Origin Agritech Limited Reports Record First Quarter Financial Results for Three Months Ended December 31, 2009

BEIJING--Origin Agritech Limited (“Origin” or the “Company”), a technology-focused supplier of hybrid and genetically modified crop seeds in China, today announced unaudited financial results for the first quarter ended December 31, 2009. Origin prepares its financial statements in accordance with generally accepted accounting principles (GAAP) of the United States.

FINANCIAL RESULTS OVERVIEW

During the first quarter of fiscal 2010, the Company generated revenues of RMB 38.60 million (US$5.65 million), a decrease of 31.5% from RMB 56.33 million (US$8.24 million) generated in the three months ended December 31, 2008. The revenues were mainly from the sales of higher margin canola seed products for the three months ended December 31, 2009. In Q110, a lower amount of scrap seed sales were recorded.

Gross profit for the three-months ended December 31, 2009 was RMB 20.58 million (US$3.01million) compared to RMB 15.40 (US$2.25million) in the same period of the prior year. Gross margins for this quarter were 53.3% versus 47.9% for the canola seed sales for Q109 (exclusive of scrap sales). This is a result of the higher pricing structure of our canola seed products this year.

Total operating expenses for the three-months ended December 31, 2009 were RMB 38.96 million (US$5.71 million) compared with RMB 39.96 million (US$5.85 million) reported for the same period in 2008. Selling and marketing expenses were RMB 10.48 million (US$1.53 million) for the first quarter of 2009, representing a decrease of 20.8% from RMB 13.24 million (US$1.94 million) for the same period of the last year. General and administrative expenses of RMB 20.41 million (US$2.99 million) for the first quarter ended December 31, 2009, increased 14.0% from RMB 17.91 million (US$2.62 million) for the three months ended December 31, 2008. The research and development expenses decreased to RMB 8.08 million (US$1.18 million) for the three-months ended December 31, 2009 from RMB 8.82 million (US$1.29million) for the same quarter last year, with a decrease of 8.4%. These differences in expense categories are a result of slight changes across a broad variety of smaller sub-categories and represents small variations year over year. On an annual comparison, we still expect operating expenses to be relatively flat annually, across all operating expenses and within each separate category.

Operating loss for the first quarter of 2009 amounted to RMB 18.38million (US$2.69 million) compared with an operating loss of RMB 24.56 million (US$3.59 million) for the same period in 2008.

Net loss for the first quarter of 2010 was RMB 13.49 million (US$1.98 million), or RMB 0.59 (US$0.09) per diluted share, as compared to a net loss of RMB 19.72 million (US$2.87 million), or RMB 0.86 (US$0.13) per diluted share in the same period one year ago.

BALANCE SHEET

Origin's balance sheet at December 31, 2009 included cash and cash equivalents of RMB 213.69 million (US$31.30 million) and shareholders' equity of RMB 197.47 million (US$28.92 million).

Deferred revenue was RMB220.38 million (US$ 32.28 million) for the three-months ended December 31, 2009 as compared to RMB176.63 million (US$ 25.84 million) for the same period last year. This represents our orders received and shipped already for products this upcoming selling season.

The Company received Advances from Customers of RMB 295.30 million (US$43.25 million) as of December 31, 2009 period as compared to RMB 138.53 million (US$20.27 million) as of December 31, 2008. This represents our cash receipts for products to be ordered this upcoming selling season.

FISCAL 2010 GUIDANCE

Based on its current outlook, and existing and anticipated business conditions, Origin reiterates the revenue guidance for FY 2010 in the range of RMB 630 million to RMB 660 million.

About Origin

Founded in 1997 and headquartered in Beijing, Origin Agritech Limited (NASDAQ GS: SEED) is China’s leading, vertically-integrated agricultural biotechnology company specializing in research, development and production to supply the growing populations of China. Origin develops, grows, processes, and markets high quality, hybrid crop seeds to farmers throughout China and parts of Southeast Asia via a network of approximately 3,800 first-level distributors and 65,000 second-level distributors and retailers, and possesses a pipeline of genetically modified seed products including glyphosate resistant corn and Bt Corn. The first genetically modified corn seed product for China, Phytase corn, was approved in November 2009 of which Origin possesses exclusive rights. For further information, please log on www.originagritech.com.

Forward Looking Statement

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 to be filed. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
		Three months ended December 31
		2008		2008		2009		2009
		RMB		USD		RMB		US$
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenues		56,334		8,242		38,604		5,654
Cost of revenues		(40,935)		(5,989)		(18,025)		(2,640)
Gross profit		15,399		2,253		20,579		3,014
Operating expenses:
Selling and marketing		(13,238)		(1,937)		(10,476)		(1,534)
General and administrative		(17,906)		(2,621)		(20,405)		(2,988)
Research and development		(8,816)		(1,290)		(8,075)		(1,183)
Total operating expenses		(39,960)		(5,848)		(38,956)		(5,705)
Loss from operations		(24,561)		(3,595)		(18,377)		(2,691)
Interest expense		(4,466)		(653)		(1,983)		(290)
Share of earnings in equity investee companies		365		53		418		61
Interest income		243		36		371		54
Other income		321		47		1,000		146
Changes in the fair value of embedded derivatives		3,297		482		-		-
Loss before income taxes		(24,801)		(3,630)		(18,571)		(2,720)
Income tax expense
Current		(11)		(2)		67		10
Deferred		2,148		314		2,112		309
Income tax expense		2,137		312		2,179		319
Net loss		(22,664)		(3,316)		(16,392)		(2,401)
Less: Net income attributable to the non-controlling interest		3,180		465		2,898		424
Net loss attributable to Origin Agritech Limited		(19,484)		(2,851)		(13,494)		(1,977)
Net loss per share – basic		(0.85)		(0.12)		(0.59)		(0.09)
Net loss per share – diluted		(0.85)		(0.12)		(0.59)		(0.09)
Shares used in calculating basic net loss per share		23,013,692		23,013,692		23,013,692		23,013,692
Shares used in calculating diluted net loss per share		23,013,692		23,013,692		23,013,692		23,013,692

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
		December 31		September 30		December 31
		2008		2009		2009		2009
		RMB		RMB		RMB		US$
		(unaudited)				(unaudited)		(unaudited)
Assets
Current assets:
Cash and cash equivalents		119,778		121,255		213,687		31,295
Restricted bank deposits		-		500		-		-
Accounts receivable, net		3,918		5,692		5,186		759
Due from related parties		5,492		7,004		6,287		921
Advances to suppliers		8,843		1,937		8,762		1,283
Advances to growers		-		24,681		1,127		165
Inventories		628,537		341,770		497,229		72,820
Income tax recoverable		1,697		1,725		1,725		253
Prepaid expenses and other current assets		12,465		8,725		8,105		1,187
Total current assets		780,730		513,289		742,108		108,683
Land use rights, net		20,869		20,496		20,375		2,984
Plant and equipment, net		145,988		152,962		152,201		22,290
Equity investments		65,749		65,453		65,871		9,647
Goodwill		16,665		16,665		16,665		2,441
Acquired intangible assets, net		32,759		36,648		39,064		5,721
Deferred income tax assets		28,339		15,040		17,152		2,512
Other assets		15,382		3,991		2,091		306
Total assets		1,106,481		824,544		1,055,527		154,584
Liabilities and equity
Current liabilities:
Short-term borrowings		208,840		80,290		208,900		30,594
Accounts payable		26,086		13,938		19,056		2,791
Note payable		-		117,896		-		-
Due to growers		46,068		9,619		817		120
Due to related parties		13,905		15,699		9,093		1,332
Advances from customers		138,526		219,963		295,301		43,247
Deferred revenues		176,634		18,280		220,377		32,275
Income tax payable		39,059		39,661		39,059		5,720
Other payables and accrued expenses		74,050		31,476		24,985		3,659
Total current liabilities		723,168		546,822		817,588		119,738
				-		-		-
Convertible notes		67,038		-		-		-
Embedded derivatives-redemption feature		30,359		-		-		-
Other long-term liabilities		3,658				400		59
Total liabilities		824,223		546,822		817,988		119,797
Commitments and contingencies
Equity:
Origin Agritech Limited Shareholders’ equity:
Preferred stock
Common stock
Additional paid-in capital		390,187		391,620		376,242		55,101
Retained earnings(deficit)		(104,173)		(125,507)		(139,001)		(20,357)
Treasury stock at cost(498,851 shares)		(29,377)		(29,377)		(29,377)		(4,302)
Accumulated other comprehensive loss		(10,423)		(10,403)		(10,396)		(1,523)
Total Origin Agritech Limited shareholders’ equity		246,214		226,333		197,468		28,919
Non-controlling interest		36,044		51,389		40,071		5,868
Total equity		282,258		277,722		237,539		34,787
Total liabilities and equity		1,106481		824,544		1,055,527		154,584

Question and Answer

1. What is your financial guidance on the bottom line for this year? Presently, we are not at giving bottom line guidance for fiscal year 2010. We do expect the bottom line to be significantly better in the sense we will have significant improvement through elimination of one-time and excessive costs this year, higher product pricing expectation of roughly 3-5%, and stable cost of goods and operating expenses.

As seen, by our last FY2009, there is significant operating leverage in the business model as gross profit increased over 80% while revenues increased 15%. With cost of revenues stable and operating expenses stable, we believe much more of the revenues will then flow through to the earnings as the prices increase both with better service and high technology seed products.

2. What new GMO products are in production currently? With the approval of Phytase, we still have herbicide resistance, pesticide resistance, nitrogen assimilation, and drought tolerance in the pipeline.

3. Who are the domestic and foreign competitors of Origin Agritech? Domestically, we compete against a handful of players including China Seed, Shandong Denhai, Dunhuang, and Nonya. Most of these players are regionally located or have yet to replenish their pipeline as a result of difficulties in the industry. As such, we believe we are positioned as the premier player in the market. Internationally, Monsanto, Syngenta, and Pioneer (DuPont) are the largest players though all have had limited market penetration in China to date, but plan to penetrate to a greater extent.

However, the government severely restricts GMO activities for multinationals, international companies, and joint ventures alike. These entities are only allowed to participate in Phase One testing. We do not expect this policy to change.

4. Where do you expect the company to be in 5 years? We expect to continue to be growing and expanding our presence in China. We expect to continue to grow a leading position in GMO products in China with complementary product lines and international licensing agreements. In short, we expect to be on our way to being the much larger company.

5. Can you provide us with an update to your acquisition strategy? We continue to believe that the hybrid seed industry is a ideal platform to reach all farmers in China, creating an opportunity for companies like Origin that are well-managed and well-capitalized. Studies have show that seed adds the most value to farmer yields, and as such farmers are loyal to higher yielding seed varieties. Currently, we are focused on accenting our own seed product portfolio with complementary products and driving our successful suite of products into the marketplace.

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