Compensation and Equity Awards - The aggregate cash compensation paid to directors and executive officers was RMB nil (US$ nil) for the twelve months ended September 30, 2023[333]. - The 2014 Performance Equity Plan allows for the issuance of equity awards for up to 5,000,000 ordinary shares, with 224,700 awards outstanding as of September 30, 2023[334]. - The 2021 Performance Equity Plan permits the issuance of equity awards for up to 1,000,000 ordinary shares, with 36,000 options outstanding and 886,320 shares available for future grants as of September 30, 2023[335]. - The outstanding awards under the 2014 Performance Equity Plan are zero for future grants, indicating a complete allocation of available shares[334]. - The company plans to expand equity awards to a broader range of employees to align incentives with stock performance[334]. Board and Governance - The board of directors consists of five members, including one female and four male directors, with a diversity matrix indicating four Asian and one White director[341]. - The Audit Committee is composed of independent directors Fei Wang, Michael Trimble, and Min Lin, ensuring compliance with Nasdaq and SEC independence criteria[343]. - Ms. Fei Wang qualifies as an "audit committee financial expert" due to her educational background and extensive experience in financial reporting[345]. - The company has established an Audit Committee charter responsible for reviewing financial statements and overseeing the relationship with independent auditors[346]. - The company has a "clawback" policy adopted in June 2023, compliant with Nasdaq regulations[356]. - The company is not required to hold an annual meeting of shareholders under BVI laws, following its home country practice instead[354]. - The company has been granted exemptions from certain Nasdaq listing standards as a foreign private issuer[443]. Employment and Internal Controls - Dr. Gengchen Han has an employment agreement with a term of three years starting January 1, 2024, with benefits including five weeks' vacation and a car[342]. - Management identified a material weakness in internal control over financial reporting as of September 30, 2023, due to insufficient qualified personnel and separation of duties[427]. - The positions of CEO and CFO are currently held by the same individual, which contributes to the identified weaknesses in internal controls[427]. - Management's internal control system is designed to provide reasonable assurance regarding the reliability of financial reporting, but inherent limitations exist[426]. - The lack of timely gathering of financial information and preparation of required reports was noted as a material weakness in internal controls[427]. - The company plans to recruit a new CFO and expand its accounting staff to address internal control issues, although staffing remains challenging due to the Covid-19 pandemic[429]. Financial Performance - Revenues for Q3 2023 reached RMB 93,307,000, a significant increase of 77.5% compared to RMB 52,580,000 in Q3 2022[473]. - Gross profit for Q3 2023 was RMB 17,247,000, representing a gross margin of approximately 18.5%[473]. - Net income for Q3 2023 was RMB 62,669,000, a substantial recovery from a net loss of RMB 127,081,000 in Q3 2021[473]. - The company reported a comprehensive income of RMB 62,455,000 for Q3 2023, compared to a comprehensive loss of RMB 127,897,000 in Q3 2021[473]. - Basic and diluted net income per share for Q3 2023 was RMB 8.45 and RMB 8.43, respectively, a significant improvement from losses of RMB 16.29 in Q3 2021[473]. - The company reported a net income of RMB 62.7 million for the year ended September 30, 2023, compared to a net income of RMB 2.3 million in 2022[500]. Assets and Liabilities - As of September 30, 2023, total assets increased to RMB 238,506,000 from RMB 135,955,000 in 2022, representing a growth of approximately 75.5%[468]. - Current liabilities rose to RMB 313,461,000 in 2023, up from RMB 292,865,000 in 2022, indicating an increase of about 7%[468]. - The accumulated deficit decreased from RMB 656,898,000 in 2022 to RMB 601,566,000 in 2023, reflecting an improvement of approximately 8.4%[469]. - Cash and cash equivalents increased to RMB 23,708,000 in 2023, compared to RMB 17,669,000 in 2022, marking a growth of about 34.2%[468]. - The company's total liabilities, including amounts of consolidated VIEs, were RMB 319,766,000 as of September 30, 2023, compared to RMB 308,597,000 in 2022, showing a rise of about 3.8%[468]. - Total shareholders' equity improved from a deficit of RMB 172,642,000 in 2022 to a deficit of RMB 81,260,000 in 2023, indicating a reduction of approximately 53%[469]. Legal and Regulatory Environment - The company is subject to various legal proceedings, including a pending lawsuit with a corn dealer regarding a supply contract[366]. - The company has filed documentation with Nasdaq exempting it from certain provisions of Nasdaq regulations that BVI law does not require compliance with[355]. - The company is subject to U.S. federal income tax laws, which may affect the tax treatment of dividends and capital gains for U.S. Holders[404]. - The M&A Rules require prior notification to MOFCOM for foreign investors acquiring control of PRC domestic enterprises, making M&A activities more complex[390]. - The EIT Law imposes a standard income tax rate of 25% on PRC enterprises, with dividends from PRC subsidiaries typically subject to a 10% withholding tax[394]. Foreign Exchange and Economic Conditions - The company recorded a foreign exchange loss of RMB0.78 million (US$0.11 million) for the twelve months ended September 30, 2023, due to currency fluctuations[421]. - The company has not engaged in any hedging activities, which may lead to economic losses from foreign currency exchange rate fluctuations[421]. - The company believes its exposure to foreign exchange risks should be limited, although the value of shares may be affected by the exchange rate between U.S. dollars and Renminbi[420]. - The PRC government may readjust the current exchange rate regime, which could impact foreign currency transactions[421]. - The inflation rate in China was -0.1% in October 2023, with a producer price index decrease of 3.7% year-over-year[422]. - The overall national inflation rate in China was approximately 2.4%, 1.07%, and 2.8% for the fiscal years ended September 30, 2021, 2022, and 2023, respectively[422]. Business Operations and Strategy - The company is engaged in hybrid crop seed development, production, and distribution, with a focus on expanding its market presence in the agricultural sector[483]. - The company is developing new hybrids and nutrition-enhanced corn for animal feed, which is expected to boost revenue significantly[500]. - The company is exploring additional funding sources, including licensing core seed traits and applying for government grants[501]. - The company has a 100% ownership in its subsidiary Beijing Origin State Harvest Biotechnology Limited, which focuses on hybrid seed technology development[483]. - The company derives most of its revenue from hybrid corn seed, indicating a focus on agricultural products[514]. - The company has not incurred any advertising costs for the years ended September 30, 2021, 2022, and 2023, suggesting a potential strategy of organic growth without significant marketing expenses[519].

Core Viewpoint - Origin Agritech Ltd. has submitted an appeal to Nasdaq for an extension to comply with listing requirements, demonstrating its commitment to maintaining its Nasdaq listing and confidence in regaining compliance [1] Company Overview - Origin Agritech Limited, established in 1997 and based in Beijing, is a prominent agricultural technology company in China, known for its innovations in crop seed biotechnologies [2] - The company’s phytase corn was the first transgenic corn to receive a Bio-Safety Certificate from China's Ministry of Agriculture, highlighting its leadership in biotechnology [2] - Origin has developed a strong pipeline of biotechnology seeds, including products with glyphosate tolerance and pest resistance traits [2]

Financial Performance - For the fiscal year ended September 30, 2022, revenue was RMB 52.6 million (US$7.4 million), an increase of 13.4% from RMB 46.4 million in the previous fiscal year[265]. - Net income from continuing operations for the fiscal year ended September 30, 2022, was RMB 2.3 million (US$0.33 million), a turnaround from a net loss of RMB 127 million in fiscal year 2021[268]. - Total operating expenses decreased significantly to RMB 29.1 million (US$4.1 million) in fiscal year 2022 from RMB 150.7 million in fiscal year 2021, primarily due to the absence of large impairment and bad debt provisions[265]. - For the fiscal year ended September 30, 2022, revenue was RMB 52.6 million (US$7.4 million), an increase of 4.5% from RMB 46.4 million in the previous fiscal year, primarily due to the reopening of the Xinjiang facility and strong market performance of new hybrids[288]. - Net income from continuing operations for the fiscal year ended September 30, 2022, was RMB 2.3 million (US$0.33 million), a significant recovery from a net loss of RMB 127 million in fiscal year 2021[293]. - The company incurred net losses from continuing operations of RMB 102.8 million, RMB 127.1 million, and net income of RMB 2.3 million in the years ended September 30, 2020, 2021, and 2022, respectively[320]. - The company reported recurring losses from operations, raising substantial doubt about its ability to continue as a going concern[452]. - As of September 30, 2022, the company had net current liabilities and an accumulated deficit[452]. Research and Development - Research and development expenses increased to RMB 7.4 million (US$1.05 million) in fiscal year 2022, compared to RMB 2 million in fiscal year 2021, reflecting a commitment to biotech product development[266]. - The company received a grant of RMB 6.5 million (US$0.95 million) from the Chinese Ministry of Agriculture and Rural Affairs for the evaluation of its GMO corn traits, highlighting government support for its research efforts[260]. - The company expects to apply for a safety certificate for drought-resistant transgenic corn in March 2023, with the first batch of hybrids anticipated in 2024[261]. - The company has integrated insect-resistant and herbicide-tolerant traits into corn inbred lines and expects to obtain new variety approval by the end of 2023, entering the market in 2024[262]. - The company expects a government grant for R&D in 2023, which will help offset research and development expenses[292]. - The company has established several plant genetic engineering technology platforms and possesses exclusive rights to five genetic traits currently in various stages of testing and development[277]. Operating Expenses - Total operating expenses for the fiscal year ended September 30, 2022, were RMB 29.1 million (US$4.1 million), significantly lower than RMB 150.7 million in fiscal year 2021, mainly due to a decrease in General and Administrative expenses[289]. - Selling and marketing expenses for fiscal year 2022 were RMB 7.3 million (US$1 million), compared to RMB 5.6 million in fiscal year 2021, reflecting the company's strategy to improve distribution efficiency through joint ventures[290]. - General and administrative expenses for the fiscal year ended September 30, 2022, were RMB 14.3 million (US$2.0 million), a substantial decrease from RMB 73.3 million in the previous year due to the absence of large impairment and bad debt provisions[291]. Shareholder Information - The company has never declared or paid dividends and plans to retain all available funds for business operations and expansion[369]. - Gengchen Han, the Chairman and CEO, holds 836,383 shares, representing 13.18% of total shares[358]. - Tiger Capital Fund SPC is a major shareholder, owning 1,696,450 shares, which is 23.25% of total shares[360]. - The company has filed documentation with Nasdaq to exempt itself from certain shareholder approval requirements under BVI law[355]. - The company does not plan to seek shareholder approval for changes in equity award plans or issuances exceeding 20% of outstanding shares at less than market price[355]. Corporate Governance - The company is incorporated under the laws of the British Virgin Islands and follows its home country practices regarding corporate governance, including the composition of the board of directors[353]. - The Audit Committee consists of independent directors, including Fei Wang, Michael Trimble, and Min Lin, ensuring compliance with Nasdaq independence criteria[346]. - The Compensation Committee administers the equity award plans and is responsible for reviewing compensation policies for directors and senior employees[350]. - The Nominating Committee is tasked with identifying and recommending candidates for the board of directors, ensuring a balance of knowledge and experience[351]. - The company has established a three-year non-competition period for executives, protecting confidential information as part of employment agreements[345]. Financial Position - Total assets increased to RMB 136 million as of September 30, 2022, compared to RMB 119 million in the previous year[268]. - As of September 30, 2022, cash and cash equivalents were approximately RMB 17.7 million, an increase from RMB 15.4 million in 2021[312]. - Net cash used in operating activities improved to RMB 3.3 million in 2022 from RMB 25.1 million in 2021[314]. - The company has a contractual obligation of RMB 1.62 million for operating lease obligations as of September 30, 2022[331]. Audit and Compliance - The company has identified a material weakness in its internal control over financial reporting, concluding that these controls were not effective[425]. - The company plans to address internal control issues by recruiting a new CFO and expanding its accounting staff, but faces challenges due to a lack of qualified candidates and staffing difficulties related to the Covid-19 pandemic[426]. - Audit fees for the fiscal year ended September 30, 2022, amounted to $200,000, an increase from $175,000 for the previous fiscal year[432]. - The company incurred audit-related fees of $20,000 for the fiscal year ended September 30, 2022, compared to nil for the previous year[433]. - The company has not engaged its principal accountant for any tax compliance or planning services during the fiscal years ended September 30, 2021, and 2022[434]. - The Audit Committee pre-approves all auditing and permitted non-audit services performed by the independent auditor[436]. Regulatory Environment - The company is subject to the informational requirements of the Exchange Act as a foreign private issuer and files reports with the SEC[415]. - The company has been granted exemptions from certain Nasdaq listing standards as a foreign private issuer[437]. - The company is subject to the regulations of the Public Company Accounting Oversight Board (PCAOB)[453]. Market Conditions - The average inflation rate in China was 2.1% from 2015 to the end of 2021, with a forecasted annual rate of 2% for the next several years[421]. - The overall national inflation rate in China was approximately 2.4%, 1.07%, and 2.8% for the fiscal years ended September 30, 2020, 2021, and 2022, respectively[421]. - The company expects inflation to affect food prices, as producer price increases may push through to consumer prices[421]. - The company believes its exposure to foreign exchange risks is limited, although fluctuations in the Renminbi may still impact its financial position[419]. - The company recorded a foreign exchange loss of RMB 1.8 million (approximately US$0.26 million) for the twelve months ended September 30, 2022, due to currency fluctuations[420].

Origin Agritech Limited (NASDAQ:SEED) Q2 2022 Earnings Conference Call May 5, 2022 8:00 AM ET Company Participants Kirin Smith - PCG Advisory Gengchen Han - Chairman and CEO Wei Han - VP of Business Development Joe Ramelli - Director of IR Conference Call Participants Bill Stein - Celadon Financial Howard Yeager - Newbridge Securities Operator Hello and welcome to the Origin Agritech First Half 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today' ...

[Introduction](index=3&type=section&id=INTRODUCTION) [Corporate Structure and Forward-Looking Information](index=3&type=section&id=Corporate%20Structure%20and%20Forward-Looking%20Information) The company operates in China via a VIE structure due to foreign ownership restrictions and provides forward-looking statements on its GM seed business - The company is a BVI holding company, and its seed development operations in China are conducted through a **Variable Interest Entity (VIE)** structure, specifically Beijing Origin and its subsidiary Xinjiang Origin[6](index=6&type=chunk)[7](index=7&type=chunk) - The VIE structure is subject to **significant risks**, including potential PRC government findings of non-compliance, which could lead to severe penalties and render the company's shares worthless[8](index=8&type=chunk)[9](index=9&type=chunk) - Forward-looking statements highlight expectations for business development in agricultural biotechnology (GM seeds) and e-commerce, alongside key risks[10](index=10&type=chunk)[11](index=11&type=chunk)[12](index=12&type=chunk) PART I [Key Information](index=6&type=section&id=Item%203.%20Key%20Information) This section presents key financial data showing declining revenue and widening losses, alongside a detailed analysis of significant business and regulatory risks [Selected Financial Data](index=6&type=section&id=A.%20Selected%20financial%20data) Financial data for FY2021 shows declining revenues, widening net losses, and a significant working capital deficit compared to prior years Selected Consolidated Financial Data (in RMB '000) | Financial Metric | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | **Revenues** | 92,440 | 52,513 | 46,425 | | **Gross profit (loss)** | (12,830) | 3,513 | 12,814 | | **Loss from continuing operations** | (61,494) | (91,583) | (137,914) | | **Net loss attributable to Origin Agritech** | (62,120) | (85,261) | (91,529) | | **Net loss per share (Basic & Diluted)** | (14.85) | (16.95) | (16.29) | | **Total assets (at period end)** | 261,112 | 254,883 | 119,038 | | **Total liabilities (at period end)** | 276,587 | 340,345 | 304,636 | | **Current working capital (at period end)** | (178,580) | (112,542) | (228,224) | - The translation of RMB to USD for the fiscal year 2021 was made at an exchange rate of **RMB 6.4854 to US$1.00** as of September 30, 2021[19](index=19&type=chunk)[21](index=21&type=chunk) [Risk Factors](index=8&type=section&id=D.%20Risk%20factors) The company faces substantial risks from its VIE structure, going concern uncertainty, and dependence on China's uncertain GMO regulatory environment - A primary risk is the **VIE structure** for its seed development business, which means investors may not be deemed to own that part of the business if PRC authorities rule against the structure[25](index=25&type=chunk)[114](index=114&type=chunk) - The company's auditors have issued a **going concern qualification**, and the company needs to raise additional working capital but has no assured means of doing so[27](index=27&type=chunk)[33](index=33&type=chunk) - There is significant uncertainty regarding PRC government regulation and consumer acceptance of **GMO products**, which is critical for the company's growth[27](index=27&type=chunk)[37](index=37&type=chunk) - The company faces risks related to PRC regulations on offshore listings and data security, as authorities could require **approvals for continued listing** or offerings[140](index=140&type=chunk)[144](index=144&type=chunk)[145](index=145&type=chunk) - As a foreign private issuer, the company is subject to risks under the Holding Foreign Companies Accountable Act, which could lead to **delisting**[114](index=114&type=chunk) [Information on the Company](index=33&type=section&id=Item%204.%20Information%20on%20the%20Company) The company has shifted its focus to agricultural biotechnology and GM corn while navigating PRC foreign ownership restrictions through a VIE structure [History and Development of the Company](index=33&type=section&id=A.%20History%20and%20development%20of%20the%20Company) The company has strategically transitioned from a traditional seed business to a biotechnology-focused entity concentrating on GM seed technologies - In 2015, the company began a strategic transition from a traditional seed company to a **biotechnology seed company**, focusing on transgenic corn seed products[150](index=150&type=chunk) - In 2018, the company retained its commercial seed business under Beijing Origin and established **six regional joint ventures** for seed distribution[151](index=151&type=chunk)[152](index=152&type=chunk) - In 2019, the company entered a Cooperation Framework Agreement with BC-TID, a government-owned entity, to form a new joint venture for GM seed technologies, with **BC-TID investing RMB 137.7 million**[153](index=153&type=chunk) [Business Overview](index=34&type=section&id=B.%20Business%20Overview) The business focuses on agricultural biotechnology, specifically GM corn traits, and faces a competitive landscape despite positive regulatory signs - The company's business focuses on agricultural biotechnology and a planned **agricultural e-commerce platform** for farmers in China[155](index=155&type=chunk) - The company's genetically modified phytase corn received a **Bio-Safety Certificate** from China's Ministry of Agriculture and Rural Affairs (MARA) in 2009, the first for a GM corn product in China[156](index=156&type=chunk) - In December 2021, the Ministry of Agriculture published GMO corn and soybean variety approval procedures, a **positive step towards commercialization** in China[162](index=162&type=chunk) - The company faces competition from large Chinese companies like **DaBeiNong and Longping** and multinational corporations such as Pioneer, Monsanto, and Syngenta[172](index=172&type=chunk)[175](index=175&type=chunk)[176](index=176&type=chunk) [Organizational Structure](index=45&type=section&id=C.%20Organizational%20structure) The company uses a VIE structure, controlled via stock consignment agreements, to operate its core seed business in compliance with PRC law - The company is a BVI holding company with operations in China conducted through PRC Operating Companies, with **Beijing Origin being a VIE**[199](index=199&type=chunk) Company Subsidiaries and Ownership (as of Sep 30, 2021) | Name | Place of incorporation | Percentage of ownership | | :--- | :--- | :--- | | State Harvest BVI | British Virgin Islands | 100% equity owned by Origin | | Origin Biotechnology | Haidian District, Beijing, PRC | 100% equity owned by State Harvest | | Beijing Origin | Haidian District, Beijing, PRC | 98.96% VIE owned and controlled by State Harvest | | Xinjiang Origin | Jinbo City, Xinjiang Province, PRC | 51% equity owned by Beijing Origin | | Henan Aoyu | Zhengzhou City, Henan Province, PRC | 51% equity owned by State Harvest | | Anhui Aoyu | Hefei, Anhui Province, PRC | 50% equity owned by State Harvest | | Hubei Aoyu | Wuhan, Hubei Province, PRC | 51% equity owned by State Harvest | | Xuzhou Aoyu | Xuzhou, Jiangsu Province, PRC | 51% equity owned by State Harvest | | Shandong Aoruixinong | Qingdao, Shandong Province, PRC | 51% equity owned by State Harvest | - To comply with PRC law restricting foreign ownership, the company uses **stock consignment agreements** to control its VIEs, transferring all rights of ownership except legal title[202](index=202&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk) [Operating and Financial Review and Prospects](index=48&type=section&id=Item%205.%20Operating%20and%20Financial%20Review%20and%20Prospects) The company's financial performance declined in FY2021, with liquidity concerns underscored by a "going concern" warning from its auditors [Operating Activities and Results](index=49&type=section&id=A.%20Operating%20Activities%20and%20Results) FY2021 revenue declined while operating expenses rose due to a large asset write-down, though the company advanced its biotech pipeline FY 2021 vs. FY 2020 Performance (in RMB millions) | Metric | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Revenue | 46.4 | 52.5 | | Total Operating Expenses | 150.7 | 95.1 | | General & Administrative Expenses | 73.3 | 58.1 | | Research & Development Expenses | 2.0 | 4.1 | | Net Loss Attributable to Origin | 91.5 | 85.3 | | Net Loss Per Share (RMB) | 16.29 | 16.95 | - The company's **double stacked Bt and GT genes** are currently under review by MARA for biosafety certificates[221](index=221&type=chunk) - The company established a **CRISPR gene editing technology platform** in 2017 and is collaborating with China Agricultural University on new corn varieties[234](index=234&type=chunk) [Liquidity and Capital Resources](index=57&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) The company's precarious financial position and recurring losses raise substantial doubt about its ability to continue as a going concern - The company's financial statements include a **"substantial doubt about the ability to continue as a going concern"** qualification from its auditors[274](index=274&type=chunk)[278](index=278&type=chunk) Cash Flow Summary (in RMB '000) | Cash Flow Item | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (60,130) | (5,615) | (25,077) | | Net cash provided by (used in) investing activities | — | (42,243) | (1,209) | | Net cash provided by financing activities | 62,978 | 65,918 | 19,838 | - As of September 30, 2021, the company had total borrowings of **RMB 137.6 million**, an interest-free loan from BC-TID expected to be converted into equity[264](index=264&type=chunk) - During fiscal year 2021, the company raised **$2.62 million** from the sale of 219,440 ordinary shares through an "at the market" arrangement[265](index=265&type=chunk) [Directors, Senior Management, and Employees](index=61&type=section&id=Item%206.%20Directors,%20Senior%20Management,%20and%20Employees) The company's leadership relies on equity-based compensation and follows home country governance practices as a foreign private issuer - The board is chaired by **Dr. Gengchen Han**, who also serves as CEO, and includes three independent directors[287](index=287&type=chunk)[288](index=288&type=chunk) - Aggregate cash compensation paid to directors and executive officers was **nil for FY2021**; compensation is primarily through equity and stock options[293](index=293&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk)[297](index=297&type=chunk) - As a foreign private issuer, the company follows its home country (BVI) practice in lieu of certain **Nasdaq corporate governance rules**[308](index=308&type=chunk)[309](index=309&type=chunk) Principal Share Ownership (as of Jan 25, 2021) | Shareholder | Shares Beneficially Owned | Percentage of Total | | :--- | :--- | :--- | | Gengchen Han (Chairman & CEO) | 860,383 | 14.85% | | Tiger Capital Fund SPC | 1,696,450 | 29.28% | [Major Shareholders and Related Party Transactions](index=67&type=section&id=Item%207.%20Major%20Shareholders%20and%20Related%20Party%20Transactions) The company's operations depend on related party agreements that enable its VIE structure and facilitate business with a director-owned entity - The company's operations rely on key related party agreements, including **stock consignment agreements** to control its VIE[318](index=318&type=chunk)[319](index=319&type=chunk) - The company has agreements with **Trimble Genetics International LLC**, owned by director Michael W. Trimble, for testing and licensing of corn hybrids[320](index=320&type=chunk)[321](index=321&type=chunk) [Financial Information](index=68&type=section&id=Item%208.%20Financial%20Information) The company has no history of paying dividends, has no plans to do so, and is not currently involved in any material legal proceedings - The company has **never declared or paid dividends** and does not plan to in the foreseeable future, intending to retain earnings for business expansion[325](index=325&type=chunk) - The company states it is not currently a party to any **legal proceeding, investigation, or claim** that is likely to materially and adversely affect its business[324](index=324&type=chunk) [Additional Information](index=69&type=section&id=Item%2010.%20Additional%20Information) This section details PRC exchange controls, tax considerations, and the risk of being classified as a Passive Foreign Investment Company - Operations in China are subject to PRC regulations, where the Renminbi is not freely convertible for **capital account items** without prior SAFE approval[329](index=329&type=chunk)[330](index=330&type=chunk) - PRC regulations, such as **SAFE's Circular 19 and Circular 16**, restrict the use of foreign capital converted into Renminbi, which may affect liquidity[334](index=334&type=chunk)[335](index=335&type=chunk) - The company may be classified as a **Passive Foreign Investment Company (PFIC)** for U.S. federal income tax purposes, which could result in adverse tax consequences for U.S. shareholders[101](index=101&type=chunk)[358](index=358&type=chunk) - Under China's EIT Law, the company could be considered a **"resident enterprise,"** subjecting it to a 25% tax on its global income[85](index=85&type=chunk)[351](index=351&type=chunk) [Market Risk Disclosures](index=82&type=section&id=Item%2011.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include foreign currency fluctuations between the RMB and USD, as well as inflation in China - **Interest rate risk is currently minimal** because the company's primary debt is an interest-free loan from BC-TID[374](index=374&type=chunk) - The company is exposed to **foreign currency risk** as its revenues and expenses are denominated in Renminbi (RMB), while its shares are valued in U.S. dollars[376](index=376&type=chunk) - **Inflation in China** could adversely impact operational costs and demand for the company's products[378](index=378&type=chunk) PART II [Controls and Procedures](index=84&type=section&id=Item%2015.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were ineffective due to several material weaknesses in internal financial reporting - Management concluded that the company's disclosure controls and procedures were **ineffective** as of September 30, 2021[379](index=379&type=chunk) - **Material weaknesses** in internal control were identified, including a lack of sufficient qualified financial reporting personnel and inadequate separation of duties[383](index=383&type=chunk) - Management plans to remediate these weaknesses by **recruiting a new CFO** and expanding its accounting staff[384](index=384&type=chunk) [Corporate Governance and Accountability](index=85&type=section&id=Item%2016.%20Corporate%20Governance%20and%20Accountability) This section covers key governance matters, including the audit committee financial expert, auditor fees, and exemptions from Nasdaq rules - The board of directors has designated **Ms. Fei Wang** as the "audit committee financial expert"[386](index=386&type=chunk) Principal Accountant Fees (BF Borgers CPA PC) | Fee Type | FY 2020 | FY 2021 | | :--- | :--- | :--- | | Audit Fees | US$150,000 | US$175,000 | - On January 3, 2020, the company engaged **BF Borgers CPA PC** to replace BDO China Shu Lun Pan Certified Public Accountants as its independent auditor[397](index=397&type=chunk) - As a foreign private issuer, the company is exempt from and does not follow certain **Nasdaq corporate governance rules**, instead following BVI law[395](index=395&type=chunk)[398](index=398&type=chunk) PART III [Financial Statements](index=89&type=section&id=Item%2018.%20Financial%20Statements) This part contains the company's audited consolidated financial statements, which include a "going concern" uncertainty from the auditor [Auditor's Report](index=95&type=section&id=Reports%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor's report expresses substantial doubt about the company's ability to continue as a going concern due to recurring losses - The auditor's report contains a **"going concern uncertainty"** paragraph, citing recurring losses, net current liabilities, and an accumulated deficit[411](index=411&type=chunk) - The audit identified **revenue recognition in relation to fraud** as a critical audit matter, requiring significant audit effort[416](index=416&type=chunk)[417](index=417&type=chunk) [Notes to Consolidated Financial Statements](index=102&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the VIE structure, going concern issue, significant impairments, and reliance on related-party financing from BC-TID - The company's VIE (Beijing Origin) is consolidated based on contractual agreements and had **total liabilities of RMB 274.1 million** as of Sep 30, 2021[443](index=443&type=chunk)[451](index=451&type=chunk) - The company recorded significant impairment losses in FY2021, including **RMB 60.7 million** on plant and equipment and **RMB 7.6 million** on land use rights[500](index=500&type=chunk)[502](index=502&type=chunk) - As of Sep 30, 2021, the company's borrowings of **RMB 137.7 million** consist of an interest-free loan from BC-TID, expected to be converted to equity[455](index=455&type=chunk)[513](index=513&type=chunk) Parent Company Condensed Balance Sheet (as of Sep 30, 2021, in RMB '000) | Account | Amount | | :--- | :--- | | Cash and cash equivalents | 8,900 | | Due from inter-companies | 187,777 | | Total current assets (liabilities) | 197,667 | | Investment in unconsolidated subsidiaries | (338,339) | | **Total stockholders' equity (deficit)** | **(140,672)** |

Financial Performance - Revenues for the fiscal year ended September 30, 2020, were RMB 52,513,000, a decrease from RMB 92,440,000 in 2019, representing a decline of approximately 43%[19] - The net loss attributable to Origin Agritech Limited for the fiscal year ended September 30, 2020, was RMB 85,261,000, compared to a net loss of RMB 62,120,000 in 2019, indicating an increase in losses of about 37%[19] - Total operating expenses for the fiscal year 2020 were RMB 95.1 million (US$14.0 million), compared to RMB 48.7 million in fiscal year 2019, with general and administrative expenses increasing to RMB 58.1 million (US$8.5 million) from RMB 27.2 million[201] - Net loss from continuing operations for the fiscal year 2020 was RMB 102.4 million (US$15.0 million), compared to a net loss of RMB 65.1 million in fiscal year 2019[202] - For the fiscal year ended September 30, 2020, revenue was RMB52.5 million (US$7.7 million), a decline from RMB92.4 million in the previous fiscal year, primarily due to significant scrap sales in fiscal year 2019 and limited supply in fiscal year 2020[200] Assets and Liabilities - Total assets as of September 30, 2020, were RMB 254,883,000, down from RMB 261,112,000 in 2019, reflecting a decrease of approximately 2%[20] - The company reported total liabilities of RMB 340,345,000 as of September 30, 2020, an increase from RMB 276,587,000 in 2019, representing a rise of approximately 23%[20] - Cash and cash equivalents increased significantly to RMB 22,482,000 as of September 30, 2020, compared to RMB 3,198,000 in 2019, marking an increase of over 600%[20] - The company’s total borrowings as of September 30, 2020, were RMB137.7 million (US$20.2 million), an increase from RMB78.6 million in the previous year[203] Research and Development - Research and development expenses decreased to RMB 4,116,000 in 2020 from RMB 13,267,000 in 2019, a reduction of about 69%[19] - The company has established an extensive pipeline for GM corn seeds, including traits for glyphosate tolerance and insect resistance, and is actively pursuing commercialization of these products[205] - The company continues to advance its GMO product pipelines, with significant progress in double stacked traits of insect resistance and herbicide tolerance[193] - The company has established several plant genetic engineering technology platforms focusing on traits such as herbicide tolerance, insect resistance, and drought stress tolerance in corn[137] - The company has entered into commercial licensing agreements with DuPont Pioneer and KWS SAAT SE to jointly develop new seeds for Chinese farmers, enhancing its research and development capabilities[130][131] Joint Ventures and Collaborations - The company has formed a joint venture with BC-TID, which has invested RMB 137.7 million (approximately $20.2 million) to support seed biotechnology development[30] - The company entered into six regional joint ventures for seed distribution, with equity interests of 50% in Anhui Aoyu and 51% in the other five joint ventures, which are part of a long-term strategy to operate under an e-commerce platform[123] - The company has a strategic cooperation agreement with the China Academy of Agriculture Science to develop and sell GM crop varieties, subject to reimbursement of certain expenses[145] Market and Competition - The company faces significant competition in the seed development and e-commerce sectors, both domestically and internationally[55][56] - Major multinational companies dominate the GM corn seed market, holding approximately 70% of that market share in the U.S.[59] - The company faces challenges in maintaining its market advantage in GM seeds due to evolving resistance from weeds and insects, necessitating continuous investment in research and development[60] - The competitive landscape in the seed industry is marked by consolidation and changing government subsidies, which could adversely affect sales[64] - The company faces competition from large multinational companies and local seed producers, but believes it can compete effectively through product quality and intellectual property enforcement[146][149] Regulatory Environment - The independent auditors issued a going concern statement, indicating the need for substantial capital to continue operations as planned[29] - The Chinese government has only recently begun to issue GM crop safety certificates, impacting the commercialization of GM seeds[34] - The U.S. market requires rigorous testing and pre-approval for GM seeds, with the USDA and EPA involved in the regulatory process[37] - Obtaining necessary permits and approvals for GM seeds can be time-consuming and costly, with no guarantee of success[38] - The evolving regulatory environment in China regarding e-commerce and data privacy may impose additional compliance costs[52] - The company is subject to stringent regulations in the seed and e-commerce sectors, with potential fines for non-compliance that could adversely affect operations[80] Taxation and Financial Risks - The company’s preferential tax treatment as a "high and new technology enterprise" is subject to annual evaluation, and any loss of this status could significantly increase tax liabilities[82] - The company’s joint ventures may not receive the same tax benefits as its main operations, potentially leading to higher overall tax liabilities[83] - The classification as a "resident enterprise" under China's Enterprise Income Tax Law could lead to unfavorable tax consequences, including a 10% withholding tax on dividends paid to non-resident shareholders[85] - If classified as a "resident enterprise," the company may be subject to PRC enterprise income tax on worldwide taxable income and additional reporting obligations[86] - The applicable tax rate for Beijing Origin is 15% since January 1, 2008, due to its approval as a new technology enterprise, while other operating companies are subject to a uniform rate of 25%[172] Future Outlook - The company aims to lead in biotechnology and GM product commercialization in China, focusing on improving yields, product quality, and resistance traits[210] - Future growth will be influenced by strategic management of growth, ability to develop new products, and potential industry consolidations in China[214] - The company anticipates substantial capital input to launch its agribusiness e-commerce platform, with no assurance of profitability[39] - The success of the e-commerce platform will depend on partnerships with third parties for a wide range of product offerings[40] Legal and Compliance Issues - The company has limited business insurance coverage in China, increasing its exposure to operational risks and potential financial impacts from disruptions[75] - The PRC legal system presents uncertainties that could limit legal protections for non-PRC shareholders, affecting investment decisions[98] - The company must comply with various regulations regarding personal information protection and must obtain user consent for data collection[169] - The Company has established information security systems to protect user privacy in compliance with the Cyber Security Law[170] Stock Market and Trading - The company’s stock price is likely to be volatile, influenced by factors such as business plan execution, operating results, and external economic conditions[108] - The trading market for the company's ordinary shares has historically been characterized as "thinly traded," with potential for minimal trading activity impacting share price[107] - The company is governed by British Virgin Islands law and has opted out of certain Nasdaq corporate governance requirements, which may limit investor voting rights[106]