[Unaudited Condensed Consolidated Financial Statements](index=1&type=section&id=Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [Unaudited Condensed Consolidated Balance Sheets](index=3&type=section&id=Unaudited%20Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2021, Farmmi, Inc. reported total assets of **$47.7 million**, an increase from **$38.2 million** as of September 30, 2020, primarily driven by a significant increase in cash from **$0.55 million** to **$14.37 million** Condensed Consolidated Balance Sheet Summary (as of March 31, 2021 vs. September 30, 2020) | Balance Sheet Item | March 31, 2021 (Unaudited) | September 30, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $14,365,889 | $548,151 | | Total current assets | $46,640,892 | $37,022,171 | | Total Assets | $47,705,195 | $38,191,746 | | **Liabilities & Equity** | | | | Total current liabilities | $7,909,336 | $8,367,387 | | Total Liabilities | $8,486,354 | $9,036,589 | | Total Equity | $39,218,841 | $29,155,157 | | Total Liabilities and Equity | $47,705,195 | $38,191,746 | - The number of authorized common shares increased from **20,000,000** to **200,000,000**, with issued and outstanding shares rising from **20.5 million** to **27.6 million** between September 30, 2020, and March 31, 2021[11](index=11&type=chunk) [Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income](index=4&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) For the six months ended March 31, 2021, the company reported a significant turnaround in profitability, with total revenues increasing by **31%** to **$17.8 million**, gross profit growing by **41.5%** to **$3.0 million**, and achieving a net income of **$1.36 million** Condensed Consolidated Statements of Operations (For the Six Months Ended March 31) | Metric | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Total revenues | $17,787,728 | $13,580,782 | | Gross Profit | $2,987,915 | $2,110,065 | | Income from operations | $1,442,454 | $1,139,269 | | Net income (loss) | $1,361,939 | $(63,807) | | Net income (loss) attributable to Farmmi, Inc. | $1,362,616 | $(57,052) | | Basic earnings (loss) per common share | $0.07 | $(0.00) | | Diluted earnings (loss) per common share | $0.07 | $(0.00) | - Total comprehensive income attributable to Farmmi, Inc. surged to **$2.52 million** for the six months ended March 31, 2021, up from **$141,614** in the prior-year period, largely driven by higher net income and a significant foreign currency translation gain of **$1.19 million**[14](index=14&type=chunk) [Unaudited Condensed Consolidated Statements of Changes in Equity](index=5&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) Total equity increased from **$29.2 million** at September 30, 2020, to **$39.2 million** at March 31, 2021, primarily driven by **$6.7 million** from common stock issuance, **$1.36 million** in net income, **$0.81 million** in share-based compensation, and a **$1.19 million** foreign currency translation gain Key Changes in Equity (Six Months Ended March 31, 2021) | Change Driver | Amount | | :--- | :--- | | Balance at September 30, 2020 | $29,155,157 | | Issuance of common shares, net | $6,709,040 | | Net income | $1,361,939 | | Share-based compensation | $805,410 | | Foreign currency translation gain | $1,187,295 | | Balance at March 31, 2021 | $39,218,841 | [Unaudited Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Unaudited%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended March 31, 2021, net cash provided by operating activities was strong at **$9.7 million**, investing activities used **$2.8 million**, and financing activities provided **$6.8 million**, leading to a substantial increase in cash and restricted cash to **$16.0 million** Condensed Consolidated Statements of Cash Flows (For the Six Months Ended March 31) | Cash Flow Activity | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,725,259 | $5,686,467 | | Net cash used in investing activities | $(2,767,971) | $(246,726) | | Net cash provided by (used in) financing activities | $6,843,663 | $(453,757) | | **Net increase in cash and restricted cash** | **$13,800,951** | **$4,946,318** | | **Cash and restricted cash, end of period** | **$16,044,817** | **$5,700,133** | - The primary source of financing cash flow in the first half of 2021 was **$6.7 million** in net proceeds from a stock issuance, a stark contrast to the prior year which saw no stock issuance and a net cash outflow from financing activities[20](index=20&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures supporting the consolidated financial statements, covering the company's organization, accounting policies, breakdowns of key financial statement line items, related party transactions, equity changes, tax information, customer and supplier concentrations, lease obligations, and significant subsequent events [Note 1 — Organization and nature of business](index=7&type=section&id=Note%201%20%E2%80%94%20Organization%20and%20nature%20of%20business) Farmmi, Inc. is a Cayman Islands holding company operating through subsidiaries and a VIE structure in the PRC, primarily engaged in processing and distributing dried edible fungi, with **95%** of products sold in China, and recently expanded into biotechnology, ecology, and supply chain management - The company operates through a complex structure involving a Cayman parent (FMI), a Hong Kong subsidiary, two Chinese WFOEs, and several PRC operating subsidiaries, including a VIE named Nongyuan Network[22](index=22&type=chunk)[23](index=23&type=chunk)[25](index=25&type=chunk) - The core business is processing and distributing dried Shiitake and Mu Er mushrooms, with **95%** of sales in China and **5%** internationally[30](index=30&type=chunk) - In April and May 2021, the company established three new subsidiaries in the PRC: Farmmi Biotech, Farmmi Ecology, and Farmmi Supply Chain, indicating expansion into related agricultural areas[26](index=26&type=chunk)[27](index=27&type=chunk) [Note 2 — Summary of significant accounting policies](index=8&type=section&id=Note%202%20%E2%80%94%20Summary%20of%20significant%20accounting%20policies) The financial statements are prepared under U.S. GAAP, consolidating its VIE, Nongyuan Network, with revenue recognized under ASC 606, and acknowledging risks from PRC operations, lack of business interruption insurance, and the adverse impact of the COVID-19 pandemic - The company consolidates the financial results of its Variable Interest Entity (VIE), Nongyuan Network, determining it is the primary beneficiary[32](index=32&type=chunk)[34](index=34&type=chunk) - Revenue is recognized based on ASC Topic 606, typically at a point in time when control of goods transfers to the customer[49](index=49&type=chunk)[50](index=50&type=chunk) - The COVID-19 outbreak adversely impacted the company by temporarily suspending production and sales in late January and February 2020, though operations resumed in March 2020[78](index=78&type=chunk)[79](index=79&type=chunk) [Note 3 – Accounts receivable, net](index=18&type=section&id=Note%203%20%E2%80%93%20Accounts%20receivable%2C%20net) Net accounts receivable increased to **$13.8 million** as of March 31, 2021, from **$10.8 million** at September 30, 2020, with the allowance for doubtful accounts rising to **$445,485**, and **$7.4 million** or **53%** of the March 31, 2021 balance subsequently collected Accounts Receivable, Net | Item | March 31, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Accounts receivable – total | $14,248,073 | $10,952,237 | | Less: allowance for doubtful accounts | $(445,485) | $(194,118) | | **Accounts receivable, net** | **$13,802,588** | **$10,758,119** | [Note 4 – Advances to suppliers, net](index=18&type=section&id=Note%204%20%E2%80%93%20Advances%20to%20suppliers%2C%20net) Net advances to suppliers decreased to **$13.1 million** as of March 31, 2021, from **$23.4 million** at September 30, 2020, made under framework agreements with two key co-operatives to secure continuous supply and favorable prices, with the remaining balance expected to be utilized by September 2021 - The company makes advance payments to suppliers, primarily two co-operatives (JLT and QNMI), to secure supplies of premium Shiitake and Mu Er mushrooms and lock in favorable prices[89](index=89&type=chunk)[92](index=92&type=chunk) - As of the report date, approximately **$7.4 million** (**68%**) of the advances outstanding at March 31, 2021 had been utilized, with the remainder expected to be utilized by September 2021[94](index=94&type=chunk) [Note 5 — Inventories, net](index=19&type=section&id=Note%205%20%E2%80%94%20Inventories%2C%20net) Net inventories increased to **$845,002** as of March 31, 2021, from **$583,639** at September 30, 2020, primarily due to a rise in raw materials to **$766,569**, while the allowance for inventory reserve significantly decreased Inventories, Net | Item | March 31, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Raw materials | $766,569 | $563,772 | | Packaging materials | $53,426 | $39,628 | | Finished goods | $26,377 | $0 | | Less: allowance for inventory reserve | $(1,370) | $(19,761) | | **Inventories, net** | **$845,002** | **$583,639** | [Note 6 — Property, plant and equipment, net](index=20&type=section&id=Note%206%20%E2%80%94%20Property%2C%20plant%20and%20equipment%2C%20net) Net property, plant, and equipment remained stable at **$265,247** as of March 31, 2021, with plant, machinery, equipment, and leasehold improvements as the largest components, and depreciation expense for the six-month period totaling **$25,594** Property, Plant and Equipment, Net | Category | March 31, 2021 (Unaudited) | September 30, 2020 | | :--- | :--- | :--- | | Office equipment | $36,070 | $34,320 | | Transportation equipment | $71,626 | $68,984 | | Plant, machinery and equipment | $193,446 | $114,551 | | Leasehold improvements | $175,345 | $226,879 | | Accumulated depreciation | $(211,240) | $(178,839) | | **Total** | **$265,247** | **$265,895** | [Note 7 — Short-term bank loans](index=20&type=section&id=Note%207%20%E2%80%94%20Short-term%20bank%20loans) As of March 31, 2021, the company had **$1.97 million** in short-term bank loans, slightly down from **$2.06 million** at September 30, 2020, used for working capital and secured by property and related party guarantees - The company held two short-term bank loans totaling **$1.97 million** as of March 31, 2021, with interest rates of **3.95%** and **6.09%**[99](index=99&type=chunk)[101](index=101&type=chunk) - The loans are secured by real property and land use rights owned by related parties, including Forasen Group Co., Ltd. and Zhejiang Tantech Bamboo Technology Co., Ltd., and are also guaranteed by related parties and principal officers[100](index=100&type=chunk)[102](index=102&type=chunk) [Note 8 – Bank acceptance notes payable](index=21&type=section&id=Note%208%20%E2%80%93%20Bank%20acceptance%20notes%20payable) In June 2020, the company issued **RMB 22 million** (approx. **$3.23 million**) in bank acceptance notes to its suppliers, which were due and fully paid on June 15, 2021, secured by **RMB 11 million** in restricted cash and related party real property - The company issued **RMB 22 million** in bank acceptance notes in June 2020, which were fully paid at maturity on June 15, 2021[104](index=104&type=chunk) - The notes were secured by restricted cash of **RMB 11 million** (approx. **$1.62 million**) and real property owned by Xinyang Wang, the shareholder of the company's VIE[104](index=104&type=chunk) [Note 9 - Share-based compensation](index=21&type=section&id=Note%209%20-%20Share-based%20compensation) Under its 2018 Share Incentive Plan, the company granted **596,600** restricted share units to employees on March 11, 2021, resulting in a share-based compensation expense of **$805,410** for the six months ended March 31, 2021 - On March 11, 2021, the company granted **596,600** restricted share units to employees[105](index=105&type=chunk) - A share-based compensation expense of **$805,410** was recognized for the six months ended March 31, 2021, related to this grant[105](index=105&type=chunk) [Note 10 — Related party transactions](index=22&type=section&id=Note%2010%20%E2%80%94%20Related%20party%20transactions) The company engages in numerous transactions with related parties, including guarantees for bank loans, property leases, and working capital advances, resulting in a balance of **$2.0 million** due to related parties as of March 31, 2021 - Related parties, including Forasen Group and Zhejiang Tantech Bamboo Technology, provide guarantees and collateral for the company's bank loans and bank acceptance notes[109](index=109&type=chunk)[115](index=115&type=chunk) - The company leases factory buildings from related parties and subleases office space to a related party[113](index=113&type=chunk)[114](index=114&type=chunk) Due to Related Parties | Related Party | March 31, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Yefang Zhang | $1,999,870 | $1,714,811 | | Other | $19,218 | $1,459 | | **Total** | **$2,019,088** | **$1,716,270** | [Note 11 — Equity](index=24&type=section&id=Note%2011%20%E2%80%94%20Equity) Key equity events include a ten-fold increase in authorized ordinary shares to **200 million** in September 2020, the issuance of **6.47 million** ordinary shares in March 2021 raising **$6.7 million** in net proceeds, and a statutory reserve balance of **$975,309** - On September 12, 2020, the authorized share capital was increased from **20 million** to **200 million** ordinary shares[118](index=118&type=chunk) - On March 24, 2021, the company sold **6,469,467** ordinary shares at **$1.15** per share, generating net proceeds of **$6.7 million**[119](index=119&type=chunk) - The company is required to make appropriations to a statutory surplus reserve based on PRC GAAP, with a balance of **$975,309** as of March 31, 2021[120](index=120&type=chunk) [Note 12 — Taxes](index=25&type=section&id=Note%2012%20%E2%80%94%20Taxes) The company's PRC subsidiaries are generally subject to a **25%** corporate income tax rate, but several entities benefit from preferential tax treatment, including tax exemptions for agricultural entities and reduced rates of **5%** or **10%** for small-scale minimal profit enterprises, resulting in an estimated tax saving of **$587,864** - While the statutory PRC income tax rate is **25%**, several subsidiaries benefit from preferential tax policies[125](index=125&type=chunk) - FLS Mushroom and Farmmi Food are tax-exempt due to their engagement in the agricultural industry. Other entities like Nongyuan Network and Farmmi E-Commerce benefit from reduced rates for being 'small-scaled minimal profit enterprises'[126](index=126&type=chunk)[129](index=129&type=chunk) - The estimated tax savings from these exemptions and reduced rates amounted to **$587,864** for the six months ended March 31, 2021[126](index=126&type=chunk) [Note 13 — Concentration of major customers and suppliers](index=27&type=section&id=Note%2013%20%E2%80%94%20Concentration%20of%20major%20customers%20and%20suppliers) The company faces significant concentration risk, with a single major customer accounting for **79%** of total sales and **97%** of accounts receivable, while three major suppliers accounted for **94%** of total purchases - A single customer accounted for **79%** of total sales for the six months ended March 31, 2021, up from **45%** in the prior-year period[134](index=134&type=chunk) - As of March 31, 2021, one customer represented **97%** of the total accounts receivable balance[134](index=134&type=chunk) - For the six months ended March 31, 2021, three suppliers accounted for **94%** of total purchases (**53%**, **26%**, and **15%**)[134](index=134&type=chunk) [Note 14 — Leases](index=27&type=section&id=Note%2014%20%E2%80%94%20Leases) The company's operating leases for office and factory space resulted in total lease costs of **$78,927** for the six months ended March 31, 2021, with net operating lease right-of-use assets of **$737,222** and total operating lease liabilities of **$722,665** Lease Liabilities and Assets (as of March 31, 2021) | Item | Amount | | :--- | :--- | | Operating lease right-of-use assets, net | $737,222 | | Operating lease liabilities, current | $145,647 | | Operating lease liabilities, non-current | $577,018 | | **Total operating lease liabilities** | **$722,665** | Maturities of Operating Lease Liabilities (as of March 31, 2021) | Period | Amount | | :--- | :--- | | Twelve months ending March 31, 2022 | $186,923 | | 2023 | $176,168 | | 2024 | $64,323 | | 2025 | $64,323 | | 2026 | $64,323 | | Thereafter | $275,621 | | **Total future minimum lease payments** | **$831,681** | [Note 15 — Segment reporting](index=28&type=section&id=Note%2015%20%E2%80%94%20Segment%20reporting) The company operates as a single reportable segment, with revenue primarily generated from Shiitake and Mu Er mushrooms, and the vast majority (**95%**) of revenue coming from China - The company operates as a single operating and reportable segment based on the 'management approach' under ASC 280[144](index=144&type=chunk) Revenue by Major Product (Six Months Ended March 31) | Product Category | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Shiitake | $10,104,540 | $7,346,174 | | Mu Er | $7,340,137 | $5,762,752 | | Other edible fungi and agricultural products | $343,051 | $471,856 | | **Total** | **$17,787,728** | **$13,580,782** | Revenue by Geography (Six Months Ended March 31) | Geography | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | China | $16,973,392 | $13,086,183 | | Other countries | $814,336 | $494,599 | | **Total** | **$17,787,728** | **$13,580,782** | [Note 16 – Subsequent events](index=29&type=section&id=Note%2016%20%E2%80%93%20Subsequent%20events) After the reporting period, the company established three new PRC subsidiaries, conducted two share issuances raising approximately **$44.9 million** in net proceeds, and further increased its authorized share capital from **200 million** to **600 million** shares - Three new subsidiaries were established in April and May 2021: Zhejiang Farmmi Biotechnology, Zhejiang Farmmi (Hangzhou) Ecology Agriculture Development, and Zhejiang Farmmi Agricultural Supply Chain[149](index=149&type=chunk) - The company raised approximately **$44.9 million** in net proceeds through two ordinary share sales in April and May 2021[149](index=149&type=chunk)[150](index=150&type=chunk) - On July 22, 2021, the company's authorized share capital was increased from **200 million** to **600 million** ordinary shares[150](index=150&type=chunk) [Note 17 — Condensed financial information of the parent company](index=29&type=section&id=Note%2017%20%E2%80%94%20Condensed%20financial%20information%20of%20the%20parent%20company) Condensed financial information for the parent company (Farmmi, Inc.) is presented due to PRC restrictions on transferring net assets from subsidiaries, with parent company assets primarily consisting of its investment in subsidiaries valued at **$40.6 million**, and a net income of **$1.36 million** for the six months ended March 31, 2021 - Condensed parent company financial statements are provided because restricted net assets of consolidated PRC subsidiaries exceed **25%** of consolidated net assets[151](index=151&type=chunk) Parent Company Balance Sheet (Condensed) | Item | As of March 31, 2021 | As of September 30, 2020 | | :--- | :--- | :--- | | Total assets | $41,221,049 | $30,219,987 | | Total liabilities | $2,002,208 | $1,934,811 | | Total shareholders' equity | $39,218,841 | $28,285,176 | Parent Company Statement of Operations (Condensed) | Item | For the Six Months Ended March 31, 2021 | For the Six Months Ended March 31, 2020 | | :--- | :--- | :--- | | Loss from operations | $(1,267,914) | $(1,463,254) | | Equity in income of subsidiaries and VIE | $2,630,530 | $1,406,202 | | **Net income (loss) attributable to Farmmi, Inc.** | **$1,362,616** | **$(57,052)** |

Part I [Key Information](index=5&type=section&id=Item%203.%20Key%20Information) The company presents historical financial data and outlines significant risks from customer concentration and its VIE structure [Selected Financial Data](index=5&type=section&id=A.%20Selected%20Financial%20Data) The company shows revenue growth from FY2017-2019 but recorded a net loss in FY2019 after two years of profitability Selected Financial Data (All amounts in U.S. dollars) | Statement of Operations Data | FY 2019 | FY 2018 | FY 2017 | | :--- | :--- | :--- | :--- | | Revenues | $30,841,875 | $29,819,088 | $26,665,601 | | Gross profit | $5,422,124 | $5,067,615 | $4,524,722 | | Income from operations | $3,035,613 | $3,077,928 | $3,469,229 | | Net income (loss) | $(311,004) | $3,229,266 | $3,270,346 | | Earnings (loss) per share, basic and diluted | $(0.03) | $0.29 | $0.33 | | Balance Sheet Data (As of Sep 30) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total assets | $30,482,631 | $22,075,997 | $13,843,929 | | Total liabilities | $8,145,080 | $2,862,355 | $3,191,015 | | Total stockholders' equity | $21,498,503 | $18,338,270 | $9,756,338 | [Risk Factors](index=6&type=section&id=D.%20Risk%20Factors) The company faces significant risks from customer concentration, China operations, its VIE structure, and internal controls - The company has a **high concentration of customers**, with China Forest accounting for a significant portion of total revenue over the past three fiscal years[19](index=19&type=chunk)[21](index=21&type=chunk) Customer and Supplier Concentration | Concentration | FY 2019 | FY 2018 | FY 2017 | | :--- | :--- | :--- | :--- | | **Top Customer (China Forest)** | 64.30% | 67.72% | 75.77% | | **Largest Supplier** | 50.08% | 54.03% | 60.32% | - The company's e-commerce business is conducted through a **Variable Interest Entity (VIE)**, Nongyuan Network, due to PRC restrictions on foreign investment in telecommunications[92](index=92&type=chunk)[94](index=94&type=chunk)[95](index=95&type=chunk) - The company has identified **material weaknesses in its internal control** over financial reporting, specifically a lack of sufficient personnel with U.S. GAAP knowledge[157](index=157&type=chunk) - As a **'foreign private issuer' and 'emerging growth company'**, Farmmi is exempt from certain U.S. reporting and governance requirements, which may result in less information available to investors[146](index=146&type=chunk)[150](index=150&type=chunk)[152](index=152&type=chunk) [Information on the Company](index=30&type=section&id=Item%204.%20Information%20on%20the%20Company) Details the company's history as a holding company, its business of selling edible fungi, and its complex VIE structure [History and Development of the Company](index=30&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) The company was spun off from Forasen Group in 2015 and completed its NASDAQ IPO in February 2018 - The company was established in July 2015 to spin off the edible fungi business from **Forasen Group**, which is controlled by CEO Yefang Zhang and her husband, director Zhengyu Wang[180](index=180&type=chunk)[182](index=182&type=chunk) - Completed its **Initial Public Offering (IPO)** on NASDAQ under the symbol 'FAMI' in February 2018, raising approximately **$6 million** in net proceeds[186](index=186&type=chunk) - In November 2018, FMI completed a **$7.5 million private placement** of senior convertible notes and warrants with an institutional investor[188](index=188&type=chunk) [Business Overview](index=32&type=section&id=B.%20Business%20Overview) The company primarily processes and sells edible fungi, with sales concentrated in China and a growing e-commerce segment - The company's primary business is processing and selling edible fungi, mainly **Shiitake and Mu Er mushrooms**[193](index=193&type=chunk)[213](index=213&type=chunk) Revenue by Geographic Market (FY2019) | Market | Revenue Percentage | | :--- | :--- | | Domestic (China) | 93.17% | | International | 6.83% | - The company is expanding its e-commerce business, which accounted for **20.05% of total sales in FY2019**, up from 11.32% in FY2018[211](index=211&type=chunk)[270](index=270&type=chunk) - Key competitive advantages include a sophisticated quality control system (HACCP, BRC certified), established supplier relationships, and a favorable location in Lishui[289](index=289&type=chunk)[293](index=293&type=chunk)[295](index=295&type=chunk) [Organizational Structure](index=67&type=section&id=C.%20Organizational%20Structure) The company is a Cayman holding company using a VIE structure to operate its e-commerce business in the PRC - The company utilizes a complex structure with a **Cayman Islands parent**, a Hong Kong holding company, and multiple PRC subsidiaries (WFOEs)[359](index=359&type=chunk)[360](index=360&type=chunk)[361](index=361&type=chunk) - Due to PRC restrictions on foreign ownership, the company's e-commerce business is operated through a **VIE, Nongyuan Network**, which is controlled contractually[367](index=367&type=chunk)[322](index=322&type=chunk) - Control over the VIE is established through several key agreements: an **Exclusive Management Consulting and Technology Service Agreement, a Proxy Agreement, an Exclusive Call Option Agreement, and an Equity Pledge Agreement**[370](index=370&type=chunk)[371](index=371&type=chunk)[374](index=374&type=chunk)[377](index=377&type=chunk) [Property, Plants and Equipment](index=73&type=section&id=D.%20Property,%20Plants%20and%20Equipment) The company leases its main processing facilities from a related party and owns minimal fixed assets - The company **leases its two main factory properties** in Lishui from Forasen Group, a related party[391](index=391&type=chunk) - Fixed assets consist of office equipment, vehicles, machinery, and leasehold improvements, with a net book value of **$139,468** as of September 30, 2019[393](index=393&type=chunk)[555](index=555&type=chunk) [Operating and Financial Review and Prospects](index=76&type=section&id=Item%205.%20Operating%20and%20Financial%20Review%20and%20Prospects) Details a 3.4% revenue increase in FY2019 but a net loss of $0.3 million due to significant financing costs [Results of Operations (FY2019 vs. FY2018)](index=90&type=section&id=Results%20of%20Operations%20for%20the%20Years%20Ended%20September%2030,%202019%20and%202018) Revenue grew 3.4% in FY2019, but a net loss was recorded due to over $3.3 million in convertible note expenses Financial Performance Summary (FY2019 vs. FY2018) | Metric | FY 2019 | FY 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $30,841,875 | $29,819,088 | +3.43% | | Gross Profit | $5,422,124 | $5,067,615 | +7.00% | | Income from Operations | $3,035,613 | $3,077,928 | -1.37% | | Net (Loss) Income | $(311,004) | $3,229,266 | -109.63% | - The **net loss in FY2019** was primarily driven by expenses related to the senior convertible notes issued in November 2018, including **$1,197,317 in interest expense** and **$2,113,492 in amortization of debt issuance costs**[466](index=466&type=chunk)[467](index=467&type=chunk)[472](index=472&type=chunk) Revenue by Product (FY2019 vs. FY2018) | Product Category | FY 2019 Revenue | FY 2018 Revenue | Change (%) | | :--- | :--- | :--- | :--- | | Shiitake | $17,893,893 | $16,753,076 | +6.81% | | Mu Er | $11,659,409 | $12,190,340 | -4.36% | | Other | $1,288,573 | $875,672 | +47.15% | [Results of Operations (FY2018 vs. FY2017)](index=95&type=section&id=Results%20of%20Operations%20for%20the%20Years%20Ended%20September%2030,%202018%20and%202017) Revenue grew 11.8% in FY2018 driven by Mu Er sales, while net income remained flat due to higher operating costs Financial Performance Summary (FY2018 vs. FY2017) | Metric | FY 2018 | FY 2017 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $29,819,088 | $26,665,601 | +11.83% | | Gross Profit | $5,067,615 | $4,524,722 | +12.00% | | Income from Operations | $3,077,928 | $3,469,229 | -11.28% | | Net Income | $3,229,266 | $3,270,346 | -1.26% | - The **11.83% revenue growth in FY2018** was largely due to a **31.93% increase in sales of Mu Er mushrooms**, driven by increased orders from major customer China Forest[475](index=475&type=chunk)[479](index=479&type=chunk) - Operating expenses rose sharply in FY2018, with **selling and distribution expenses up 291%** and **general and administrative expenses up 58%**, primarily due to IPO-related costs[487](index=487&type=chunk)[488](index=488&type=chunk) [Liquidity and Capital Resources](index=100&type=section&id=Liquidity%20and%20Capital%20Resources) Cash decreased significantly to $135,125 in FY2019 due to a $10.8 million negative operating cash flow Cash Flow Summary | Cash Flow Activity | FY 2019 | FY 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(10,773,287) | $(2,725,010) | | Net cash used in investing activities | $(94,905) | $(64,715) | | Net cash provided by financing activities | $6,056,040 | $6,127,320 | - **Cash significantly decreased to $135,125** at FYE 2019 from $4,925,165 at FYE 2018, mainly due to a **$10.8 million cash outflow from operations**[499](index=499&type=chunk)[509](index=509&type=chunk) - The large cash use in operations was driven by an increase of **$5.8 million in accounts receivable** and an **$8.7 million increase in advances to suppliers**[509](index=509&type=chunk) - Financing activities in FY2019 provided **$6.1 million in cash**, primarily from the $7.5 million convertible note issuance, offset by debt repayments and financing costs[511](index=511&type=chunk) [Directors, Senior Management and Employees](index=104&type=section&id=Item%206.%20Directors,%20Senior%20Management%20and%20Employees) The company is led by its CEO and controlling shareholder, with a five-member board and 101 employees as of FY2019 - The company is led by **CEO and Chairwoman Yefang Zhang**. Her husband, Zhengyu Wang, is a director. The Board of Directors consists of five members, including three independent directors[518](index=518&type=chunk)[519](index=519&type=chunk)[520](index=520&type=chunk) Executive Compensation (FY2019) | Name | Position | Total Compensation ($) | | :--- | :--- | :--- | | Yefang Zhang | CEO | 176,646.98 | | Jun Zhou | CFO | 75,818.98 | | Liang Han | COO | 46,244.78 | - As of September 30, 2019, the company had **101 full-time employees**, down from 122 in 2018. The production department is the largest, with 52 employees[567](index=567&type=chunk) - The company has established an incentive pool of **1,168,000 Ordinary Shares** (10% of post-IPO shares) for employee stock and option grants[571](index=571&type=chunk) [Major Shareholders and Related Party Transactions](index=114&type=section&id=Item%207.%20Major%20Shareholders%20and%20Related%20Party%20Transactions) Ownership is highly concentrated with the CEO and her husband, and the company engages in significant related party leases - **CEO Yefang Zhang and her husband, director Zhengyu Wang**, are the controlling shareholders, beneficially owning approximately **66.0%** of the company's shares as of December 31, 2019[576](index=576&type=chunk) Related Party Balances (as of Sep 30, 2019) | Related Party | Relationship | Due to Related Party ($) | | :--- | :--- | :--- | | Yefang Zhang | CEO | 2,652,882 | | Forasen Group | Owned by CEO/Director | 0 | - The company **leases its main factory buildings from Forasen Group**, a related party owned by the CEO and her husband[583](index=583&type=chunk) [Financial Information](index=117&type=section&id=Item%208.%20Financial%20Information) The company has no material legal proceedings and does not plan to pay dividends, retaining earnings for growth - The company is not currently a party to any **material legal or administrative proceedings**[590](index=590&type=chunk) - The company has **never declared or paid cash dividends** and does not expect to in the foreseeable future, intending to retain earnings for business growth[591](index=591&type=chunk) - Dividend payments are also restricted by PRC regulations, which require PRC subsidiaries to set aside **statutory reserves** from after-tax profits before distributing dividends[593](index=593&type=chunk) [The Offer and Listing](index=118&type=section&id=Item%209.%20The%20Offer%20and%20Listing) The company's shares have traded on NASDAQ under 'FAMI' since February 2018, showing significant price volatility - The company's Ordinary Shares are listed on the **NASDAQ Capital Market** under the symbol 'FAMI'[599](index=599&type=chunk) Annual Stock Price Range | Fiscal Year Ended Sep 30 | High ($) | Low ($) | | :--- | :--- | :--- | | 2018 | 10.3234 | 2.68 | | 2019 | 5.87 | 1.12 | [Additional Information](index=120&type=section&id=Item%2010.%20Additional%20Information) Outlines material contracts, PRC exchange controls, and the potential classification as a PFIC for U.S. tax purposes - In November 2018, the company completed a **$7.5 million private placement**, issuing senior convertible notes due April 2020 and warrants to an institutional investor[602](index=602&type=chunk) - The company's operations are subject to **PRC foreign exchange controls**, which require government approval for capital account transactions and dividend distributions[607](index=607&type=chunk) - For U.S. investors, there is a risk that the company could be classified as a **Passive Foreign Investment Company (PFIC)**, which would result in adverse U.S. federal income tax consequences[632](index=632&type=chunk)[635](index=635&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=130&type=section&id=Item%2011.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate, foreign exchange (RMB/USD), and commodity price risks - The company is exposed to **interest rate risk** on its bank loans; a 1 percentage point change in interest rates would affect profit by approximately **$14,008**[649](index=649&type=chunk) - The company faces **foreign exchange risk** as its functional currency is the Chinese Renminbi (RMB), while its financial statements are presented in U.S. dollars[653](index=653&type=chunk)[655](index=655&type=chunk) - The company is exposed to **commodity risk** from potential price increases in raw edible fungi, which is its primary input[656](index=656&type=chunk) Part II [Material Modifications to the Rights of Securities Holders and Use of Proceeds](index=132&type=section&id=Item%2014.%20Material%20Modifications%20to%20the%20Rights%20of%20Securities%20Holders%20and%20Use%20of%20Proceeds) Details the use of approximately $4.9 million of its $6 million in IPO proceeds, primarily for securing farm supplies Use of IPO Proceeds | Use | Estimated Amount of Net Proceeds to be Spent | Approximate Amount Spent | | :--- | :--- | :--- | | Product Development | 16.67% | $225,238 | | Family Farms | 16.67% | $4,122,012 | | Farmmi Liangpin Market | 66.66% | $574,137 | | **Total** | **100.00%** | **$4,921,387** | [Controls and Procedures](index=132&type=section&id=Item%2015.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal controls were ineffective due to a material weakness in accounting expertise - Management concluded that as of September 30, 2019, the company's **disclosure controls and procedures were ineffective**[664](index=664&type=chunk) - A **material weakness in internal control** over financial reporting was identified due to a lack of sufficient personnel with adequate knowledge of U.S. GAAP[666](index=666&type=chunk) - The company is in the process of implementing **remedial actions**, including improving review processes and enhancing documentation[667](index=667&type=chunk) [Corporate Governance and Other Matters](index=133&type=section&id=Item%2016.%20Corporate%20Governance%20and%20Other%20Matters) The company follows home country governance practices and has an audit committee financial expert on its board - The Board of Directors has identified Yunhao Chen as an **'audit committee financial expert'**[668](index=668&type=chunk) Principal Accountant Fees (Friedman LLP) | Fee Type | FY 2019 | FY 2018 | | :--- | :--- | :--- | | Audit Fees | $200,000 | $185,000 | - As a **foreign private issuer**, the company is exempt from certain NASDAQ corporate governance rules and may follow its home country (Cayman Islands) practices[676](index=676&type=chunk)[678](index=678&type=chunk) Part III [Financial Statements](index=135&type=section&id=Item%2018.%20Financial%20Statements) Presents the audited consolidated financial statements for FY2017-2019, prepared in accordance with U.S. GAAP Consolidated Balance Sheet (as of Sep 30, 2019) | Account | Amount (USD) | | :--- | :--- | | **Total Assets** | **$30,482,631** | | Current Assets | $29,705,028 | | Cash | $135,125 | | Accounts Receivable, net | $13,827,591 | | Advances to Suppliers | $14,034,379 | | **Total Liabilities** | **$8,145,080** | | Current Liabilities | $8,145,080 | | Convertible notes payable | $2,926,361 | | **Total Equity** | **$22,337,551** | Consolidated Statement of Operations (for year ended Sep 30, 2019) | Account | Amount (USD) | | :--- | :--- | | Total Revenues | $30,841,875 | | Gross Profit | $5,422,124 | | Income from Operations | $3,035,613 | | **Net (Loss) Income** | **$(311,004)** | | Basic and Diluted (Loss) per Share | $(0.03) | - The financial statements consolidate the company's subsidiaries and its **Variable Interest Entity (VIE)**, Nongyuan Network, which generated **$6.2 million in sales** in FY2019[708](index=708&type=chunk)[709](index=709&type=chunk) - Notes to the financial statements provide detailed breakdowns of accounts, significant accounting policies, **related party transactions**, debt instruments, and segment reporting[706](index=706&type=chunk)[774](index=774&type=chunk)[767](index=767&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Ordinary Shares, $0.001 par value per share NASDAQ Capital Market FORM 20-F (Mark One) ¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934 OR x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2018 OR ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 OR ¨ SHELL COMPANY REPORT ...