EX-99.1 2 a5624012_ex991.htm EXHIBIT 99.1

Exhibit 99.1

Origin Agritech Limited Reports Financial Results for the Twelve Months Ended September 30, 2007

BEIJING--(BUSINESS WIRE)--Origin Agritech Limited (NASDAQ: SEED) (“Origin” or the “Company”), a technology-focused supplier of crop seeds in China, today announced financial results for the year ended September 30, 2007. These fiscal year results reflect the Company’s financial results during the period from October 1, 2006 to September 30, 2007. Origin prepares its financial statements in accordance with generally accepted accounting principles (GAAP) of the United States.

FINANCIAL RESULTS OVERVIEW

For the year ended September 30, 2007, we generated revenues of RMB489 million (US$65.2 million), a decrease of 6.23% from RMB 521.9 million (US$66.0 million) in revenues generated in the twelve months ended September 30, 2006.

Our results of operations were materially impacted this year by certain industry factors. These factors included (1) Circular (Guo Ban Fa [2006] No 40) issued by the State Council which required separate local, provincial seed authorities from existing commercial sales affiliates by June 30, 2007. As a result of these regulations, many local seed producers ceased operations and a significant amount of seed was sold at lower than expected price levels as these businesses needed to liquidate their remaining inventory; (2) an over-production of crop seed supply in the marketplace. These aforementioned factors were pervasive throughout the entire Chinese crop seed industry this year.

Revenues

The industry environment this year caused us to liquate a portion of our crop seeds as scrap sales. While these sales only amounted to 2.12% of our total revenues for the year ended 2007, they materially impacted our overall gross margin by 8.25%. During fiscal year 2007 we also wrote off a significant portion of our seed inventory of RMB77.24 million (US$ 10.31 million), which was recorded as cost of revenues. Excluding these temporary scrap sales and the impairment of inventory, our gross margins for the period were 30.09% as compared to our 30.73% gross margins for the twelve months ended September 30, 2006.

With regards to our fiscal year 2007 normal product line results, exclusive of scrap sales, normal corn seed products remains our strongest product, producing 74.36% of our sales, as compared to 65.03% in the twelve month ended September 30, 2006 period and 64.79% for the nine months ended September 30, 2006. The total revenue from corn seed grew 4.94% to RMB356.17 million in fiscal year 2007 from RMB 339.39 million in the 12 months ended September 2006. Margins decreased 5.42% from 37.38 % in the 12 months ended September 2006 to 31.96% in fiscal year 2007, mostly as a result of the increased industry pressure due to the change in government regulations. Cotton margins increased 0.69% to 28.43% in fiscal year 2007 from 27.74% in the twelve month period ending September 30, 2006. Volume decreased slightly from 57.9 million kg in the twelve months ended September 30, 2006 to 54.5 million kg in fiscal year 2007. Our first year of canola sales showed 454,521 kg with 53.3% margins.

Our rice product sales in fiscal year 2007 suffered the greatest losses this year. Our revenues for the rice unit, exclusive of scrap sales, for the year ended September 30, 2007 decreased approximately 50.52% to RMB 71.90 million from RMB 145.32 million in the twelve months ended September 30, 2006. The margin decreased from 19.03% in the twelve months ended September 30, 2006 to 15.95% in fiscal year 2007. The unexpected price reduction in the market this year caused us to write-off a large amount of inherited (Feb 2006) inventory from the acquired Denong entity, amounting to RMB75.24 million (US$10.04 million). These rice products were produced prior to 2005, and thus would no longer be viable for the commercial marketplace in 2008.

Total Expenses

Total expenses for the year ended September 30, 2007 were RMB 178.68 million (US$23.85 million), representing an increase of 46.39% from RMB122.06 million (US$15.44 million) for the twelve months ended September 30, 2006.

Selling and marketing expenses for the year ended September 30, 2007 were RMB57.99 million (US$7.74 million), representing an increase of 0.51 % from RMB57.70 million (US$7.30 million) for the year ended September 30, 2006.

General and administrative expenses for the year ended September 30, 2007 were RMB92.25 million (US$12.31 million), representing an increase of 83.74% from RMB 50.20 million (US$6.35 million) for the twelve months ended September 30, 2006.

Research and development expenses for the year ended September 30, 2007 were RMB28.44million (US$3.80 million), representing an increase of 100.88 % from RMB14.16 million (US$1.79 million) for the twelve months ended September 30, 2006. This doubling of expenses amounted to 5.8% of our total revenues, which is roughly in-line with our research and development strategy.

Causes for the increase in G&A expenses this year include the following: (1) additional six months of Jilin Changrong acquisition and additional four months of expenses from Denong Zhengcheng acquisition. Denong was consolidated in February 2006. Changrong was consolidated in April 2007, (2) Salaries and severance fees as a result of the reorganization, increase in welfare benefit expense, salary increase due to new 13^th month bonus, (3) increase in professional fees dues to first year of SOX-404 implementation and convertible debt capital raise. Our average headcount and associated salaries during 2007 was 1047. Our current headcount as at December 31, 2007 is 930, as some of the payroll elimination has already taken place at the end of fiscal year 2007.

Net Income

We recorded a net loss applicable to ordinary shareholders of RMB 163.20 million (US$21.78 million) for the year ended September 30, 2007, as compared to the net income of RMB57.82 million (US$7.32 million) for the twelve months ended September 30, 2006.

Balance Sheet

Origin’s balance sheet at September 30, 2007 included cash and cash equivalents of RMB162.31 million (US$21.66 million) as of September 30, 2007, working capital of RMB294.98 million (US$39.37 million), shareholders’ equity of RMB296.92 million, ($39.63 million) and long-term debt of 265.94 million (US$35.94 million). Origin also extended its share repurchase program for up to US$10 million through December 2008.

Fiscal 2008 Guidance

Looking into 2008, we continue to see further industry consolidation. As a result, the overall capacity will gradually return to a rational range and the decline of average selling price will likely slow down. However, we still see the overall inventory remains high throughout the industry and total seed supply still outstrips the demand.

Based on its current outlook, with existing and anticipated business conditions, Origin expects to report revenues range from US$75 million to US$80 million and bottom line range from a net income of US$0.5 million to US$2 million, for the fiscal year ending September 30, 2008. This net income figure is inclusive of roughly US$2.7 million dollars in expected non-cash interest expense from our convertible debt offering. Exclusive of this non-cash expense, we expect a net income range of US$3.0 to US$4.5 million.

INDUSTRY UPDATE

With the rapid growth of the economy in China, demands for higher food production have increased dramatically, most noticeably a major shortage of pork meat. These demands include significant domestic price inflation of food products, the rising consumer desire for higher quality food products, the increased need for fuel including the usage of bio-fuels, and the growing constraints on land. Due to the high demand for corn feed products, China is becoming a net corn importer. The shortage of produced commodity corn and oversupply of corn seed clearly shows the low productivity of the corn acreage in China. Coupled with the already shrinking arable land in China, under the pressure of industrial encroachment and environmental changes, the advantages of GM transgenic varieties of high yield, high quality are obvious. Farmers plant transgenic varieties to both save time and cost, while reducing fieldwork. The Chinese authorities are beginning to promote genetically modified (GM) crop seed research and commercialization to meet the increasing demand of agricultural products.

GMO AND PIPELINE UPDATE

We recognize that genetically modified crop seeds will gain acceptance in China, and we have begun biotech seed development focused on genetic modifications to improve the yields, product quality, as well as herbicide tolerance, insect resistance, nitrogen efficiency, and drought stress tolerance for corn and other corps. We have already been successful in marketing genetically modified BT cotton varieties in China and continue to develop other new seed varieties. Upon introduction, the BT cotton gene was able to increase yield and production value. Farmers paid more for genetically modified seeds and prices increased roughly four-fold for GM cotton seeds. Today, almost all planted acreage in China utilizes GM cotton seed, exclusive of Xinjiang province. We believe that other crop seeds can follow similar product adoption patterns.

Origin’s GMO Phytase corn is expected to be the one of the first transgenic maize approved and sold commercially into the domestic marketplace. Transgenic phytase maize is expected to be commercially launched in 2009. Phytase is currently used as an additive in animal feed to breakdown phytic acid in maize, increasing phosphorus absorption in animals by 60%. Phosphorus is an essential element for the growth and development of all animals, and plays key roles in skeletal structure and in vital metabolic pathways. Phytase, mandatory in several countries for environmental purposes, has a worldwide potential market size of US$500 million, including US$200 million for China alone, according to the China Feed Industry Study. The corn seed market in China is estimated at US$1 billion.

Phytase transgenic maize will allow animal feed producers the ability to eliminate purchasing phytase and maize separately, eliminate the need for mixing the two ingredients together, saving time, machinery, and labor. While currently microbiology is universally used to produce phytase, Origin plans to be the first to introduce transgenic phytase maize. Origin’s GMO Phytase corn is expected to be one of the first transgenic maize approved and sold commercially into the domestic marketplace.

“Development of these biotechnology attributes remains a cornerstone of our business strategy and significant management resources and attention are dedicated to building these capabilities. Our agronomists also become a trusted source to educate farmers on the benefits of genetically modified products. Our high-end processing, production, and quality control will continue to ensure high-quality seed production. We remain optimistic on Chinese government’s forthcoming decision on GM seeds in corn and plan to become the leader in biotechnology and GMO product commercialization in China,” Dr Han commented.

Turning to the competitive landscape, large biotech multinational companies will face obstacles as currently foreign-funded companies are prohibited from the development or production of genetically modified plant seeds, breeding livestock and poultry, and aquatic seeds. We possess exclusive rights in China to five genetic traits in various stages of testing and development. As a domestic company, we can proceed through all five phases of GMO approval, while international entities are restricted to phase one currently. We already have several products in phase 2 to phase 4, and one product in phase 5.

In 2007, we implemented a data mining infrastructure to search for stable, high yielding hybrids. Conventional breeding and biotechnology complement one another. We will build our current hybrid base where we have some of the highest quality germplasms optimized to local environments. We have roughly 100 total products in the market and as of December 2007, we have 12 proprietary corn seed products, 12 proprietary rice seed products and 2 proprietary canola seed products that are in commercial production and distribution. Currently, we have 9 breeding stations and employ 142 full time research personnel.

GUANGXI FORTUNELAND UPDATE

After a thorough due diligence process and evaluation, the Company has decided to withdraw the Guangxi Fortuneland acquisition project. The company believed that the large fertilizer company presented a significant amount of integration risk to our base crop seed business and presented significant working capital requirements. As a result, the company has chosen to invest both time and capital towards development of additional high end products.

2007 OVERVIEW

During the 2007 year, Origin made progress towards achieving its long-term goals and fulfilling its business plan, as follows

• As a part of a company-wide restructuring, the company reorganized into 3 distinct business units: 1) Corn, 2) Rice and Canola, and 3) Cotton and Agricultural Chemicals. Each business unit will be able to focus on its specific strengths and challenges to meet its long-term goals.
• The Company received approval to begin marketing hybrid rice in neighboring Vietnam.
• Also, Origin’s subsidiary, Biocentury Transgene (China) Co. Ltd. was approved to market 3 insect-resistant GMO hybrid cotton seeds in India in 2008.
• During 2007 Origin acquired another 9.18% ownership in Jilin Changrong Seed Company. This acquisition brought the Company into a 51.7% ownership position and enabled the Company to gain access to over 40 proprietary hybrid crop seeds.
• US$40 million investment through 5-year notes from Citadel Investment Group, LLC.

CONFERENCE CALL

Management will conduct a conference call on Thursday, February 28, 2008 at 9:00 am Eastern Standard Time to discuss these results. A question and answer session will follow management's presentation.

To participate, please call the following numbers 10 minutes before the call start time and ask to be connected to the Origin Agritech conference call: Phone Number: +1-877-407-9210 (North America) Phone Number: +1-201-689-8049 (International) In addition, the conference call and slide presentation will be broadcast live over the Internet at: www.originagritech.com.

FREQUENTLY ASKED QUESTIONS

A copy of frequently asked questions (FAQ) and this quarter’s slide presentation will also be available at Origin’s corporate web site, www.originagritech.com.

About Origin

Founded in 1997 and headquartered in Beijing, Origin Agritech Limited (NASDAQ: SEED) is one of China’s leading, vertically-integrated agricultural technology company specializing in agri-biotech research, development and production to supply the growing populations of China. Origin develops, grows, processes, and markets crop seeds to farmers throughout China and parts of Southeast Asia via a network of approximately 3,800 first-level distributors and 6,500 second-level distributors. The hybrid seed industry is estimated at US$2 billion and that is expected to double by 2010. The Company currently operates facilities in 30 of China’s 32 provinces as well as Beijing. Since Origin launched its first entirely internally developed seed in 2003, the Company has developed and commercialized a proprietary seed portfolio of twelve corn hybrids, twelve rice hybrids and two canola hybrids. For further information, please log on www.originagritech.com.

Forward Looking Statements

This release contains forward-looking statements. All forward-looking statements included in this release are based on information available to us on the date hereof. These statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results to differ materially from those implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "targets," "goals," "projects," "continue," or variations of such words, similar expressions, or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. Neither we nor any other person can assume responsibility for the accuracy and completeness of forward-looking statements. Important factors that may cause actual results to differ from expectations include, but are not limited to, those risk factors discussed in Origin's filings with the SEC including its annual report on Form 20-F filed with the SEC on February 27, 2008. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

CONSOLIDATED BALANCE SHEETS (Audited) (In thousands, except share data)
		September 30,
		2006			2007			2007
		RMB (audited)			RMB (audited)			US$
Assets
Current assets:
Cash and cash equivalents		140,953			162,314			21,663
Debt securities		146,816			133,968			17,880
Accounts receivable, less allowances for doubtful amounts RMB1,388 and RMB1,876 as of September 30, 2006 and 2007, respectively		12,467			2,750			367
Due from related parties		6,868			7,384			986
Advances to suppliers		3,559			1,029			137
Advances to growers		49,250			24,452			3,263
Inventories		343,575			449,207			59,952
Income tax recoverable		2,186			1,760			235
Prepaid expenses and other current assets		12,766			11,459			1,529
Total current assets		718,440			794,323			106,012
Land use rights, net		16,923			21,554			2,877
Plant and equipment, net		125,425			143,043			19,091
Equity investments		38,888			58,882			7,858
Goodwill		10,900			16,665			2,224
Due from related parties		6,500			7,325			978
Acquired intangible assets, net		29,878			43,057			5,746
Deferred income tax assets		4,042			12,828			1,712
Other assets		33,130			13,306			1,776
Total assets		984,126			1,110,983			148,274
Liabilities, minority interests and shareholders’ equity
Current liabilities:
Short-term borrowings		253,000			268,400			35,821
Accounts payable		22,012			14,365			1,917
Due to growers		38,794			17,811			2,377
Due to related parties		10,335			4,233			565
Advances from customers		76,143			82,187			10,970
Deferred revenues		24,101			23,238			3,101
Income tax payable		39,059			39,059			5,213
Other payables and accrued expenses		46,187			50,054			6,680
Total current liabilities		509,631			499,347			66,644
Long-term borrowings		1,880			1,880			251
Convertible notes, net of discount of RMB126,763 as of September 30, 2007		-			173,669			23,178
Embedded derivatives-redemption feature		-			86,937			11,603
Other long-term liabilities		1,000			3,458			461
Total liabilities		512,511			765,291			102,137
Minority interests		13,049			48,775			6,510
Commitments and contingencies
Shareholders’ equity:
Preferred stock (no par value;1,000,000 shares authorized, none issued)		-			-			-
Common stock (no par value; 60,000,000 shares authorized, 23,472,910 shares issued and outstanding as of September 30, 2006; 23,472,910 shares issued and 22,974,059 outstanding as of September 30, 2007)		-			-			-
Additional paid-in capital		340,810			377,324			50,359
Retained earnings (deficit)		121,796			(41,404	)		(5,526	)
Treasury stock at cost (498,851 shares)		-			(29,377	)		(3,921	)
Accumulated other comprehensive loss		(4,040	)		(9,626	)		(1,285	)
Total shareholders’ equity		458,566			296,917			39,627
Total liabilities, minority interests and shareholders’ equity		984,126			1,110,983			148,274

The accompanying notes are an integral part of these consolidated financial statements.

CONSOLIDATED STATEMENTS OF OPERATIONS (Audited) (In thousands, except share data)
		Year ended December 31,			Nine months ended September 30,						Twelve months ended September 30,
		2005			2005			2006			2006			2007			2007
		RMB			RMB			RMB			RMB			RMB			US$
		(audited)			(unaudited)			(audited)			(unaudited)			(audited)
Revenues		207,291			208,380			522,999			521,910			489,379			65,313
Cost of revenues		(129,162	)		(126,418	)		(362,982	)		(365,726	)		(462,852	)		(61,773	)
Gross profit		78,129			81,962			160,017			156,184			26,527			3,540
Operating expenses:
Selling and marketing		(27,037	)		(18,993	)		(49,651	)		(57,695	)		(57,994	)		(7,740	)
General and administrative		(28,983	)		(19,712	)		(40,933	)		(50,204	)		(92,246	)		(12,311	)
Research and development		(6,977	)		(5,963	)		(13,144	)		(14,158	)		(28,441	)		(3,796	)
Total operating expenses		(62,997	)		(44,668	)		(103,728	)		(122,057	)		(178,681	)		(23,847	)
Other operating income		2,309			-			-			-			-			-
Income (loss) from operations		17,441			37,294			56,289			34,127			(152,154	)		(20,307	)
Interest expense		(1,829	)		(1,443	)		(5,005	)		(5,391	)		(21,697	)		(2,896	)
Share of earnings in equity investee companies		879			305			12,828			13,400			(669	)		(89	)
Interest income		886			421			8,783			9,249			10,942			1,460
Other income		300			62			2,893			5,441			1,312			175
Changes in the fair value of embedded derivatives		-			-			-			-			12,601			1,682
Income (loss) before income taxes and minority interests		17,677			36,639			75,788			56,826			(149,665	)		(19,975	)
Income tax expense
Current		(1,313	)		(1,563	)		(1,428	)		(3,832	)		(8,737	)		(1,166	)
Deferred		(92	)		358			1,061			3,266			8,786			1,173
Income tax expense		(1,405	)		(1,205	)		(367	)		(566	)		49			7
Income (loss) before minority interests		16,272			35,434			75,421			56,260			(149,616	)		(19,968	)
Minority interests		137			(510	)		910			1,558			(13,584	)		(1,813	)
Net income (loss)		16,409			34,924			76,331			57,818			(163,200	)		(21,781	)
Net income (loss) per share – basic		RMB1.52			RMB3.49			RMB3.25			RMB 2.46			RMB(7.01)			US$(0.94)
Net income (loss) per share – diluted		RMB1.46			RMB3.49			RMB3.03			RMB 2.30			RMB(7.01)			US$(0.94)
Shares used in calculating basic net income (loss) per share		10,786,719			10,000,000			23,472,910			23,472,910			23,268,062			23,268,062
Shares used in calculating diluted net income (loss) per share		11,220,157			10,000,000			25,187,753			25,187,753			23,268,062			23,268,062
Cash dividend per share		RMB0.73			-			-			-			-			-

CONTACT:
Origin Agritech Limited
Irving Kau, 760-918-1781
Vice President, Finance
Irving.kau@originseed.com.cn
or
Global Consulting Group
Kevin Theiss / Dixon Chen, 646-284-9409
Investor Relations
ktheiss@hfgcg.com
dchen@hfgcg.com