SOURCE: Aoxing Pharmaceutical

May 16, 2011 08:30 ET

Aoxing Pharmaceutical Company Announces Financial and Operational Results for Third Quarter of Fiscal Year 2011

JERSEY CITY, NJ--(Marketwire - May 16, 2011) - Aoxing Pharmaceutical (NYSE Amex: AXN) ("Aoxing Pharma"), a specialty pharmaceutical company focusing on research, development, manufacturing and distribution of narcotic and pain-management products, today announced financial and operational results for the three month period ended March 31, 2011, or the third quarter of fiscal year 2011.

Recent Highlights and Updates

-- Our operating subsidiary in China, Hebei Aoxing Pharmaceutical Group Company, has been granted a patent by the State Intellectual Property Office of The People's Republic of China for naloxone sublingual film. The Chinese patent, ZL2005.1.0125279.7, covers a unique sublingual film formulation of naloxone that can be dissolved rapidly under the tongue.

-- Hebei Aoxing Pharmaceutical Group Company has received GMP certification from the Chinese State Food and Drug Administration (SFDA) for the pre-treatment, extraction, tincture, and pill workshops, after a site inspection by SFDA. The milestone marks the completion of the Lerentang Pharmaceutical Company's manufacturing facility relocation from Shijiazhuang to Xinle City, Hebei Province.

-- Hebei Aoxing API Pharmaceutical Company, Ltd., the joint venture ("JV") between Aoxing Pharma and Macfarlan Smith Ltd., a wholly owned subsidiary of Johnson Matthey Plc, has succeeded in adopting advanced process technology from Macfarlan Smith. This technology transfer will allow the JV to produce naloxone hydrochloride API (active pharmaceutical ingredient) with quality meeting both European and Chinese pharmacopoeia specifications.

Financial Results:

Revenues for the three months ended March 31, 2011 were $1,628,627, representing a 4.3% increase over the revenues of $1,561,915 realized during the three months ended March 31, 2010. The increase is mostly due to foreign exchange conversions. During the quarter, the company reduced promotion for certain product lines with unattractive gross margin. For the nine months ended March 31, 2011, the revenues were $5,309,839, a 16.3% increase from the revenues of $4,565,009 realized during the nine months ended March 31, 2010. The increase in revenues for the nine months ended March 31, 2011 reflects the positive impact of our recent sales team expansion.

Cost of sales was $807,492 for the three months ended March 31, 2011, which was 116 % more than the $374,410 in costs incurred during the same period in the prior year. The gross margin ratio was 50% in the three months ended March 31, 2011 as compared to 76% in the prior year. For the nine months ended March 31, 2011, our cost of sales was $2,410,633, which was 76.6% more than the $1,365,069 in costs incurred during the same period in the prior year. The gross margin ratio was 55% in the nine months ended March 31, 2011 as compared to 70% in the same period in the prior year. The main reasons for the increase in cost of sales were increases in certain raw materials and cost of labor.

Gross profit was $821,135 during the three months ended March 31, 2011, 31% lower than the same period in the prior year, reflecting the lower gross margin rate. During the nine months ended March 31, 2011, gross profit was $2,899,206, 9% lower than the same period in the prior year. The decrease reflects higher sales that were negatively impacted by lower gross margin rate.

Research and development expenses were $70,362 during the three months ended March 31, 2011, representing a 78% decrease from $314,069 occurred during the same period in the prior year. During the nine months ended March 31, 2011, our research and development expenses were $347,760, representing a 31% decrease from $506,133 spent during the same period in the prior year. Our R&D expenses could fluctuate significantly from one period to another, reflecting the progress and timing of various development projects.

General and administrative expenses were $1,364,117 in the three months ended March 31, 2011, 49% higher than $916,912 in the same period in the prior year. For the nine months ended March 31, 2011, general and administrative expenses were $3,520,353, 34% higher than $2,619,899 incurred during the same period in the prior year. Bad debt expenses of $254,625 and $711,977 incurred in the three months and nine months ended March 31, 2011, respectively, are the most significant factors for the increased G&A expenses. We sell products to both distributors and retailers, and the payment terms range from 30 days to 90 days from invoice date or receipt of goods, whichever is later. We evaluate collectability of our accounts receivable periodically and provide a bad debt reserve based on their aging and the results of our collection action. In the corresponding periods for fiscal year 2010, we did not record any bad debt expense.

Selling expenses in the amount of $354,600 incurred during the three months ended March 31, 2011 were 5% higher from $336,939 spent on selling during the same period in the prior year. During the nine months ended March 31, 2011, selling expenses in the amount of $1,228,492 were 39% higher than $885,236 spent on selling during the same period in the prior year. The increase was mainly due to expansion of our sales and marketing personnel.

Our loss from operations for the quarter ended March 31, 2011 increased 129% to $1,123,905, from $490,427 incurred during the same period in the prior year. For the nine months ended March 31, 2011, loss from operations increased 133% to $2,655,666 from $1,140,030 incurred from the same period in the prior year. The significant increase in the loss was primarily due to lower gross margin, bad debt expense, and increased cost associated with expansion of our sales and marketing team.

Mr. Zhenjiang Yue, Chairman and Chief Executive Officer of China Aoxing, commented, "We are pleased with the quarter, particularly as we made progress in our joint venture with Macfarlan Smith, successfully adopting their advanced technology into our manufacturing facility. I am also pleased that we have completed the relocation of the Lerentang manufacturing facility. We look forward to key additional milestones in our JV as well as further progress on our pipeline products."

About Aoxing Pharmaceutical Company, Inc.

Aoxing Pharmaceutical Company, Inc. is a US incorporated specialty pharmaceutical company with its operations in China, specializing in research, development, manufacturing and distribution of a variety of narcotics and pain-management products. Headquartered in Shijiazhuang City, outside Beijing, Aoxing has the largest and most advanced manufacturing facility in China for highly regulated narcotic medicines. Its facility is one of the few GMP facilities licensed for the manufacture of narcotic medicines by the Chinese State Food and Drug Administration (SFDA). It has joint venture collaboration with Johnson Matthey Plc to produce and market narcotics and neurological drugs in China. It also has strategic alliance partnerships with QRxPharma, Phoenix PharmaLabs, Inc. and American Oriental Bioengineering, Inc. For more information, please visit: www.aoxingpharma.com.

Safe Harbor Statement from Aoxing Pharmaceutical Company, Inc.

Statements contained in this communication not relating to historical facts are forward-looking statements that are intended to fall within the safe harbor rule for such statements under the Private Securities Litigation Reform Act of 1995. The information contained in the forward-looking statements is inherently uncertain, and the Company's actual results may differ materially due to a number of factors, many of which are beyond its ability to predict or control, including, among many others, the Company's ability to commercialize on the patent subject of this press release, its ability to develop new therapeutic delivery methods, to complete GMP certification of the workshops, obtain process approvals, develop the product line as and when anticipated. These forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual events to differ from the forward-looking statements. More information about some of these risks and uncertainties may be found in the reports filed with the Securities and Exchange Commission by the Company. The Company operates in a highly competitive and rapidly changing business and regulatory environment, thus new or unforeseen risks may arise. Accordingly, investors should not place any reliance on forward-looking statements as a prediction of actual results. These forward-looking statements are based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. The Company undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

             AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEETS



                                                  March 31      June 30
                                                    2011          2010
                                                (Unaudited)
                        ASSETS
CURRENT ASSETS:
     Cash                                       $  3,117,787  $  3,985,710
     Accounts receivable, net of allowance for
      doubtful accounts of $3,382,900 and
      $2,575,177, respectively                     2,473,734     1,724,198
     Loan receivable                                 483,076       748,790
     Inventory                                     1,972,482     1,564,975
     Deposits with suppliers                         489,897       475,042
     Prepaid expenses and sundry current assets      663,459       421,391
                                                ------------  ------------
TOTAL CURRENT ASSETS                               9,200,435     8,920,106
                                                ------------  ------------

LONG - TERM ASSETS
Property and equipment, net of accummulated
 depreciation                                     26,846,960    25,569,782
Other intangible assets                            1,395,492     1,431,182
Goodwill                                          19,601,196    19,012,321
Deferred tax assets                                4,066,317     3,394,103
                                                ------------  ------------
TOTAL LONG-TERM ASSETS                            51,909,965    49,407,388
                                                ------------  ------------ 

TOTAL ASSETS                                    $ 61,110,400  $ 58,327,494
                                                ============  ============


          LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Short-Term borrowings                      $    228,307  $    293,746
     Accounts payable                              3,674,917     2,965,514
     Loans payable - bank                          8,371,258     8,078,019
     Current portion of long term debt - other     3,145,549        46,999
     Current portion of long term debt -
      related parties                                 97,990        94,760
     Accrued expenses and taxes payable and
      other sundry current liabilities             3,002,776     2,076,555
     Warrant and derivative liabilities               69,943     1,913,534
                                                ------------  ------------
TOTAL CURRENT LIABILITIES                         18,590,740    15,469,127
                                                ------------  ------------

LONG-TERM DEBT-- RELATED PARTIES                   6,558,871     6,329,118
                                                ------------  ------------
              -- OTHER                             1,587,322     2,221,943
                                                ------------  ------------

Common stock, par value $0.001,                       46,513        46,495
    100,000,000 shares authorized,
     46,512,491 and 46,494, 903 shares issued
     and outstanding on March 31,2011 and
     June 30, 2010, respectively

Additional paid in capital                        50,050,796    49,594,553
Accumulated deficit                              (16,815,907)  (15,598,600)
Other comprehensive income                         1,441,411       525,555
                                                ------------  ------------
TOTAL STOCKHOLDERS' EQUITY OF THE COMPANY         34,722,813    34,568,003
                                                ------------  ------------

NONCONTROLLING INTEREST IN SUBSIDIARIES             (349,346)     (260,697)
                                                ------------  ------------
TOTAL EQUITY                                      34,373,467    34,307,306
                                                ------------  ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $ 61,110,400  $ 58,327,494
                                                ============  ============



             AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
                                (Unaudited)


                          For the three months      For the nine months
                                  ended                     ended
                                March 31,                 March 31,
                            2011         2010         2011         2010

SALES                   $ 1,628,627  $ 1,561,915  $ 5,309,839  $ 4,565,009
COST OF SALES               807,492      374,410    2,410,633    1,365,069
                        -----------  -----------  -----------  -----------
GROSS PROFIT                821,135    1,187,506    2,899,206    3,199,941
                        -----------  -----------  -----------  -----------

COSTS AND EXPENSES:
  Research and
   development expense       70,362      314,069      347,760      506,133
  General and
   administrative
   expenses               1,364,117      916,912    3,520,353    2,619,899
  Selling expenses          354,600      336,939    1,228,492      885,236
  Depreciation and
   amortization             155,960      110,013      458,266      328,703
                        -----------  -----------  -----------  -----------
      TOTAL COSTS AND
       EXPENSES           1,945,039    1,677,932    5,554,871    4,339,970
                        -----------  -----------  -----------  -----------

LOSS FROM OPERATIONS     (1,123,905)    (490,427)  (2,655,666)  (1,140,030)
                        -----------  -----------  -----------  -----------

OTHER INCOME (EXPENSE):
  Interest expense, net
   of interest income      (451,782)    (502,785)  (1,211,890)  (1,545,940)
  Change in fair value
   of warrant and
   derivative liabilities   726,567      574,438    1,843,590    3,055,971
  Gain on foreign
   currency transactions          -       (8,274)           -       (8,033)
  Loss on disposal of
   assets                         -            -            -      (21,415)
  Forgiveness of debt             -            -            -    3,579,085
                                     -----------  -----------  -----------
     TOTAL OTHER INCOME
     (EXPENSE)              274,785       63,379      631,700    5,059,667
                        -----------  -----------  -----------  -----------

INCOME (LOSS) BEFORE
 INCOME TAXES              (849,119)    (427,048)  (2,023,965)   3,919,637

Income taxes (credit)      (280,004)    (595,870)    (672,214)     615,445
                        -----------  -----------  -----------  -----------
NET INCOME (LOSS)          (569,115)     168,822   (1,351,751)   3,304,192

Net loss attributed to
 non-controlling
 interest                   (56,001)     (24,764)    (134,443)     123,044
                        -----------  -----------  -----------  -----------
INCOME (LOSS)
 ATTRIBUTABLE TO THE
 SHAREHOLDERS OF THE
 COMPANY                   (513,114)     193,585   (1,217,308)   3,181,148

OTHER COMPREHENSIVE
 INCOME (LOSS) :
  Foreign currency
  translation adjustment     91,017       26,426      961,649       36,360
                        -----------  -----------  -----------  -----------

COMPREHENSIVE INCOME
 (LOSS)                 $  (422,097)     220,011     (255,659)   3,217,508
                        ===========  ===========  ===========  ===========

Other comprehensive
 income attributable to
 non-controlling
 interest                     4,334        1,321       45,793        1,818
                        -----------  -----------  -----------  -----------

COMPREHENSIVE INCOME
 (LOSS) ATTRIBUTABLE TO
 THE COMPANY            $  (426,431)     218,690  $  (301,452)   3,215,690
                        ===========  ===========  ===========  ===========


BASIC AND DILUTED
 EARNINGS (LOSSES) PER
 COMMON SHARE                 (0.01)        0.00        (0.03)        0.07
                        ===========  ===========  ===========  ===========
WEIGHTED AVERAGE NUMBER
 OF SHARES OUTSTANDING   46,505,576   46,348,115   46,498,409   45,288,507
                        ===========  ===========  ===========  ===========



             AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (Unaudited)


                                                For the nine months ended
                                                        March 31,
                                                     2011          2010
OPERATING ACTIVITIES:
 Net income (loss)                              $ (1,217,308) $  3,181,148
  Adjustments to reconcile net loss to net cash
   used in operating activities:
      Depreciation and amortization                  875,303       878,408
      Deferred tax assets                           (672,214)      615,445
      Loss on desposal on assets                           -        21,486
      Forgiveness of debt                                       (3,596,523)
      Non-cash interest expense related to
       debentures and warrants                             -        89,561
      Stock issued for services                      415,612       468,557
      Change in fair value of warrants and
       derivative liability                       (1,843,590)   (3,055,971)
      Minority interest                             (134,443)      123,044
  Changes in operating assets and liabilities:
       Accounts receivable                          (675,273)     (528,856)
       Inventories                                  (350,696)   (1,017,006)
       Prepaid expenses and sundry current
        assets                                      (236,548)     (950,790)
       Accounts payable                              601,753        91,855
       Accrued expenses, taxes and sundry
        current liabilities                          723,922       729,641
                                                ------------  ------------
NET CASH USED IN OPERATING ACTIVITIES             (2,513,482)   (2,950,001)
                                                ------------  ------------

INVESTING ACTIVITIES:
  Acquisition of property and equipment           (1,136,634)   (1,223,014)
  Repayment of loans to unrelated parties            292,896             -
  Cash Proceeds from sale of assets                        -       950,626
                                                ------------  ------------
NET CASH USED IN INVESTING ACTIVITIES               (843,738)     (272,388)
                                                ------------  ------------

FINANCING ACTIVITIES:
  Repayment of bank loan                                   -    (4,271,529)
  Short-term borrowings                              (76,102)
  Other borrowings, net of repayments              2,381,565     3,753,945
  Loans from related party                                 -       698,839
  Sale of common stock                                     -     5,000,000
                                                ------------  ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES          2,305,463     5,181,255
                                                ------------  ------------

EFFECT OF EXCHANGE RATE ON CASH                      183,834       (18,131)
                                                ------------  ------------

INCREASE (DECREASE) IN CASH                         (867,923)    1,940,735
CASH - BEGINNING OF YEAR                           3,985,710     1,271,922
                                                ------------  ------------
CASH - END OF PERIOD                            $  3,117,787     3,212,657
                                                ============  ============

Supplemental disclosures of cash flow
 information:
  Non-cash financing activities:
     Conversion of loan  and accrued interest
      into common stock                                    -     4,830,847
                                                ============  ============
     Cash paid for interest                          879,437       809,921
                                                ============  ============
     Cash paid for taxes                                   -             -
                                                ============  ============

Contact Information