EX-99.2 3 e20309ex99-2.txt FINANCIAL STATEMENTS Exhibit 99.2 BEIJING ORIGIN SEED TECHNOLOGY INC. ----------------------------------- Report of Independent Registered Public Accounting Firm and Consolidated Financial Statements For the nine month period ended September 30, 2004 and for the years ended December 31, 2003, 2002 and 2001 F-1 BEIJING ORIGIN SEED TECHNOLOGY INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS CONTENTS PAGE(S) -------- ------- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM......................F-3 CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2004 AND AS OF DECEMBER 31, 2003, 2002 AND 2001.....................................F-4 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001.......................F-5 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001.......................F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001.......................F-7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS............................F-8-26 F-2 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF BEIJING ORIGIN SEED TECHNOLOGY INC. ----------------------------------------------------------------- We have audited the accompanying consolidated balance sheets of Beijing Origin Seed Technology Inc. and its subsidiaries (the "Company") as of September 30, 2004 and December 31, 2003, 2002 and 2001 and the related consolidated statements of operations, shareholders' equity, and cash flows for nine month period ended September 30, 2004 and for each of the three years in the period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2004 and December 31, 2003, 2002 and 2001 and the results of their operations and their cash flows for the nine month period ended September 30, 2004 and for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. Our audits also comprehended the translation of the Renminbi amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2. Such U.S. dollar amounts are presented solely for the convenience of readers in the United States of America. Deloitte Touche Tohmatsu CPA Ltd. December 16, 2004 F-3 CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements. F-4 CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial statements. F-5 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

The accompanying notes are an integral part of these consolidated financial statements. F-6 CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial statements. F-7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 1. ORGANIZATION AND PRINCIPAL ACTIVITIES Beijing Origin Seed Technology Inc. and its subsidiaries (formerly Beijing Origin Seed Technology Development Co., Ltd) ("Beijing Origin" or the "Company") was established on December 26, 1997 as a private limited liability company in the People's Republic of China. On September 26, 2003, under PRC law the Company was converted from a private limited liability company to a joint stock company in order to issue common shares. The Company has five branches located in Lin Zhe of Gan Su Province; Zheng Zhou of He Nan Province; Cheng Du of Si Chuan Province; Tie Ling of Liao Ning Province; Bao Ding of He Bei Province, respectively. The Company is the majority shareholder of the following two subsidiaries with 90% and 99% shareholding, respectively, (1) He Nan Origin Seed Cotton Technology Development Co., Ltd ("He Nan Cotton") (2) Chang Chun Origin Seed Technology Development Co., Ltd ("Chang Chun Origin"). The Company and its subsidiaries are engaged in the research, development, and distribution of hybridized corn seed and other agriculture seed. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). Basis of consolidation The consolidated financial statements include the financial statements of the Company, its wholly owned subsidiaries and its subsidiaries in which it has controlling interest of greater than 50%. All significant inter company transactions and balances are eliminated in consolidation. Investments in operating companies in which the Company has the ability exercise a significant influence, which is normally indicated by a 20% to 50% interest, are accounted for under the equity method. Beijing Origin's share of these companies' earnings or losses are included in the consolidated statement of operations. F-8 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Convenience translation into United States dollars The consolidated financial statements are presented in RMB. The translation of RMB amounts into United States dollars has been made for the convenience of the reader and has been made at the exchange rate quoted by the People's Bank of China on September 30, 2004 of RMB8.2766 to US$1.00. Such translation amounts should not be construed as representations that the RMB amounts could be readily converted into United States dollars at that rate or any other rate. Use of estimates The preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are adjusted to reflect actual experience when necessary. Significant accounting estimates reflected in the Company's consolidated financial statements include revenue recognition, inventory valuation, allowance for doubtful accounts, useful lives of plant and equipment and intangible assets, and the valuation allowance for deferred income taxes. Actual results could differ from those estimates. Certain significant risks and uncertainties The Company participates in a dynamic high technology industry that is characterized by technological change, intense competitive pressure, and cyclical market patterns. The Company's result of operations are affected by a wide variety of factors, including general economic conditions, decreases in average selling prices over the life of any particular product, the timing of new product introduction (by the Company, its competitors, and others), changes in certain strategic relationships or customer relationships, regulatory or other factors, and the ability to safeguard patents and intellectual property from competitors. Cash and cash equivalents Cash and cash equivalents consist of cash on hand and highly liquid investments which are unrestricted as to withdrawal or use, and which have maturities of three months or less when purchased. F-9 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Concentrations of credit risk Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. The Company maintains its cash and cash equivalents with high-quality institutions and only invests in high quality credit instruments. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally these deposits may be redeemed upon demand and therefore bear minimal risk. Advances to growers The Company advances cash to certain growers at the beginning of an operating cycle in order to fund the growers initial planting costs. These cash advances are then repaid when the growers sell the seeds they have grown back to the Company. Inventories Inventories are stated at the lower of cost or market value. Actual cost is used to value raw materials and supplies. Finished goods and work in process are valued at weighted-average actual cost. Weighted-average actual cost includes packaging costs and manufacturing overhead costs. Land use rights, net Land use rights are recorded at cost less accumulated amortization. Amortization is provided over the term of the land use right agreement on a straight-line basis for 50 years. Plant and equipment, net Plant and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on a straight-line basis over the following estimated useful lives: Leasehold improvements Lower of the useful lives or the lease term Building and plant 20-40 years Machinery 10-15 years Furniture and office equipment 5 years Motor vehicles 5 years F-10 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued The Company constructs certain of its plant and facilities. In addition to costs under construction contracts, external costs directly related to the construction of such facilities, including duty and tariff, and equipment installation and shipping costs, are capitalized. Depreciation is recorded at the time assets are placed in service. Acquired intangible assets, net Acquired intangible assets consist primarily of purchased technology rights and are stated at cost less accumulated amortization. Amortization is calculated on a straight-line basis over the estimated useful lives of these assets of 6 to 10 years and recorded in cost of revenues. Impairment of long-lived assets The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Company measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the asset and eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying amount over the fair market value of the asset is recognized. Due to growers The Company purchases seeds from the growers through out the operating cycle. The majority of the seeds are purchased from the growers from the end of November through the following February. Advances from customers Beginning in 2003, due to the high demand for the Company's product, BJ Origin requires all customers to pay cash in full prior to delivery of the seeds. Advances from customers represents represent cash received from customers in advance of fulfilling a customer's purchase order. Revenues related to such transactions are recognized when the seeds are delivered and all other revenue recognition criteria are met. F-11 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Revenue recognition The Company derives its revenue primarily from the sale of various branded conventional seeds and branded seeds with biotechnology traits. Revenue is recognized when pervasive evidence of an arrangement exists, services have been rendered, the price is fixed or determinable, collectibility is reasonably assured and the right of return has expired. Accordingly, the Company defers revenue until all sale return privileges lapse generally within 15 days of delivery and the selling price has been finalized with the customer. Advances from customers represent cash received from customers in advance of fulfilling a customer's purchase order. Revenues related to such transactions are recognized when all revenue recognition criteria are met and other obligations fulfilled. Amounts billed in excess of revenue recognized are recorded as deferred revenue. Government subsidies The Company receives government subsidies in the form of funds for research and development activities, tax incentives offered to certain high-tech companies, and subsidies which reduce the cost of land use rights. (a) The Company received RMB50,960, RMB1,137,139, RMB610,000, and nil to fund research and development activities for the nine month period ended September 30, 2004 and for the years ended December 31, 2003, 2002, and 2001, respectively. Such amounts are recorded as a reduction of research and development expenses. (b) The Company received RMB5,396,983 of tax incentives for the year ended December 31, 2001. Such amounts is recorded as other income. (c) The Company received a government incentive of RMB5,005,148 and RMB3,719,940 for the nine month period ended September 30, 2004 and for the year ended December 31, 2003 in the form of a reduction in the cost of land use rights. F-12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Research and development costs Research and development costs relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. Advertising costs Advertising costs are expensed as incurred. Advertising expenses were RMB2,217,809 RMB1,806,363, RMB817,689 and RMB2,067,289 for the nine month period ended September 30, 2004 and for the years ended December 31, 2003, 2002 and 2001, respectively and included as part of selling and marketing expenses. Income taxes Deferred income taxes are recognized for the future tax consequences of temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, net operating loss carryforwards and credits. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. Fair value of financial instruments The carrying amounts of financial instruments, consisting primarily of cash and cash equivalents, accounts receivables, accounts payable, accrued liabilities, advances from and payables to growers, short-term debt, and income taxes payable, approximate their fair values due to the short-term maturity of these instruments. F-13 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Recently issued accounting standards In May 2003, the Financial Accounting Standards Board ("FASB") issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". The Statement establishes standards for how an issuer classifies and measures certain financial instruments. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement requires that certain financial instruments that, under previous guidance, issuers could account for as equity be classified as liabilities (or assets in some circumstances) in statement of positions or consolidated balance sheets, as appropriate. The financial instruments within the scope of this Statement are: (i) mandatorily redeemable shares that an issuer is obligated to buy back in exchange for cash or other assets; (ii) financial instruments that do or may require the issuer to buy back some of its shares in exchange for cash or other assets; and (iii) financial instruments that embody an obligation that can be settled with shares, the monetary value of which is fixed, tied solely or predominantly to a variable such as a market index, or varies inversely with the value of the issuer's shares (excluding certain financial instruments indexed partly to the issuer's equity shares and partly but not predominantly, to something else). This Statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The Statement also requires disclosures about alternative ways of settling the instruments and the capital structure of entities, all of whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on the Company's financial position, cash flows or results of operations. In January 2003, the FASB issued Interpretation No. ("FIN") 46, "Consolidation of Variable Interest Entities". FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements", and provides guidance on the identification of entities for which control is achieved through means other than voting rights ("variable interest entities" or "VIEs") and how to determine when and which business enterprise should consolidate the VIEs. This new model for consolidation applies to an entity in which either: (1) the equity investors (if any) lack one or more characteristics deemed essential to a controlling financial interest or (2) the equity investment at risk is insufficient to finance that entity's activities without receiving additional subordinated financial support from other parties. FIN 46 was applicable for periods ending December 15, 2003. In December 2003, the FASB issued FIN 46 (revised), "Consolidation of Variable Interest Entities" ("FIN 46-R"), which provides for the deferral of implementation date to the end of the first reporting period after December 15, 2004, unless the Company has a special purpose entity, in which case the provision must be applied for fiscal years ending December 31, 2004. The adoption of FIN 46-R did not have a material impact on the Company's financial position, cash flows or results of operations. F-14 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued Recently issued accounting standards - continued In December 2003, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition". SAB No. 104 revises or rescinds portions of the interpretative guidance included in Topic 13 of the codification of staff accounting bulletins in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. It also rescinds the Revenue Recognition in Financial Statements Frequently Asked Questions and Answers document issued in conjunction with Topic 13. Selected portions of that document have been incorporated into Topic 13. The adoption of SAB No. 104 in December 2003 did not have an impact on the Company's financial position, cash flows or results of operations. 3. RELATED PARTY BALANCES AND TRANSACTIONS Details of amounts due from and to related parties as of September 30, 2004 and December 31, 2003, 2002 and 2001 are as follows: (1) Amounts due from shareholders, recorded in due from related parties on the consolidated balance sheet, as of September 30, 2004 and December 31, 2003, 2002 and 2001 are as follow: September 30, December 31, ---------------- ------------------------- Name of Shareholders 2004 2004 2003 2002 2001 -------------------- ---- ---- ---- ---- ---- (USD) (RMB) (RMB) (RMB) (RMB) Yang Ya Sheng....... 36,247 300,000 300,000 -- -- Zhao Yu Ping........ 24,164 200,000 200,000 200,000 -- ------ ------- ------- ------- ---- 60,411 500,000 500,000 200,000 -- Amounts due from shareholders are non-interest bearing, unsecured, and have no specific terms of repayment. F-15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 3. RELATED PARTY BALANCES AND TRANSACTIONS a. Amounts due from related parties as of September 30, 2004 and December 31, 2003, 2002 and 2001 are as follow: Name of Shareholder related party interested September 30, December 31, ------------- ---------- ------------- ------------------------- 2004 2004 2003 2002 2001 ---- ---- ---- ---- ---- (USD) (RMB) (RMB) (RMB) (RMB) Li Xian Corn Yang Ya Research Center Sheng -- -- 20,000 220,000 20,000 ==== ==== ====== ======= ====== b. Transactions with related parties for the nine month period ended September 30, 2004 and the years ended December 31, 2003, 2002 and 2001 are follows:

---------- The above balances relate to technology usage fees paid to certain related party research centers for the exclusive right to use certain seed technologies. As of September 30, 2004 there was an outstanding payable to Shijiazhuang Li Yu Technology Development Co., Ltd. and He Nan Agriculture University of RMB3,248,916, and RMB100,000, respectively. F-16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 4. INVENTORIES Inventories consist of:

As of September 30, 2004, December 31, 2003, 2002 and 2001, goods delivered to subscribers, recorded in finished goods, are nil, RMB43,128,641, RMB46,364,546 and RMB1,984,990, respectively. Amounts will be relieved from inventory and recorded in cost of sales when the related revenue is recognized. Revenue is deferred until all sale return privileges lapse and the contract price is finalized. 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of:

6. LAND USE RIGHTS, NET Land use rights, net consist of:

F-17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 7. PLANT AND EQUIPMENT, NET Plant and equipment, net consist of:

Construction in progress relates to various projects where the Company constructs certain of its plant and equipment. As of September 30, 2004, construction in progress relates to the new research center and plant located in Zhong Guan Cun Life Science Park. The assets will be placed in service in 2005. 8. EQUITY INVESTMENT In September 2004, the Company purchased a 30% equity interest in Shijiazhuang Li Yu Technology Development Co., Ltd. ("Li Yu") from one of its shareholders, Yang Ya Sheng, for RMB30,000. The Company accounts for its ownership in Li Yu under the equity method of accounting. F-18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 9. ACQUISITIONS On February 28, 2002, the Company contributed additional capital of RMB5,850,000 to its majority owned subsidiary He Nan Origin Seed Cotton Technology Development Co., Ltd ("He Nan"), a privately held seed research and development company. Prior to the capital contribution, the Company held a 51% equity interest, which it previously acquired for approximately RMB520,772. Under the terms of the capital contribution contract, the Company now owns 90% of He Nan and the minority interest was diluted to 10%. The capital contributed in excess of the fair value of the net assets of He Nan was recorded as a reduction of Beijing Origin retained earnings. 10. ACQUIRED INTANGIBLE ASSETS, NET Acquired intangible assets consist of the following:

Amortization expense charged to operating income for the nine month period ended September 30, 2004 and for the years ended December 31, 2003, 2002 and 2001 were RMB281,948, RMB341,363, RMB206,328 and RMB121,578, respectively. Amortization expense on these intangible assets for each of the next five years is as follows: (RMB) Year ending September 30, 2005................................................ 772,524 2006................................................ 652,461 2007................................................ 626,753 2008................................................ 626,753 2009................................................ 349,188 --------- Total................................................. 3,027,679 ========= F-19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 10. ACQUIRED INTANGIBLE ASSETS, NET - continued The Company enters into technology usage agreements with strategic partners. The Company pays up-front fees for the exclusive rights to certain seed technologies. Amounts are then amortized over the usage period of 6-10 years into cost of sales. 11. SHORT-TERM BORROWINGS

At September 30, 2004, short-term borrowings were comprised of one loan of RMB20,000,000, repayable on May 30, 2005, and bore interest at 5.31% per annum. The loan was guaranteed by a third party. The third party guarantee was secured by the Company's land use rights certification, and the Company's Zhongguancun Life Science Park land development contract. At December 31, 2003, short-term borrowings were comprised of four loans of RMB10,000,000, RMB10,000,000, RMB5,000,000 and RMB10,000,000, repayable on March 30, 2004, March 2, 2004, February 1, 2004 and March 28, 2004, respectively, bore interest at 5.04% , 5.04%, 5.04%, and 5.29% per annum, respectively and were repaid in 2003. Short-term borrowings of RMB20,000,000 were guaranteed by a third party. The third party guarantee was secured by the Company's land use rights certification and the Company's Zhongguancun Life Science Park land development contract. The balance of the short-term borrowings were unsecured at December 31, 2003. At December 31, 2002, short-term borrowings were comprised of one loan of RMB15,000,000, repayable on March 28, 2003, bore interest at 5.04% per annum and were repaid in 2002. The loan was guaranteed by a third party. The third party guarantee was secured by the Company's land use rights certification and certain personal assets of the Company's shareholder's. At December 31, 2001, short-term borrowings were comprised of one loan of RMB5,000,000, repayable on July 12, 2002, and bore interest at 6.4% per annum. The costs of the above third party guarantees were not material. Interest expense and weighted average interest rate for the nine month period ended September 30, 2004, and the years ended December 31, 2003, 2002 and 2001 were RMB510,896 and 5.1%, RMB483,314 and 5.2%, RMB416,934 and 5.5%, and RMB172,232 and 6.7%, respectively. F-20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 11. OTHER PAYABLES AND ACCRUED EXPENSES Other payables and accrued expenses consist of:

12. SHAREHOLDERS' EQUITY As of December 31, 2002, the consolidated registered capital of the company was RMB3,671,500. In September 2003, the Company went through a capital restructuring. Beijing Origin converted to a joint stock company from a limited liability company. The Company authorized 100,000,000 shares of RMB1 par value common shares. The paid-in capital of the original investors was exchanged for a proportionate amount of the 100,000,000 authorized common shares. The following table represents the exchange of paid-in capital for common shares: Original Common shares paid-in ------------------------ Shareholder Ownership capital Shares Amount ----------- --------- ------- ------ ------ % (RMB) (RMB) Han Geng Chen......... 34.40 1,262,996 34,400,000 34,400,000 Yang Ya Sheng......... 28.68 1,052,803 28,675,000 28,675,000 Yuan Liang............ 25.80 947,247 25,800,000 25,800,000 Zhao Yu Ping.......... 3.99 146,676 3,995,000 3,995,000 Zhang Wei Dong........ 3.13 114,918 3,130,000 3,130,000 He Nan Agriculture University.......... 2.04 74,899 2,040,000 2,040,000 Chen Wei Cheng........ 1.96 71,961 1,960,000 1,960,000 ------ --------- ----------- ----------- 100.00 3,671,500 100,000,000 100,000,000 ====== ========= =========== =========== In December 2003, the Company declared and paid cash dividends of RMB1,604,128 to all shareholders. F-21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 13. INCOME TAXES The applicable tax rate of the PRC Enterprise Income Tax ("EIT") to the Company is 33%(30% of state income tax plus 3% local income tax). However, preferential tax treatment of the Company as "high technology" company has been agreed with the relevant tax authorities. The Company is entitled to a preferential tax rate of 15%. Pursuant to the document of (1998) Hai Di Shui Suo Zi 3205 and (2001) Hai Di Shui Qi Mian Zi (1306), the Company is entitled to a three-year exemption from income taxes commencing in 1998, followed by a 50% reduction in tax rates for the succeeding three years. In respect of other companies in the Group, according to the document Gan Di Shui Suo Jian Mian Zi (2001) No. 107, Zhang Shi Di Shui Zheng Jian Mian Zi (2002) No. 2 and (2003) No. 1 of Carry through the Advantage Tax Treatment of West Development Strategy, Lin Ze Branch is entitled to a preferential tax rate of 15%. According to the document Cheng Guo Shui Shen (2004) 11, Cheng Du Branch is entitled to a preferential tax rate of 15% as "high technology" company, and was exempted from EIT for 2003 and 2004. According to the document Chang Guo Shui ( Gao Xin) Zi (2004) 001, Chuang Chun Origin is entitled to a preferential tax rate of 15% as "high technology" company, and was exempted from EIT for 2004 and 2005. According to the document Yu Di Shui Suo Jian Mian (2003) No. 75, He Nan Cotton is entitled to a preferential tax rate of 15% as "high technology" company, and was exempted from EIT for 2002. Bao Ding Branch, He Nan Branch and Tie Ling Branch is subject to income tax at a statutory rate of 33%. The provision for income taxes consists of the following: September 30, December 31, -------------------- --------------------------------- 2004 2004 2003 2002 2001 ---- ---- ---- ---- ---- (USD) (RMB) (RMB) (RMB) (RMB) Current...... 746,104 6,175,206 7,238,733 337,199 2,900,599 Deferred..... (53,347) (441,533) 569,064 1,161,113 331,730 ------- --------- --------- --------- --------- 692,757 5,733,673 7,807,797 1,498,312 3,232,329 ======= ========= ========= ========= ========= F-22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 13. INCOME TAXES - continued The principal components of the deferred income tax assets are as follows:

The Company did not have any timing differences relating to deferred tax liabilities as of September 30, 2004 and December 31, 2003, 2002, and 2001. A significant portion of the deferred tax assets recognized relate to net operating loss and credit carry forwards. The company operates through multiple branches and subsidiaries and the valuation allowance is considered on each individual basis. Where a valuation allowance was not recorded, the company believes that there was sufficient positive evidence to support its conclusion not to record a valuation allowance as it expects to generate sufficient taxable income in the future. The valuation allowance in 2004, 2003 and 2002 has increased as it relates to the net operating losses of Henan branch which the company believes will not generate future taxable income to recognize the income tax benefit. A reconciliation between total income tax expense and the amount computed by applying the statutory income tax rate to income before taxes is as follows:

F-23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 14. EMPLOYEE BENEFIT PLANS AND PROFIT APPROPRIATION Full time employees of the Company participate in a government mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Company to accrue for these benefits based on certain percentages of the employees' salaries. The total provisions for such employee benefits were RMB1,020,245, RMB858,109, RMB554,707 and RMB397,729 for the nine month period ended September 30, 2004 and for the years ended December 31, 2003, 2002 and 2001, respectively. Pursuant to the laws applicable to the PRC, the Company must make appropriations from after-tax profit to non-distributable reserves funds including: (i) the statutory surplus reserve and; (ii) the statutory public welfare fund. Subject to certain cumulative limits, the general reserve fund requires annual appropriations of 10% for the statutory surplus reserve and 5% for the statutory public welfare fund of after-tax profit (as determined under PRC GAAP at each year-end). These reserve funds can only be used for specific purposes of enterprise expansion and staff welfare and bonus and are not distributable as cash dividends. Appropriations to these reserves by the Company were RMB5,716,232, RMB7,211,767, RMB4,461,877 and RMB434,578 for the nine month period ended September 30, 2004 and for the years ended December 31, 2003, 2002 and 2001, respectively. 15. COMMITMENTS AND CONTINGENCIES (a) Capital commitments Capital commitments for the purchase of plant and equipment, as of September 30, 2004, are as follows: RMB Plant and building construction......................19,326,412 Equipment............................................ 1,020,690 ---------- 20,347,102 ========== The equipment is scheduled to be delivered at the Company's facility by September 30, 2005. The Company expects to have the facility construction completed no later than September 30, 2005. (b) Share purchase agreement F-24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 15. COMMITMENTS AND CONTINGENCIES - continued In 2004, the Company entered into two agreements to acquire 8% in aggregate of the outstanding shares of Chuany Shi Ji Zhuan Ji Yin Technology Co., Ltd. in exchange for RMB8,320,000 of which RMB400,000 was paid as of September 30, 2004. The Company and Chuany Shi Ji Zhuan Ji Yin Technology Co., Ltd. have completed this transaction on October 8, 2004 upon obtaining the necessary government approvals. (a Operating lease The Company leases certain office premises under non-cancellable leases. Rent expense under operating leases for the nine month period ended September 30, 2004 and for the years ended December 31, 2003, 2002 and 2001 were RMB1,783,332, RMB2,015,914, RMB1,434,648, and RMB1,852,880 respectively. Future minimum lease payments under non-cancelable operating leases agreements were as follows: Year ended September 30, 2005................................................. 1,203,241 2006................................................. 1,135,375 2007................................................. 896,101 2008................................................. 971,220 2009................................................. 509,246 Thereafter........................................... 8,691,542 ---------- 13,406,725 ========== b) Litigation In December 2000, the Company signed an agreement to be a guarantor on a loan given to Lin Ze Xian Seed Company by Agriculture Bank of China Lin Ze Branch. Upon Linze Xian Seed Company's announcement of bankruptcy, Beijing Origin was required to repay the outstanding loan. On December 28, 2001 the Company was ordered by the Linze People's Court to pay RMB2,871,801 to Agricultural Bank of China Lin Ze Branch in fulfilment of the guarantee obligation. The civil judgement of the Zhangye Intermediate People's Court suspended this decision pending final outcome of Lin Ze Seed Company's bankruptcy hearings. In 2002, the final judgement was made by the court, accordingly, the Company expensed RMB2,871,801 as other expense in the statement of operations in 2002. F-25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2004 AND FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001 16. SEGMENT AND GEOGRAPHIC INFORMATION The Company is engaged in the development and distribution of biogenetically altered seeds. In accordance with SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", the Company's chief operating decision maker, the Chief Executive Officer, who reviews consolidated results of operations when making decisions about allocating resources and assessing performance of the Company. The Company believes it operates in one segment, and all financial segment information required by SFAS No. 131 can be found in the consolidated financial statements. All of the Company sales and all of the Company's long-lived assets are located in the PRC. The Company had no significant customers or suppliers for any of the years presented in the consolidated financial statements. 17. SUBSEQUENT EVENTS On October 30, 2004, the Company finalized a contract to purchase technology usage rights from Sichuan Province Agriculture Science Research Center Institute for RMB2,500,000. As of September 30, 2004, the Company has paid a deposit of RMB1,000,000, included in prepaid expenses and other current assets. F-26

CHARDAN CHINA ACQUISITION CORP 8-K/A