20-F/A: Origin Agritech Reports Increased Revenue but Notes Going Concern Qualification in 20-F Filing

Origin Agritech Limited reports a revenue increase for fiscal year 2024 but acknowledges a 'going concern' qualification due to working capital deficit and accumulated losses.

Summary

• Origin Agritech Limited's 20-F filing highlights a revenue increase of approximately RMB 20.1 million (22%) for the fiscal year ended September 30, 2024, reaching RMB 113.4 million.
• The increase is attributed to higher sales volumes from non-proprietary seed varieties.
• Sales of proprietary seed varieties decreased by approximately RMB 8.4 million (19%).
• Operating expenses increased to RMB 52.7 million (US$7.52 million) due to lawsuit expenses, legal fees, and bad debt provision.
• Net income for the fiscal year ended September 30, 2024, was RMB 18.7 million (US$ 2.7 million), compared with net income of RMB62.7 million in fiscal year 2023.
• The company's independent auditors have issued their reports with a going concern statement.
• The report on the company's financial statements for the fiscal years ended September 30, 2022, 2023 and 2024, included in this Annual Report on Form 20-F, contain a going concern statement.

Sentiment

Score: 5

Explanation: The document presents mixed signals. While revenue increased, rising operating expenses, a net loss, and a going concern qualification temper the positive aspects. The sentiment is neutral, reflecting both opportunities and significant challenges.

Positives

• Revenue increased by approximately RMB 20.1 million (22%) for the fiscal year ended September 30, 2024.
• Sales of non-proprietary seed varieties increased by approximately RMB 28.4 million (59%).
• The company's insect-resistant and herbicide-tolerant corn event BBL2-2 was granted a GMO safety certificate by the Chinese Ministry of Agriculture and Rural Affairs, MARA in May 2024.

Negatives

• Sales of proprietary seed varieties decreased by approximately RMB 8.4 million (19%).
• Operating expenses increased to RMB 52.7 million (US$7.52 million) due to lawsuit expenses, legal fees, and bad debt provision.
• The company's independent auditors have issued their reports with a going concern statement.

Risks

• The company's independent auditors have issued their reports with a going concern statement.
• The company needs to obtain capital to continue its business as planned, for which it does not have any long term arrangements, and/or generate increased revenue from operations to cover its expenses, of which it cannot be certain.
• If the company is unable to fund its operations, it may have to curtail substantial parts of its business operations or cease its business operations.
• The potential uncertainty in the government regulation in China of genetic technology and genetically modified, or GM, agricultural products and the acceptance of these products by the public could have an adverse effect on our business.

Future Outlook

The company expects to continue pursuing biotechnology seed development and invest in genetic modification programs. The company expects inflation to affect food prices as the producer price increase pushes through to consumer prices, causing an increase.

Industry Context

The filing notes increasing competition in the seed market, particularly from international players and the need to keep up with technological developments in the industry.

Comparison to Industry Standards

• The GM seed market outside China is highly competitive, dominated by a limited number of major, multi-national companies.
• In the United States, Monsanto (Bayer) and Corteva Agriscience, dominate the GM corn seed market with an estimated 70% of that market.

Management Changes

Legal Proceedings

• In July, 2022, Origin Biotechnology entered into a supply agreement with Henan Yingdafeng Agricultural Development Limited (Yingdafeng) to supply 100,000 tonnes corn bulk commodities.
• Yingdafeng filed lawsuit and the local court in Neixiang County issued first legal judgement on August 16, 2023 that requires Origin to pay a total of RMB22 million to Yingdafeng.
• After Origin appealed the decision from the local court in Neixiang County, the Intermediate Peoples Court of Nanyang City (a higher-level court over Neixiang County Peoples Court) decided on December 14, 2023 to revoke the judgement of Neixiang Contry Peoples Court.
• Yingdafeng has withdrawn the lawsuit and reached a settlement, and the case has been closed in April 2024.
• Feng Peizhi, a former employee of the company, requested the Company to compensate the disability allowance of RMB 1.68 million from 2008 to 2023.
• On September 26, 2024, Beijing Haidian District Labor Arbitration Commission made labor arbitration and supported Feng Peizhis request.
• The company appealed to the court in October 2024, and the case was awaiting the first trial, and the Company has accrued liabilities of RMB 3 million.
• Hebei Zhaoyu Breeding Industry Group Co., Ltd. believed that the corn seed Liyu 16 sold by Hubei Aoyu infringed its plant new variety rights of corn seed Liyu 88.
• In April 2024, the Intermediate Peoples Court of Lanzhou City, Gansu Province, judged that Hubei Aoyu infringed, and the Hubei Aoyu was required to pay RMB 3 million of economic losses.
• Hubei Aoyu has applied for a second trial to the Intellectual Property Court of the Supreme Peoples Court in August 2024, and the second trial has not yet been pronounced, and the Company has accrued liabilities of RMB 3 million.

Related Party Transactions

• The company has significant transactions and account balances with related parties, including entities controlled by the close family members of the Companys Chairman.

Stakeholder Impact

• Shareholders face uncertainty due to the going concern qualification and potential risks associated with the VIE structure.
• Employees may be affected by potential cost-cutting measures or changes in operations due to financial constraints.
• Customers may experience changes in product offerings or service levels due to the company's strategic shift and financial situation.

Next Steps

• The company will continue to actively pursue approval and commercialization of its biotech seed products.
• The company is making increasing efforts in the development of nutrition enhanced corn (NEC).
• The company will continue to test the double stacked products of Bt and glyphosate tolerance genes against the technologies currently used in the global market.

Key Dates

Keywords

Origin Agritech, seed, GMO, biotechnology, revenue, financial results, going concern, China, agriculture