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Origin Agritech Limited Reports Second Quarter Fiscal 2008 Results

FINANCIAL RESULTS OVERVIEW

During the second quarter of fiscal 2008, the Company generated revenues of RMB 1.56 million (US.22 million), increasing 50.54% from revenue of RMB 1.04 million (US.13 million) for the three months ended March 31, 2007.

Deferred revenue more than doubled to RMB 400.15 million (US.07 million) at March 31, 2008 from RMB 112.05 million (US.36 million) at December 31, 2007. This deferred revenue reflects the value of Origin??s crop seeds after evidence of a sales arrangement is confirmed, delivery to the customer is made, and full pre-payment from the customer is received, but before the final sales price is fixed and determined. The final sales price is primarily determined by sales volume incentives that Origin gives to its customers. It is expected that majority of this deferred revenue will be recorded on the income statement in the fiscal 2008 third quarter ending June 30,??b: 2008.

Gross loss for the three-months ended March 31, 2008 was RMB 3.30 million (US$ 0.47 million) compared to a loss of RMB 0.87 million (US.11 million) in the same period of the prior year.

 

The operating expenses for the three months ended March 31, 2008 were RMB 33.84 million (US.83 million), an increase of 10.03% from RMB 30.76 million (US.98 million) in the same period of the prior year. The increase was mainly caused by the increase in general and administrative expenses, which increased 27.80% year over year caused by the increase in the legal fees and other fees paid for professional services.

 

  • Selling and marketing expenses were RMB 11.62 million (US.66 million) for the second quarter of 2008, representing a decrease of 3.42% from RMB 12.03 million (US.56 million) for the same period of the last year.
  • General and administrative expenses of RMB 16.85 million (US.40 million) for the second quarter ended March 31, 2008, increased 27.80% from RMB 13.19 million (US.71 million) for the three months ended March 31, 2007, which was mainly caused by the increase in the legal fees and other fees paid for professional services.
  • Research and development expenses during the quarter were RMB 5.37 million (US.77 million), as compared with RMB 5.54 million (US.72 million) for the three months ended March 31, 2007.
Operating loss for the second quarter of 2008 amounted to RMB 37.14 million (US.30 million) compared with an operating loss of RMB 31.62 million (US.09 million) for the same period in 2007.

Net loss for the second quarter of 2008 was RMB 29.77 million (US.25 million), or RMB 1.30 (US.18) per diluted share, compared to a net loss of RMB 31.37 million (US.06 million), or RMB 1.34 (US.17) per diluted share in the same period one year ago.

Balance Sheet

Origin's balance ??b:sheet at March 31, 2008 included cash and cash equivalents of RMB 235.18 million (US.54 million). Investments in US Government Agency bonds amounted to RMB 84.07 million (US.99 million). The Company has a working capital of RMB 194.73 million (US.77 million), and a shareholders' equity of RMB 261.98 million (US.36 million).

Deferred revenue was RMB 400.15 million (US$ 57.07 million) for the three-months ended March 31, 2008 as compared to RMB 326.92 million (US.33 million) for the same period last year. Advance from customers was RMB 105.17 million (US$ 15.00 million) for the three-months ended March 31, 2008 as compared to RMB 93.54 million (US.11 million) for the same period last year.

Company Update

As the Chinese corn seed markets continue a period of transition, the Company has taken the necessary steps to make sure that it maintains market leadership during this time. Origin enjoys a solid reputation among farmers and has outperformed competitors with its hybrid seed products portfolio. Furthermore, the Company strongly believes its research and development efforts on biotechnology and GMO will eventually payoff. The focus remains on the successful introduction of genetically modified crop seeds in China. Origin will emerge as one of the leading bio-agricultural players to compete in China.

GMO Pipeline Update

Our Phase 5 Phytase corn is progressing well as we continue to expect a final approval before the end of this year. This would mark the first GMO corn product approved for commercialization in China. Upon approval, the product would be able to be sold into the Chinese marketplace.

We expect to gain significant operating leverage with our genetically modified corn products whereby we expect to be able to charge an additional technology fee for each corn product carrying the GMO trait. Our initial estimates suggest ??b: that this fee would be approximately a 20% increase in the overall price and would add incrementally to our gross margin as we expect the cost of production for GMO seeds to be similar to conventional hybrids.

Fiscal 2008 Guidance

Based on its current outlook, and existing and anticipated business conditions, Origin reiterates the revenue guidance for FY 2008 in the range of US million to US million and net income range of US.5 million to US million, for the fiscal year ending September 30, 2008. This net income figure is inclusive of roughly US.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.0 to US.5 million.

Conference Call

Management will conduct a conference call on Tuesday, June 3, 2008 at 9:00 AM Eastern Daylight 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 will be broadcast live over the Internet at: www.originagritech.com.