fresh vegetables poses potential risks to human health. Harm to the health of consumers may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during the growth, storage, handling or transportation phases. Consumption of our products may cause harm to the health of consumers in the future and we may be subject to claims or lawsuits relating to such matters. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or discomfort could adversely affect our reputation with existing and potential customers and our corporate and brand image.
 
There have been incidents reported in the media of food safety issues that have caused severe harm to consumers. We are highly dependent upon consumer perception of the safety and quality of our products. Concerns over the safety of food products could have a material and adverse effect in the sale of vegetables produced by us.
 
Moreover, we do not have any product liability insurance and may not have adequate resources to satisfy a judgment in the event of a successful product liability claim against us. The successful assertion of product liability claims against us could result in potentially significant monetary damages and require us to make significant payments.
 
Our operations are highly regulated in the areas of food safety and protection of human health and we may be subject to the risk of incurring compliance costs and the risk of potential claims and regulatory actions.
 
Our operations are subject to a broad range of foreign, national, provincial and local health and safety laws and regulations, including laws and regulations governing the use and disposal of pesticides and other chemicals. These regulations directly affect our day-to-day operations, and violations of these laws and regulations can result in substantial fines or penalties. There can be no assurance that these fines or penalties would not have a material and adverse effect on our business, results of operations and financial condition. To stay compliant with all of the laws and regulations that apply to our operations and produce, we may be required in the future to modify our operations, purchase new raw materials or make capital improvements. Our products may be subject to extensive examinations before they are allowed to enter the market, which may delay the production or sale of our crops or require us to take other actions if we or the regulators believe any such product presents a potential risk. In addition, we may in the future become subject to lawsuits alleging that our operations and products cause damages to human health.
 
Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations.
 
We commenced operations in 2004 and have gradually built up our production, research, development, sales and marketing capabilities. We have a limited operating history under our current business model upon which you can evaluate the viability and sustainability of our business. Accordingly, you should consider our future prospects in light of the risks and uncertainties experienced by other China-based early stage agricultural companies. If we are unsuccessful in addressing any of these risks and uncertainties, our business, financial condition, results of operations and future growth would be adversely affected.


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Unfavorable fluctuations in the prices of or shortages in raw materials will increase our production costs and adversely affect our profitability.
 
Raw materials that we use in production primarily comprise seeds, organic fertilizers, chemical fertilizers, pesticides, plant support rods and packaging materials. We also purchase steel, bamboo tubes, concrete and plastic films to build greenhouses as well as irrigation equipment such as valves, pipes, tubes and emitters. The prices of raw materials used in our operations are subject to fluctuations according to changes in the industry supply and demand conditions from time to time. Raw materials used in our operations are generally readily available at reasonable and stable costs. However, prices of our raw materials may not remain at the current level. Any shortage in the supply of or upsurge in market demand for our raw materials and the occurrence of other unforeseen circumstances may lead to an increase in prices of such raw materials. If we are unable to pass on the increase in prices of our raw materials to customers, our profitability would be adversely affected. In addition, the supply of our raw materials may not remain adequate. If we are unable to meet customer demand for our products or expand our production because of a shortage of raw materials, we could lose customers, market share and revenues. This would materially and adversely affect our business, financial condition and results of operations.
 
The Chinese fresh vegetable market is highly competitive and our growth and results of operations may be adversely affected if we are unable to compete effectively.
 
The fresh vegetable market in China is highly fragmented, regional and competitive. We face significant competition in the fresh vegetable market and we expect competition to increase and intensify within the sector. Some of our competitors may have greater financial, research and development and other resources, or greater operating flexibility which may permit them to respond better or more quickly to changes in the industry or to introduce new varieties of vegetables more quickly and with greater marketing support. Competition may develop from consolidation or other market forces within the fresh vegetable industry in China. Furthermore, our competitors may take pricing or promotional actions that may have a negative effect on us.
 
We may not be able to compete successfully against our competitors in the future. We may reach a point where we may not be able to continue to increase the return on our investment expenditures or where the incremental increase of investment return will decelerate. If we cannot effectively adapt to increasingly intense competition from local and foreign producers, our revenues and profitability may be materially and adversely affected.
 
If we are unable to successfully manage our growth, our business, results of operations and financial condition could be materially adversely affected.
 
We have grown rapidly and expect to continue to grow. We expect to build more production bases, expand the shelter coverage of our existing production bases, hire more employees and farm workers, enhance our production facilities and infrastructure and increase the size of our organization and related expenses. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Because of our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of our operations may lead to significant costs and may divert our management and business development resources. Any inability on the part of our management to manage growth could delay the execution of our business plans or disrupt our operations. If we are unable to manage our growth effectively, we may be unable to use our resources in an efficient manner, which may negatively impact our business, results of operations and financial condition.
 
As part of our growth strategy, we intend to expand our sales efforts into the geographic areas such as the Yangtze River delta. Expansion into new markets may present operating and marketing challenges that are different from those that we currently encounter in our existing markets. If we are unable to anticipate the changing demands that expanding operations will impose on our production systems and distribution channels, or if we fail to adapt our production systems and distribution channels to changing demands in a timely


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manner, we could experience a decrease in revenues and an increase in expenses and our results of operations could be materially and adversely affected.
 
We depend upon key employees in a competitive market. If we are unable to attract and retain key personnel, it could adversely affect our ability to develop and market our products.
 
We are highly dependent upon our chairman and chief executive officer, Mr. Shing Yung Ma. We have an employment agreement, a non-compete agreement and a confidentiality agreement with Mr. Ma. Although these agreements provide for severance payments that are contingent upon Mr. Ma’s refraining from competition with us, the applicable provisions can be difficult and costly to monitor and enforce. The loss of Mr. Ma’s services would adversely affect our ability to develop and market our products.
 
We also depend in part on the continued services of our farm managers and key scientific personnel and our ability to identify, hire and retain additional personnel, including marketing and sales staff. We face intense competition for skilled personnel, and the existence of non-competition agreements between prospective employees and their former employers may prevent us from hiring those individuals or subject us to suit from their former employers. While we attempt to provide competitive compensation packages to attract and retain key personnel, many of our competitors are likely to have greater resources and more experience than we have, making it difficult for us to compete successfully for key personnel.
 
Wrongdoings by our employees and farm workers may harm our business.
 
Our direct sales at the wholesale markets and sales to wholesalers are typically settled in cash and are handled by our employees. We may be susceptible to pilferage and theft by our employees or outsiders. Our employees or farm workers may even deliberately contaminate our vegetables. These wrongdoings by our employees and farm workers may harm our operating results and profits.
 
Our failure to protect our intellectual property rights may undermine our competitive position, and litigation to protect our intellectual property rights or defend against third-party allegations of infringement may be costly.
 
Our success depends largely on our proprietary information. Many elements of our proprietary information, such as horticultural know-how, technologies, production and market database, are not patentable in China. We rely primarily on a combination of trade secrets, trademarks and confidentiality agreements with key employees and third parties to protect our intellectual property. Nevertheless, these afford only limited protection and the actions we take to protect our intellectual property rights may not be adequate. Third parties may infringe or misappropriate our proprietary technologies or other intellectual property rights, which could have a material and adverse effect on our business, financial condition or operating results. Policing unauthorized use of proprietary technologies 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. We cannot assure you that the outcome of such potential litigation will be in our favor. An adverse determination in any such litigation will compromise our proprietary information protection, impair our intellectual property rights and may harm our business, prospects and reputation. Implementation of PRC intellectual property-related laws has historically been lacking, primarily because of ambiguities in the PRC laws and difficulties in enforcement. Accordingly, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries.
 
We rely on confidentiality agreements that could be breached and may be difficult to enforce, which could have a material adverse effect on our business and competitive position.
 
Our policy is to enter agreements relating to the non-disclosure of confidential information with third parties, including our consultants, advisors and research collaborators, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them. However, these agreements can be difficult and costly to enforce. Moreover, to the extent that our consultants, advisors and research collaborators apply or


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independently develop intellectual property in connection with any of our projects, disputes may arise as to the proprietary rights to this type of information. If a dispute arises, a court may determine that the right belongs to a third party, and enforcement of our rights can be costly and unpredictable. In addition, we rely on trade secrets and proprietary know-how that we will seek to protect in part by confidentiality agreements with our employees, consultants, advisors or others. Despite the protective measures we employ, we still face the risk that:
 
  •  these agreements may be breached;
 
  •  these agreements may not provide adequate remedies for the applicable type of breach; or
 
  •  our trade secrets or proprietary know-how will otherwise become known.
 
Breach of our confidentiality agreements or our failure to effectively enforce such agreements would have a material and adverse effect on our business and competitive position.
 
Labor shortages and rising labor cost may adversely affect our business and increase our operation costs.
 
Our business is labor intensive. As of June 30, 2010, we hired 2,348 farm workers to perform all agricultural labor work on our farms. The low cost workforce in China provides us with a cost advantage. However, we have observed an overall tightening of the labor market and an emerging trend of shortage of labor supply. Failure to obtain stable and dedicated farming and other labor support may cause disruption to our business and our operation may be adversely affected. Furthermore, labor costs have increased in China in recent years and may continue to increase in the near future. To remain competitive, we may need to increase the salaries of our employees and farm workers to attract and retain them. Our labor costs amounted to RMB14.5 million, RMB16.2 million and RMB22.3 million ($3.3 million) in the fiscal years ended March 31, 2008, 2009 and 2010, respectively, accounting for 11.2%, 9.3% and 9.4% of our total costs of inventories sold during the respective period. Our labor costs amounted to RMB5.7 million and RMB6.3 million ($928,000) in the three months ended June 30, 2009 and 2010, respectively, accounting for 13.0% and 7.9% of our total costs of inventories sold during the respective periods. The increase in labor costs will increase our business operation costs and our financial position may be adversely affected.
 
We may be subject to claims or administrative penalties for non-execution of labor contracts or nonpayment or underpayment of social insurance and housing fund in respect of our farm workers and our full time employees, which may adversely affect our business, financial condition and results of operations.
 
We currently hire farm workers to perform all agricultural labor work on our farms. Our farm workers are hired through dispatching arrangements with labor companies. Prior to January 2008, we hired farm workers on a temporary basis in response to the ever changing workload during different phases of our production seasons. Due to the ambiguity relating to the status of temporary workers under PRC laws, we did not enter into any labor contracts with, or pay any social insurance or housing funds for, the farm workers hired before January 1, 2008. We also did not make provision for the social insurance based on our employees’ actually received salaries and housing funds for our full-time employees.
 
The PRC government has been adopting increasingly stringent supervision standards over the labor market, particularly with respects to farmer workers. The implementation of the PRC Labor Contract Law and its implementation regulation may increase our operating expenses, in particular our human resource costs and our administrative expenses. Specifically, under the PRC Labor Contract Law, we are required to contribute certain amounts to a social insurance fund and a housing fund for our temporary farm workers we hired prior to January 2008 and our full time employees. As of the date of this prospectus, our estimated nonpayment for the housing fund and underpayment for the social insurance for full-time employees are approximately RMB480,000 and RMB2.4 million, respectively. We may be subject to a late charge of 0.2% per day, or totaling approximately RMB2.7 million as of June 30, 2010, of the outstanding social insurance contribution, a fine ranging from RMB10,000 to RMB50,000 for not attending to housing fund registration, and face proceedings or claims for the underpayment or non-payment of social insurance and housing fund. Our PRC


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counsel, Trend Associates, has advised us that although there is a risk that we may be subject to proceedings or claims initiated by the relevant governmental authorities for the underpayment or nonpayment of social insurance and housing fund, such risk is remote.
 
In the event that we decide to significantly modify our employment or labor policy or practice, or reduce the number of our employees and farm workers, the PRC Labor Contract Law may limit our ability to effectuate the modifications or changes in the manner that we believe is the most cost-efficient or otherwise desirable, which could materially and adversely affect our business, financial condition and results of operations.
 
In view of the new legal environment, we now rely on dispatching arrangements with labor companies to hire our farm workers and dispatch these workers to our farms. Under such labor dispatch arrangements, the farm workers are deemed to be employees of the dispatch agent rather than our employees, and the agent undertakes the legal obligation to enter into labor contracts and pay social insurance and housing fund for these workers. While the agent has also confirmed to us that it has undertaken all legal obligations required by, and complied with all compulsory requirements of, applicable PRC labor laws and regulations, in the event that the agent violates applicable PRC labor laws and regulations and causes losses to the dispatched employees, we may be held liable to compensate such losses. If we are not able to recoup our payment from the agent or if the agent’s indemnification is not sufficient to cover the losses incurred, our results of operations and financial condition may be adversely affected.
 
We may be affected by export and import laws and policies and other barriers to trade.
 
In addition to our domestic sales, we sell our products to customers in Hong Kong. Our sales to customers in Hong Kong accounted for approximately 13.4%, 12.2%, 13.7% and 9.6% of our total revenue in the fiscal years ended March 31, 2008, 2009 and 2010 and the three months ended June 30, 2010, respectively. According to the relevant PRC laws, we are required to register our production bases and processing facilities with the relevant authorities to export the vegetables produced at such production bases and processing facilities to Hong Kong. If we fail to register our production bases as required, our export may be restricted or suspended and our business may be adversely affected. We are currently not subject to export duties in the export of our finished products from the PRC. If the regulatory authorities in the PRC adopt measures to make it more difficult or costly for us to export our products, our business and results of operations may be adversely affected.
 
We are subject to the applicable Hong Kong laws and regulations relating to food imports and exports. Any violation of or non-compliance with these laws and regulations, or our failure to maintain our required export permits or certificates, may result in the restriction of or ban on some or all of our products by Hong Kong, or penalties being imposed on us. Furthermore, Hong Kong could introduce measures and standards that make our exports more difficult or costly, or take steps to prevent, limit or prohibit our exports. Hong Kong imposes custom duties and import tariffs. We generally export on the basis that any custom duties and import tariffs imposed Hong Kong will be borne by our customers. However, we may not be able to pass on the cost of such custom duties or import tariffs to our customers in the future.
 
Our database may not be as effective as anticipated.
 
Our business operations rely on various timely information, which comprise first-hand market information, meteorological information and vegetable plantation and supply information, to plan vegetable harvesting based on historical vegetable price movement patterns. However, the information that we collect from various sources may be inaccurate or incomplete. In addition, errors may occur in the process of collecting and analyzing such information. Consequently, our analysis of market price movement patterns may not be accurate, which may mislead our harvesting planning and adversely affect our business and results of operations.
 
We are collaborating with Beijing IT to develop a systematic and advanced information network to manage and organize our know-how. However, we cannot assure you that such information network will be developed as successfully as we expect or at all. Failure to develop a systematic and advanced information


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network may limit the effectiveness of our information network, which may have a adverse effect on our business, prospects, and results of operation.
 
We are subject to environmental regulations and may be exposed to liability and potential costs for environmental compliance.
 
We are subject to PRC laws and regulations concerning the discharge of waste water, gaseous waste and solid waste. We are required to establish and maintain facilities to dispose of waste. We are also required to obtain and comply with environmental permits for certain operations. We are responsible for cleaning up in the event that our operations result in the contamination of the environment. We may not at all times comply fully with environmental regulations. Any violation of these regulations may result in substantial fines, criminal sanctions, revocations of operating permits, shutdown of our production bases and obligation to take corrective measures. Our cost of complying with current and future environmental protection laws and regulations and our liabilities which may potentially arise from the discharge of waste water and solid waste may materially adversely affect our business, financial condition and results of operations.
 
The government may take steps towards the adoption of more stringent environmental regulations. Due to the possibility of unanticipated regulatory or other developments, the amount and timing of future environmental expenditures may vary substantially from those currently anticipated. If there is any unanticipated change in the environmental regulations, we may need to incur substantial capital expenditures to install, replace, upgrade or supplement our pollution control equipment or make operational changes to limit any adverse impact or potential adverse impact on the environment in order to comply with new environmental protection laws and regulations. If such costs become prohibitively expensive, we may be forced to cease certain aspects of our business operations.
 
As of the date of this prospectus, we have not completed the environmental impact assessments as required by the PRC law for our production bases covering approximately 45% of our arable land. Although we intend to complete these environmental impact assessments, a penalty may be imposed on us and our production may be suspended. In addition, our production bases and manufacturing facilities that have been put into operations are in the process of undergoing environment protection inspections. As of the date of this prospectus, other than one of our processing facilities in Fujian province, we have not passed the environmental protection inspections for all of our processing facilities and production bases. Although we will apply for completion inspections by competent environmental approval authorities for the rest of our processing facilities and production bases, there is no assurance that such facilities will pass such inspections. Failure to pass these completion inspections may subject us to fines, penalties or orders to suspend our operations in these production bases or processing facilities, which may have a material and adverse effect on our business and results of operations.
 
We have limited insurance coverage in China.
 
The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited commercial insurance products for the agricultural sector or only offer them on unattractive terms. We have determined that balancing the risks of disruption or product liability or the risk of loss or damage to our property on the one hand, the cost of insuring for these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms on the other hand, it is not commercially feasible for us to have such insurance. We maintain insurance for workplace injuries, office equipment, premises in Hong Kong and certain vehicles in China. We do not have insurance coverage on our other assets (including biological assets) and do not maintain product liability, business interruption or key-man insurance. Furthermore, the farmer households, local villagers’ committees or local governments from whom we lease our lands may not maintain necessary insurance on these lands. Consequently, any occurrence of loss or damage to property, litigation or business disruption may result in our incurring substantial costs and the diversion of resources, which could have a material and adverse effect on our operating results. The occurrence of certain incidents including fire, severe weather, earthquake, war, floods, power outages, windstorms and the consequences resulting from them are not covered at all by insurance policies. If we incur substantial liabilities that were not covered by insurance, or if our business operations were interrupted for


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more than a short period of time, we could incur costs and losses that could materially and adversely affect our results of operations.
 
If we fail to establish an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ADSs may be adversely impacted.
 
We will be subject to reporting obligations under U.S. securities laws. Section 404 of the Sarbanes-Oxley Act of 2002 and related rules require a public company to include a management report on the company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, an independent registered public accounting firm must audit and report on the effectiveness of a public company’s internal control over financial reporting. These requirements will first apply to our annual report on Form 20-F for the fiscal year ending on March 31, 2012. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future.
 
Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal control and procedures over financial reporting. As a result, during the preparation and external audit of our combined financial statements as of and for the years ended March 31, 2008, 2009 and 2010, we and our independent registered public accounting firm have identified a material weakness and two significant deficiencies in our internal control over financial reporting, as defined in the standards established by the U.S. Public Company Accounting Oversight Board. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A “significant deficiency” is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting. The material weakness identified by our independent registered public accounting firm primarily related to insufficient complement of personnel with an appropriate level of accounting knowledge, experience and training to prepare and review our IFRS financial statements and disclosures, which resulted, for example, in audit adjustments related to biological assets and income taxes. Significant deficiencies identified by our independent registered public accounting firm include those related to (i) insufficient formal anti-fraud control program, such as maintaining a whistleblower mechanism, policies regarding providing and receiving gifts and entertainment, specific guidelines on the level of details to be maintained in the books and records, and (ii) reconciliation procedures of intercompany transactions and balances between our consolidated group companies.
 
We are in the process of implementing measures to remediate these material weakness and deficiencies and to prepare to meet the deadline imposed by Section 404 of the Sarbanes-Oxley Act. If we fail to timely achieve and maintain the adequacy of our internal controls, our management may conclude that our internal control over financial reporting is not effective. While we plan to expand our financial staff after we become public, we may encounter substantial difficulty attracting qualified staff with requisite experience due to the high level of competition for experienced financial professionals. Moreover, effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important to help prevent fraud. As a result, our failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the market price of our ADSs.
 
We face risks related to health epidemics and other outbreaks.
 
Our business could be adversely affected by the outbreak of swine flu, avian flu, SARS or other epidemics. China reported a number of cases of SARS in 2003. In 2006, 2007 and 2008, there have been reports on the occurrences of avian flu in various parts of China, including a few confirmed human cases and deaths. In April 2009, an outbreak of swine flu occurred in Mexico and the United States. In May 2009, the World Health Organization declared a level 6 flu pandemic, its highest pandemic alert phase, indicating a


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global pandemic underway. Any prolonged occurrence or recurrence of swine flu, avian flu, SARS or other adverse public health developments in China or any of the major markets in which we do business may have a material and adverse effect on our business and operations. These effects could include a restriction on our ability to travel or ship our products outside of China and to designated markets, as well as temporary closure of our production bases, and/or our customers’ facilities, leading to delayed or cancelled orders. Any severe travel or shipment restrictions and closures would severely disrupt our operations and adversely affect our business and results of operations. Almost all of our farm workers live in dormitories with a high population intensity and share personal hygiene facilities, which makes them more susceptible to epidemic outbreaks. We have not adopted any written preventive measures or contingency plans to combat any future outbreak of swine flu, avian flu, SARS or any other epidemic.
 
The global economic downturn may have a material and adverse effect on our business, financial condition, results of operations and liquidity.
 
The global capital and credit markets have experienced increased volatility and disruption over the past two years, making it more difficult for companies to access financing markets. We depend in part on stable, liquid and well-functioning capital and credit markets to fund our growth. Although we believe that our operating cash flows, access to capital and credit markets and existing borrowings will permit us to meet our financing needs for the foreseeable future, we cannot assure you that continued or increased volatility and disruption in the capital and credit markets will not impair our liquidity or increase our costs of borrowing. In addition, our major customers may have financial challenges unrelated to us that could result in a decrease in their business with us, delays in payment to us or defaults of payments. Similarly, parties to contracts may be forced to breach their obligations under those contracts with us. These consequences of the global economic downturn may have a material and adverse effect on our business, financial condition, results of operations and liquidity.
 
As a foreign private issuer, we are permitted to follow certain home country corporate governance practices in lieu of certain NASDAQ requirements. This may afford less protection to holders of our ordinary shares.
 
As a foreign private issuer whose ordinary shares are listed on the NASDAQ Global Select Market, we are permitted to follow certain home country corporate governance practices in lieu of certain NASDAQ requirements. A foreign private issuer must disclose in its annual reports filed with the SEC each NASDAQ requirement with which it does not comply, followed by a description of its applicable home country practice. Our Cayman Islands home country practices may afford less protection to holders of our ADSs. Although we currently do not intend to rely on any exemptions provided by NASDAQ to a foreign private issuer, we may follow our home country practices in the future, and as a result, you may not be provided with the benefits of certain corporate governance requirements of NASDAQ.
 
We will be a foreign private issuer and, as a result, we will not be subject to U.S. proxy rules and will be subject to Exchange Act reporting obligations that, to some extent, are more lenient and less frequent than those of a U.S. issuer.
 
Upon consummation of this offering, we will report under the Securities Exchange Act of 1934, as a foreign private issuer. Because we qualify as a foreign private issuer under the Exchange Act, we will be exempt from certain provisions of the Exchange Act that are applicable to U.S. public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act, (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time, and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K, upon the occurrence of specified significant events. In addition, in the fiscal years ending on or after December 15, 2011, foreign private issuers will not be required to file their annual report


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on Form 20-F until 120 days after the end of each fiscal year (for fiscal years ending before December 15, 2011, foreign private issuers are not required to file their annual report on Form 20-F until six months after the end of each fiscal year), while U.S. domestic issuers that are not large accelerated filers or accelerated filers are required to file their annual report on Form 10-K within 90 days after the end of each fiscal year. Foreign private issuers are also exempt from the Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. Although we intend to make interim reports available to our shareholders in a timely manner, you may not have the same protections afforded to stockholders of companies that are not foreign private issuers.
 
We may be classified as 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.
 
We do not expect to be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our current taxable year ending March 31, 2011 or for any future taxable year. However, the application of the PFIC rules is subject to ambiguity in several respects, and we must make a separate determination after the close of each taxable year as to whether we were a PFIC for that year. Accordingly, we cannot assure you that we will not be a PFIC for our current taxable year or any future taxable year. Latham & Watkins, our special U.S. counsel, expresses no opinion with respect to our PFIC status and expresses no opinion with respect to our expectations set forth in this paragraph. A non-U.S. corporation will be a PFIC for any taxable year if either (1) at least 75% of its gross income for such year is passive income or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets during such year) is attributable to assets that produce passive income or are held for the production of passive income. The value of our assets for purposes of the PFIC test will generally be determined by reference to the market price of our ADSs and ordinary shares, which may fluctuate after this offering. In addition, the composition of our income and assets will be affected by how, and how quickly, we use the cash raised in this and any future offering. If we are a PFIC for any taxable year during which a U.S. Holder (as defined in “Taxation — United States Federal Income Taxation”) holds an ADS or an ordinary share, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. For example, such U.S. Holder may incur a significantly increased U.S. federal income tax liability on the receipt of certain distributions on our ADSs or ordinary shares or on any gain realized from a sale or other disposition of our ADSs or ordinary shares. See “Taxation — United States Federal Income Taxation — Passive Foreign Investment Company.”
 
Risks Related to Doing Business in China
 
Adverse changes in economic and political policies of the PRC government could have a material and adverse effect on overall economic growth in China, which could materially and adversely affect our business.
 
We conduct substantially all of our business operations and sales activities in China and Hong Kong. Accordingly, our business, financial condition, results of operations and prospects depend to a significant degree on economic developments in China. China’s economy differs from the economies of most other countries in many respects, including with respect to the amount of government involvement in the economy, the general level of economic development, growth rates and government control of foreign exchange and the allocation of resources. While the PRC economy has experienced significant growth in the past 30 years, this growth has remained uneven across different periods, regions and among various economic sectors. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. The PRC government also exercises significant control over China’s economic growth through the allocation of resources, controlling the payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. Since late 2003, the PRC government has implemented a number of measures, such as increasing the People’s Bank of China’s statutory deposit reserve ratio and imposing commercial bank lending guidelines, which had the effect of slowing the growth of credit availability. In 2008 and 2009, however, in response to the global financial crisis, the PRC government has loosened such requirements. Any future actions and policies adopted by the PRC


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government could materially affect the Chinese economy and slow the growth of the demand for high-quality vegetables in China, which could materially and adversely affect our business.
 
Future changes in laws, regulations or enforcement policies in China could adversely affect our business.
 
We are subject to Chinese laws and regulations relating to land use, agricultural products, food safety, food export and environmental protection, among others. Laws, regulations or enforcement policies in China, including those relating to agricultural industry, are evolving and subject to frequent changes. Further, regulatory agencies in China may periodically, and sometimes abruptly, change their enforcement practices. Therefore, prior enforcement activity, or lack of enforcement activity, is not necessarily predictive of future actions. Any enforcement actions against us could have a material and adverse effect on us and the market price of our ADSs. In addition, any litigation or governmental investigation or enforcement proceedings in China may be protracted and may result in substantial cost and diversion of resources and management attention, negative publicity, damage to our reputation and decline in the price of our ADSs.
 
We rely principally on dividends and other distributions on equity paid by our subsidiaries in China and Hong Kong to fund our cash and financing requirements, and any limitation on the ability of our subsidiaries to make payments to us could have a material and adverse effect on our ability to conduct our business.
 
We are an offshore holding company, and we rely principally on dividends from our subsidiaries in China and Hong Kong for our cash requirements, including for the service of any debt we may incur. 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 in China is required to set aside a certain amount of its after-tax profits each year, if any, to fund certain statutory reserves. These reserves are not distributable as cash dividends. Furthermore, if our subsidiaries in China and Hong Kong incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any limitation on the ability of our subsidiaries to distribute dividends or other payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.
 
The dividends we receive from our PRC subsidiaries may be subject to PRC tax under the new Enterprise Income Tax Law, which would have a material adverse effect on our results of operations.
 
Under the new Enterprise Income Tax Law, dividends, interests, rents and royalties payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise, as well as gains on transfers of shares of a foreign-invested enterprise in the PRC by such a foreign investor, will be subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax. As of the date of this prospectus, the Cayman Islands and the British Virgin Islands have not entered into any such tax treaties with the PRC. If we are considered a non-resident enterprise for purposes of the new Enterprise Income Tax Law, this new withholding tax imposed on dividends paid to us by our PRC subsidiaries would reduce our net income in the event we decide to declare a dividend, which may have an adverse effect on our operating results.
 
Changes in PRC government policy on foreign investment in China may adversely affect our business and results of operations.
 
As foreign-invested enterprises, our wholly owned subsidiaries are subject to restrictions on foreign investment imposed by PRC laws from time to time. For instance, under the Foreign Investment Industrial Guidance Catalogue, some industries are categorized as sectors which are encouraged, restricted or prohibited for foreign investment.
 
According to the latest version of this catalogue, which became effective on December 1, 2007, our business is not in the prohibited or the restricted category. As this catalogue is updated every few years, there


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can be no assurance that the PRC government will not change its policies in a manner that would cause part or all of our businesses to fall within the restricted or prohibited categories. If any of our businesses becomes prohibited or if we cannot obtain approval from relevant approval authorities to engage in businesses which become restricted for foreign investors, we may be forced to sell or restructure our businesses which have become restricted or prohibited for foreign investment. If we are forced to adjust our corporate structure or business line as a result of changes in government policy on foreign investment, our business, financial condition and results of operations may be materially and adversely affected.
 
PRC regulation of loans to and direct investments in PRC entities by offshore holding companies may delay or prevent us from using the proceeds of this offering to make loans or additional capital contributions to our PRC operating subsidiaries.
 
We may make loans to our PRC subsidiaries. Any investments in or foreign loans to our PRC subsidiaries are subject to approval by or registration with relevant governmental authorities in China. We may also decide to finance our subsidiaries by means of capital contributions. According to the relevant PRC regulations on foreign-invested enterprises in China, depending on the total amount of investment and the industries of the investment, capital contributions to our PRC operating subsidiaries may be subject to the approval of the PRC Ministry of Commerce, or MOFCOM, or its local branches. We may not obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our PRC subsidiaries. If we fail to receive such approvals, our ability to use the proceeds of this offering and to capitalize our PRC operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.
 
Fluctuations in the value of the Renminbi may have a material and adverse effect on your investment.
 
The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. The conversion of Renminbi into foreign currencies, including the U.S. dollar, has historically been set by the People’s Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is 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 more than 20% against the U.S. dollar over the following three years. Since reaching a high against the U.S. dollar in July 2008, however, the Renminbi has traded within a narrow band against the U.S. dollar, remaining within 1% of its July 2008 high but never exceeding it. As a consequence, the Renminbi has fluctuated sharply since July 2008 against other freely traded currencies, in tandem with the U.S. dollar. In June 2010, the PRC government indicated that it would again make the foreign exchange rate of the Renminbi more flexible, which increases the possibility of sharp fluctuations in Renminbi’s value in the future as well as the unpredictability associated with Renminbi’s exchange rate. It is difficult to predict how long the current situation may last and when and how it may change again.
 
There remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the Renminbi against foreign currencies. Our revenues and costs are mostly denominated in the Renminbi, and a significant portion of our financial assets are also denominated in the Renminbi. As we rely entirely on dividends paid to us by our subsidiaries, any significant revaluation of the Renminbi may have a material and adverse effect on our revenues and financial condition, and the value of, and any dividends payable on, our ordinary shares in foreign currency terms. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would reduce the Renminbi amount we receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making dividend payments on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the Renminbi would reduce the U.S. dollar amount available to us. Any fluctuations in the exchange rate between the Renminbi and the U.S. dollar could also result in foreign currency translation losses for financial reporting purposes.


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Governmental control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.
 
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive most of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company may rely on dividend payments from our PRC and Hong Kong subsidiaries to fund any cash and financing requirements we may have. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange, or SAFE, by complying with certain procedural requirements. Therefore, our PRC subsidiaries are able to pay dividends in foreign currencies to us without prior approval from SAFE by complying with certain procedural requirements. But approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. This could affect the ability of our PRC subsidiaries to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions from us. 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 currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.
 
Regulations relating to offshore investment activities by PRC residents may limit our ability to acquire PRC companies and could adversely affect our business, financial condition and results of operations.
 
In October 2005, SAFE promulgated a regulation known as Circular No. 75, which states that if PRC residents use assets or equity interests in their PRC entities as capital contributions to establish offshore companies or inject assets or equity interests of their PRC entities into offshore companies to raise capital overseas, they must register with local provincial SAFE branches with respect to their overseas investments in offshore companies. They must also file amendments to their registrations if their offshore companies experience material events involving capital variation, such as changes in share capital, share transfers, mergers and acquisitions, spin-off transactions, long-term equity or debt investments or guarantee. Under this regulation, failure to comply with the registration procedures set forth in such regulation may result in restrictions being imposed on the foreign exchange activities of the relevant PRC entity, including the payment of dividends and other distributions to its offshore parent, as well as restrictions on the capital inflow from the offshore entity to the PRC entity. While we believe Circular No. 75 currently does not apply to us since none of our individual beneficial shareholders is a PRC resident, any failure by any of our future shareholders who is a PRC resident, or controlled by a PRC resident, to comply with relevant requirements under this regulation could subject our company to fines or sanctions imposed by the PRC government, including restrictions on our subsidiaries’ ability to pay dividends or make distributions to us and our ability to increase our investment in or to provide loans to our subsidiaries.
 
Failure to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject our PRC stock incentive plan participants or us to fines and other legal or administrative sanctions.
 
In December 2006, the People’s Bank of China promulgated Administrative Measures for Individual Foreign Exchange, or the Individual Foreign Exchange Rules, setting forth the requirements for foreign exchange transactions by PRC individuals under either the current account or the capital account. In January 2007, SAFE issued Implementing Rules for the Individual Foreign Exchange Rules, which, among other things, specified approval requirements for certain capital account transactions such as a PRC citizen’s participation in the employee stock ownership plans or stock option plans of an overseas publicly-listed company. On March 28, 2007, SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan or Stock Option Plan of Overseas-Listed Company (the Stock Option Rule). Under the Stock Option Rule, PRC citizens who are


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granted stock options by an overseas publicly-listed company are required, through a PRC agent or PRC subsidiary of such overseas publicly-listed company, to register with SAFE and complete certain other procedures. We and our directors, officers and employees who are PRC citizens and have been granted stock options will be subject to the Stock Option Rule when we become an overseas publicly-listed company. If we or our PRC optionees fail to comply with these regulations, we or our PRC optionees may be subject to fines and legal sanctions.
 
Uncertainties with respect to the Chinese legal system could have a material and adverse effect on us.
 
The PRC legal system is based on written statutes. Unlike under common law systems, decided legal cases have little value as precedents in subsequent legal proceedings. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general, and forms of foreign investment, including wholly foreign-owned enterprises and joint ventures, in particular. These laws, regulations and legal requirements are often changing, and their interpretation and enforcement involve significant uncertainties that could limit the reliability of the legal protections available to us. We cannot predict the effects of future developments in the PRC legal system. We may be required in the future to procure additional permits, authorizations and approvals for our existing and future operations, which may not be obtainable in a timely fashion or at all. An inability to obtain such permits or authorizations may have a material and adverse affect on our business, financial condition and results of operations.
 
Our business benefits from certain government incentives. Expiration of, or changes to, these incentives could have a material adverse effect on our operating results by significantly increasing our tax expenses.
 
The PRC government has provided various incentives to agricultural companies in order to encourage the development of the agricultural industry. Such incentives include reduced tax rates, tax exemptions, subsidies and other measures. Under the PRC income tax laws effective prior to January 1, 2008, domestic companies typically were subject to an enterprise income tax rate of 33%, while foreign invested manufacturing enterprises with operation terms of 10 or more years enjoyed preferential tax treatment of “two-year tax exemption and three-year tax reduction of 50%,” subject to the approval of relevant tax authority. Prior to January 1, 2008, pursuant to the old income tax regime of the PRC, some of our PRC subsidiaries, as foreign invested enterprises, were eligible for a 100% relief from PRC enterprise income tax for the two years from their first profit-making year of operations for the PRC tax purposes and thereafter, they were subject to PRC enterprise income tax at 50% of the applicable income tax rate for the following three years. These PRC subsidiaries, except for Linong Agriculture Technology (Liaoyang) Co., Ltd., or Land V. Limited (Liaoyang) and Land V. Ltd (Fujian), were either within their tax holidays until December 31, 2007 or sustained losses for taxation purposes. For the period from April 1, 2007 to December 31, 2007, Land V. Limited (Liaoyang) and Land V. Ltd (Fujian) were in the third year of their tax holiday, and were subject to EIT at a reduced rate of 13.5%.
 
On January 1, 2008, the new Enterprise Income Tax Law became effective. The new Enterprise Income Tax Law imposes a uniform tax rate of 25% on all domestic enterprises and foreign invested enterprises unless they qualify under certain exceptions. Businesses engaged in the cultivation and preliminary processing of vegetable products enjoy a 100% relief from enterprise income tax under the new law and its implementation rules. From January 1, 2008, our PRC subsidiaries, except for Linong Agriculture Technology (Shenzhen) Co., Ltd., are eligible for this tax relief, subject to the approval by or registration with the relevant tax authorities. As of the date of this prospectus, Land V. Ltd (Fujian), Fuzhou Land V. Group Co. Ltd., Liyuan Agriculture Technology Co. Ltd (Quanzhou), Land V. Ltd (Zhangjiakou), Land V. Agriculture Technology (Ningde) Co. Ltd, Linong Agriculture Technology (Shantou) Co. Ltd and Land V. Agriculture Technology (Huizhou) Co. Ltd. have registered with the tax authorities for the tax exemption. We will apply for such exemptions for the rest of the PRC subsidiaries. However, there is no assurance that we will be able to receive the approval of the tax exemption for these PRC subsidiaries by the tax authorities. Furthermore, the current taxation incentives for the agricultural industry may be changed, any future change in the PRC tax policies could also have a material adverse effect on our financial condition and results of operations.


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The approval of the China Securities Regulatory Commission, or the CSRC, may be required in connection with this offering under a recently adopted PRC regulation; any requirement to obtain prior CSRC approval could delay this offering and a failure to obtain this approval, if required, could have a material adverse effect on our business, operating results, reputation and trading price of our ADSs, and may also create uncertainties for this offering; the regulation also establishes more complex procedures for acquisitions conducted by foreign investors which could make it more difficult to pursue growth through acquisitions.
 
In 2006, six PRC regulatory agencies jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule. See “Regulation — Regulations on Overseas Listing.” While the application of the New M&A Rule remains unclear, we believe, based on the advice of our PRC counsel, that CSRC approval is not required in the context of this offering because we are not a special purpose vehicle, or SPV, covered by the new regulation as we are owned and controlled by non-PRC individuals, and all our PRC subsidiaries are foreign-funded and have been incorporated through our direct investment instead of acquisition. However, we cannot assure you that the relevant PRC government agency, including the CSRC, would reach the same conclusion as our PRC counsel. If the CSRC or any other PRC regulatory body subsequently determines that we need to obtain the CSRC’s approval for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies, which could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as this offering and the trading price of our ADSs. The New M&A Rule also established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex.
 
In the future, we may grow our business in part by acquiring complementary businesses, although we do not have any plans to do so at this time. Complying with the requirements of the New M&A Rule to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the MOC, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.
 
Risks Related to Our ADSs and This Offering
 
There has been no public market for our ordinary shares or ADSs prior to this offering, and you may not be able to resell our ADSs at or above the price you paid, or at all.
 
Prior to this initial public offering, there has been no public market for our ordinary shares or ADSs. We have received approval for listing our ADSs on the NASDAQ Global Select Market. Our ordinary shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. If an active trading market for our ADSs does not develop after this offering, the market price and liquidity of our ADSs will be materially and adversely affected.
 
The initial public offering price for our ADSs will be determined by negotiations between us and the underwriters and may bear no relationship to the market price for our ADSs after this initial public offering. We cannot assure you that an active trading market for our ADSs will develop or that the market price of our ADSs will not decline below the initial public offering price.
 
The market price for our ADSs may be volatile.
 
The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:
 
  •  regulatory developments in our target markets affecting us, our customers or our competitors;
 
  •  actual or anticipated fluctuations in our quarterly operating results and changes or revisions of our expected results;
 
  •  changes in financial estimates by securities research analysts;
 
  •  announcements of technological or competitive developments;


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  •  any litigation, governmental investigation or enforcement proceedings brought against us by authorities and industry regulators in China or elsewhere;
 
  •  addition or departure of our senior management and key personnel;
 
  •  changes in the economic performance or market valuations of other agricultural companies;
 
  •  economic, regulatory or political developments in China;
 
  •  release or expiration of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs; and
 
  •  sales of additional ordinary shares or ADSs, or the perception that such sales might occur.
 
In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also have a material adverse effect on the market price of our ADSs.
 
Because the initial public offering price is substantially higher than our net tangible book value per share, you will incur immediate and substantial dilution.
 
If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. Also, you will experience immediate and substantial dilution of approximately $5.73 per ADS, representing the difference between the purchase price per ADS in this offering and our net tangible book value per ADS as of June 30, 2010, after giving effect to this offering. In addition, you may experience further dilution to the extent that our ordinary shares are issued upon the exercise of stock options. As of the date of this prospectus, 198,416,001 ordinary shares are issuable upon the exercise of outstanding share options with exercise prices ranging from $0.0729 to $0.08 per share and a weighted average exercise price of $0.0765 per share.
 
We may need additional capital, and the sale of additional ADSs or other equity securities or incurrence of additional indebtedness could result in additional dilution to our shareholders or increase our debt service obligations.
 
Historically, we have relied principally on our operational sources of cash as well as external sources of financing to fund our operations and capital expansion needs. We may require additional cash resources due to the expansion of our business, changed business conditions or other future developments. If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity, equity-linked or debt securities or enter into a credit facility. The sale of additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. It is uncertain whether financing will be available in amounts or on terms acceptable to us, if at all.
 
Substantial future sales of our ADSs in the public market, or the perception that such sales might occur, could cause the price of our ADSs to decline.
 
Sales of our ADSs or ordinary shares in the public market after this offering, or the perception that these sales could occur, could cause the market price of our ADSs to decline. Immediately upon the completion of this offering, we will have 2,293,591,000 ordinary shares outstanding, including 543,579,950 ordinary shares represented by 10,871,599 ADSs. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the Securities Act, except to the extent acquired by persons deemed to be our “affiliates.” In connection with this offering, we, our shareholders, and our directors and executive officers have agreed not to sell any ordinary shares or ADSs until the expiration of 180 days after the date of this prospectus, subject to certain exceptions. Any or all of these shares may be released without notice prior to the expiration of the applicable lock-up period at the discretion of representatives of the underwriters for this offering. To the extent shares are released before the expiration of the applicable lock-up period and sold into the market, the market price of our ADSs could decline.


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In addition, certain holders of our ordinary shares after the completion of this offering will have the right to cause us to register the sale of those shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Future large-volume sale of our securities by our existing shareholders in the public market could cause the price of our ADSs to decline.
 
Our existing shareholders have substantial influence over our company and their interests may not be aligned with the interests of our other shareholders.
 
Immediately prior to the completion of this offering, Mr. Shing Yung Ma, our chairman and chief executive officer, beneficially owned 37.9% of our outstanding share capital. Upon the completion of this offering, Mr. Ma will beneficially own approximately 30.0% of our outstanding share capital, assuming the underwriters do not exercise their over-allotment option. Because of this high level of shareholding, Mr. Ma has substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. Mr. Ma may take actions that are not in the best interest of us or our other shareholders. 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. These actions may be taken even if they are opposed by our other shareholders.
 
In addition, immediately prior to the completion of this offering, Sequoia Capital China I, L.P. and its affiliates, or Sequoia, SIG China Investments One, Ltd. and its affiliates, or SIG, and Pacven Walden Ventures VI, L.P. and its affiliate, or Walden, beneficially owned 18.9%, 7.4% and 5.5% of our outstanding share capital, respectively. Upon the completion of this offering, Sequoia, SIG and Walden will beneficially own approximately 15.1%, 6.0% and 4.4% of our outstanding share capital, respectively, assuming the underwriters do not exercise their over-allotment option. These shareholders, if acting together, will be able to exercise significant influence over matters requiring shareholder approval, including the election of directors and the approval of significant corporate transactions. These shareholders will also have veto power, if acting together, with respect to any shareholder action or approval requiring a majority vote, except where they are required by the rules of the NASDAQ Global Market to abstain from voting. Such concentration of ownership may also have the effect of delaying, preventing or deterring a change in control of the Company which may benefit our ADS holders.
 
Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise those rights.
 
Holders of ADSs do not have the same rights as holders of our ordinary shares and ADS holders only have such rights as are specified in the deposit agreement, which generally are more restricted than the rights of holders of ordinary shares. Under our articles of association, the minimum notice period required to convene a general meeting is 10 days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ordinary shares are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholder meeting.


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You may be subject to limitations on transfers of your ADSs.
 
Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.
 
Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.
 
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 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.
 
You may not receive cash dividends if the depositary decides that it is inequitable or impractical to make them available to you.
 
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 such property, in which event you would not receive such distribution.
 
We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, you may have less protection of 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, the rights of minority shareholders to institute actions, 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 from English common law, the latter of 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 the United States. In particular, because the Cayman Islands has no legislation specifically dedicated to the rights of investors in securities, and thus no statutorily defined private causes of action specific to investors in securities such as those found under the Securities Act or the Securities Exchange Act in the United States, it provides less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States.


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There is uncertainty regarding whether Cayman Islands courts would:
 
  •  recognize or enforce against us or our directors or officers all judgments of courts of the United States predicated upon civil liability provisions of U.S. securities laws; and
 
  •  impose liability against us or our directors or officers, in original actions brought in the Cayman Islands, based on all civil liability provisions of U.S. securities laws or laws of any state in the U.S.
 
As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
 
Your ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them, will be limited because we are incorporated in the Cayman Islands, because we conduct substantially all of our operations in China and Hong Kong and because all of our directors and officers reside outside of the United States.
 
We are incorporated in the Cayman Islands, and we conduct substantially all of our operations in China and Hong Kong through our PRC or Hong Kong subsidiaries. All of our directors and officers reside, and substantially all of the assets of those persons are located, outside the United States. As a result, it may be difficult or impossible for you to bring an action in the United States against us or against these individuals in the event that you believe that your rights have been violated under U.S. securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands, China or Hong Kong may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands, China and Hong Kong, see “Enforceability of Civil Liabilities.”
 
Our articles of association will contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and ADSs.
 
We will be adopting amended and restated articles of association that will contain provisions limiting the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADSs or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.


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FORWARD-LOOKING STATEMENTS
 
This prospectus, including the sections titled “Prospectus Summary,” “Risk Factors,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Industry” and “Business,” contains forward-looking statements. Forward-looking statements convey our current expectations and views of future events. All statements contained in this prospectus other than statements of historical fact are forward-looking statements. The words “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” and other similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. These forward-looking statements include, among other things, statements about:
 
  •  our anticipated growth strategies, including enhancing our greenhouse coverage, increasing our production scale, strengthening our sales, marketing and distribution efforts, and expanding our research and develop capability;
 
  •  our future business development, results of operations and financial condition;
 
  •  weather conditions that affect the production, transportation, storage and export of fresh produce;
 
  •  trends and competition in the fresh vegetable market;
 
  •  future changes in laws or regulations affecting our business; and
 
  •  changes in general economic and business conditions in China.
 
In addition, this prospectus contains industry data related to our business and the markets in which we operate. This data includes projections that are based on a number of assumptions. If these assumptions turn out to be incorrect, actual results could differ from the projections.
 
We urge you to review carefully this prospectus, particularly the section “Risk Factors,” for a more complete discussion of the risks of an investment in our ADSs.
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Many factors discussed in this prospectus, which are important in determining our future performance, are beyond our control. Consequently, actual results may differ materially from those that might be anticipated from forward-looking statements. In light of these and other uncertainties, you should not regard the inclusion of a forward-looking statement in this prospectus as a representation by us that our plans and objectives will be achieved, and you should not place undue reliance on such forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.


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USE OF PROCEEDS
 
We estimate that the net proceeds to us from the sale of 9,200,000 ADSs we are offering will be approximately $77.4 million, after deducting estimated underwriting discounts, commissions and the estimated offering expenses payable by us.
 
We intend to use the net proceeds we receive from this offering for the following purposes:
 
  •  approximately $69.7 million to fund the construction and improvement of our greenhouses and other agricultural facilities; and
 
  •  the balance to fund the enhancement of our research and development capability, including the development of our information system.
 
Pending the use of proceeds from this offering described above, we intend to invest the proceeds in a variety of capital preservation investments, including short-term, investment-grade, interest-bearing instruments.
 
In using the proceeds of this offering, as an offshore holding company, we are permitted, under PRC laws and regulations, to provide funding to our PRC subsidiaries only through loans or capital contributions and to other entities only through loans. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our PRC subsidiaries or make additional capital contributions to our PRC subsidiaries to fund their capital expenditures or working capital. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all.
 
We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.


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CAPITALIZATION
 
The following table sets forth our capitalization, as of June 30, 2010:
 
  •  on an actual basis;
 
  •  on a pro forma basis to give effect to the issuance of 79,593,999 ordinary shares in October 2010 pursuant to the exercise of share options at a weighted average exercise price of $0.04153 per share; and
 
  •  on a pro forma, as adjusted basis to reflect (i) the issuance of 79,593,999 ordinary shares in October 2010 pursuant to the exercise of share options at a weighted average exercise price of $0.04153 per share, and (ii) the issuance and sale of 460,000,000 ordinary shares in the form of ADSs by us in this offering at the initial public offering price, after deducting underwriting discounts, commissions and estimated offering expenses payable by us, or estimated net proceeds of approximately $77.4 million.
 
The pro forma adjustments reflected below are subject to change and are based upon available information and certain assumptions that we believe are reasonable. You should read this capitalization table together with “Use of Proceeds,” “Selected Combined Financial and Operating Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our combined financial statements and related notes appearing elsewhere in this prospectus.
 
                                                 
    As of June 30, 2010
                    Pro Forma, as
    Actual   Pro Forma   Adjusted
    RMB   $   RMB   $   RMB   $
    (In thousands)
 
Bank Loan
    81,656       12,041       81,656       12,041       81,656       12,041  
Loan from Municipal Government
    1,410       208       1,410       208       1,410       208  
                                                 
Equity
                                               
Capital(1)
    307,689       45,372       330,163       48,686       859,110       126,684  
Reserves
    298,833       44,066       298,833       44,066       294,787       43,469  
Total Equity
    606,522       89,438       628,996       92,752       1,153,897       170,154  
                                                 
Capitalization
    689,588       101,687       712,062       105,001       1,236,963       182,403  
                                                 
 
 
(1) Actual capital amounts include both ordinary and preferred shares. The preferred shares will automatically convert into ordinary shares upon the completion of this offering and the conversion will have no impact on our capital.
 
This table is based on 1,050,000,000 of our ordinary shares outstanding as of June 30, 2010 and excludes:
 
  •  192,406,000 ordinary shares issuable upon the exercise of share options outstanding as of June 30, 2010 with exercise prices ranging from $0.0729 to $0.0757 per share and a weighted average exercise price of $0.0750 per share; and
 
  •  additional ordinary shares reserved for future grants under our share incentive plans.


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DILUTION
 
If you invest in our ADSs, your interest will be diluted for each ADS you purchase to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.
 
Our net tangible book value as of June 30, 2010 was approximately $89.4 million, or $0.0510 per ordinary share and $2.55 per ADS, after giving effect to the automatic conversion of our preferred shares into our ordinary shares upon the closing of this offering. Net tangible book value represents the amount of our total consolidated assets, less the amount of our total consolidated liabilities and intangible assets. Dilution is determined by subtracting net tangible book value per ordinary share from the initial public offering price per ordinary share, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
 
Without taking into account any other changes in net tangible book value after June 30, 2010 other than to give effect to our sale of ADSs offered in this offering at the initial public offering price of $9.50 per ADS after deduction of the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book value as of June 30, 2010 would have been $166.8 million, or $0.0754 per outstanding ordinary share and $3.77 per ADS. This represents an immediate increase in net tangible book value of $0.0244 per ordinary share and $1.22 per ADS to the existing shareholders, and an immediate dilution in net tangible book value of $0.1146 per ordinary share and $5.73 per ADS to investors purchasing ADSs in this offering. The following table illustrates such dilution:
 
                 
Initial public offering price per ADS
          $ 9.50  
Historical tangible book value per ordinary share as of June 30, 2010
          $ 0.0852  
Pro forma net tangible book value per ordinary share after giving effect to the conversion of our preferred shares
          $ 0.0510  
Pro forma net tangible book value per ADS after giving effect to the conversion of our preferred shares
          $ 2.55  
Pro forma net tangible book value per ordinary share after giving effect to the conversion of our preferred shares and this offering
          $ 0.0754  
Pro forma net tangible book value per ADS after giving effect to the conversion of our preferred shares and this offering
          $ 3.77  
Amount of dilution in net tangible book value per ordinary share to new investors in the offering
          $ 0.1146  
Amount of dilution in net tangible book value per ADS to new investors in the offering
          $ 5.73  
 
The following table summarizes, on a pro forma basis as of June 30, 2010, the differences between existing shareholders and the new investors with respect to the number of ordinary shares (in the form of ADSs or shares) purchased from us, the total consideration paid and the average price per ordinary share and ADS paid before deducting the underwriting discounts and commissions and estimated offering expenses.
 
                                                 
                            Average
       
                            Price Per
    Average
 
    Ordinary Shares Purchased     Total Consideration     Ordinary
    Price Per
 
    Number     %     Amount     %     Share     ADS  
 
Existing shareholders
    1,753,997,000       79     $ 41,493,845       32     $ 0.02366     $ 1.1828  
New investors
    460,000,000       21       87,400,000       68     $ 0.19000     $ 9.5000  
                                                 
Total
    2,213,997,000       100     $ 128,893,845       100                  
                                                 


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The discussion and tables above exclude the issue of 79,593,999 ordinary shares in October 2010 pursuant to the exercise of shares option at a weighted average exercise price of $0.04153 per share and assume no exercise of any other outstanding share options. As of the date of this prospectus, there are 198,416,001 ordinary shares issuable upon exercise of outstanding share options at a weighted average exercise price of $0.0765 per share, and there are additional ordinary shares available for future issuance upon the exercise of future grants under our share incentive plans. To the extent that any of these options is exercised, there will be further dilution to new investors.


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DIVIDEND POLICY
 
We have not paid any dividends in the past and do not anticipate paying dividends on our ordinary shares in the foreseeable future. We currently intend to retain future earnings, if any, to operate our business and finance future growth strategies while also continuing to pay down indebtedness. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. In addition, as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our ability to pay cash dividends is limited by the terms of our existing senior notes indenture and senior secured facilities indebtedness, and may be limited by the instruments governing our future indebtedness.
 
Our board of directors has complete discretion on whether to pay dividends, subject to the approval of our shareholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See “Description of American Depositary Shares.” Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
 
We are a holding company, and we rely on dividends paid by our operating subsidiaries in China and Hong Kong for our cash needs, including the funds necessary to pay dividends and other cash distributions to our shareholders, service any debt we may incur and pay our operating expenses. The payment of dividends in China is subject to limitations. Regulations in the PRC currently permit payment of dividends by our PRC subsidiaries only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Our PRC subsidiaries are required to set aside at least 10% of their after-tax profits each year to contribute to their respective reserve funds until the accumulated balance of the reserve funds reach 50% of their respective registered capital. They are also required to reserve a portion of their after-tax profits to their employee welfare and bonus fund, the amount of which is determined by their respective board of directors. These funds are not distributable in the form of loans, advances or cash dividends. Furthermore, if any of our subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. Except for Linong Agriculture Technology (Liaoyang) Co. Ltd., none of our PRC subsidiaries distributed any dividends from its undistributed earnings for any of the years or periods prior to June 30, 2010. We have determined that it is probable that dividends will not be distributed in the foreseeable future from the undistributed profits of our PRC subsidiaries accumulated up to June 30, 2010.


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ENFORCEABILITY OF CIVIL LIABILITIES
 
We are incorporated in the Cayman Islands. A majority of our directors and executive officers (and certain experts named in this prospectus) reside outside the United States and a substantial portion of the assets of our company and these persons are located outside the United States. As a result, it may be difficult for investors to effect service of process upon these persons within the United States or to enforce against us or these persons in U.S. courts, judgments obtained in U.S. courts, including judgments based on the civil liability provisions of the federal securities laws of the United States. In addition, it may be difficult for investors to enforce, in original actions brought in courts in jurisdictions located outside the United States, liabilities based on the U.S. federal securities laws.
 
We have appointed Law Debenture Corporate Services Inc., 400 Madison Avenue, Suite 4D, New York, New York 10017 as our agent to receive service of process with respect to any action brought against us under the securities laws of the United States.
 
We have been advised by our Cayman Islands counsel, Maples and Calder, that there is uncertainty as to whether the courts of the Cayman Islands would enforce judgments of United States courts obtained against us or these persons predicated upon the civil liability provisions of the United States federal and state securities laws or in original actions brought in the Cayman Islands, liabilities against us or these persons predicated upon the United States federal and state securities laws.
 
A final and conclusive judgment in federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes or other similar charges, fines, other penalties or multiple damages, may be subject to enforcement proceedings as a debt in a court of the Cayman Islands under the common law doctrine of obligation. Among other things, in order for this type of judgment to be enforced in the Cayman Islands, it is necessary to demonstrate that the court that gave the judgment was competent to hear the action in accordance with private international law principles as applied in the Cayman Islands and that the judgment is not contrary to public policy in the Cayman Islands, has not been obtained by fraud or in proceedings contrary to natural justice and was not based on error in Cayman Islands law. However, Cayman Islands courts are unlikely to enforce a punitive judgment of a United States court predicated upon the liabilities provision of the federal securities laws in the United States without retrial on the merits if such judgment gives rise to obligations to make payments that may be regarded as fines, penalties or similar charges.
 
We have been advised by Trend Associates, our PRC counsel, that there is uncertainty as to whether the courts of the PRC would enforce judgments of United States courts obtained against us or these persons predicated upon the civil liability provisions of the United States federal and state securities laws or in original actions brought in the PRC, liabilities against us or these persons predicated upon the United States federal and state securities laws. Trend Associates has further advised us that the recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between the PRC and the country where the judgment is made or on reciprocity between jurisdictions. If there are no treaties or reciprocity arrangements between the PRC and a foreign jurisdiction where a judgment is rendered, according to PRC Civil Procedures Law, matters relating to the recognition and enforcement of the foreign judgment in the PRC may be resolved through diplomatic channels. The PRC does not have any treaties or other arrangements with the United States or the Cayman Islands that provide for the reciprocal recognition and enforcement of foreign judgments. As a result, it is generally difficult to enforce in the PRC a judgment rendered by a U.S. or Cayman Islands court.


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EXCHANGE RATE INFORMATION
 
Our combined financial statements and other financial data included in this prospectus are presented in RMB. Our business and operations are primarily conducted in China. The conversion of RMB into U.S. dollars in this prospectus for periods through December 31, 2008 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. For January 1, 2009 and all later dates and periods, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the Federal Reserve Board. Convenience translations into U.S. dollars are provided for certain RMB amounts as of and for the fiscal year ended March 31, 2010 and as of and for the three months ended June 30, 2010. Unless otherwise noted, all convenience translations from RMB to U.S. dollars and from U.S. dollars to RMB in this prospectus were made at a rate of RMB6.7815 to $1.00, the exchange rate in effect as of June 30, 2010. We make no representation that any RMB or U.S. dollar amounts referred to in this prospectus could have been or could be converted into U.S. dollars or RMB, as the case may be, at any particular rate or at all. The PRC government imposes controls 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 October 22, 2010, the exchange rate was RMB6.659 to $1.00.
 
The following table sets forth, for each of the periods indicated, the low, average, high and period-end exchange rates, in RMB per U.S. dollar. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you.
 
                                 
    Exchange Rate
    Period
           
Period
  End   Average(1)   Low   High
 
2005
    8.0702       8.1826       8.2765       8.0702  
2006
    7.8041       7.9579       8.0702       7.8041  
2007
    7.2946       7.5806       7.8127       7.2946  
2008
    6.8225       6.9193       7.2946       6.7800  
2009
    6.8259       6.8295       6.8470       6.8176  
2010
                               
January
    6.8268       6.8269       6.8295       6.8258  
February
    6.8258       6.8285       6.8330       6.8258  
March
    6.8258       6.8262       6.8270       6.8254  
April
    6.8247       6.8256       6.8275       6.8229  
May
    6.8305       6.8275       6.8310       6.8245  
June
    6.7815       6.8184       6.8323       6.7815  
July
    6.7735       6.7762       6.7807       6.7709  
August
    6.8069       6.7873       6.8069       6.7670  
September
    6.6905       6.7396       6.8102       6.6869  
October (through October 22)
    6.659       6.667       6.691       6.640  
 
 
(1) Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant period.
 
Source: Federal Reserve Board of New York and Federal Reserve Statistical Release


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SELECTED COMBINED FINANCIAL AND OPERATING DATA
 
We have derived our selected combined balance sheet and income statement data as of and for the years ended March 31, 2008, 2009 and 2010 from our audited combined financial statements, which are prepared and presented in accordance with IFRS and are included elsewhere in this prospectus. We have derived our selected combined income statement data for the three months ended June 30, 2009 and 2010 and our selected combined balance sheet data as of June 30, 2010 from our unaudited condensed combined interim financial statements, which are included elsewhere in this prospectus and have been prepared on the same basis in all material respects as our audited combined financial statements. Our financial information for the three months ended June 30, 2009 and 2010 includes all adjustments, consisting only of normal and recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the periods presented. The selected financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. The historical results do not necessarily indicate results expected for any future periods.
 
Financial information for the years ended March 31, 2006 and 2007 are not included as such information is not available on a basis that is consistent with the combined financial information for the years ended March 31, 2008, 2009 and 2010 and cannot be provided on a IFRS basis without unreasonable effort or expense.
 
                                                             
      Year Ended March 31,   Three Months Ended June 30,
      2008     2009   2010   2009   2010
      RMB     RMB   RMB   $   RMB   RMB   $
      (In thousands, except per share and per ADS data)
Combined Income Statement Data:
                                                           
Revenue
      153,559         198,995       280,512       41,364       53,838       83,317       12,286  
Cost of inventories sold
      (129,228 )       (174,288 )     (238,277 )     (35,136 )     (43,776 )     (79,251 )     (11,686 )
Changes in fair value less costs to sell related to:
                                                           
                                                             
Crops harvested during the year/period
      52,689         80,795       119,009       17,549       10,611       20,018       2,952  
Growing crops on the farmland at the year/period end
      17,558         16,548       33,734       4,974       25,036       27,552       4,063  
                                                             
                                                             
Total changes in fair value less costs to sell of biological assets
      70,247         97,343       152,743       22,523       35,647       47,570       7,015  
                                                             
Results from operating activities
      40,874         60,067       111,700       16,471       28,447       23,551       3,473  
Profit for the year/period
      38,445         60,413       110,202       16,250       28,297       23,495       3,465  
                                                             
Earnings per ordinary/preferred share (in cents)(1)
                                                           
Basic
      2.85         3.61       6.52       0.96       1.69       1.34       0.20  
                                                             
Diluted
      2.85         3.57       6.43       0.95       1.67       1.32       0.19  
                                                             
Earnings per ADS (in cents)
                                                           
Basic
      142.50         180.50       326.00       48.00       84.50       67.00       10.00  
                                                             
Diluted
      142.50         178.50       321.50       47.50       83.50       66.00       9.50  
                                                             
Other Financial Data:
                                                           
Adjusted cost of inventories sold(2)
      (63,602 )       (75,661 )     (102,565 )     (15,124 )     (20,661 )     (29,794 )     (4,393 )
Adjusted profit for the year/period(3)
      33,824         61,697       93,171       13,739       15,765       25,431       3,750  
Adjusted EBITDA(4)
      52,849         89,042       135,603       19,998       24,516       40,025       5,902  
 


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                    Three Months
    Year Ended March 31,   Ended June 30,
    2008   2009   2010   2010
    RMB   RMB   RMB   US$   RMB   US$
    (In thousands)
 
Combined Balance Sheet Data:
                                               
Assets
                                               
Property, plant and equipment
    125,943       239,093       357,862       52,770       351,563       51,841  
Construction in progress
    26,709       18,988       17,402       2,566       63,650       9,386  
Lease prepayments
    1,225       2,620       2,516       371       2,490       367  
Long-term deposits and prepayments
    11,411       21,538       31,559       4,654       32,971       4,862  
Biological assets
    2,306       2,993       5,186       765       5,510       813  
                                                 
Total non-current assets
    167,594       285,232       414,525       61,126       456,184       67,269  
                                                 
Biological assets
    24,378       22,594       45,005       6,636       37,789       5,572  
Inventories
    3,952       3,202       2,938       433       3,975       586  
Trade and other receivables
    134,337       21,657       36,779       5,424       37,825       5,578  
Cash
    85,360       107,939       139,207       20,527       179,268       26,435  
                                                 
Total current assets
    248,027       155,392       223,929       33,020       258,857       38,171  
                                                 
Total assets
    415,621       440,624       638,454       94,146       715,041       105,440  
                                                 
                                                 
                                                 
Equity
                                               
Share capital
    14       14       307,689       45,372       307,689       45,372  
Reserves
    366,057       424,652       272,355       40,161       298,833       44,066  
                                                 
Total equity
    366,071       424,666       580,044       85,533       606,522       89,438  
                                                 
Liabilities
                                               
Bank loan
                34,290       5,056       81,656       12,041  
Loan from municipal government
          1,000       1,410       208       1,410       208  
                                                 
Total non-current liabilities
          1,000       35,700       5,264       83,066       12,249  
                                                 
Bank loan
                            6,000       885  
Trade and other payables
    46,558       11,766       18,628       2,747       15,371       2,266  
Current taxation
    2,992       3,192       4,082       602       4,082       602  
                                                 
Total current liabilities
    49,550       14,958       22,710       3,349       25,453       3,753  
                                                 
Total liabilities
    49,550       15,958       58,410       8,613       108,519       16,002  
                                                 
Total equity and liabilities
    415,621       440,624       638,454       94,146       715,041       105,440  
                                                 
 
                     
    As of March 31,   As of June 30,
    2008   2009   2010   2009   2010
 
Selected Operating Data:
                   
Total arable land area(5)
  17,103 mu
(1,140 hectares)
  16,525 mu
(1,102 hectares)
  18,850 mu
(1,257 hectares)
  17,038 mu
(1,136 hectares)
  18,850 mu
(1,257 hectares)
Total greenhouse land area
  2,668 mu
(178 hectares)
  3,117 mu
(208 hectares)
  4,420 mu
(295 hectares)
  3,157 mu
(210 hectares)
  3,941 mu
(263 hectares)
Greenhouse land area as a percentage of total arable land area
  15.6%   18.9%   23.4%   18.5%   20.9%

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    Year Ended March 31,   Three Months Ended June 30,
 
  2008   2009   2010   2009   2010
 
Total production output
  57,085
tonnes
  69,240
tonnes
  98,076
tonnes
  20,653
tonnes
  29,267
tonnes
Production yield(6)(7)
  3.6 tonnes
per mu
  3.9 tonnes
per mu
  5.4 tonnes
per mu
  1.2 tonnes
per mu
  1.6 tonnes
per mu
Revenue-per-mu(5)(8)
  RMB9,611   RMB11,167   RMB15,497
($2,285)
  RMB3,160   RMB4,420
($652)
 
 
(1) Holders of our ordinary shares and preferred shares have equal rights to receive dividends from our earnings. Preferred shares will automatically convert into ordinary shares on an one-to-one basis upon the completion of this offering. The automatic conversion is not expected to result in retrospective adjustments to the reported amounts of basic and diluted earnings per share for the fiscal years ended March 31, 2008, 2009 and 2010 and the three months ended June 30, 2009 and 2010 since the weighted average number of shares used in the calculation of basic and diluted earnings per share includes both ordinary and preferred shares.
 
(2) Adjusted cost of inventories sold is defined as cost of inventories sold before biological assets fair value adjustment. We are primarily engaged in agricultural activities of cultivating, processing and distributing vegetables and have therefore adopted International Accounting Standard 41 “Agriculture,” or IAS 41, in accounting for biological assets and agricultural produce. Unlike the historical cost accounting model, IAS 41 requires us to recognize in our income statements the gain or loss arising from the change in fair value less costs to sell of biological assets and agricultural produce for each reporting period. Cost of inventories sold determined under IAS 41 reflects the deemed cost of agricultural produce, which is based on their fair value (less costs to sell) at the point of harvest. Biological assets fair value adjustment is the difference between the deemed cost of the agricultural produce and the plantation expenditure we incurred to cultivate the produce to the point of harvest. Although an “adjusted” cost of inventories sold excluding these fair value adjustments is a non-IFRS measure, we believe that separate analysis of the cost of inventories sold excluding these fair value adjustments adds clarity to the constituent parts of our cost of inventories sold and provides additional useful information for investors to assess our cost structure. Set forth below is a reconciliation of adjusted cost of inventories sold to the most directly comparable IFRS measure, cost of inventories sold.
 
                                                         
    Year Ended March 31,   Three Months Ended June 30,
    2008   2009   2010   2009   2010
    RMB   RMB   RMB   $   RMB   RMB   $
    (In thousands)
 
Cost of inventories sold
    (129,228 )     (174,288 )     (238,277 )     (35,136 )     (43,776 )     (79,251 )     (11,686 )
Less: biological assets fair value adjustment
    (65,626 )     (98,627 )     (135,712 )     (20,012 )     (23,115 )     (49,457 )     (7,293 )
                                                         
Adjusted cost of inventories sold
    (63,602 )     (75,661 )     (102,565 )     (15,124 )     (20,661 )     (29,794 )     (4,393 )
                                                         
 
(3) Adjusted profit for the year/period is defined as profit for the year/period before the net impact of biological assets fair value adjustment. As discussed in note (2) above, IAS 41 requires us to recognize in our income statements the gain or loss arising from the change in fair value less costs to sell of biological assets and agricultural produce for each reporting period, and to recognize as cost of inventories sold at the deemed cost based on their fair value (less costs to sell) at the point of harvest. We believe that separate analysis of net impact of these fair value adjustments adds clarity to the constituent part of our results of operations and provides additional useful information for investors to assess the operating performance of our business. Set forth below is a reconciliation of adjusted profit for the year/period to the most directly comparable IFRS measure, profit for the year/period.
 
                                                         
    Year Ended March 31,   Three Months Ended June 30,
    2008   2009   2010   2009   2010
    RMB   RMB   RMB   $   RMB   RMB   $
    (In thousands)
 
Profit for the year/period
    38,445       60,413       110,202       16,250       28,297       23,495       3,465  
Adjustments for net impact of biological assets fair value adjustment:
                                                       
Add: biological assets fair value adjustment included in cost of inventories sold
    65,626       98,627       135,712       20,012       23,115       49,457       7,293  
Less: changes in fair value less costs to sell of biological assets
    (70,247 )     (97,343 )     (152,743 )     (22,523 )     (35,647 )     (47,570 )     (7,015 )
                                                         
Net impact of biological assets fair value adjustment
    (4,621 )     1,284       (17,031 )     (2,511 )     (12,532 )     1,887       278  
                                                         
Adjusted profit for the year/period
    33,824       61,697       93,171       13,739       15,765       25,382       3,743  
                                                         


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(4) Adjusted EBITDA is defined as EBITDA (earnings before net finance income (expense), income tax expense (benefit), depreciation and amortization), as further adjusted to exclude the effects of non-cash share-based compensation and the non-cash impact of biological assets fair value adjustment under IAS 41. Although the nature of many of these income and expense items is recurring, we have historically excluded such impact from internal performance assessments. We believe that separate analysis and exclusion of the impact of biological assets fair value adjustment under IAS 41 adds clarity to the constituent parts of our performance and provides additional useful information for investors to assess the operating performance of our business.
 
   We believe adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. You should use adjusted EBITDA as a supplemental analytical measure to, and in conjunction with, our IFRS financial data. In addition, we believe that adjusted EBITDA is useful in evaluating our operating performance compared to that of other companies in our industry because the calculation of adjusted EBITDA generally eliminates the effects of non-cash expenses and the effects of financing and income taxes and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to overall operating performance. We use these non-IFRS financial measures for planning and forecasting and measuring results against the forecast. Using several measures to evaluate the business allows us and investors to assess our relative performance against our competitors and ultimately monitor our capacity to generate returns for our shareholders.
 
   Set forth below is a reconciliation of adjusted EBITDA to the most directly comparable IFRS measure, profit for the year/period.
 
                                                         
    Year Ended March 31,   Three Months Ended June 30,
    2008   2009   2010   2009   2010
    RMB   RMB   RMB   $   RMB   RMB   $
    (In thousands)
 
Profit for the year/period
    38,445       60,413       110,202       16,250       28,297       23,495       3,465  
Add:
                                                       
Amortization of lease prepayments
    33       87       104       15       26       26       4  
Depreciation
    11,401       24,464       35,057       5,170       7,309       10,500       1,548  
Finance costs
    43             709       105       181       115       17  
Income tax expense
    2,635       200       890       131                    
Share-based compensation
    5,162       3,140       5,773       851       1,266       4,061       599  
Biological assets fair value adjustment included in cost of inventories sold
    65,626       98,627       135,712       20,014       23,115       49,457       7,293  
                                                         
Less:
                                                       
Finance income
    249       546       101       15       31       59       9  
Changes in fair value less costs to sell of biological assets
    70,247       97,343       152,743       22,523       35,647       47,570       7,015  
                                                         
Adjusted EBITDA
    52,849       89,042       135,603       19,998       24,516       40,025       5,902  
                                                         
 
(5) Total arable land area excludes land that we used on a temporary basis.
 
(6) For the purposes of calculating production yield and revenue-per-mu, average land area within each reporting period and also includes land that we use on a temporary basis to generate the production output and revenue.
 
(7) Production yield is calculated by dividing total production output by total arable land within each reporting period.
 
(8) Revenue-per-mu is calculated by dividing revenue by average arable land within each reporting period.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled “Selected Combined Financial and Operating Data” and our combined financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and elsewhere in this prospectus.
 
Overview
 
We are one of the largest greenhouse vegetable producers in China as measured by the area of greenhouse coverage and we have the highest greenhouse coverage ratio among major vegetable producers in China, according to a Frost & Sullivan report commissioned by us. We focus on applying advanced agricultural know-how to grow safe and consistently high-quality vegetables.
 
We sell over 100 varieties of vegetables to wholesalers, institutional customers and supermarket chains in China and Hong Kong. Our customers include leading international hypermarket chain Walmart and the top three Hong Kong supermarket chains, Wellcome, ParknShop and Vanguard, each with stringent vendor qualification requirements. Sales to wholesalers are our largest revenue contributor and accounted for 30.3%, 47.5%, 49.0% and 55.4% of our total revenue in the fiscal year ended March 31, 2008, 2009 and 2010 and the three months ended June 30, 2010, respectively.
 
We operated 16 farms with an aggregate area of 18,850 mu (1,257 hectares) in the Chinese provinces of Fujian, Guangdong and Hebei as of June 30, 2010. Fourteen of our farms, with an aggregate area of 14,868 mu (991 hectares), are located in Fujian and Guangdong near our target markets in southern China, which offers a favorable climate for year-around crop cultivation. In addition, we operate two farms in Hebei province to produce vegetables that grow best in a cooler climate. By the end of the fiscal year ending March 31, 2011, we plan to add another 2,000 mu (133 hectares) of arable land in areas adjacent to existing production bases in Fujian and Guangdong and increase our greenhouse land area by 2,600 mu (173 hectares) to approximately 6,500 mu (433 hectares). As of the date of this prospectus, we expect to incur RMB240.1 million to expand our production bases and increase our greenhouse land area in the fiscal year ending March 31, 2011. In the three months ended June 30, 2010, we incurred RMB54.0 million in connection with these expansion plans. We use greenhouses to grow vegetables in most of our Fujian and Guangdong farms. As of June 30, 2010, our greenhouses covered approximately 20.9% of our total arable land. Greenhouses protect our crops from adverse weather conditions, such as typhoons and rainstorms, that are common in the summer in southern China. They also create a favorable microclimate that, together with our horticultural know-how, allows us to grow and sell high-priced vegetables of superior quality and uniform size, color and ripeness that are desired by consumers, as well as off-season vegetables during the winter, which enables us to avoid selling into a highly commoditized market. Compared to open-field farming, greenhouse cultivation improves our production yield, profit margins and return on our investment expenditures. Accordingly, our greenhouses have contributed to a significantly higher percentage of our revenues than would be suggested by their percentage coverage of our arable land.
 
Our business is labor intensive. As of June 30, 2010, we hired 2,348 farm workers to perform all agricultural labor work on our farms. We have observed an overall tightening of the labor market in the PRC and an emerging trend of shortage of labor supply in China. Furthermore, labor costs have been increasing in China in recent years and may continue to increase in the near future. Our labor costs amounted to RMB14.5 million, RMB16.2 million, RMB22.3 million ($3.3 million) and RMB6.2 million ($918,000) in the fiscal years ended March 31, 2008, 2009 and 2010 and the three months ended June 30, 2010, respectively, accounting for 11.2%, 9.3%, 9.4% and 7.9% of our total costs of inventories sold after biological asset fair value adjustment during the respective period. We do not expect that the overall tightening of the labor market will have a material adverse effect on our expansion plans, as our standardized production process can be


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easily followed by farm workers with minimal skills, allowing us to hire farm workers from a large labor pool. However, an increase in labor costs will increase our business operation costs and our financial position may be adversely affected.
 
In the fiscal years ended March 31, 2008, 2009 and 2010, our revenue was RMB153.6 million, RMB199.0 million and RMB280.5 million ($41.4 million), respectively, representing a CAGR of 35.1%. Our profit for the year increased from RMB38.4 million in the fiscal year ended March 31, 2008 to RMB60.4 million in the fiscal year ended March 31, 2009 and to RMB110.2 million ($16.3 million) in the fiscal year ended March 31, 2010, representing a CAGR of 69.4%. In the three months ended June 30, 2010, our revenue was RMB83.3 million ($12.3 million) and our profit was RMB23.5 million ($3.5 million), compared to revenue of RMB53.8 million and profit of RMB28.3 million for the three months ended June 30, 2009.
 
Key Factors Affecting Our Results of Operations
 
We believe the following factors have had, and will continue to have, a significant impact on our results of operations:
 
Revenue-Per-Mu
 
The key metric used by our management in evaluating our financial performance is revenue-per-mu, or the revenue that a unit measure of arable land generates. Revenue-per-mu is determined by our production yield, defined as the production output that a unit measure of arable land generates, and the price at which we can sell our produce. Our revenue-per-mu was RMB9,611, RMB11,167 and RMB15,497 ($2,285) in the fiscal years ended March 31, 2008, 2009 and 2010. Our revenue-per-mu was RMB3,160 and RMB4,420 ($652) in the three months ended June 30, 2009 and 2010, respectively.
 
Production yield
 
Our production yield was 3.6 tonnes, 3.9 tonnes and 5.4 tonnes per mu in the fiscal years ended March 31, 2008, 2009 and 2010. Our production yield was 1.2 tonnes and 1.6 tonnes per mu in the three months ended June 30, 2009 and 2010, respectively. Our production yield is affected by various factors, primarily our greenhouse coverage, our horticultural know-how and our production planning. Our production yield has been significantly enhanced by our greenhouse cultivation. Greenhouses increase production output by allowing crops to grow faster and year round and protecting crops from extreme weather conditions, such as typhoons and windstorms. According to Frost & Sullivan, we are one of the largest greenhouse vegetable producers in China based on area of greenhouse coverage as of June 30, 2010. As of March 31, 2008, 2009 and 2010, a total of 2,668 mu (178 hectares), 3,117 mu (208 hectares) and 4,420 mu (295 hectares), respectively, of our arable land was covered by greenhouses, accounting for 15.6%, 18.9% and 23.4% of our total arable land for each period, respectively. As of June 30, 2010, a total of 3,941 mu (263 hectares) of our arable land was covered by greenhouses, accounting for 20.9% of our total arable land.
 
We have been able to further increase our production yield by applying advanced cultivation techniques at each step of the cultivation process to improve soil productivity, enhance crop nutrient content and minimize crop diseases, pests and weeds. Relying on our greenhouse cultivation, proprietary horticultural know-how and our effective production planning supported by our comprehensive database, we are able to schedule and control crop plantation and harvest to meet higher market price of our crops, thereby achieving better market selling price. We intend to further increase our production yield by continuing to increase our greenhouse coverage and enhance our horticultural know-how.
 
Product pricing
 
The prices of our produce are determined by several factors, including general economic conditions, market competition, weather conditions, seasonal factors, sales channels and most importantly, the supply of and demand for different types of vegetables.


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The price of a particular type of vegetable is volatile and fluctuates depending on seasonal factors, the distance between vegetable farms and markets, the supply of and demand for it in the marketplace throughout the year, which in turn depends on weather conditions, including level of precipitation, temperature and other extreme weather conditions, local preferences and festivities. We focus on cultivating high-value vegetables during off-season periods, and through careful production planning and the use of advanced horticultural know-how to control the crop cycle, seek to sell them during the periods in which they are most in demand to achieve higher prices and profits.
 
At the end of each calendar year, based on our analysis of historical vegetable price movement patterns in our target markets, we prepare our plantation plan for the next calendar year, including vegetable varieties, plantation volumes and plantation schedules. We adjust our annual plan of vegetable selection and production schedule based on market demand gathered by our sales and marketing teams, who communicate such information to our headquarters in each target market. When our meteorological and historical pricing database indicates that the market price of a particular type of vegetable may rise, we plant this type of vegetable in our greenhouses. We plant the seedlings, as opposed to seeds, of this type of vegetable so that we can shorten the crop cycle to benefit from the higher market price. When the market price of a certain type of vegetable that we are growing declines, we can delay the harvest while preserving the vegetable quality. Consequently, we capture higher market prices of particular types of vegetables in the market, thus gaining higher gross profit margins and improving our results of operations.
 
Size of Arable Land
 
Our total production capacity depends to a large extent on the size of our arable land. As of June 30, 2010, we leased a total of 18,850 mu (1,257 hectares) of arable land, compared to 17,103 mu (1,140 hectares) as of March 31, 2008 and 16,525 mu (1,102 hectares) as of March 31, 2009. As land is a precious commodity in China, while we seek to increase our arable land, we have also been building greenhouses extensively to improve our production yield and grow our total production capacity. Our production output increased from 57,085 tonnes in the fiscal year ended March 31, 2008 to 69,240 tonnes in the fiscal year ended March 31, 2009 and to 98,076 tonnes in the fiscal year ended March 31, 2010, representing a CAGR of 31.1%. Our production output increased from 20,653 tonnes in the three months ended June 30, 2009 to 29,267 tonnes in the three months ended June 30, 2010.
 
We source most of our land from farmer households, local villagers’ committees or local governments. Although China is one of the largest countries in the world by land area, arable land in recent years has been increasingly scarce due to extensive urbanization and property development. Sourcing arable land in China has been highly competitive because of the increased demand for land for agricultural and other uses. Because the supply of arable land that can be leased from the farmers is limited, competition is fierce in obtaining such leases. According to Frost & Sullivan, in 2009, 99% of arable land with greenhouses was cultivated by individual farmers, while only 1% was cultivated by vegetable production companies like us.
 
Market Demand
 
Our ability to increase production and grow our revenue is driven in part by the increasing demand in China for safe and high-quality fresh vegetables. China’s large population and its increasing level of disposable income per capita drive the growing demand for high-quality fresh vegetables. As disposable income per capita increases, the average Chinese diet has diversified from a largely carbohydrate-based diet of staples to include more meat, fruits and vegetables. Affluent households increasingly recognize the nutritional benefits of a balanced and more healthful diet that includes different varieties of fresh vegetables. In particular, demand for high-quality, off-season fresh vegetables is growing. We currently target the Guangdong, Fujian and Hong Kong markets, which have demonstrated a strong demand for fresh vegetables, with a combined market size of 14.8 million tonnes in 2009. We plan to expand the distribution network of our produce into the Yangtze River delta, an affluent and populous region where demand for high-quality fresh vegetables is growing. We plan to set up wholesale operations in nine coastal provinces across China to target regions with high retail purchasing power. We intend to grow our market share in this large market.


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Financial Overview
 
Revenue
 
We derive substantially all of our revenue from the sale of fresh vegetables. Our revenue increased from RMB153.6 million in the fiscal year ended March 31, 2008 to RMB199.0 million in the fiscal year ended March 31, 2009 and to RMB280.5 million ($41.4 million) in the fiscal year ended March 31, 2010. Our revenue increased from RMB53.8 million in the three months ended June 30, 2009 to RMB83.3 million ($12.3 million) in the three months ended June 30, 2010. The growth in sales of our produce is largely attributable to increases in our revenue-per-mu and the size of our arable land.
 
Our revenue-per-mu increased from RMB9,611 per mu (RMB144,171 per hectare) for the fiscal year ended March 31, 2008 to RMB11,167 per mu (RMB167,507 per hectare) for the fiscal year ended March 31, 2009 and to RMB15,497 per mu (RMB232,460 per hectare) for the fiscal year ended March 31, 2010. Our revenue-per-mu increased from RMB3,160 per mu (RMB47,400 per hectare) in the three months ended June 30, 2009 to RMB4,420 per mu (RMB66,300 per hectare) in the three months ended June 30, 2010. The increase in our revenue-per-mu during these periods was primarily attributable to the increase in the greenhouse coverage, the increase in the size of our arable land in southern China, the improvement in our horticultural know-how, our effective production planning and our ability to adjust our product mix to achieve higher prices. As of March 31, 2008, 2009 and 2010 and June 30, 2010, a total of 2,668 mu (178 hectares), 3,117 mu (208 hectares), 4,420 mu (295 hectares) and 3,941 mu (263 hectares) of our arable land was covered by greenhouses, respectively, accounting for 15.6%, 18.9%, 23.4% and 20.9% of our total arable land for each period, respectively. The size of our arable land covered by greenhouses decreased from 4,420 mu (295 hectares) as of March 31, 2010 to 3,941 mu (263 hectares) as of June 30, 2010, as we phased out older greenhouses and had not installed replacement steel structure greenhouses. The size of our arable land amounted to 17,103 mu (1,140 hectares), 16,525 mu (1,102 hectares), 18,850 mu (1,257 hectares) and 18,850 mu and (1,257 hectares) as of March 31, 2008, 2009 and 2010 and June 30, 2010, respectively.
 
We sell fresh vegetables to wholesalers, institutional customers and supermarket chains in China and Hong Kong. The following table sets forth a breakdown of our revenue by sales channels, in absolute amounts and as a percentage of total revenue, for the periods indicated.
 
                                                                                                 
    Fiscal Year Ended March 31,   Three Months Ended June 30,
    2008   2009   2010   2009   2010
    RMB   %   RMB   %   RMB   $   %   RMB   %   RMB   $   %
    (In thousands, except percentages)
 
Wholesalers
    46,557       30.3       94,537       47.5       137,546       20,283       49.0       25,142       46.7       46,141       6,804       55.4  
Institutional customers
    81,987       53.4       77,284       38.8       100,969       14,889       36.0       21,902       40.7       28,094       4,143       33.7  
Supermarkets
    24,685       16.1       26,845       13.5       41,235       6,081       14.7       6,591       12.2       9,039       1,333       10.8  
Others(1)
    330       0.2       329       0.2       762       112       0.3       203       0.4       43       6       0.1  
                                                                                                 
Total
    153,559       100.0       198,995       100.0       280,512       41,364       100.0       53,838       100.0       83,317       12,286       100.0  
                                                                                                 
 
 
(1) Includes retailers and small distributors who are not our regular customers.
 
Sales to wholesalers were our largest revenue contributor in the fiscal years ended March 31, 2009 and 2010. Sales through wholesale channels include direct sales to wholesalers at wholesale markets and sales to wholesalers at our farms. We bear the transportation costs and risks for direct sales to wholesalers at wholesale markets, while wholesalers bear the transportation costs and risks for sales at our farms. We sell our produce to wholesalers at prevailing market prices, and do not enter into long-term supply contracts with our wholesale customers. Sales to wholesalers grew from RMB46.6 million in the fiscal year ended March 31, 2008 to RMB137.5 million ($20.3 million) in the fiscal year ended March 31, 2010, representing a CAGR of 71.8%. Sales to wholesalers increased by 83.5% from RMB25.1 million in the three months ended June 30, 2009 to RMB46.1 million ($6.8 million) in the three months ended June 30, 2010. The faster growth of our sales to wholesalers was primarily attributable to (i) the successful implementation of our strategy to adjust our


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product mix to meet the increasing local and regional demand for high-quality fresh vegetables in the PRC domestic market, and (ii) the increasing recognition of our corporate brand in the wholesale market.
 
Sales to institutional customers were our largest revenue contributor in the fiscal year ended March 31, 2008. Most of our sales to institutional customers are made to export traders, who purchase vegetables from us and resell them in the overseas markets. Our institutional customers also include produce processing companies, large company cafeterias and large logistic traders. Sales to our top five institutional customers by revenue accounted for 75.3%, 59.1%, 60.6% and 61.6% of our total sales to institutional customers in the fiscal years ended March 31, 2008, 2009 and 2010 and the three months ended June 30, 2010, respectively. We typically do not enter into long-term supply contracts with our institutional customers. Pricing of produce sold to produce processing companies and export traders is negotiated between the parties taking into account the market price trend at the time when the purchase orders are placed. Pricing of produce sold to large company canteens and large logistic traders is determined based on purchase orders placed on a monthly basis. Our institutional customers place purchase orders up to six months in advance of delivery.
 
We also sell our produce to supermarket chains in Hong Kong and China, with Hong Kong sales constituting a major portion of the supermarket sales. We either make direct sales to supermarket chains or sell our produce in these supermarket chains on a concessionaire basis. In direct sales, we sell our produce to supermarket chains which in turn sell them to consumers. In concessionaire sales, supermarket chains allow us to sell our produce to consumers directly in their stores and we pay concessionaire fees to these supermarket chains. In direct sales, supermarkets place purchase orders in three to twelve months in advance of delivery, while most of the concessionaire sales are made on spot. The pricing terms in both direct sales and concessionaire sales are based on prevailing market prices. The concessionaire fees we pay to supermarket chains in connection with our concessionaire sales vary among different supermarket chains. We typically do not enter into long-term supply contracts with our supermarket chain customers.
 
From time to time, we also purchase certain vegetables that we do not produce from third parties to fulfill the diverse demand of the customers of our concessionaire supermarket sales points in Hong Kong.
 
Our customer base has increased from 203 customers in the fiscal year ended March 31, 2008 to 230 customers in the fiscal year ended March 31, 2010. Sales to our top five customers collectively accounted for 43.5%, 27.9% and 27.8% of our revenue in the fiscal years ended March 31, 2008, 2009 and 2010, respectively. Sales to our top five customers collectively accounted for 25.7% and 22.7% of our revenue in the three months ended June 30, 2009 and 2010, respectively. No single customer accounted for over 10% of our revenue during any of the fiscal years ended March 31, 2008, 2009 and 2010 or the three months ended June 30, 2010.
 
Biological Asset Fair Valuation and Its Impact on Cost of Inventories and Results of Operations
 
As a company primarily engaged in agricultural activities, we have adopted International Accounting Standard 41 “Agriculture,” or IAS 41, in the measurement of biological assets and agriculture produce. IAS 41 applies to biological assets, such as living plants related to managed agricultural activity that are in the process of growing, degenerating, regenerating and/or procreating and that are expected to eventually result in agricultural produce, as well as agricultural produce at the point of harvest. Our biological assets represent the growing crops, including vegetables, fresh fruits, tea trees and fir trees in our various production bases in China.
 
We recognize in our income statements the changes in the fair value less costs to sell of biological assets, which include the agricultural produce (vegetables and fruits) harvested during the reporting period and the vegetables and trees on the farmland at each reporting period end. In addition, cost of inventories sold represents the deemed cost of the agricultural produce based on the fair value less costs to sell at the point of harvest. Costs to sell are the incremental costs incurred in selling the agricultural produce. With respect to the agricultural produce harvested during the reporting period, the fair value of our biological assets in their present locations and condition is determined based on the current market price of these biological assets. With respect to the vegetables and trees on the farmland at each reporting period end, the fair value of our biological assets in their present locations and conditions is determined at the present value of expected cash


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flows from the biological assets discounted at a market-determined pre-tax rate, with reference to the species, growing conditions, costs incurred and expected yield of the crops.
 
Cost of inventories sold determined under IAS 41 reflects the deemed cost of agricultural produce, which is based on their fair value (less costs to sell) at the point of harvest. Biological assets fair value adjustment is the difference between the deemed cost of the agricultural produce and the plantation expenditure we incurred to cultivate the produce to the point of harvest. For agricultural produce harvested and sold during the year, the fair value adjustment represents the total changes in fair value less costs to sell for that particular agricultural produce, which include the fair value gain or loss that arose in both the current and the prior periods, and therefore differ from the amount of changes in fair value less costs to sell related to crops harvested during the year/period. Although adjusted cost of inventories sold (cost of inventories sold before biological assets fair value adjustment) is a non-IFRS measure, we believe that separate analysis of the cost of inventories sold excluding these fair value adjustments adds clarity to the constituent parts of our cost of inventories sold and provides additional useful information for investors to assess our cost structure. Cost of inventories sold before biological asset fair value adjustment comprises primarily the cost of seeds, fertilizers, pesticides, consumable materials such as plastic films and bamboo and steel sticks for our greenhouses, labor costs associated with cultivation activities, manufacturing expenses of our farmland facilities such as rents, salaries for administrative staff, utilities and depreciation, and costs associated with the purchase of certain vegetables that we do not produce from third parties to fulfill the diverse demand of the customers of our concessionary supermarket sales points in Hong Kong. Our cost of inventories sold before biological assets fair value adjustment increased from RMB63.6 million in the fiscal year ended March 31, 2008 to RMB75.7 million in the fiscal year ended March 31, 2009 and to RMB102.6 million ($15.1 million) in the fiscal year ended March 31, 2010, in line with increased revenue. Our cost of inventories sold before biological assets fair value adjustment increased from RMB20.7 million in the three months ended June 30, 2009 to RMB29.8 million ($4.4 million) in the three months ended June 30, 2010.
 
The following table sets forth our costs of inventories sold by components, both as an absolute amount and as a percentage of total costs of inventories sold.
 
                                                                                                 
    Year Ended March 31,   Three Months Ended June 30,
    2008   2009   2010   2009   2010
    RMB   %   RMB   %   RMB   $   %   RMB   %   RMB   $   %
    (In thousands, except percentages)
 
Cost of raw materials
    23,040       17.8       28,115       16.1       37,896       5,588       15.9       6,296       14.4       7,098       1,047       9.0  
Labor costs
    14,517       11.2       16,249       9.3       22,302       3,289       9.4       5,531       13.0       6,228       918       7.9  
Manufacturing expenses
    22,449       17.4       28,738       16.5       32,708       4,823       13.7       7,533       16.8       14,429       2,128       18.1  
Costs of third-party vegetables
    3,596       2.8       2,560       1.5       9,660       1,424       4.0       1,301       3.0       2,039       300       2.6  
                                                                                                 
Costs of inventories sold before biological assets fair value adjustment
    63,602       49.2       75,661       43.4       102,565       15,124       43.0       20,661       47.2       29,794       4,393       37.6  
Biological assets fair value adjustments
    65,626       50.8       98,627       56.6       135,712       20,012       57.0       23,115       52.8       49,457       7,293       62.4  
                                                                                                 
Costs of inventories sold
    129,228       100.0       174,288       100.0       238,277       35,136       100.0       43,776       100.0       79,251       11,686       100.0  
                                                                                                 
 
The gain or loss arising from the changes in fair value less costs to sell of our biological assets are partially offset by the corresponding gain or loss included in the cost of inventories sold, to the extent that the agricultural produce is sold, as the harvested agricultural produce is also stated at the fair value less cost to sell at the point of harvest. In line with our expansion of production, our changes in fair value less costs to sell of biological assets amounted to RMB70.2 million, RMB97.3 million and RMB152.7 million ($22.5 million) in the fiscal years ended March 31, 2008, 2009 and 2010, respectively, which was offset by the fair value adjustments included in the costs of inventories sold of RMB65.6 million, RMB 98.6 million and RMB 135.7 million ($20.0 million), for the years ended March 31, 2008, 2009 and 2010, respectively, and our changes in fair value less costs to sell adjustments of biological assets amounted to RMB35.6 million and RMB47.6 million ($7.0 million) in the three months ended June 30, 2009 and 2010, respectively, which was


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offset by the fair value adjustments included in the costs of inventories sold of RMB23.1 million and RMB49.5 million ($7.3 million) in the three months ended June 30, 2009 and 2010, respectively.
 
As a result, our cost of inventories sold after biological assets fair value adjustment represented the agricultural produce sold during the year at their fair value less costs to sell at the point of harvest, and have increased in line with the increase in our revenue, amounting to RMB129.2 million, RMB174.3 million and RMB238.3 million ($35.1 million) in the fiscal year ended March 31, 2008, 2009 and 2010, respectively. Our cost of inventories sold after biological assets fair value adjustment was RMB43.8 million and RMB79.3 million ($11.7 million) in the three months ended June 30, 2009 and 2010, respectively.
 
The following table sets forth the biological assets fair value adjustment included in cost of inventories sold, the changes in fair value less costs to sell of biological assets and the net impact of biological asset fair value adjustments to our results of operations.
 
                                                         
    Year Ended March 31,   Three Months Ended June 30,
    2008   2009   2010   2009   2010
    RMB   RMB   RMB   $   RMB   RMB   $
    (In thousands)
 
Biological assets fair value adjustment included in cost of inventories sold
    (65,626 )     (98,627 )     (135,712 )     (20,012 )     (23,115 )     (49,457 )     (7,293 )
Changes in fair value less costs to sell of biological assets
    70,247       97,343       152,743       22,523       35,647       47,570       7,015  
                                                         
Net impact
    4,621       (1,284 )     17,031       2,511       12,532       (1,887 )     (278 )
                                                         
 
The net impact of biological asset fair value adjustments is primarily driven by:
 
  •  the volume of crops on the land at the period ends;
 
  •  the product mix of the crops on the land at the period ends; and
 
  •  the market prices at the period ends of different products.
 
We plant different types of vegetables with different yields and selling prices during different periods. The net impact of biological assets fair value adjustment for each reporting period is attributable to the comparison of the adjustment to record our unharvested biological assets at fair value at the beginning of the reporting period and such fair value adjustment related to our unharvested biological assets at the end of the reporting period. As the quantity, product mix and market prices at the beginning and end of each reporting period are different, it is not meaningful to discuss the net impact of biological asset fair value adjustments of the reporting period by comparing different products’ prices and yields.
 
Changes in fair value less costs to sell reported in each period include the biological assets fair value gain or loss arising from both (1) crops harvested during the period and (2) growing crops on the farmland at the period end. The growing crops on the farmland at the period end will be carried forward to future reporting periods and as the crops are harvested and sold, the related biological assets fair value gain or loss up to point of harvest is included in the determination of cost of inventories sold for the period in which the inventory is sold. The factors driving the changes in fair value less costs to sell relating to harvested crops or growing crops are generally the same, such as product mix and the market prices of different types of crops at the time of harvest or at period end. Furthermore, because the growth cycle of our crops is generally less than one year, the time factor is insignificant and it would not be meaningful to discuss the drivers separately. We believe the separate preparation of the two components of the changes in fair value less costs to sell, together with the discussion of the costs of inventories sold (including the effect of the biological assets fair value adjustment), provide relevant and useful financial information for the various stages of our agricultural production cycle.


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Operating Costs and Expenses
 
The following table sets forth our operating expenses, both as an absolute amount and as a percentage of total revenue for the periods indicated.
 
                                                                                                 
    Year Ended March 31,   Three Months Ended June 30,
    2008   2009   2010   2009   2010
    RMB   %   RMB   %   RMB   $   %   RMB   %   RMB   $   %
    (In thousands, except percentages)
 
                                                                                                 
Packing expenses
    14,426       9.4       15,620       7.8       18,281       2,696       6.5       3,892       7.2       4,938       728       5.9  
                                                                                                 
Land preparation costs
    6,284       4.1       9,755       4.9       12,434       1,834       4.4       2,654       4.9       5,084       750       6.1  
                                                                                                 
Research and development expenses
    7,291       4.7       5,855       2.9       6,519       961       2.3       920       1.7       1,334       197       1.6  
                                                                                                 
Selling and distribution expenses
    7,477       4.9       10,097       5.1       18,207       2,685       6.5       3,987       7.4       4,271       630       5.1  
                                                                                                 
Administrative expenses
    17,103       11.1       17,900       9.0       25,059       3,695       8.9       5,821       10.8       10,236       1,509       12.3  
                                                                                                 
Other expenses
    1,183       0.8       3,980       2.0       3,404       502       1.2       4       0.0       2,327       343       2.8  
 
Packing expenses.  Our packing expenses primarily consist of materials utilized to pack our vegetables, labor costs and miscellaneous expenses associated with our packing and processing facilities. Our packing expenses were RMB14.4 million, RMB15.6 million and RMB18.3 million ($2.7 million) in the fiscal years ended March 31, 2008, 2009 and 2010, respectively, representing 9.4%, 7.8% and 6.5% of our revenue in those respective periods. Our packing expenses were RMB3.9 million and RMB4.9 million ($723,000) in the three months ended June 30, 2009 and 2010, respectively, representing 7.2% and 5.9% of our revenue in those respective periods. The increase in our total packing expenses was primarily due to the increase in sales. In general, produce sold to institutional and supermarket customers entail higher packing expenses than those sold to the wholesale market. Packing expenses, as a percentage of revenue, decreased in the three fiscal years ended March 31, 2010, because (i) wholesale customers contributed to an increased portion of sales, from 30.3% in fiscal 2008, to 47.5% in the fiscal year ended March 31, 2009, and to 49% in the fiscal year ended March 31, 2010, and (ii) our production scale increased. Packing expenses, as a percentage of revenue, decreased to 5.9% in the three months ended June 30, 2010 from 7.2% in the same period in 2009, for the same reasons.
 
Land preparation costs.  We leave parts of our farmlands uncultivated in between plantation cycles to improve soil quality, and recognize expenses associated with the uncultivated land during these periods. Furthermore, some of the parcels of land we lease are not used for plantation immediately after we rent them. We record the rent, the depreciation of facilities on the land, and other miscellaneous costs relating to preparing these lands parcels as an expense. We expect this expense to increase as we continue to expand our production and lease more land, which will result in additional losses associated with land before plantation, in non-cultivation periods and in between growing seasons.
 
Research and development expenses.  We incur research and development expenses in connection with our research and development activities focusing on developing more effective cultivation techniques, improving produce quality and increasing production yield. Our research and development expenses consist primarily of:
 
  •  direct cost of materials used in research and development such as seeds, fertilizers, pesticides and consumable materials;
 
  •  salaries and related expenses for research and development personnel;
 
  •  rent for our research facilities; and
 
  •  depreciation.
 
Our research and development expenses were RMB7.3 million, RMB5.9 million and RMB6.5 million ($961,000) in the fiscal year ended March 31, 2008, 2009 and 2010, respectively, representing 4.7%, 2.9% and 2.3% of our revenue in those respective periods. Our research and development expenses were RMB920,000 and RMB1.3 million ($192,000) in the three months ended June 30, 2009 and 2010, respectively, representing 1.7% and 1.6% of our revenue in those respective periods. Out of these research and development expenses, RMB3.7 million, RMB2.5 million and RMB1.2 million ($177,000) was incurred in the fiscal year ended March 31, 2008, 2009 and 2010, respectively, in connection with our research and development projects to


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grow tomatoes in southern China. We did not incur any research and development expenses in connection with these projects in the three months ended June 30, 2009 and 2010. We anticipate that our research and development expenses will increase as we continue to experiment with new horticultural know-how, new varieties and new plantation models.
 
Selling and distribution expenses.  Our selling and distribution expenses primarily consist of transportation expenses to transport vegetables from our farms to their points of sale, salaries, employee benefits, bonuses and related expenses for our sales and marketing staff, concessionaire fees and rebates paid to the supermarkets in Hong Kong to sell our produce in these supermarkets, packaging and loading expenses, and advertising expenses and concessionaire fees paid to the supermarkets to sell our produce in these supermarkets. Our selling and distribution expenses were RMB7.5 million, RMB10.1 million and RMB18.2 million ($2.7 million) in the fiscal years ended March 31, 2008, 2009 and 2010, respectively, representing 4.9%, 5.1% and 6.5% of our revenue in those respective periods. Our selling and distribution expenses were RMB4.0 million and RMB4.3 million ($634,000) in the three months ended June 30, 2009 and 2010, respectively, representing 7.4% and 5.1% of our revenue in those respective periods. We expect our selling and distribution expenses to increase as we plan to strengthen our brand building efforts and expand and broaden our sales, marketing and distribution network and enter new markets.
 
Administrative expenses.  General and administrative expenses primarily consist of the following:
 
  •  salaries, bonuses and benefits for our administrative and management personnel;
 
  •  auditing fees and legal and other professional fees; and
 
  •  travel and other expenses associated with our corporate and administrative activities.
 
Our administrative expenses were RMB17.1 million, RMB17.9 million and RMB25.1 million ($3.7 million) in the fiscal years ended March 31, 2008, 2009 and 2010, respectively, representing 11.1%, 9.0% and 8.9% of our revenue in those respective periods. Our administrative expenses were RMB5.8 million and RMB10.2 million ($1.5 million) in the three months ended June 30, 2009 and 2010, respectively, representing 10.8% and 12.3% of our revenue in those respective periods. We expect that our general and administrative expenses will increase as we hire additional personnel and incur additional costs associated with the growth of our business. We also expect to incur additional general and administrative expenses, including compliance related costs to support our future operations as a U.S. listed public company.
 
Other expenses.  Other expenses include expenses associated with natural disaster losses for crops on exposed lands, losses associated with the disposal of fixed assets, profit and loss adjustments for previous years, and so forth.
 
Critical Accounting Policies
 
We prepare our financial statements in conformity with IFRS, which require us to make judgments, estimates and assumptions. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.
 
An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could material impact the combined financial statements. We believe that the following accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. The following descriptions of critical accounting policies, judgments and estimates should be read in conjunction with our combined financial statements and other disclosures included in this prospectus.


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Fair Value of Biological Assets and Agricultural Produce
 
Biological assets include vegetables and fruits which are to be harvested as agricultural produce, tea and other trees which are not agricultural produce but are self-regenerating for sustaining regular harvests of agricultural produce.
 
We account for biological assets and agricultural produce by applying IAS41 — Agriculture. Under IAS 41, biological assets are measured on initial recognition and at the end of each reporting period at their fair value less cost to sell; agricultural produce harvested from biological assets are measured at its fair value less costs to sell at the point of harvest. With respect to the agricultural produce harvested during the reporting period, the fair value of our biological assets is determined based on the current market price of these biological assets in their present location and condition. The fair value is determined based on the market price at which our agricultural produce is sold to customers on the date of harvest, adjusted for packing and transportation costs. With respect to the vegetables and trees on the farmland at each reporting period end, the fair value is determined at the present value of expected cash flows from the biological assets discounted at a market-determined pre-tax rate, with reference to the species, growing conditions, costs incurred and expected yield of the crops. We estimate that it takes one to ten months to grow our vegetable crops and approximately 13 years to 30 years to grow our trees on the farmland before they can be harvested. For the fiscal year ended March 31, 2010, the revenue contributed by the tree business accounted for less than 0.3% of our total revenue. Costs to sell include all incremental costs directly attributable to the sale of the biological assets. The change in fair value less costs to sell of a biological asset is included in profit or loss of the period in which it arises. We record such gains or losses in our Combined Income Statement under “Changes in fair value less costs to sell of biological assets.”
 
The determination of fair value of biological assets and agricultural produce requires us to make complex and subjective estimates and assumptions about the expected production output and market price of crops on the land.
 
We engaged Jones Lang LaSalle Sallmanns Limited, an independent valuer, to assist us in determining the fair value of biological assets and agricultural produce in the fiscal years ended March 31, 2009 and 2010 and Asset Appraisal Limited, an independent valuer, to assist in determining the fair value of biological assets and agricultural produce in the fiscal year ended March 31, 2008. We applied weighted average cost of capital as a discount rate to reflect the risks of the cash flows as how the risks of the cash flows from growing crops should be borne by both the equity holders and the debt holders. In determining the discount rate, we have considered factors including the risk free rate, the market return, the re-levered beta, the size premium and the specific premium. We used 29.24% as the discount rate for orchards and 14.24% as the discount rate for vegetables in the fiscal year ended March 31, 2008. We used 20.67% to 20.86% as the discount rate for orchards and 14.77% as the discount rate for vegetables in the fiscal year ended March 31, 2009 and 18.23% to 18.36% as the discount rate for orchards and 14.73% as the discount rate for vegetables in the fiscal year ended March 31, 2010. The decrease is discount rates from 2008 to 2010 reflects our decreased risk profile as we gained more experience in the vegetable production industry.
 
Changes in the estimates and assumptions regarding the expected market price, production output and the discount rates in the valuation of our biological assets and agricultural produce could significantly impact the estimated fair values of our biological assets and agricultural produce and, as a result, our net income. For illustration purposes, in the fiscal year ended March 31, 2010:
 
  •  a 5% increase or decrease in the vegetable prices we assumed, in the absence of other changes, will result in an RMB3.3 million ($500,000) increase or decrease in our net change in fair value less costs to sell of biological assets and profit for the year; and
 
  •  an increase or decrease in the average discount rate we used by one percentage point, in the absence of other changes, will result in an RMB441,000 ($65,000) decrease or increase in our net change in fair value less costs to sell of biological assets and profit for the year.
 
We recorded audit adjustments of RMB1.5 million ($217,000) and RMB477,000 ($70,000) related to the fair value of trees and vegetables, respectively, in the fiscal year ended March 31, 2010. These adjustments


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primarily resulted from the changes in the assumptions and estimates relating to discount rates adopted in the valuation of our biological assets. We subsequently adopted the specific premium only into the cost of equity instead of total number of weighted average cost of capital and updated the specific premium from 5% to 4% to reflect lesser risk of our production. Furthermore, we determined that it was more appropriate to reference the beta and debt/equity ratio of comparable PRC companies listed on the Hong Kong Stock Exchange, as opposed to those of comparable companies listed in China. As a result, the discount rate for vegetables was changed from 12.69% to 14.73% and the discount rate for trees was changed from 17.52%–17.69% to 18.23%–18.36%.
 
Share Option Valuation
 
In May 2007, China Linong International Limited, or China Linong, adopted a share option scheme, under which it made option grants on May 23, 2007 to Winsome Group Limited, which is held by certain directors and employees of our company. In April 2009, China Linong adopted another share option scheme, under which it made option grants on April 17, 2009 and March 29, 2010. As of March 31, 2010, 116,010 options granted to directors, 67,000 options granted to employees, and 35,000 options granted to others providing similar services, respectively, were outstanding which were subsequently exchanged for 116,010,000, 67,000,000 and 35,000,000 options, respectively, following our restructuring and share swap with China Linong in July 2010.
 
We account for share-based payments under the provisions of IFRS 2, Share-based Payment, or IFRS 2. Under IFRS 2, we are required to measure the cost of employee and consultant services received in exchange for an award of equity instruments based on the grant-date fair value of the award and recognize the expense in our combined statements of comprehensive income over the period during which an employee is required to provide service in exchange for the award. The additional expenses associated with share-based compensation may reduce the attractiveness of our equity incentive plans to directors, employees and consultants.
 
We engaged Asset Appraisal Limited, an independent appraiser, to determine the fair value of options granted to our employees for the year ended March 31, 2008 and Avista Valuation Advisory Limited, an independent appraiser, to determine the fair value of options granted to our employees and others providing similar services for the fiscal year ended March 31, 2010. Asset Appraisal Limited and Avista Valuation Advisory Limited applied Black-Scholes pricing model in determining the fair value of the options granted to employees and others providing similar services. These models require the input of highly subjective assumptions including the expected stock price volatility, the expected life at which employees are likely to exercise share options. For expected volatilities, Asset Appraisal Limited and Avista Valuation Advisory Limited made reference to historical volatilities of several comparable companies. The risk-free rate for periods within the expected life of the option was based on the yield of USD China Sovereign Bond Rate denominated in USD with similar terms in effect at the time of grant.
 
Asset Appraisal Limited and Avista Valuation Advisory Limited used the income approach to assess our enterprise value at the grant date. Under this method, indications of value have been developed by discounting future free cash flow to the firm to their present worth at discount rates which we believe are appropriate for the risks of the business. The discount rate used is the weighted average cost of capital (WACC) to reflect the risks of the cash flows. As we were a privately held company at the grant date and the discount rate used was based on WACC for publicly traded comparable companies, Asset Appraisal Limited and Avista Valuation Advisory Limited deducted the interest bearing debts and added back any excess net asset/ liabilities from the enterprise value, and then applied a further discount for lack of marketability to derive the total equity value of our company.
 
The discount rate for the lack of marketability is 30%, 28% and 23% for the share options granted on May 23, 2007, April 17, 2009 and March 29, 2010, respectively. The determination of the marketability discount rates was based on the study on quantitative marketability discount model published in The CPA Journal and the put option approach (Black-Scholes model).


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Under the option pricing method, the lack of marketability discount is determined by the following key parameters or variables as of each grant date:
 
  •  time to expect the liquidity event, i.e. an initial public offering, which is determined based on the management’s expected timing of an initial public offering;
 
  •  company risks associated with holding an investment in an illiquid market, including the required holding return, the growth in underlying value during the holding period and the expected cash flow distributions during the holding period;
 
  •  prevailing risk free rate; and
 
  •  volatility in the underlying security.
 
To the extent our capital structure was comprised of the ordinary shares and the preferred shares as of the grant date, we adopted the option pricing method to allocate total equity value derived to different classes of shares, in accordance with “Valuation of Privately-Held-Company Equity Securities Issued as Compensation” developed by the American Institute of Certified Public Accountants. This method treats preferred shares and ordinary shares as call options on our total equity value, with exercise prices based on the liquidation preference of the preferred shares. The option pricing method involves making estimate of the expected timing of the potential liquidity event such as the sales of our company or initial public offering, and estimate of the volatility of our equity securities. The expected timing is based on the plan of our board of directors and management.
 
We measure the fair value of services received in return for share options granted by reference to the fair value of share options granted. Set forth below are the assumptions we applied to calculate the fair value of the options on the grant date using the Black-Scholes pricing model, the information given has not reflected the 1,000-for-1 effect resulting from the share exchange of our options and shares for China Linong options and shares.
 
             
    At May 23, 2007
  At April 17, 2009
  At March 29, 2010
    (Date of Grant)   (Date of Grant)   (Date of Grant)
 
Fair value at measurement date
  $21.23   $20.35 – $23.85   $29.12 – $32.09
Share price
  $42.54   $50.15   $60.61
Exercise price
  $35.40   $72.93   $75.70
Expected volatility
(expressed as average volatility used in the modeling under the Black-Scholes Option Pricing model)
  48.77%   51.30% – 53.70%   56.90%
Option life
(expressed as weighted average life used in the modeling under the Black-Scholes Option Pricing model)
  4 years   5.5 – 6.5 years   5.5 – 6.5 years
Expected dividends
     
Risk-free interest rate
(based on USD China Sovereign Bond Rate)
  5.27%   3.75% – 3.90%   2.96% – 3.26%
 
We believe that the difference between the fair value of $0.0606 per share (after giving effect to the 1,000-for-1 exchange of our shares for shares in China Linong to establish our company as our listing vehicle) as of March 29, 2010 and the offering price per ordinary share represented by the ADSs of $0.1900 (giving effect to the ADS-to-ordinary share ratio of 1:50), is primarily attributable to the following factors:
 
Market factors
 
  •  The 23% discount for lack of control and marketability previously used to value our ordinary shares is no longer applicable.


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  •  From March 2010 to the date of this prospectus, valuations for securities of China-based companies listed on stock exchanges in the U.S. increased significantly, driven by demand from investors.
 
Business factors
 
The following factors, occurring after March 2010, have caused us to significantly increase our 2010 through 2015 estimated revenues and net income from March 2010 estimates and therefore our valuation:
 
  •  We have more aggressively implemented our plan to increase greenhouse coverage, which allows us to change our product mix to include more high-value produce.
 
  •  We have made progress toward achieving our business expansion plans, as evidenced by our entry into a concessionaire sale arrangement with Walmart in September 2010.
 
Depreciation and Estimated Useful Life
 
We record property, plant and equipment in the balance sheet at cost less accumulated depreciation and impairment losses. We determine the gains or losses arising from the retirement or disposal of an item of property, plant and equipment as the difference between the net disposal proceeds and the carrying amount of the item and are recognized in profit or loss on the date of retirement or disposal. We calculate depreciation to write off the cost of items of property, plant and equipment, less their estimated residual value, if any, using the straight-line method over their estimated useful lives as follows:
 
     
Land improvements, buildings and farmland infrastructure
 
— Shorter of the unexpired term of land leases and their estimated useful lives of 3 to 30 years
Equipment and machinery
  — 3 to 10 years
Motor vehicles
  — 3 to 10 years
Furniture, fixtures and computer equipment
  — 5 years
 
We capitalize costs relating to land improvements during the formative stage and depreciate these costs over the shorter of the unexpired term of the respective land leases or their estimated useful lives.
 
We capitalize depreciation of property, plant and equipment attributable to agricultural activities as part of inventory, and expense such depreciation when the inventory is sold. We charge depreciation relating to idle capacity to profit or loss in the accounting period in which it is incurred. Where parts of an item of property, plant and equipment have different useful lives, we allocate the cost of the item on a reasonable basis between the parts and each part is depreciated separately. We review both the useful life of an asset and its residual value, if any, annually.
 
Impairment of Assets
 
Impairment of non-current assets
 
We review internal and external sources of information at each balance sheet date to identify indications that the following assets may be impaired or an impairment loss previously recognized no longer exists or may have decreased:
 
  •  property, plant and equipment;
 
  •  construction in progress;
 
  •  lease prepayments; and
 
  •  long-term deposits and prepayments.
 
If any such indication exists, we estimate the asset’s recoverable amount.
 
  •  Calculation of recoverable amount.  The recoverable amount of an asset is the greater of its fair value less costs to sell and value in use. In assessing value in use, we discount the estimated future cash


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  flows to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, we determine the recoverable amount for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).
 
  •  Recognition of impairment losses.  We recognize an impairment loss is recognized in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. We allocate impairment losses recognized in respect of cash-generating units to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs to sell, or value in use, if determinable.
 
  •  Reversals of impairment provisions.  We reverse an impairment provision if there has been a favorable change in the estimates used to determine the recoverable amount.
 
We limit a reversal of an impairment provision to the asset’s carrying amount that would have been determined had no impairment loss been recognized in prior years. We credit reversals of impairment provisions to profit or loss in the year in which the reversals are recognized.
 
Impairment of receivables
 
We review current receivables that are carried at amortized cost at each balance sheet date to determine whether there is objective evidence of impairment. Objective evidence of impairment includes observable data that comes to our attention about one or more of the following loss events:
 
  •  significant financial difficulty of the debtor;
 
  •  breach of contract;
 
  •  it becoming probable that the debtor will enter bankruptcy or other financial reorganization; and
 
  •  significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.
 
If any such evidence exists, we determine and recognize the impairment loss as follows: for trade and other current receivables carried at amortized cost, we measure the impairment loss as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition of these assets), where the effect of discounting is material. We make assessment collectively where financial assets carried at amortized cost share similar risk characteristics, such as similar past due status, and have not been individually assessed as impaired. We base future cash flows for financial assets which are assessed for impairment collectively on historical loss experience for assets with credit risk characteristics similar to the collective group.
 
We write off impairment losses against the corresponding assets directly, except for impairment losses recognized in respect of trade receivables whose recovery is considered doubtful but not remote. In this case, we record the impairment losses for doubtful debts using an allowance account. When we are satisfied that recovery is remote, the amount considered irrecoverable is written off against trade receivables directly and any amounts held in the allowance account relating to that debt are reversed. We recognize other changes in the allowance account and subsequent recoveries of amounts previously written off directly in profit or loss. In the fiscal year ended March 31, 2010, we did not recognize any impairment loss in profit or loss nor write-off of uncollectible amount against the allowance account.
 
Taxation
 
The Cayman Islands, the British Virgin Islands and Hong Kong
 
Under the current laws of the Cayman Islands and the British Virgin Islands, or the BVI, we and our subsidiaries incorporated in the BVI are not subject to any tax on income or capital gains. In addition,


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dividend payments are not subject to withholding tax in those jurisdictions. No provision for Hong Kong profits tax has been made, as our Hong Kong subsidiaries did not generate any assessable profits in the fiscal years ended March 31, 2008, 2009 and 2010 and the three months ended June 30, 2010.
 
PRC
 
Enterprise Income Tax
 
Prior to January 1, 2008, pursuant to the old income tax regime of the PRC, some of our PRC subsidiaries, as foreign invested enterprises with an operation period of more than ten years, subject to approval by the relevant tax authority, were eligible for a 100% relief from PRC Enterprise Income Tax, or EIT, for the two years from their first profit-making year of operations from PRC tax perspective and thereafter were subject to EIT at 50% of the applicable income tax rate for the following three years. These PRC subsidiaries, except for Land V. Limited (Liaoyang) and Land V. Ltd (Fujian), were either within their tax holidays during the period from April 1, 2007 to December 31, 2007 or sustained losses for taxation purposes. For the period from April 1, 2007 to December 31, 2007, Land V. Limited (Liaoyang) and Land V. Ltd (Fujian) were in the third year of their tax holiday and were subject to EIT at a reduced rate of 13.5%.
 
On January 1, 2008, the new EIT law became effective. The new EIT law imposes a uniform EIT rate of 25% on all domestic enterprises and foreign invested enterprises unless they qualify under certain exceptions. According to the new EIT law and its implementation rules, from January 1, 2008, our PRC subsidiaries, except for Linong Agriculture Technology (Shenzhen) Co., Ltd., are eligible for a 100% relief from EIT, subject to approval by or registration with the relevant tax authority, because they are engaged in the cultivation and preliminary processing of vegetable products.
 
We did not pay EIT for Linong Agriculture Technology (Shenzhen) Co., Ltd. and Land V. Limited (Weifang) during the period from January 1, 2008 to March 31, 2009 and in 2010 as these subsidiaries sustained losses for taxation purposes during these periods.
 
The financial impact related to reduced tax rates and tax exemptions amounted to RMB11.0 million, RMB17.8 million and RMB32.9 million ($4.9 million) in the fiscal years ended March 31, 2008, 2009 and 2010, respectively. Without the preferential tax treatment, the impact on our net income and basic and diluted earnings per ordinary/preferred share for the following periods is as set forth below:
 
                                                         
    Year Ended March 31,   Three Months Ended June 30,
    2008   2009   2010   2009   2010
    RMB   RMB   RMB   $   RMB   RMB   $
    (In thousands, except for per share data)            
 
Profit for the year/period 
    11,036       17,774       32,906       4,852       8,582       8,045       1,186  
Basic earnings per ordinary/preferred share (in cents)
    0.82       1.06       1.95       0.29       0.51       0.46       0.07  
Diluted earnings per ordinary/preferred share (in cents)
    0.82       1.05       1.92       0.28       0.51       0.45       0.07  
 
As of the date of this prospectus, Land V. Ltd (Fujian), Fuzhou Land V. Group Co. Ltd., Linong Agriculture Technology Co. Ltd (Quanzhou), Land V. Ltd (Zhangjiakou), Land V. Agriculture Technology (Ningde) Co. Ltd, Linong Agriculture Technology (Shantou) Co. Ltd and Land V. Agriculture Technology (Huizhou) Co. Ltd. have registered with the tax authorities for tax exemptions under the new EIT law. We will apply for such exemptions for our remaining PRC subsidiaries. See “Risk Factors — Risks Related to Doing Business in China — Our business benefits from certain government incentives. Expiration of, or changes to, these incentives could have a material adverse effect on our operating results by significantly increasing our tax expenses.”
 
Pursuant to the new EIT law and its implementation rules, dividends payable to foreign investors are subject to a 10% withholding tax. Pursuant to the grandfathering arrangement, dividends receivable from our PRC subsidiaries in respect of their undistributed profits prior to December 31, 2007 are exempt from withholding tax. Under the taxation arrangement between the PRC and Hong Kong, a qualified Hong Kong


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tax resident which is the “beneficial owner” and directly holds 25% or more of the equity interest in a PRC-resident enterprise is entitled to a reduced withholding tax rate of 5%. During the fiscal year ended March 31, 2010, Land V. Limited (Liaoyang) declared a dividend of RMB23.0 million to its immediate holding company, Land V. Limited (Hong Kong). RMB12.1 million of this dividend was distributed from the retained profits of Land V. Limited (Liaoyang) after December 31, 2007 and was subject to 5% withholding tax.
 
In the fiscal year ended March 31, 2010, Land V. Limited (Hong Kong) disposed of a subsidiary, Land V. Limited (Tianjin), with a gain of RMB2.8 million for the PRC tax purposes, which is subject to 10% withholding tax. In the fiscal year ended Mach 31, 2009, Land V. Limited (Hong Kong) disposed of two subsidiaries, Land V. Limited (Weifang) and Land V. Limited (Hangzhou), with a gain of RMB2.0 million for the PRC tax purposes, which is subject to 10% withholding tax.
 
Value-added Tax
 
In accordance with the relevant tax laws in the PRC, value-added tax, or VAT, is levied on the value of sales of agricultural and related products at a general rate of 13%. We are required to remit the VAT collected to the tax authority, but may deduct the VAT that we have paid on eligible purchases. Except for Linong Agriculture Technology (Shenzhen) Co., Ltd., our PRC subsidiaries are exempt from VAT since they are engaged in the sales of self-produced agricultural products.
 
Internal Control Over Financial Reporting
 
Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. However, in connection with the audits of our combined financial statements, our registered public accounting firm identified a material weakness and two significant deficiencies in our internal control over financial reporting, as defined by Auditing Standard No. 5 of the Public Company Accounting Oversight Board. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A “significant deficiency” is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company’s financial reporting. The material weakness identified by our independent registered public accounting firm primarily related to an insufficient complement of personnel with an appropriate level of accounting knowledge, experience and training to prepare and review our IFRS financial statements and disclosures, which resulted, for example, in audit adjustments related to biological assets and income taxes. Significant deficiencies identified by our independent registered public accounting firm include those related to (i) insufficient formal anti-fraud control program, such as maintaining a whistleblower mechanism, policies regarding providing and receiving gifts and entertainment, specific guidelines on the level of details to be maintained in the books and records, and (ii) reconciliation procedures of intercompany transactions and balances between our consolidated group companies.
 
Following the identification of the material weaknesses, we have engaged an independent internal control advisor Ernst & Young to evaluate and help improve our internal control procedures. We will form an audit committee upon the effectiveness of the registration statement of which this prospectus forms a part to monitor and evaluate our financial performance, the transparency of our financial disclosure and the effectiveness of our internal control. However, the process of designing and implementing an effective financial reporting system is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a financial reporting system that is adequate to satisfy our reporting obligations. See “Risk Factors — Risks Related to Our Business — If we fail to establish an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ADSs may be adversely impacted.”


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Results of Operations
 
The following table sets forth a summary of our combined results of operations for the periods indicated. This information should be read together with our combined financial statements and related notes included elsewhere in this prospectus. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.
 
                                                             
      Year Ended March 31,   Three Months Ended June 30,
      2008     2009   2010   2009   2010
      RMB     RMB   RMB   $   RMB   RMB   $
      (In thousands, except for per share data)
Revenue
      153,559         198,995       280,512       41,364       53,838       83,317       12,286  
Cost of inventories sold
      (129,228 )       (174,288 )     (238,277 )     (35,136 )     (43,776 )     (79,251 )     (11,686 )
Changes in fair value less costs to sell related to:
                                                           
                                                             
Crops harvested during the year/period
      52,689         80,795       119,009       17,549       10,611       20,018       2,952  
Growing crops on the farmland at the year/period end
      17,558         16,548       33,734       4,974       25,036       27,552       4,063  
                                                             
                                                             
Total changes in fair value less costs to sell of biological assets
      70,247         97,343       152,743       22,523       35,647       47,570       7,015  
Packing expenses
      (14,426 )       (15,620 )     (18,281 )     (2,696 )     (3,892 )     (4,938 )     (728 )
Land preparation costs
      (6,284 )       (9,755 )     (12,434 )     (1,834 )     (2,654 )     (5,084 )     (750 )
Other income
      60         1,224       626       93       16       105       15  
Research and development expenses
      (7,291 )       (5,855 )     (6,519 )     (961 )     (920 )     (1,334 )     (197 )
Selling and distribution expenses
      (7,477 )       (10,097 )     (18,207 )     (2,685 )     (3,987 )     (4,271 )     (630 )
Administrative expenses
      (17,103 )       (17,900 )     (25,059 )     (3,695 )     (5,821 )     (10,236 )     (1,509 )
Other expenses
      (1,183 )       (3,980 )     (3,404 )     (502 )     (4 )     (2,327 )     (343 )
                                                             
Results from operating activities
      40,874         60,067       111,700       16,471       28,447       23,551       3,473  
Finance income
      249         546       101       15       31       59       9  
Finance costs
      (43 )             (709 )     (105 )     (181 )     (115 )     (17 )
                                                             
Net finance income/(costs)
      206         546       (608 )     (90 )     (150 )     (56 )     (8 )
Profit before taxation
      41,080         60,613       111,092       16,381       28,297       23,495       3,465  
Income tax expense
      (2,635 )       (200 )     (890 )     (131 )                    
                                                             
Profit for the year/period
      38,445         60,413       110,202       16,250       28,297       23,495       3,465  
                                                             


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The following table sets forth the biological assets fair value adjustment included in cost of inventories sold, the changes in fair value less costs to sell of biological assets and the net impact of biological asset fair value adjustments to our results of operations.
 
                                                         
    Year Ended March 31,   Three Months Ended June 30,
    2008   2009   2010   2009   2010
    RMB   RMB   RMB   $   RMB   RMB   $
    (In thousands)
 
Biological assets fair value adjustment included in cost of inventories sold
    (65,626 )     (98,627 )     (135,712 )     (20,012 )     (23,115 )     (49,457 )     (7,293 )
Changes in fair value less costs to sell of biological assets
    70,247       97,343       152,743       22,523       35,647       47,570       7,015  
                                                         
Net impact
    4,621       (1,284 )     17,031       2,511       12,532       (1,887 )     (278 )
                                                         
 
Three Months Ended June 30, 2010 Compared to Three Months Ended June 30, 2009
 
Revenue.  Our revenue increased by RMB29.5 million, or 54.8%, from RMB53.8 million in the three months ended June 30, 2009 to RMB83.3 million ($12.3 million) in the three months ended June 30, 2010. The increase in sales of our produce was attributable to the increase in our revenue-per-mu from RMB3,160 per mu (RMB47,400 per hectare) per fiscal quarter in the three months ended June 30, 2009 to RMB4,420 per mu (RMB66,300 per hectare) per fiscal quarter in the three months ended June 30, 2010, and the increase in the size of our arable land from 17,038 mu (1,136 hectares) as of June 30, 2009 to 18,850 mu (1,257 hectares) as of June 30, 2010.
 
The increase in our revenue-per-mu was primarily attributable to (1) an increase in our production yield from 1.2 tonnes per mu in the three months ended June 30, 2009 to 1.6 tonnes in the three months ended June 30, 2010, which was in turn attributable to an increase in our greenhouse area as a percentage of our total arable land from 18.5% as of June 30, 2009 to 20.9% as of June 30, 2010 as well as changes in our product mix and our improved horticultural know-how, and (2) an increase in the average selling prices of our produce from RMB2,607 per tonne in the three months ended June 30, 2009 to RMB2,847 ($419.8) per tonne in the three months ended June 30, 2010.
 
Cost of Inventories Sold.  Our cost of inventories sold increased by RMB35.5 million, or 81.1%, from RMB43.8 million in the three months ended June 30, 2009 to RMB79.3 million ($11.7 million) in the three months ended June 30, 2010.
 
Cost of inventories sold before biological assets fair value adjustment increased by RMB9.1 million, or 44.2%, from RMB20.7 million in the three months ended June 30, 2009 to RMB29.8 million ($4.4 million) in the three months ended June 30, 2010. Cost of inventories sold before biological asset fair value adjustment as a percentage of our revenue decreased slightly to 35.8% in the three months ended June 30, 2010 from 38.4% in the three months ended June 30, 2009. The increase in our cost of inventories sold before biological asset fair value adjustment was primarily due to (1) an RMB7.0 million increase in farmland operating expenses such as depreciation, rent, utilities, salaries and transportation expenses, as we built more greenhouses and expanded our production bases, (2) an RMB800,000 increase in costs of raw materials consumed, (3) an RMB700,000 increase in the purchase of certain vegetables that we did not produce from third parties to fulfill the diverse demand of the customers of our concessionaire supermarket sales points in Hong Kong, which was primarily due to the increase in our supermarket concessionaire sales, and (4) an RMB600,000 increase in direct labor costs related to cultivation activities.
 
Changes in Fair Value Less Costs to Sell of Biological Assets and Net Impact of Biological Asset Fair Value Adjustment.  Changes in fair value less costs to sell of biological assets increased by RMB12.0 million, or 33.4%, from RMB35.6 million in the three months ended June 30, 2009 to RMB47.6 million ($7.0 million) in the three months ended June 30, 2010.
 
The net impact of biological fair value adjustment for the three months ended June 30, 2010 was negative RMB1.9 million ($280,000), a loss. This was primarily attributable to the types of crops planted but


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unharvested during the three months ended June 30, 2010 had lower fair value per mu than those planted but unharvested during the three months ended March 31, 2010.
 
In comparison, the net impact of biological fair value adjustment for the three months ended June 30, 2009 was RMB12.5 million, a gain. This was due to an increase in the fair value gain of crops planted but unharvested during the three months ended June 30, 2009 primarily attributable to the increase in arable land with newly planted crops, as compared to the three months ended March 31, 2009.
 
As a result, the net impact of the biological asset fair value adjustment of the three months ended June 30, 2010 was much smaller than that of the three months ended June 30, 2009.
 
Packing Expenses.  Our packing expenses increased by RMB1.0 million, or 26.9%, from RMB3.9 million in the three months ended June 30, 2009 to RMB4.9 million ($723,000) in the three months ended June 30, 2010, primarily as a result of an RMB1.1 million increase in expenses incurred in connection with packaging materials consumed in line with the increase in our sales, which was partially offset by a slight decrease in rental expenses incurred for our use of storage facilities in Tianjin and Liaoyang.
 
Land Preparation Costs.  Our land preparation costs increased by RMB2.4 million, or 91.6%, from RMB2.7 million in the three months ended June 30, 2009 to RMB5.1 million ($752,000) in the three months ended June 30, 2010. The increase was primarily due to an increase of RMB2.4 million, or 106.3%, in losses associated with unoccupied land between growing seasons from RMB2.3 million in the three months ended June 30, 2009 to RMB4.7 million ($693,000) in the three months ended June 30, 2010, which was in turn due to an increase in our total arable land from 16,973 mu (1,132 hectares) in the three months ended June 30, 2009 to 18,850 mu (1,257 hectares) in the three months ended June 30, 2010.
 
Other Income.  Our other income increased substantially from RMB16,000 in the three months ended June 30, 2009 to RMB105,000 ($15,000) in the three months ended June 30, 2010. This increase was primarily due to our receipt of additional subsidies from the PRC government.
 
Research and Development Expenses.  Our research and development expenses increased by RMB414,000, or 45.0%, from RMB920,000 in the three months ended June 30, 2009 to RMB1.3 million ($192,000) in the three months ended June 30, 2010, primarily due to (1) an increase of RMB127,000 in direct cost of materials used in research and development such as seeds, fertilizers, pesticides and consumable materials, and (2) an increase of RMB122,000 in salaries and related expenses for research and development personnel.
 
Selling and Distribution Expenses.  Our selling and distribution expenses increased by RMB284,000, or 7.1%, from RMB4.0 million in the three months ended June 30, 2009 to RMB4.3 million ($634,000) in the three months ended June 30, 2010. This increase was primarily due to (1) an RMB279,000 increase in concessionaire fees, primarily attributable to an increase in concessionaire fees paid to the supermarkets as result of our increased sales in these supermarkets, and (2) an increase in transportation expenses of RMB124,000 due to the increase in sales of vegetables that required transportation from our farms to distributors and other customers such as supermarkets, large retailers and customers in Hong Kong, which was partially offset by an RMB217,000 decrease in our promotion expense in connection with our sales to hypermarket chains.
 
Administrative Expenses.  Our administrative expenses increased by RMB4.4 million, or 75.8%, from RMB5.8 million in the three months ended June 30, 2009 to RMB10.2 million ($1.5 million) in the three months ended June 30, 2010. This increase was primarily due to (1) an increase of RMB3.0 million in share-based compensation related to the options we granted to our directors and employees in March 2010, which generally had a three-year vesting period, (2) an increase of RMB734,000 in salaries and welfare expenses paid to employees and staff as we hired more management personnel, increased salaries paid to our existing employees and improved their welfare benefits, and (3) an increase of RMB412,000 in recruitment fees primarily incurred in connection with recruiting new employees for the preparation of this offering. The grant of options or equity awards are determined by our board of directors on an individual, ad hoc basis.


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Other Expenses.  Our other expenses increased substantially from RMB4,000 in the three months ended June 30, 2009 to RMB2.3 million ($339,000) in the three months ended June 30, 2010. This increase was primarily due to an RMB1.9 million increase in fixed assets write-offs and disposals due to the destruction of our bamboo greenhouses and an RMB340,000 increase in losses of crops in the field, both caused by typhoons in 2010.
 
Results of Operating Activities.  As a result of the foregoing, our results of operating activities decreased by 17.2% from RMB28.4 million in the three months ended June 30, 2009 to RMB23.6 million ($3.5 million) in the three months ended June 30, 2010.
 
Net Finance Income/(Cost).  We had a net finance cost of RMB150,000 in the three months ended June 30, 2009, compared to RMB56,000 ($8,000) in the three months ended June 30, 2010, primarily due to an RMB125,000 net foreign exchange loss incurred in the three months ended June 30, 2009.
 
Income Tax Expense.  We did not record any income tax expenses in the three months ended June 30, 2009 and 2010 as all of our PRC subsidiaries were exempt from enterprise income tax during these periods.
 
Profit for the Period.  As a result of the foregoing, our adjusted profit for the period (profit for the period before the net impact of biological asset fair value adjustment) increased by RMB9.7 million, or 61.3%, from RMB15.8 million in the three months ended June 30, 2009 to RMB25.4 million ($3.8 million) in the three months ended June 30, 2010. Our profit for the period decreased by RMB4.8 million, or 17.0%, from RMB28.3 million in the three months ended June 30, 2009 to RMB23.5 million ($3.5 million) in the three months ended June 30, 2010.
 
Year Ended March 31, 2010 Compared to Year Ended March 31, 2009
 
Revenue.  Our revenue increased by RMB81.5 million, or 41.0%, from RMB199.0 million in the fiscal year ended March 31, 2009 to RMB280.5 million ($41.4 million) in the fiscal year ended March 31, 2010. The increase in sales of our produce was attributable to the increase in our revenue-per-mu from RMB11,167 per mu (RMB167,507 per hectare) for the fiscal year ended March 31, 2009 to RMB15,497 per mu (RMB232,460 per hectare) for the fiscal year ended March 31, 2010, and the increase in the size of our arable land from 16,525 mu (1,102 hectares) as of March 31, 2009 to 18,850 mu (1,257 hectares) as of March 31, 2010.
 
The increase in our revenue-per-mu was primarily attributable to an increase in our production yield from 3.9 tonnes per mu in the fiscal year ended March 31, 2009 to 5.4 tonnes in the fiscal year ended March 31, 2010, which was in turn attributable to an increase in our greenhouse area as a percentage of our total arable land from 18.9% as of March 31, 2009 to 23.4% as of March 31, 2010 as well as changes in our product mix and our improved horticultural know-how. This increase was partially offset by a decrease in the average selling prices of our produce from RMB2,866 per tonne in the fiscal year ended March 31, 2009 to RMB2,860 ($422) per tonne in the fiscal year ended March 31, 2010. The average selling price of our produce in the fiscal year ended March 31, 2010 decreased from the elevated levels in the fiscal year ended March 31, 2009 that had resulted from supply shortage caused by several extreme weather conditions. The decreased average selling price was partially offset by our improved product mix.
 
Cost of Inventories Sold.  Our cost of inventories sold increased by RMB64.0 million, or 36.7%, from RMB174.3 million in the fiscal year ended March 31, 2009 to RMB238.3 million ($35.1 million) in the fiscal year ended March 31, 2010.
 
Cost of inventories sold before biological assets fair value adjustment increased by RMB26.9 million, or 35.6%, from RMB75.7 million in the fiscal year ended March 31, 2009 to RMB102.6 million ($15.1 million) in the fiscal year ended March 31, 2010. Cost of inventories sold before biological asset fair value adjustment as a percentage of our revenue decreased slightly to 36.6% in the fiscal year ended March 31, 2010 from 38.0% in the fiscal year ended March 31, 2009. The increase in our cost of inventories sold before biological asset fair value adjustment was primarily due to (1) an RMB13.5 million increase in farmland operating expenses such as rent, utilities, salaries, depreciation and transportation expenses, as we built more greenhouses and expanded our production bases, (2) an RMB7.1 million increase in purchase of certain


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vegetables that we did not produce from third parties to fulfill the diverse demand of the customers of our concessionaire supermarket sales points in Hong Kong, which was due to the increase in our supermarket concessionaire sales, and (3) an RMB6.3 million increase in direct labor costs related to cultivation activities.
 
Changes in Fair Value Less Costs to Sell of Biological Assets and Net Impact of Biological Asset Fair Value Adjustment.   Changes in fair value less costs to sell of biological assets increased by RMB55.4 million, or 56.9%, from RMB97.3 million in the fiscal year ended March 31, 2009 to RMB152.7 million ($22.5 million) in the fiscal year ended March 31, 2010.
 
The net impact of biological fair value adjustment for the fiscal year ended March 31, 2010 was RMB17.0 million ($2.5 million), a gain. This was primarily attributable to an increase of 2,868 mu (191 hectares) in our arable land acreage of unharvested crops from April 1, 2009 to March 31, 2010.
 
In comparison, the net impact of biological fair value adjustment for the year ended March 31, 2009 was negative RMB1.3 million, a loss. This was primarily because the unharvested crops as of March 31, 2008 consisted of more high-value varieties than those as of March 31, 2009.
 
Packing Expenses.  Our packing expenses increased by RMB2.7 million, or 17.0%, from RMB15.6 million in the fiscal year ended March 31, 2009 to RMB18.3 million ($2.7 million) in the fiscal year ended March 31, 2010, primarily as a result of an RMB2.8 million increase in expenses incurred in connection with packaging materials used, which was in line with the increase in our sales.
 
Land Preparation Costs.  Our land preparation costs increased by RMB2.6 million, or 27.5%, from RMB9.8 million in the fiscal year ended March 31, 2009 to RMB12.4 million ($1.8 million) in the fiscal year ended March 31, 2010. The increase was primarily due to an increase of RMB3.1 million, or 72.0%, in losses associated with land unoccupied in between growing seasons from RMB4.4 million in the fiscal year ended March 31, 2009 to RMB7.5 million ($1.1 million) in the fiscal year ended March 31, 2010, which was in turn due to an increase in our total arable land from 16,525 mu (1,102 hectares) as of March 31, 2009 to 18,850 mu (1,257 hectares) in the fiscal year ended March 31, 2010.
 
Other Income.  Our other income decreased by 48.9% from RMB1.2 million in the fiscal year ended March 31, 2009 to RMB626,000 ($92,000) in the fiscal year ended March 31, 2010. This decrease was primarily due to the fact that other income in the year ending March 31, 2009 derived primarily from a gain on the disposal of certain subsidiaries for the amount of RMB1.1 million.
 
Research and Development Expenses.  Our research and development expenses increased by RMB664,000, or 11.3%, from RMB5.9 million in the fiscal year ended March 31, 2009 to RMB6.5 million ($961,000) in the fiscal year ended March 31, 2010, primarily due to (1) an increase of RMB1.3 million in direct cost of materials used in research and development such as seeds, fertilizers, pesticides and consumable materials, and (2) an increase of RMB606,000 in salaries and related expenses for research and development personnel, which was largely offset by a decrease of RMB1.3 million in research and development expenses related to the tomato project.
 
Selling and Distribution Expenses.  Our selling and distribution expenses increased by RMB8.1 million, or 80.3%, from RMB10.1 million in the fiscal year ended March 31, 2009 to RMB18.2 million ($2.7 million) in the fiscal year ended March 31, 2010. This increase was primarily due to (1) an increase in transportation expenses of RMB4.0 million due to the increase in sales of vegetables that required transportation from our farms to distributors and other customers such as customers in Hong Kong and supermarkets, (2) an RMB1.6 million increase in concessionaire fees, primarily attributable to an increase in concessionaire fees paid to the supermarkets as result of our increased sales in these supermarkets, and (3) an increase in salaries and welfare expenses of RMB1.5 million, most of which was due to the increase in salaries paid to sales personnel in the Hong Kong supermarkets and the increase in the headcount of these personnel as we enhanced our sales and marketing efforts in the supermarkets.
 
Administrative Expenses.  Our administrative expenses increased by RMB7.2 million, or 40.0%, from RMB17.9 million in the fiscal year ended March 31, 2009 to RMB25.1 million ($3.7 million) in the fiscal year ended March 31, 2010. This increase was primarily due to (1) an increase of RMB2.8 million, or 48.0%,


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in salaries and welfare expenses paid to employees and staff as we hired more management personnel, increased salaries paid to our existing employees and improved their welfare benefits, and (2) an increase of RMB2.6 million in equity settled share-based payment in respect of options granted to our directors and employees in April 2009.
 
Other Expenses.  Our other expenses decreased by RMB576,000, or 14.5%, from RMB4.0 million in the fiscal year ended March 31, 2009 to RMB3.4 million ($502,000) in the fiscal year ended March 31, 2010. This decrease was primarily due to a decrease of RMB1.8 million, or 88.2% in expenses associated with natural disaster losses for crops on exposed lands, from RMB2.0 million in the fiscal year ended March 31, 2009 to RMB237,000 ($35,000) in the fiscal year ended March 31, 2010, due to a decrease in damages caused by natural disasters in the year ended March 31, 2010.
 
Results of Operating Activities.  As a result of the foregoing, our results of operating activities increased by 86.0% from RMB60.1 million in the fiscal year ended March 31, 2009 to RMB111.7 million ($16.5 million) in the fiscal year ended March 31, 2010.
 
Net Finance Income/(Cost).  We had a finance income of RMB546,000 in the fiscal year ended March 31, 2009, compared to a net finance loss of RMB608,000 ($90,000) in the fiscal year ended March 31, 2010, primarily due to an RMB709,000 net foreign exchange loss incurred in the fiscal year ended March 31, 2010 arising from intra-group purchases.
 
Income Tax Expense.  Our income tax expense increased from RMB200,000 in the fiscal year ended March 31, 2009 to RMB890,000 ($131,000) in the fiscal year ended March 31, 2010. This increase was primarily due to an increase in our withholding tax incurred in the fiscal year ended March 31, 2010 in connection with capital gains and the distribution of earnings by the PRC subsidiaries to our offshore holding company.
 
Profit for the Year.  As a result of the foregoing, our adjusted profit for the year (profit for the year before the net impact of biological asset fair value adjustment) increased by RMB31.5 million, or 51.1%, from RMB61.7 million in the fiscal year ended March 31, 2009 to RMB93.2 million ($13.7 million) in the fiscal year ended March 31, 2010. Our profit for the year increased by RMB49.8 million, or 82.4%, from RMB60.4 million in the fiscal year ended March 31, 2009 to RMB110.2 million ($16.3 million) in the fiscal year ended March 31, 2010.
 
Year Ended March 31, 2009 Compared to Year Ended March 31, 2008
 
Revenue.  Our total revenue increased by 29.6% from RMB153.6 million in the fiscal year ended March 31, 2008 to RMB199.0 million in the fiscal year ended March 31, 2009. The increase in sales of our produce was attributable to the increase in our revenue-per-mu from RMB9,611 per mu (RMB144,171 per hectare) for the fiscal year ended March 31, 2008 to RMB11,167 per mu (RMB167,507 per hectare) for the fiscal year ended March 31, 2009, which was slightly offset by a decrease in our arable land acreage from 17,103 mu (1,140 hectares) as of March 31, 2008 to 16,525 mu (1,102 hectares) as of March 31, 2009.
 
The increase in our revenue-per-mu was primarily attributable to (1) an increase in our production yield per mu from 3.6 tonnes in the fiscal year ended March 31, 2008 to 3.9 tonnes in the fiscal year ended March 31, 2009, which was in turn attributable to an increase in our greenhouse area as a percentage of our total arable land from 15.6% as of March 31, 2008 to 18.9% as of March 31, 2009 as well as changes in our product mix and our improved horticultural know-how, and (2) an increase in the average selling prices of our produce from RMB2,680 per tonne in the fiscal year ended March 31, 2008 to RMB2,866 per tonne in the fiscal year ended March 31, 2009.
 
Cost of Inventories Sold.  Our cost of inventories sold increased by RMB45.1 million, or 34.9%, from RMB129.2 million in the fiscal year ended March 31, 2008 to RMB174.3 million in the fiscal year ended March 31, 2009.
 
Cost of inventories sold before biological assets fair value adjustment increased by RMB12.1 million, or 19.0%, from RMB63.6 million in the fiscal year ended March 31, 2008 to RMB75.7 million in the fiscal year


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ended March 31, 2009. Cost of inventories sold before biological asset fair value adjustment as a percentage of our revenue decreased to 38.0% in the fiscal year ended March 31, 2009 from 41.4% in the fiscal year ended March 31, 2008. The increase in our cost of inventories sold before biological asset fair value adjustment was primarily due to (1) an RMB5.1 million increase in costs of material consumed in our production, including seeds, fertilizers, pesticides and other consumable materials, as our production scale and output increased, (2) an RMB5.3 million increase in farmland manufacturing expenses as we built more greenhouses and expanded our production bases, and (3) an RMB1.7 million increase in direct labor costs related to cultivation activities.
 
Changes in Fair Value Less Costs to Sell of Biological Assets and Net Impact of Biological Asset Fair Value Adjustment.  Changes in fair value less costs to sell of biological assets increased by RMB27.1 million, or 38.6%, from RMB70.2 million in the fiscal year ended March 31, 2008 to RMB97.3 million in the fiscal year ended March 31, 2009.
 
The net impact of biological fair value adjustment for the year ended March 31, 2009 was negative RMB1.3 million, a loss. This was primarily because the unharvested crops as of March 31, 2008 consisted of more high-value varieties than those as of March 31, 2009.
 
In comparison, the net impact of biological fair value adjustment for the year ended March 31, 2008 was RMB4.6 million, a gain. This was primarily because the unharvested crops as of March 31, 2008 consisted of more high value varieties than those as of March 31, 2007.
 
Packing Expenses.  Our packing expenses increased by 8.3% from RMB14.4 million in the fiscal year ended March 31, 2008 to RMB15.6 million in the fiscal year ended March 31, 2009, as a result of an RMB325,000 increase in expenses incurred in connection with packaging materials consumed, which was in line with the increase in our sales.
 
Land Preparation Costs.  Our land preparation costs increased by RMB3.5 million, or 55.2% from RMB6.3 million in the fiscal year ended March 31, 2008 to RMB9.8 million in the fiscal year ended March 31, 2009. This increase was primarily due to an increase of RMB2.4 million in loss resulting from land required to lay fallow.
 
Other Income.  Our other income increased from RMB60,000 in the fiscal year ended March 31, 2008 to RMB1.2 million in the fiscal year ended March 31, 2009. This increase was primarily due to the fact that other income in the fiscal year ended March 31, 2009 was derived primarily from a gain on the disposal of certain subsidiaries for the amount of RMB1.1 million.
 
Research and Development Expenses.  Our research and development expenses decreased by 19.7% from RMB7.3 million in the fiscal year ended March 31, 2008 to RMB5.9 million in the fiscal year ended March 31, 2009, primarily due to a decrease of RMB1.2 million in the expense for our research and development projects to grow tomatoes in southern China.
 
Selling and Distribution Expenses.  Our selling and distribution expenses increased by 35.0% from RMB7.5 million in the fiscal year ended March 31, 2008 to RMB10.1 million in the fiscal year ended March 31, 2009. This increase was primarily due to (1) an increase of RMB1.4 million in concessionaire fees paid to the supermarkets as result of our increased sales in these supermarkets, and (2) an increase of RMB1.1 million in salaries and welfare expenses paid to our sales and marketing personnel, most of which was due to the increase in salaries paid to sales personnel in the Hong Kong supermarkets.
 
Administrative Expenses.  Our administrative expenses increased by 4.7% from RMB17.1 million in the fiscal year ended March 31, 2008 to RMB17.9 million in the fiscal year ended March 31, 2009. This increase was primarily due to (1) an increase of RMB1.7 million in salaries and welfare expenses paid to employees and staff as we hired more management personnel, increased salaries paid to our existing employees and improved their welfare benefits, (2) an increase of RMB675,000 in legal and professional fee primarily incurred in connection with our private placement and this offering, and (3) an increase of RMB256,000 in social and entertainment expenses as we expand our marketing and sales efforts to introduce our products into new markets in China and Hong Kong. This was partially offset by a decrease of RMB2.0 million in equity


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settled share-based payment, primarily because expenses related to options granted under the 2007 share option scheme recognized in the fiscal year ended March 31, 2008 were more than those recognized in the fiscal year ended March 31, 2009 under the reporting requirement of IFRS2 Share-Based Payment.
 
Other Expenses.  Our other expenses increased from RMB1.2 million in the fiscal year ended March 31, 2008 to RMB4.0 million in the fiscal year ended March 31, 2009. This increase was primarily due to an increase of RMB1.7 million in expenses associated with natural disaster losses for crops on exposed lands, from RMB257,000 in the fiscal year ended March 31, 2008 to RMB2 million in the fiscal year ended March 31, 2009, due to an increase in damages caused by natural disasters.
 
Results of Operating Activities.  As a result of the foregoing, our results of operating activities increased by 47.0% from RMB40.9 million in the fiscal year ended March 31, 2008 to RMB60.1 million in the fiscal year ended March 31, 2009.
 
Net Finance Income/(Cost).  Our net finance income increased by 165.0% from RMB206,000 in the fiscal year ended March 31, 2008 to RMB546,000 in the fiscal year ended March 31, 2009, primarily due to (1) an RMB297,000 increase in our finance income, primarily due to a net foreign exchange gain of RMB356,000 in the fiscal year ended March 31, 2009, when we disposed of three of our subsidiaries and released our foreign exchange reserve for these subsidiaries, and (2) an RMB43,000 decrease in our finance cost, primarily due to net foreign exchange loss incurred in the fiscal year ended March 31, 2008.
 
Income Tax Expense.  Our income tax expense decreased by 92.4% from RMB2.6 million in the fiscal year ended March 31, 2008 to RMB200,000 in the fiscal year ended March 31, 2009. This decrease was primarily due to the fact that Land V. Limited (Liaoyang) and Land V. Ltd (Fujian) paid enterprise income tax at a reduced rate in the fiscal year ended March 31, 2008 while all our PRC subsidiaries were exempt from enterprise income tax of 13.5% in the fiscal year ended March 31, 2009.
 
Profit for the Year.  As a result of the foregoing, our adjusted profit for the year (profit for the year before the net impact of biological asset fair value adjustment) increased by RMB27.9 million, or 82.4%, from RMB33.8 million in the fiscal year ended March 31, 2008 to RMB61.7 million in the fiscal year ended March 31, 2009. Our profit for the year increased by RMB22.0 million, or 57.3%, from RMB38.4 million in the fiscal year ended March 31, 2008 to RMB60.4 million in the fiscal year ended March 31, 2009.
 
Liquidity and Capital Resources
 
We have financed our business primarily through cash generated from our operations, sale of preferred shares and borrowings from commercial banks. See “Related Party Transactions — Private Placements.” Our cash consists of cash on hand and cash at banks which are unrestricted as to withdrawal or use, and which have maturities of three months or less that are placed with banks. As of June 30, 2010, we had RMB179.3 million ($26.4 million) in cash. We generally deposit our excess cash in interest bearing bank accounts.
 
As of June 30, 2010, we had an RMB81.7 million ($12.0 million) outstanding long-term bank loan bearing an interest rate of approximately 12% per annum, which was drawn down under a loan agreement that we entered into with DEG — Deutsche Investitions — Und Entwicklungsgesellschaft mbH, or DEG, for a principal amount of RMB122.1 million ($18.0 million) on November 10, 2009. The loan is repayable in equal semi-annual installments of approximately RMB15.5 million ($2.3 million) from May 15, 2013 to November 15, 2016. The loan bears a floating interest rate at the aggregate of six months USD LIBOR plus 12% per year from the date of the first disbursement of the loan to the interest conversion date, which is defined as (i) the date on which the loan principal is fully disbursed or (ii) if the loan has not been fully disbursed by June 30, 2010, the date on which DEG suspends or terminates our right to draw down on the undrawn portion of the loan principal. From the interest conversion date to May 14, 2013, the loan bears a fixed interest rate at the aggregate of a base rate to be determined plus 12% per year. From May 15, 2013 to November 14, 2016, the loan bears a floating interest rate at the aggregate of six months USD LIBOR plus 12% per year. Mr. Shing Yung Ma provided a share retention letter to the effect that Grow Grand Limited, his wholly owned entity, will not sell, transfer or encumber our shares which would cause his or Grow Grand


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Limited’s shareholding in China Linong to fall below 637,213 shares, namely, 36.33% of its shares issued, without DEG’s consent.
 
DEG has a conversion right under our loan agreement. If we engage in equity financing by offering our ordinary or preferred shares prior to our initial public offering, DEG has the right to subscribe to these shares up to an aggregate amount of $5.0 million, including converting any outstanding loan amounts extended by DEG to us. The subscription will bear the same price and be on the same payment terms as the other subscribers in the offering. The conversion of the amount outstanding under the loan will be deemed as a repayment and therefore reduce the repayment installments under the loan agreement. DEG’s conversion right will terminate immediately upon the completion of this offering. As the total consideration to be paid by us either in cash or in shares has a fair value of $5.0 million, this conversion right is not separately accounted for but is taken into consideration in accounting for the $5.0 million loan principal and the related conversion right as a whole as a financial liability based on the loan principal amount outstanding.
 
If the loan has been repaid in full prior to a pre-IPO financing, DEG has the right, but not the obligation, to subscribe for new ordinary or preferred shares at the same price and on the same payment terms as other subscribers in such pre-IPO financing up to an aggregate amount of $5.0 million. This subscription right after the repayment of the loan is not considered to meet the definition of a derivative as the exercise price is at the fair value for the shares and does not depend on an underlying variable. As a result, we have not recognized this option in the financial statements.
 
Under the loan agreement with DEG, we are required to pay a commitment fee on the undisbursed loan amounts calculated at the rate of 0.5% annually from November 10, 2009 to June 30, 2010. The commitment fee accrues daily and is calculated on the basis of 360 days in a year. In addition, we are required to pay a front-end fee of $216,000, of which $75,000 was paid prior to the signing of the loan agreement and the remaining $151,000 was paid within 30 days from the date of the loan agreement, before the first disbursement of the loan.
 
Key covenants included in the loan agreement with DEG are as follows:
 
  •  we will maintain at all times on a consolidated basis (i) a debt/EBITDA (earnings before interest, taxes, depreciation and amortization) ratio not exceeding 2.0, (ii) a debt/equity ratio not exceeding 1.5 and (iii) a current ratio not less than 1.5;
 
  •  without DEG’s consent, we will not make any dividend or other capital distribution or similar payment which would have a material adverse effect on our ability to repay the loan;
 
  •  without DEG’s consent, we will not amend our constitutional documents in a way inconsistent with the loan agreement, or sell, transfer or otherwise dispose of significant components of our fixed assets;
 
  •  without DEG’s consent, we will not enter into any partnership or profit sharing where our income is shared with any other person (except for our shareholders and option holders);
 
  •  the loan will be applied exclusively to fund the development of farmland and the construction of greenhouses, irrigation systems and agricultural facilities in the PRC;
 
  •  our PRC subsidiaries will comply with a corrective plan defining actions, budgets and a timeframe to remediate all known non-compliance with respect to environmental and social matters and comply with the International Finance Corporation General Environmental Health and Safety Guidelines; and
 
  •  our PRC subsidiaries will develop and implement a supervision and grievance mechanism related to land lease issues and their relationships with adjacent communities and will appoint a senior management member responsible for environmental and social issues.
 
We have complied with and intend to continue to comply with these covenants under our loan agreement with DEG.


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As of June 30, 2010, we also drew down an RMB6.0 million outstanding short-term bank loan bearing an interest rate of 6.2658% per annum under a loan agreement that we entered into with Bank of China, Zhangzhou Branch for the amount of RMB6.0 million. This loan is repayable on April 27, 2011.
 
We believe that our current levels of cash and cash flows from operations and bank borrowings, combined with the net proceeds from this offering, will be sufficient to meet our anticipated cash needs for at least the next 24 months. However, we may need additional cash resources in the future if we experience changed business conditions or other developments. We may also need additional cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If we ever determine that our cash requirements exceed our amounts of cash and cash equivalents on hand, we may seek to issue debt or equity securities or obtain additional credit facility. Any issuance of equity securities could cause dilution for our shareholders. Any incurrence of indebtedness could increase our debt service obligations and cause us to be subject to restrictive operating and finance covenants. It is possible that, when we need additional cash resources, financing will only be available to us in amounts or on terms that would not be acceptable to us or financing will not be available at all.
 
The following table sets forth a summary of our cash flows for the periods indicated:
 
                                                         
    Year Ended March 31,   Three Months Ended June 30,
    2008   2009   2010   2009   2010
    RMB   RMB   RMB   $   RMB   RMB   $
    (In thousands)
 
Net cash generated from operating activities
    64,413       50,920       117,601       17,341       13,780       44,788       6,604  
Net cash used in investing activities
    (88,573 )     (135,890 )     (160,365 )     (23,647 )     (28,035 )     (56,765 )     (8,371 )
Net cash generated from financing activities
    52,606       108,771       74,234       10,947             52,518       7,744  
Net increase/(decrease) in cash
    28,446       23,801       31,470       4,641       (14,255 )     40,541       5,977  
Cash at beginning of the period
    58,075       85,360       107,939       15,917       107,939       139,207       20,527  
Cash at end of the period
    85,360       107,939       139,207       20,527       93,648       179,268       26,435  
 
Operating Activities
 
Net cash generated from operating activities increased to RMB44.8 million ($6.6 million) in the three months ended June 30, 2010 from RMB13.8 million in the three months ended June 30, 2009. Our growing business generated substantial net cash inflow as we increased revenue by RMB29.5 million from RMB53.8 million in the three months ended June 30, 2009 to RMB83.3 million ($12.3 million) in the three months ended June 30, 2010, and as a result, our cash inflow increased by RMB40.2 million from RMB43.7 million in the three months ended June 30, 2009 to RMB83.9 million ($12.4 million) in the three months ended June 30, 2010. However, our cash paid for cost of revenue and operating expenses also increased by RMB9.2 million from RMB29.9 million in the three months ended June 30, 2009 to RMB39.1 million ($5.8 million) in the three months ended June 30, 2010.
 
Net cash generated from operating activities increased to RMB117.6 million ($17.3 million) in the fiscal year ended March 31, 2010 from RMB50.9 million in the fiscal year ended March 31, 2009. Although our growing business generated substantial net cash inflow as we increased revenue by RMB81.5 million from RMB199.0 million in the fiscal year ended March 31, 2009 to RMB280.5 million ($41.4 million) in the fiscal year ended March 31, 2010, the cash paid for cost of revenue and operating expenses also increased by RMB21.3 million from RMB133.3 million to RMB154.6 million ($22.8 million).
 
Net cash generated from operating activities decreased to RMB50.9 million in the fiscal year ended March 31, 2009 from RMB64.4 million in the fiscal year ended March 31, 2008. Although our growing business generated an RMB45.4 million increase in revenue from RMB153.6 million in the fiscal year ended


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March 31, 2008 to RMB199.0 million in the fiscal year ended March 31, 2009, the cash paid for cost of revenue and operating expenses increased by RMB49.2 million from RMB83.9 million to RMB133.3 million.
 
Investing Activities
 
Net cash used in investing activities in the three months ended June 30, 2010 was RMB56.8 million ($8.4 million), due primarily to cash outflows for (1) payment for construction-in-progress of RMB55.2 million ($8.1 million), (2) payment for the purchase of property, plant and equipment of RMB1.9 million ($274,000) in connection with our operation expansion, and (3) plantation of non-current biological assets of RMB430,000 ($63,000). These cash outflows were partially offset by our receipt of proceeds of RMB653,000 ($96,000) from disposal of property, plant and equipment. Our payment of RMB55.2 million ($8.1 million) for the construction-in-progress primarily included (i) approximately RMB36.6 million ($5.4 million) for the construction of our greenhouses and (ii) approximately RMB17.3 million ($2.6 million) for the development of other farm infrastructure, such as land leveling and land quality improvement. The total cost of these construction and development is estimated to be approximately RMB106.9 million ($15.8 million) and we expect that most of the construction and development will be completed by October 2010. We expect that the construction of additional greenhouses and the development of farm infrastructure will allow us to grow vegetables of higher quality and production yield, which will in turn generate revenues to support our business growth. Our payment of RMB1.9 million ($274,000) for the purchase of property, plant and equipment primarily included RMB792,000 ($117,000) for the purchase of seedling trays and other tools and RMB851,000 ($125,000) for the purchase of vehicles in connection with our business expansion.
 
Net cash used in investing activities in the fiscal year ended March 31, 2010 was RMB160.4 million ($23.6 million), due primarily to the cash outflows for (1) payment for construction in progress of RMB161.4 million ($23.8 million), which consisted primarily of the payment for (a) the construction of greenhouses in the amount of RMB63.3 million ($9.3 million), (b) the construction of processing and warehousing facilities in the amount of RMB4.8 million ($708,000) and (c) land improvement, irrigation system and other infrastructure in the amount of RMB88.0 million ($13.0 million), (2) payment for the purchase of property, plant and equipment of RMB6.1 million ($900,000) in connection with our operation expansion, of which RMB4.0 million ($590,000) was expended to purchase seedling tray and other tools used in production and operations, and (3) plantation of non-current biological assets of RMB624,000 ($92,000). These cash outflows were partially offset by our receipt of proceeds of RMB7.7 million ($1.1 million) from disposal of property, plant and equipment.
 
Net cash used in investing activities in the fiscal year ended March 31, 2009 was RMB135.9 million, due primarily to the cash outflows for (1) payment for construction in progress of RMB124.4 million such as greenhouse construction, which consisted primarily of the payment for (a) the construction of greenhouses in the amount of RMB68.0 million, (b) the construction of processing and warehousing facilities in the amount of RMB8.5 million and (c) land improvement, irrigation system and other infrastructure in the amount of RMB34.0 million, (2) payment for the purchase of property, plant and equipment of RMB10.7 million, of which RMB9.3 million was expended to purchase seedling tray and other tools used in production and operations, (3) payment for lease prepayments of RMB1.5 million, and (4) plantation of non-current biological assets of RMB843,000. These cash outflows were partially offset by our receipt of proceeds of RMB1.3 million from disposal of property, plant and equipment.
 
Net cash used in investing activities in the fiscal year ended March 31, 2008 was RMB88.6 million, due primarily to the cash outflows for (1) payment for construction in progress of RMB87.5 million in connection with our construction and improvement of greenhouses, irrigation systems, storage facilities and dormitories, as well as land improvement, and (2) payment for the purchase of property, plant and equipment of RMB2.3 million. These cash outflows were partially offset by our receipt of proceeds of RMB1.0 million from disposal of property, plant and equipment.


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Financing Activities
 
Net cash generated from financing activities in the three month ended March 31, 2010 was RMB52.5 million ($7.7 million), primarily due to bank loans of RMB53.6 million ($7.9 million), which was partly offset by payment of interest of RMB1.1 million ($164,000).
 
Net cash generated from financing activities in the fiscal year ended March 31, 2010 was RMB74.2 million ($10.9 million), primarily due to (1) the net proceeds of RMB40.7 million ($6.0 million) from the issuance of preferred shares, (2) a bank loan of RMB34.3 million ($5.1 million), and (3) the proceeds of loan from the municipal government of RMB410,000 ($60,000). These cash outflows were partly offset by payment of interest of RMB1.1 million ($166,000).
 
Net cash generated from financing activities in the fiscal year ended March 31, 2009 was RMB108.8 million, primarily due to (1) the net proceeds of RMB122.2 million from the issuance of preferred shares, which was recorded as other receivables in the fiscal year ended March 31, 2008 as we received the wire transfer of the proceeds several days after the originally scheduled closing date, and (2) the proceeds of loan from the municipal government of RM1.0 million. These cash inflows were partially offset by the repayment of RMB14.5 million to a director.
 
Net cash generated from financing activities in the fiscal year ended March 31, 2008 was RMB52.6 million, primarily due to (1) the RMB46.9 million net proceeds from the issuance of preferred shares, and (2) the advance from a director of RMB5.7 million.
 
Capital Expenditures
 
We had capital expenditures of RMB90.3 million, RMB137.9 million and RMB169.9 million ($25.1 million) in the fiscal years ended March 31, 2008, 2009 and 2010, respectively. We expect to incur RMB240.1 million for capital expenditures in the fiscal year ending March 31, 2011. Our capital expenditures were primarily related to land improvement and farmland infrastructure development on our cultivation bases. Our capital expenditures have been primarily funded by cash generated from our operations, sale of preferred shares and borrowings from commercial banks. We expect to fund these capital expenditures by cash generated from operating and financing activities, including the net proceeds from this offering.
 
Contractual Obligations
 
The following table sets forth our contractual obligations as of June 30, 2010.
 
                                         
    Payment Due by Period
        Less than
  1-3
  3-5
  More than
Contractual Obligations
  Total   1 Year   Years   Years   5 Years
        (RMB in thousands)    
 
Long-term debt obligations (including interest)
    121,486       10,029       35,136       70,981       5,340  
Operating lease obligations
    109,730       8,309       17,212       15,510       68,698  
Purchase obligations
    43,527       43,527                    
                                         
Total
    274,743       61,865       52,348       86,491       74,038  
                                         
 
Our operating lease obligations consisted of our obligations under lease agreements with lessors of our farmland. Our purchase obligations relate to construction contracts in respect of shelters, infrastructures and irrigation systems that we entered with respective sub-contractors.
 
Off-Balance Sheet Commitments and Arrangements
 
Other than certain of the operating and capital lease obligations set forth in the table above, we have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity, or that are not reflected in our combined financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit,


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liquidity or market risk support to such entity. 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.
 
Inflation
 
Since our inception, inflation in China has not materially impacted our results of operations. According to the National Bureau of Statistics of China, inflation as measured by the change of consumer price index in China was 4.8%, 5.9% and -0.7% in 2007, 2008 and 2009, respectively, and 2.6% in the six months ended June 30, 2010. Although we have not in the past been materially affected by any such inflation since our inception, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China. For example, certain operating costs and expenses, such as personnel expenses, farmland leasing expenses, travel expenses and office operating expenses may increase as a result of higher inflation. Additionally, because a substantial portion of our assets consists of cash and cash equivalents, high inflation could significantly reduce the value and purchasing power of these assets. We are not able to hedge our exposures to higher inflation in China.
 
Quantitative and Qualitative Disclosure about Market Risk
 
Interest Rate Risk
 
Our exposure to interest rate risk primarily relates to the interest rates for our outstanding borrowings and the interest income generated by excess cash invested in liquid investments with original maturities of three months or less. Such interest-earning instruments carry a degree of interest rate risk. As of June 30, 2010, we had an RMB81.7 million ($12.0 million) outstanding long-term bank loan bearing an interest rate of 12.7% per annum, which was drawn down under a loan agreement that we entered into with DEG. The loan bears a fixed interest rate of DEG base rate plus 12% per annum from the date when the loan was disbursed to May 14, 2013. From May 15, 2013 to November 14, 2014, the loan bears a floating interest rate equal to the six month U.S. dollar LIBOR plus 12% per year. We have not used any derivative financial instruments to manage our interest risk exposure. We have not been exposed to material risks due to changes in interest rates. However, our future interest income may be lower than expected due to changes in market interest rates.
 
Foreign Exchange Risk
 
The functional currency of our PRC subsidiaries is RMB, while the functional currency of our company and our subsidiaries outside of mainland China are U.S. dollars and Hong Kong dollars. We have adopted RMB as our presentation currency. Our exposure to foreign exchange risk primarily relates to cash and cash equivalents denominated in U.S. dollars as a result of our past issuance of preferred shares through private placements, as well as intra-group purchases by the our subsidiaries outside of mainland China that are denominated in RMB. We do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign currencies or any other derivative financial instruments. Although in general, our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will be affected by the foreign exchange rate between U.S. dollars and RMB because the value of our business is effectively denominated in RMB, while the ADSs will be traded in U.S. dollars.
 
The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. Historically, the conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy resulted in an approximately 20% appreciation of the RMB against the U.S. dollar over the next three years. From July 2008 to June 2010, however, the RMB traded stably within a narrow range against the U.S. dollar. In June 2010, the PRC government indicated that it would make the foreign exchange rate of the Renminbi more flexible, which increases the possibility of large fluctuations of Renminbi’s value in the near future and the unpredictability


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associated with Renminbi’s exchange rate. There remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S. dollar. To the extent that we need to convert U.S. dollars we receive from this offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk.
 
The following table indicates the instantaneous change in our profit after tax that would arise if foreign exchange rates to which we have significant exposure at the balance sheet date had changed at that date, assuming all other risk variables remained constant. In this respect, we assume that the pegged rate between the Hong Kong dollars and the U.S. dollars would be materially unaffected by any changes in movement in value of the U.S. dollars against other currencies.
 
                                                 
    Fiscal Year Ended March 31,
    2008   2009   2010
    Increase/
      Increase/
      Increase/
   
    (Decrease)
  Increase/
  (Decrease)
  Increase/
  (Decrease)
  Increase/
    in Foreign
  (Decrease)
  in Foreign
  (Decrease)
  in Foreign
  (Decrease)
    Exchange
  in Profit
  Exchange
  in Profit
  Exchange
  in Profit
    Rates   After Tax   Rates   After Tax   Rates   After Tax
        ’000       ’000       ’000
 
Renminbi(1)
    5 %           5 %     653       5 %     2,128  
      (5 )%           (5 )%     (653 )     (5 )%