SEC Company Response from Origin Agritech LTD (SEED) (CIK 0001321851) (SEED) — Nov 19, 2013
Origin Agritech LTD (SEED) (CIK 0001321851)
Date: Nov. 19, 2013 · CIK: 0001321851 · Accession: 0001144204-13-062901
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-51576
Letter
United States Securities and Exchange Commission Division of Corporation Finance Re: Origin Agritech Limited Form 20-F for the year ended September 30, 2012 Filed January 10, 2013 File No. 000-51576
Dear Mr. Humphrey:
I am responding to your letter to Origin Agritech Limited, dated October 23, 2013. We have reproduced the comments of the Staff from that letter below, and below each we have provided the company response.
If you have need to contact our SEC counsel in the United States, please contact Andrew D. Hudders, Golenbock Eiseman Assor Bell & Peskoe LLC, at ahudders@golenbock.com or 212-907-7349.
Financial Statements
Note 10. Equity Method Investments, page F-26
1. It is unclear why you have excluded the loss on repurchase of convertible notes from the 2009 “Income (loss) before tax” in the calculation of your five-year average income used to determine if such average income should be substituted into the denominator of your significance calculation. Specifically, while Rule 1-02(w)(3) of Regulation S-X does exclude income taxes, extraordinary items and cumulative effect of a change in accounting principle from income from operations to be used in the calculation, loss on repurchase of convertible debt is not considered an extraordinary item. Please recalculate your five-year average income, and reconsider the need to include separate financial statements of Liyu pursuant to Rule 3-09 of Regulation S-X.
Response
Following the computation guidance set forth under Rule 1-02(w) (3), we list below the Company’s audited income before income taxes, extraordinary items and cumulative effect of a change in accounting principle from income from operations for the last five fiscal years (in thousands of RMB):
Audited income (loss) before income taxes (45,557 ) (10,193 ) 75,670 (923 )
Add: Adjustments for extraordinary items and cumulative effect of a change in accounting principle from income from operations - - - - -
Adjusted Income for computation (45,555 ) (10,193 ) 75,670 (923 )
Figures to be used for computing five-year average 75,670
In computing the five-year average income, we omit the loss years in 2008, 2009 and 2012 based on the computation guidance. Thus, the average income of the recent five years is RMB15,324. Based on the computation guidance, the alternative five-year average income substitution can be applied in determining the portion of the income of the subsidiary under the equity method over total income. The Company’s equity in the income of Liyu for the fiscal year ended September 30, 2012 was RMB4,030, the proportion of equity in the income of Liyu over the five-year average income of the Company is 26% (i.e. 4,030 / 15,324), which is above 20%. Thus, the third condition of Rule 1-02(w) is met.
We should also point out that our investment in Liyu is not only an equity investment, but also a strategic alignment in which the Company has long term joint development and licensing agreements for Liyu’s seed technologies (disclosed in the Form 20-F Item 19 on page 87) while investing in 30% of Liyu’s equity. As the result, the Company pays technology usage fee (as disclosed on page F-21) of RMB5,471, RMB5,953 and RMB9,541 for the fiscal years 2010, 2011 and 2012, respectively. The net financial impact of the strategic alignment with Liyu is summarized below:
Fiscal Year
RMB RMB RMB
Share of earnings in Liyu (Note 10 on F-26) 2,954 4,030
Technology usage fees paid to Liyu (Note 3 on F-21) 5,471 5,953 9,541
Net gain (loss) (4,974 ) (2,999 ) (5,511 )
From the table above, the net financial impact from the strategic alignment is negative to the Company. The income contributed from Liyu only helps the Company to reduce the cost of technology usage.
For your information, unaudited balance sheets as of September 30, 2011 and 2012 and the statements of income of Liyu for each of the three years in the period ended September 30 2012 (in thousands of RMB) as accompanied below:
Balance Sheets
September 30,
RMB RMB
Cash and cash equivalents 7,008 13,701
Advance to suppliers 1,804 3,187
Long-term investment
Fixed assets 3,392 2,551
Total assets 12,504 19,872
Advance from customers 6,411 6,274
Other payable (73 )
Total liabilities 6,338 7,273
Paid in capital 3,000 3,000
Capital surplus
Retained earnings 2,168 8,602
Total equity 6,166 12,599
Total liabilities and equity 12,504 19,872
Statements of Income
Year ended September 30,
RMB RMB RMB
Gross revenue 10,830 19,138 19,180
Gross profit 7,674 19,027 19,038
General and administrative 6,031 7,815 7,261
Other income
Interest income
Income before income taxes 1,758 11,310 11,982
Income tax-current 1,465 (1,452 )
Net income 1,655 9,845 13,434
In connection with our response to the comments of the Staff of the SEC made above, we iterate the company acknowledgement that:
• the company is responsible for the adequacy and accuracy of the disclosure in its filing of the Form 20-F;
• Staff comments or changes to disclosure in response to Staff comments do not foreclose the SEC from taking any action with respect to the filing; and
• the company may not assert Staff comments as a defense in any proceeding initiated by the SEC or any person under the federal securities laws of the United States.
Sincerely,
/S/ James CHEN
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CORRESP
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Origin Agritech Limited
No. 21 Sheng Ming Yuan
Road
Changping District,
Beijing 102206
November 18, 2013
David R. Humphrey, Accounting Branch Chief
United States Securities and Exchange Commission
Division of Corporation Finance
Washington, D.C. 20549
Re:
Origin Agritech Limited
Form 20-F for the year ended September 30, 2012
Filed January 10, 2013
File No. 000-51576
Dear Mr. Humphrey:
I am responding to your letter to Origin
Agritech Limited, dated October 23, 2013. We have reproduced the comments of the Staff from that letter below, and below each we
have provided the company response.
If you have need to contact our SEC counsel
in the United States, please contact Andrew D. Hudders, Golenbock Eiseman Assor Bell & Peskoe LLC, at ahudders@golenbock.com
or 212-907-7349.
Financial Statements
Note 10. Equity Method Investments, page F-26
1. It is unclear why you have excluded the loss on repurchase of convertible
notes from the 2009 “Income (loss) before tax” in the calculation of your five-year average income used to determine
if such average income should be substituted into the denominator of your significance calculation. Specifically, while Rule 1-02(w)(3)
of Regulation S-X does exclude income taxes, extraordinary items and cumulative effect of a change in accounting principle from
income from operations to be used in the calculation, loss on repurchase of convertible debt is not considered an extraordinary
item. Please recalculate your five-year average income, and reconsider the need to include separate financial statements of Liyu
pursuant to Rule 3-09 of Regulation S-X.
Response
Following the computation guidance set
forth under Rule 1-02(w) (3), we list below the Company’s audited income before income taxes, extraordinary items and cumulative
effect of a change in accounting principle from income from operations for the last five fiscal years (in thousands of RMB):
2008
2009
2010
2011
2012
Audited income (loss) before income taxes
(45,557 )
(10,193 )
75,670
949
(923 )
Add: Adjustments for extraordinary items and cumulative effect of a change in accounting principle from income from operations
-
-
-
-
-
Adjusted Income for computation
(45,555 )
(10,193 )
75,670
949
(923 )
Figures to be used for computing five-year average
0
0
75,670
949
0
In computing the five-year average income,
we omit the loss years in 2008, 2009 and 2012 based on the computation guidance. Thus, the average income of the recent five years
is RMB15,324. Based on the computation guidance, the alternative five-year average income substitution can be applied in determining
the portion of the income of the subsidiary under the equity method over total income. The Company’s equity in the income
of Liyu for the fiscal year ended September 30, 2012 was RMB4,030, the proportion of equity in the income of Liyu over the five-year
average income of the Company is 26% (i.e. 4,030 / 15,324), which is above 20%. Thus, the third condition of Rule 1-02(w) is met.
We should also point out that our investment
in Liyu is not only an equity investment, but also a strategic alignment in which the Company has long term joint development and
licensing agreements for Liyu’s seed technologies (disclosed in the Form 20-F Item 19 on page 87) while investing in 30%
of Liyu’s equity. As the result, the Company pays technology usage fee (as disclosed on page F-21) of RMB5,471, RMB5,953
and RMB9,541 for the fiscal years 2010, 2011 and 2012, respectively. The net financial impact of the strategic alignment with Liyu
is summarized below:
Fiscal Year
2010
2011
2012
RMB
RMB
RMB
Share of earnings in Liyu (Note 10 on F-26)
497
2,954
4,030
Technology usage fees paid to Liyu (Note 3 on F-21)
5,471
5,953
9,541
Net gain (loss)
(4,974 )
(2,999 )
(5,511 )
From the table above, the net financial
impact from the strategic alignment is negative to the Company. The income contributed from Liyu only helps the Company to reduce
the cost of technology usage.
For your information, unaudited balance
sheets as of September 30, 2011 and 2012 and the statements of income of Liyu for each of the three years in the period ended September
30 2012 (in thousands of RMB) as accompanied below:
Balance Sheets
September 30,
2011
2012
RMB
RMB
Cash and cash equivalents
7,008
13,701
Advance to suppliers
1,804
3,187
Long-term investment
300
433
Fixed assets
3,392
2,551
Total assets
12,504
19,872
Advance from customers
6,411
6,274
Other payable
(73 )
999
Total liabilities
6,338
7,273
Paid in capital
3,000
3,000
Capital surplus
997
997
Retained earnings
2,168
8,602
Total equity
6,166
12,599
Total liabilities and equity
12,504
19,872
Statements of Income
Year ended
September 30,
2010
2011
2012
RMB
RMB
RMB
Gross revenue
10,830
19,138
19,180
Gross profit
7,674
19,027
19,038
General and administrative
6,031
7,815
7,261
Other income
85
78
173
Interest income
30
20
32
Income before income taxes
1,758
11,310
11,982
Income tax-current
103
1,465
(1,452 )
Net income
1,655
9,845
13,434
In connection with our response to the
comments of the Staff of the SEC made above, we iterate the company acknowledgement that:
• the company is responsible for the adequacy
and accuracy of the disclosure in its filing of the Form 20-F;
• Staff comments or changes to disclosure
in response to Staff comments do not foreclose the SEC from taking any action with respect to the filing; and
• the company may not assert Staff comments
as a defense in any proceeding initiated by the SEC or any person under the federal securities laws of the United States.
Sincerely,
/S/ James CHEN
James Chen, CFO
james.chen@originseed.com.cn