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ORGANIZATION AND PRINCIPAL ACTIVITIES
 12 Months Ended
Sep. 30, 2014
Organization, Consolidation and Presentation Of Financial Statements [Abstract]  
Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]
  1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
 
Origin Agritech Limited (“Agritech”), incorporated under the laws of the British Virgin Islands, and its subsidiaries and variable interest entities (together, the “Company”) are principally engaged in hybrid crop seed development, production and distribution. As of September 30, 2014, details of the Company’s subsidiaries and variable interest entities are as follows:
 
 
 
Date of
 
Place of
 
Percentage
 
 
 
 
 
Incorporation
 
Incorporation
 
of
 
Principal
 
Name
 
or Establishment
 
or Establishment
 
Ownership
 
Activity
 
 
 
 
 
 
 
 
 
 
 
Subsidiaries:
 
 
 
 
 
 
 
 
 
State Harvest Holdings
Limited (“State Harvest”)
 
October 6, 2004
 
British Virgin
Islands
 
100%
 
Investment
holding
 
 
 
 
 
 
 
 
 
 
 
Beijing Origin State Harvest
Biotechnology Limited
  (“BioTech”)
 
December 1, 2004
 
People’s Republic
of China (“PRC”)
 
100%
 
Hybrid seed
technology
development
 
 
 
 
 
 
 
 
 
 
 
Variable interest entity:
 
 
 
 
 
 
 
 
 
Beijing Origin Seed Limited (note (i))
(“Beijing Origin”)
 
December 26, 1997
 
PRC
 
-
 
Hybrid crop seed
development,
production and
distribution
 
 
 
 
 
 
 
 
 
 
 
Subsidiaries held by Beijing Origin:
 
 
 
 
 
 
 
 
 
Henan Origin Cotton Technology
Development Limited (note (i))
(“Henan Cotton”)
 
March 2, 2001
 
PRC
 
92.04%
 
Hybrid crop seed
development,
production and
distribution
 
 
 
 
 
 
 
 
 
 
 
Changchun Origin Seed Technology
Development Limited (note (i))
(“Changchun Origin”)
 
April 29, 2003
 
PRC
 
99.83%
 
Hybrid crop seed
development,
production and
distribution
 
 
 
 
 
 
 
 
 
 
 
Linze Origin Seed Limited
(note (i))
 
November 18, 2008
 
PRC
 
100%
 
Hybrid crop seed
development,
production and
distribution
 
 
 
 
 
 
 
 
 
 
 
Xinjiang Originbo Seed Company
Limited (“Xinjiang Origin”) (note (i))
 
July 13, 2011
 
PRC
 
51%
 
Hybrid crop seed
development,
production and
distribution
 
 
 
 
 
 
 
 
 
 
 
Denong Zhengcheng Seed Limited
(“Denong”)
 
June 21, 2000
 
PRC
 
98.58%
 
Hybrid seed
development,
production and
distribution
 
 
Note (i):
Beijing Origin Seed Limited, Henan Origin Cotton Technology Development Limited, Changchun Origin Seed Technology Development Limited, Linze Origin Seed Limited and Xinjiang Originbo Seed Company Limited are collectively referred to as “Beijing Origin”.
 
Reorganization of State Harvest prior to the share exchange transaction with Chardan China Acquisition Corp. (“Chardan”) 
 
On December 1, 2004, State Harvest established BioTech, a wholly-owned foreign enterprise (“WOFE”) under the laws of the PRC with an operating period of 20 years.
 
Under PRC law, foreign entities are not currently permitted to own more than 49% of a seed production company. In order to address those restrictions, State Harvest conducts substantially all of its business through contractual agreements with its variable interest entity (“VIE”), Beijing Origin. These agreements are summarized in the following paragraphs.
 
Stock Consignment Agreements
 
As discussed above in “Foreign Ownership Restrictions,” under Chinese law, foreign ownership of businesses engaged in the breeding of new varieties, development, production, marketing, distribution and sale of hybrid food crop seeds is limited to 49% pursuant to the Regulation on the Approval and Registration of Foreign Investment Enterprises in Agricultural Seed Industry and The Foreign Investment Industrial Guidance Catalogue. State Harvest, as a non-Chinese corporation, may not directly own more than 49% of any of the PRC Operating Companies. However, Chinese law does not forbid the owner of stock to consign rights associated with the stock, as long as the owner does not transfer title to the stock. To gain control over the PRC Operating Companies, State Harvest entered into a series of stock consignment agreements with shareholders of those companies.
 
State Harvest has been assigned 97.96% voting rights by the shareholders of Beijing Origin through a consignment agreement which includes the following terms: (1) The shares of Beijing Origin cannot be transferred without the approval of State Harvest; (2) State Harvest has the right to appoint all directors and senior management personnel of Beijing Origin and (3) The shareholder rights including voting rights require the transfer of the shares of Beijing Origin to State Harvest or any party designated by State Harvest within three years upon the removal of the PRC legal restriction.
 
Technical Service Agreements
 
Beijing Origin entered into Technical Service Agreements with BioTech dated December 25, 2004. Under these agreements, BioTech shall provide, with its own technical research resource and team, technical services for the production and distribution of agricultural seeds during the period of the agreements. In return, Beijing Origin is required to pay BioTech service fee calculated according to the weight of corn, rice and cotton seeds sold by the Beijing Origin.
 
Through the contractual agreements described above, State Harvest is deemed the sole beneficiary of Beijing Origin resulting in Beijing Origin being deemed a subsidiary of State Harvest under the requirements of Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 810-10-05. The agreements described above provided for effective control of Beijing Origin to be transferred to State Harvest at December 25, 2004. Neither State Harvest nor BioTech had any operating activity prior to entering into the consignment agreements with Beijing Origin. In substance, State Harvest has substantially all the same shareholders of Beijing Origin. This transaction has been accounted for on a basis similar to reorganization between entities under common control. Accordingly, State Harvest’s consolidated financial statements are prepared by including the consolidated financial statements of Beijing Origin through December 24, 2004, and subsequently the Company’s consolidated financial statements include the financial statements of State Harvest, its majority owned subsidiary and Beijing Origin through the date of the Share Exchange Transaction.
 
Risks in relation to the VIE structure
 
Three of our PRC operating subsidiaries are controlled subsidiaries through stock consignment agreements rather than by direct ownership of shares, the terms of which may have to be enforced, which would require us to incur extra costs, create uncertainty as to ownership of the operating businesses involved and risk the possible loss of rights. There is the risk, however, that a consigning shareholder will not fulfill its obligations under the stock consignment agreement. In that event, we may need to resort to the PRC courts to have our rights under the applicable agreement enforced. Such enforcement will cause us to incur legal expenses. In addition, while a case is pending there will be uncertainty regarding our rights as to the three PRC operating subsidiaries involved. In addition, a PRC court may decide not to enforce the agreements in whole or in part. To the extent these agreements are neither observed nor enforced as intended, the PRC operating subsidiaries will not be controlled by us as intended, which will affect our enterprise value and restrict our ability to obtain the income and other rights of ownership associated with the consigned stock. It may also prevent the consolidation of our financial statements with the PRC operating subsidiaries, which would reduce the reported earnings of the consolidated companies. The uncertainty of ownership may also adversely affect the market value of our ordinary shares.
 
Whether or not a stock consignment agreement is terminated depends on the consensus of our Board and the consignees. Any such termination could result in a possible loss of certain rights or assets held by us without receiving fair value in return.The stock consignment agreements relating to our control of the stock of our PRC operating subsidiaries may be terminated after three years upon mutual agreement between us and the consignees. Holding this amount of stock will allow these officers to control or greatly influence the selection of directors and matters submitted to a vote of our shareholders, including voting to terminate the stock consignment agreements.
 
There are corporate protections in place designed to protect our interests, such as an independent Board of Directors, an audit committee comprised of independent directors that must approve insider transactions, a code of conduct requiring fair dealing with the Company, and the British Virgin Islands statutory provision that a disposition of more than 50% of the assets of a company must be approved by a majority of the shareholders. Moreover, if consigned stock is transferred to us as provided in the stock consignment agreements when the restrictions under PRC law are lifted, that stock will no longer be subject to the stock consignment agreements, and the termination of the stock consignment agreements would then have no effect on the ownership of that stock. However, if the stock consignment agreements are terminated, then we would lose our rights with respect to the consigned stock and the profits from the issuing corporation. Such a loss would impair the value of the Company and would reduce our ability to generate revenues.
 
The revenues of the Company has been generated from the VIE and its subsidiaries for the year ended September 30, 2012, 2013 and 2014 are 96.41%, 100% and 100%, respectively. The VIE and its subsidiaries also account for 95.30% and 97.11% of the total assets of the Company as at September 30, 2013 and 2014, respectively.
 
Disposal of a subsidiary during the year
 
On June 14, 2014, BioTech entered into an agreement with two third party individuals to dispose all its equity interests of Shandong Kunfeng Biochemical Limited (“Kunfeng”) at a consideration of RMB12 million. The disposal of Kunfeng was completed on June 18, 2014 and Kunfeng was derecognized as a subsidiary of the Company accordingly.
 
Loss on disposal of a subsidiary included in the consolidated statement of income and comprehensive income for the year ended September 30, 2014:
 
 
 
 
RMB
 
 
 
 
 
 
Net liabilities and amounts due from Kunfeng at the date of disposal attributable to Origin Agritech Limited
 
 
14,623
 
 
 
 
 
 
Less:  Consideration satisfied by cash
 
 
(12,000)
 
 
 
 
 
 
Loss on disposal of a subsidiary
 
 
2,623