1. Where do you see the company
in the next five years?
We continue to believe the company will be China’s leading agri-technology
enterprise. We are building our in-house biotech research center,
the only in the industry, and have several academic and state alliances,
along with our 34% ownership in BioCentury Transgene. We view these
are market share enhancement efforts. We expect to continue to be
growing and expanding our presence in China. We expect to continue
to grow into a leading position in GMO products.
2. Can you describe the impact of
these industry changes in 2008?
We understand longer term impact it would provide opportunity as
the industry must undergo these changes during consolidation. We
continue to expect modest recovery in a challenging environment.
We believe our current product line specifically addresses needs
in the marketplace. Additionally, many of our new products from
2007, such as Liyu 35, performed exceeding well in their initial
year and we expect this performance to increase.
3. What is the competitive landscape
in China?
We continue to be one of the leaders in industry. Many larger competitors
sell any seed they can get their hands on, thereby polluting their
brand, while seeking revenue gains over future investments. We continue
to believe that our positioning to be the strongest over the long
term. We expect GMOs to play a major role in the marketplace while
we believe China will continue to seek protectionist policies regarding
this industry.
4. What is the biotech landscape
in China?
The growth of the economy has caused demand for higher levels of
food production. This demand include 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. The Chinese central government
has taken several measures to deal with these issues. Compared with
conventional varieties, the obvious advantages of GM varieties are
high yield, high quality and increased disease resistance and herbicide
resistance. GM corn, soybean, and cotton have been widely used in
the United States and many other countries to guard against insect
damage and to increase crop yields. The Chinese authorities are
beginning to evaluate GM crop seed research and commercialization
in order to meet the increasing demand of agricultural products.
5. Why can’t multinationals compete
in GMOs currently?
Because we are considered a domestic company in China, we are afforded
the ability to proceed through all five phases of GM approval, while
international entities are restricted to phases one currently, and
forbidden to proceed to phase 2 through 5. Foreign funded companies
are currently prohibited from developing or producing genetically
modified plant seeds, breeding livestock and poultry, or aquatic
seed according to Catalog Guiding Foreign Investment Industries
(distributed by Ministry of Commence of China in 2007).
6. What competitive advantage do
you have in biotech over every other player?
Currently, we have the only biotech center for a seed company in
all of China and strong ties with domestic academic and research
organizations participating in government sponsored GM research,
extending our own research capabilities beyond in-house budget.
We also have a early start with high quality traits -- we began
development of Bt Corn products with a stable gene better than currently
offered in other commercialized corn products, and have obtained
the right to commercialize the phytase transgenic maize within all
of China.
7. What do you expect its market
potential to be?
The potential market of Phytase is USD 500 million worldwide and
USD 200 million in China alone. The corn seed market in China is
USD 1 billion.
8. What and where in the approval
process are your GMO products?
We have 5 products in the approval process in stages 2 through 5
of the GMO. Phytase is in the fifth and final stage, the other products
are in the first and second phases. The stages are as follows:
a. Laboratory Research is defined by genetic
manipulations and research work conducted under a control system
within laboratory.
b. Intermediate Testing Phase signifies a small scale test conducted
under a regulated control system.
c. Environmental Release Test means medium scale test conducted
under natural condition by taking relatively secure measures .
d. Production Test: means relatively large scale test before production
and application .
e. Obtaining the safety certificate on genetically modified organisms.
9. When do you expect Phytase corn
seed to be finally approved?
Up to now, Chinese government has not approved GM corn to be commercialized.
To be honest with you, a lot of this depends on the changing government
regulation, but we expect final approval in 2008. We expect Phytase
to be available for the market in 2009, pending government approval.
10. What is the status of any multinational merger talks?
We are unable to comment in any detail on this matter, but we do
have relationships industry wide.
Financials
11. What caused the large increase
in expenses?
(1) increase in the cost of salaries and social security expenses
due to the mandatory 13th month bonus for employees
(2) increase in professional fees dues to the first year of SOX-404
implementation and the convertible debt capital raised
(3) additional 4 months of expenses from our Denong Zhengcheng acquisition
and
(4) additional six months of Jilin Changrong acquisition in our
expenses
(5) severance fees and salaries as a result of the reorganization.
Our average headcount during 2007 was 1047. Our current headcount
is 930, as some of the payroll elimination has already taken place
at the end of fiscal year 2007.
12. Can you breakdown the inventory
write-off?
90% of the inventory write-off was carryover from the Denong acquisition
inventory. The remainder was corn. With most of the inventory written
off already, we do not expect the same levels of inventory to be
written off. We may have a bit though. The large increase was simply
a matter of a wrong assessment in the marketplace. We had too much
rice product that could not be sold into the market. With new management/leadership
of our rice division, we expect the aggressive rice inventory forecasts
to be solved.
13. Can you detail the current stock
repurchase program for me?
Following the issuance of fiscal 2007 financial results today, Origin
is now able to execute share repurchases under its previously announced
stock repurchase program (see press release dated July 20, 2006
for terms and conditions related to the share repurchase plan).
There are approximately 23.4 million shares of Origin common stock
outstanding as of September 30, 2007.
14. What improvements are you planning
in the area of investor communication?
We have hired a new investor relations team. As we are moving into
more bio-tech initiatives, we are looking forward to updating our
investors on the various stages of data research, product development
and sales and marketing, on a more frequent basis. We intend to
strengthen the ongoing communication with investors through press
releases, road-show and investor conferences.
Operations
15. What was the company’s gross
margin breakdown for the fiscal 2007?
The company produced gross margins of roughly 30% on par with company
performance in 2006. We expect overall margins to be in the low
30% range in 2008. Historically, Origin’s base business has generated
gross margins of approximately 36% - 39%. That remains our long
range target on the entire business.
16. Do you expect the scrap sales
to continue?
We had no scrap sales in 2006, so we view these sale to be somewhat
of an anomaly for our company though common in the industry. We
expect them to be greatly lessened next year, if not eliminated.
17. Regarding the snowstorm, has
it affected any of your business?
Though the snowstorm has had a great impact on several industries
nationwide, to date we have heard that the limit of the affect has
been in slowing our delivery of product to our distributors. To
our knowledge it has not affected our production or inventory levels
to any extent, though this still needs to be thoroughly analyzed.
18. How many new seeds are in the
pipeline?
We have 113 seeds in various stages of production.
19. Is Origin forging any relationships
outside of China?
Yes, we currently are testing our products in Southeast Asia, we
launched one product in Vietnam this year, and developing cooperative
technology and business ventures globally.
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