Origin(SEED) - 2020 Q4 - Annual Report

Financial Performance - Revenues for the fiscal year ended September 30, 2020, were RMB 52,513,000, a decrease from RMB 92,440,000 in 2019, representing a decline of approximately 43%[19] - The net loss attributable to Origin Agritech Limited for the fiscal year ended September 30, 2020, was RMB 85,261,000, compared to a net loss of RMB 62,120,000 in 2019, indicating an increase in losses of about 37%[19] - Total operating expenses for the fiscal year 2020 were RMB 95.1 million (US$14.0 million), compared to RMB 48.7 million in fiscal year 2019, with general and administrative expenses increasing to RMB 58.1 million (US$8.5 million) from RMB 27.2 million[201] - Net loss from continuing operations for the fiscal year 2020 was RMB 102.4 million (US$15.0 million), compared to a net loss of RMB 65.1 million in fiscal year 2019[202] - For the fiscal year ended September 30, 2020, revenue was RMB52.5 million (US$7.7 million), a decline from RMB92.4 million in the previous fiscal year, primarily due to significant scrap sales in fiscal year 2019 and limited supply in fiscal year 2020[200] Assets and Liabilities - Total assets as of September 30, 2020, were RMB 254,883,000, down from RMB 261,112,000 in 2019, reflecting a decrease of approximately 2%[20] - The company reported total liabilities of RMB 340,345,000 as of September 30, 2020, an increase from RMB 276,587,000 in 2019, representing a rise of approximately 23%[20] - Cash and cash equivalents increased significantly to RMB 22,482,000 as of September 30, 2020, compared to RMB 3,198,000 in 2019, marking an increase of over 600%[20] - The company’s total borrowings as of September 30, 2020, were RMB137.7 million (US$20.2 million), an increase from RMB78.6 million in the previous year[203] Research and Development - Research and development expenses decreased to RMB 4,116,000 in 2020 from RMB 13,267,000 in 2019, a reduction of about 69%[19] - The company has established an extensive pipeline for GM corn seeds, including traits for glyphosate tolerance and insect resistance, and is actively pursuing commercialization of these products[205] - The company continues to advance its GMO product pipelines, with significant progress in double stacked traits of insect resistance and herbicide tolerance[193] - The company has established several plant genetic engineering technology platforms focusing on traits such as herbicide tolerance, insect resistance, and drought stress tolerance in corn[137] - The company has entered into commercial licensing agreements with DuPont Pioneer and KWS SAAT SE to jointly develop new seeds for Chinese farmers, enhancing its research and development capabilities[130][131] Joint Ventures and Collaborations - The company has formed a joint venture with BC-TID, which has invested RMB 137.7 million (approximately $20.2 million) to support seed biotechnology development[30] - The company entered into six regional joint ventures for seed distribution, with equity interests of 50% in Anhui Aoyu and 51% in the other five joint ventures, which are part of a long-term strategy to operate under an e-commerce platform[123] - The company has a strategic cooperation agreement with the China Academy of Agriculture Science to develop and sell GM crop varieties, subject to reimbursement of certain expenses[145] Market and Competition - The company faces significant competition in the seed development and e-commerce sectors, both domestically and internationally[55][56] - Major multinational companies dominate the GM corn seed market, holding approximately 70% of that market share in the U.S.[59] - The company faces challenges in maintaining its market advantage in GM seeds due to evolving resistance from weeds and insects, necessitating continuous investment in research and development[60] - The competitive landscape in the seed industry is marked by consolidation and changing government subsidies, which could adversely affect sales[64] - The company faces competition from large multinational companies and local seed producers, but believes it can compete effectively through product quality and intellectual property enforcement[146][149] Regulatory Environment - The independent auditors issued a going concern statement, indicating the need for substantial capital to continue operations as planned[29] - The Chinese government has only recently begun to issue GM crop safety certificates, impacting the commercialization of GM seeds[34] - The U.S. market requires rigorous testing and pre-approval for GM seeds, with the USDA and EPA involved in the regulatory process[37] - Obtaining necessary permits and approvals for GM seeds can be time-consuming and costly, with no guarantee of success[38] - The evolving regulatory environment in China regarding e-commerce and data privacy may impose additional compliance costs[52] - The company is subject to stringent regulations in the seed and e-commerce sectors, with potential fines for non-compliance that could adversely affect operations[80] Taxation and Financial Risks - The company’s preferential tax treatment as a "high and new technology enterprise" is subject to annual evaluation, and any loss of this status could significantly increase tax liabilities[82] - The company’s joint ventures may not receive the same tax benefits as its main operations, potentially leading to higher overall tax liabilities[83] - The classification as a "resident enterprise" under China's Enterprise Income Tax Law could lead to unfavorable tax consequences, including a 10% withholding tax on dividends paid to non-resident shareholders[85] - If classified as a "resident enterprise," the company may be subject to PRC enterprise income tax on worldwide taxable income and additional reporting obligations[86] - The applicable tax rate for Beijing Origin is 15% since January 1, 2008, due to its approval as a new technology enterprise, while other operating companies are subject to a uniform rate of 25%[172] Future Outlook - The company aims to lead in biotechnology and GM product commercialization in China, focusing on improving yields, product quality, and resistance traits[210] - Future growth will be influenced by strategic management of growth, ability to develop new products, and potential industry consolidations in China[214] - The company anticipates substantial capital input to launch its agribusiness e-commerce platform, with no assurance of profitability[39] - The success of the e-commerce platform will depend on partnerships with third parties for a wide range of product offerings[40] Legal and Compliance Issues - The company has limited business insurance coverage in China, increasing its exposure to operational risks and potential financial impacts from disruptions[75] - The PRC legal system presents uncertainties that could limit legal protections for non-PRC shareholders, affecting investment decisions[98] - The company must comply with various regulations regarding personal information protection and must obtain user consent for data collection[169] - The Company has established information security systems to protect user privacy in compliance with the Cyber Security Law[170] Stock Market and Trading - The company’s stock price is likely to be volatile, influenced by factors such as business plan execution, operating results, and external economic conditions[108] - The trading market for the company's ordinary shares has historically been characterized as "thinly traded," with potential for minimal trading activity impacting share price[107] - The company is governed by British Virgin Islands law and has opted out of certain Nasdaq corporate governance requirements, which may limit investor voting rights[106]