Farmmi(US:FAMI)2026-02-10 18:16Company Operations and Structure - Farmmi, Inc. operates primarily through subsidiaries in mainland China and has expanded operations in the U.S. and Canada[16]. - The company’s consolidated affiliated entities are treated as Variable Interest Entities (VIEs) under U.S. GAAP, allowing for consolidation of financial results[19]. - All PRC subsidiaries have obtained necessary business licenses and permits to operate, with no applications denied[22]. - The company is not currently required to undergo cybersecurity reviews for overseas listings, as it does not possess personal data of over one million users[24]. - Farmmi is classified as an "Existing Issuer" under the CSRC's Trial Measures, allowing it to continue operations without immediate filing procedures[32]. - The company has obtained valid business licenses for its Chinese subsidiaries from the local SAMR, with no applications denied[141]. Regulatory and Compliance Risks - The company has faced significant legal and operational risks due to changes in PRC government policies, which could adversely affect its business and market value[17]. - Recent regulatory actions in China have increased scrutiny over data security and business operations, impacting companies listed overseas[25]. - Future compliance requirements may arise, and failure to adhere could result in fines ranging from RMB 1,000,000 to RMB 10,000,000[32]. - The evolving regulatory landscape in China poses uncertainties regarding the company's responsibilities and operational capabilities[29]. - The company may face additional requirements or approvals in the future due to uncertainties in the Chinese legal system and regulatory environment[134]. - The company is required to file with the CSRC for future equity securities issuance to foreign investors, with no assurance on the timeline for obtaining necessary approvals[130]. - The company has not received any inquiries or sanctions regarding approvals for issuing securities to foreign investors, but uncertainties remain regarding future regulatory requirements[142]. - The PRC government controls currency conversion, which may affect the company's ability to pay dividends in foreign currencies[185]. - The company is subject to PRC regulations that restrict the payment of dividends from subsidiaries, affecting liquidity requirements[182]. Financial Performance - For the fiscal year ended September 30, 2025, the company reported revenues of $27.97 million, a decrease of 56.4% compared to $64.13 million in 2024[53]. - The gross profit for the fiscal year 2025 was $801,523, down from $3.87 million in 2024, indicating a significant decline in profitability[53]. - Operating expenses surged to $56.92 million in 2025, compared to $3.08 million in 2024, reflecting a substantial increase in costs[53]. - The net loss from continuing operations for the fiscal year 2025 was $53.39 million, compared to a loss of $4.63 million in 2024, highlighting deteriorating financial performance[53]. - Total revenues for the year ended September 30, 2025, were $27,971,360, a decrease from $64,131,332 in 2024, representing a decline of approximately 56.4%[59]. - The gross profit for 2025 was $801,523, compared to $3,873,714 in 2024, indicating a significant drop in profitability[59]. - The net loss for the year ended September 30, 2025, was $53,385,988, compared to a net loss of $4,627,772 in 2024, reflecting a substantial increase in losses[59]. - Total assets decreased to $147,033,182 in 2025 from $186,733,719 in 2024, a decline of approximately 21.2%[60]. - Total liabilities increased to $23,175,730 in 2025 from $16,717,482 in 2024, marking an increase of about 38.5%[60]. - Total shareholders' equity fell to $123,857,452 in 2025 from $170,016,237 in 2024, a decrease of approximately 27%[60]. Market and Operational Challenges - The company faces risks related to health epidemics, which could adversely affect sales and operating results, similar to the temporary impact of COVID-19 in 2021[73]. - The company lacks product and business diversification, making future revenues and earnings more susceptible to fluctuations in the edible fungi market[78]. - Government support for the agriculture industry may decrease, impacting the company's development and financial performance[79]. - The purchase price of dried edible fungi is based on local market prices, which the company cannot control, potentially affecting profit margins[94]. - Increases in edible fungi costs may negatively affect operating results, as the company competes on price and risks losing customers if prices rise[95]. - The edible fungi cultivated by suppliers are subject to risks from diseases, pests, and extreme weather events, which could impact supply and revenues[90]. Shareholder and Investment Considerations - The company has not declared or paid any cash dividends and does not plan to do so in the foreseeable future, intending to retain available funds for business operations and expansion[45]. - The company is subject to PRC withholding tax on dividends, which may be up to 10% for non-resident enterprises, affecting potential returns for overseas shareholders[37]. - The dual class share structure allows significant control by Class B shareholders, potentially limiting influence of Class A shareholders[193]. - The company may require additional financing in the future, which could lead to dilution of existing shareholders or impose operational restrictions[114]. Management and Governance - The company is highly dependent on its senior management, particularly CEO Yefang Zhang, who has over twenty years of experience in the mushroom industry[116]. - The company has no key person life insurance on senior management, which could have a material adverse effect on operations if any key personnel were lost[117]. - The company has signed non-competition agreements with its executives to mitigate potential conflicts of interest, although enforceability may be challenged[100]. - The company has identified material weaknesses in its internal control over financial reporting, which could negatively impact investor confidence and the market price of its Ordinary Shares[208]. Currency and Tax Risks - Fluctuations in the Renminbi against the U.S. dollar could adversely affect the company's results of operations and investment value[160]. - The company has not engaged in hedging transactions to mitigate foreign currency exchange risk, which may expose it to significant losses[163]. - The company may be classified as a PRC "resident enterprise," subjecting it to a 25% enterprise income tax on worldwide income, which could reduce net income[175]. - The PRC tax authorities have not yet classified the company as a resident enterprise under the EIT Law[176]. - Dividends payable to non-PRC enterprises may be subject to a withholding tax rate of 10%[177]. - The PRC tax authorities may require adjustments to taxable income, adversely affecting the ability of subsidiaries to pay dividends[183]. Audit and Compliance Challenges - The PCAOB has determined it can now inspect and investigate registered public accounting firms in mainland China and Hong Kong, but future obstructions could lead to new determinations[152]. - The SEC is required to prohibit trading of an issuer's securities on U.S. exchanges if its auditor is not subject to PCAOB inspections for two consecutive years[153]. - The current auditor, YCM CPA INC., is subject to PCAOB inspections, which may impact the assurance of financial statements if inspections are not fully conducted[154]. - U.S. regulatory bodies face significant obstacles in conducting investigations in China, which may hinder enforcement actions against the company[155]. - The company expects to incur annual expenses of between $500,000 and $1 million due to compliance with public company regulations, which may strain resources and divert management's attention[209]. - The company may face increased regulatory compliance costs and uncertainties affecting future capital raise activities and share price[205].