SOURCE: Aoxing Pharmaceutical

February 14, 2011 09:16 ET

Aoxing Pharmaceutical Company Announces Second Quarter Fiscal Year 2011 Financial and Operational Results

NEW YORK, NY--(Marketwire - February 14, 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, announces financial and operational results for the three month period ended December 31, 2010, or its second quarter of fiscal year 2011.

Recent Highlights and Updates

--  A multi-center, randomized, single-blind and active-controlled
    registration clinical trial of Buprenorphine/Naloxone sublingual
    tablets for opioid addiction treatment was initiated in December 2010.
    The trial is planned to enroll approximately 240 patients registered at
    Drug Dependence Treatment Clinics or Center and currently projected to
    be completed by calendar year end 2012.

--  Hebei Aoxing API Pharmaceutical Company, Ltd., the joint venture
    between Aoxing Pharma and Macfarlan Smith Ltd., a wholly owned
    subsidiary of Johnson Matthey Plc, has announced in November 2010 that
    it received manufacturing license for Naloxone Hydrochloride API from
    the China State Food and Drug Administration (SFDA). It has also
    received the business license for a foreign investment authorization
    certificate from the Department of Commerce of Hebei Province.

Financial Results:

Revenues for the three months ended December 31, 2010 were $1,940,539, representing 24.7% increase over the revenues of $1,556,431 realized during the three months ended December 31, 2009. For the six months ended December 31, 2010, the revenues were $3,681,212, a 22.6% increase from the revenues of $3,003,094 realized during the six months ended December 31, 2009. The increase in revenue in the three and six months ended December 31, 2010 reflects the positive impact of our recent sales team expansion.

Cost of sales was $775,846 for the three months ended December 31, 2010, which was 43.5% more than the $540,516 in costs incurred during the three months ended December 31, 2009. The gross margin ratio was decreased from 65.3% in the three months ended December 2009 to 60% in the three months ended December 2010. For the six months ended December 31, 2010, our cost of sales was $1,603,141, which was 61.8% more than the $990,659 in costs incurred during the six months ended December 2009. The gross margin ratio was decreased from 67% in the six months ended December 31, 2009 to 56.5% in the six months ended December 31, 2010. The main reasons for the increase in cost of sales were increases in raw materials and cost of labor.

General and administrative expenses were $1,247,180 in the three months ended December 31, 2010, 51% higher than $825,503 in the three months ended December 31, 2009. For the six months ended December 31, 2010, general and administrative expenses were $2,156,236, 27% higher than $1,702,987 incurred during the six months ended December 31, 2009. Bad debt expenses of $457,352 incurred in the three months ended December 31, 2010 is the most significant factor for the increased G&A expenses. As a result of our periodic review and continuous efforts to collect our accounts receivable, we increased our bad debt reserve on December 31, 2010. We sell our 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. As of December 31, 2010, we performed an aging analysis of each customer, determined that some of the balances were not collectable, and made an additional provision for bad debt. The revaluation led us to record a bad debt expense of $457,352 during our second fiscal quarter. In the corresponding fiscal quarter in 2009, we did not record any bad debt expense.

Selling expenses in the amount of $362,071 incurred during the three months ended December 31, 2010 were 26% higher from $287,404 spent on selling during the three months ended December 31, 2009. During the six months ended December 31, 2010, selling expenses in the amount of $873,892 were 59.4% higher than $548,297 spent on selling during the same period a year ago. The increase was mainly due to expansion of our sales and marketing personnel, which contributed to higher sales volume.

Our loss from operations for the quarter ended December 31, 2010, increased to $786,770, slightly higher than $744,991 incurred in previous quarter, but 176% higher than $285,226 incurred during the quarter ended December 31, 2009. For the six months ended December 31, 2010, loss from operations increased 136% to $1,531,761 from $649,603 incurred from the same period a year earlier. The significant increase in the loss was primarily due to bad debt expense, expansion of our sales and marketing team and increase in research and development.

Mr. Zhenjiang Yue, Chairman and Chief Executive Officer of China Aoxing, commented, "I am pleased with the progress we made recently. We have expanded our sales team significantly during the first half of our fiscal year 2011, which has been reflected positively on our sales growth. We have advanced our clinical pipeline. The joint venture with Macfarlan Smith Ltd. is also making progress in getting regulatory approvals toward commercial production."

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 China State Food and Drug Administration (SFDA). It has a 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 made in this press release are forward-looking and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. Such statements involve risks and uncertainties that may cause actual results to differ materially from those set forth in these statements. The economic, competitive, governmental, technological and other risk factors identified in the Company's filings with the Securities and Exchange Commission, including the Form 10-K for the year ended June 30, 2010, may cause actual results or events to differ materially from those described in the forward looking statements in this press release. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events, or otherwise.

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

                                                  December        June
                                                    2010          2010
                                                (Unaudited)

                     ASSETS
CURRENT ASSETS:
  Cash                                          $  2,808,746  $  3,985,710
  Accounts receivable, net of allowance for
   doubtful accounts of $3,112,168 and
   $2,575,177, respectively                        2,237,217     1,724,198
  Loan receivable                                    480,029       748,790
  Inventory                                        1,622,431     1,564,975
  Deposits with suppliers                            459,224       475,042
  Prepaid expenses and sundry current assets         605,710       421,391
                                                ------------  ------------
TOTAL CURRENT ASSETS                               8,213,357     8,920,106
                                                ------------  ------------

LONG - TERM ASSETS
Property and equipment, net of accummulated
 depreciation                                     26,856,493    25,569,782
Other intangible assets                            1,415,721     1,431,182
Goodwill                                          19,495,171    19,012,321
Deferred tax assets                                3,786,313     3,394,103
                                                ------------  ------------
TOTAL LONG-TERM ASSETS                            51,553,698    49,407,388
                                                ------------  ------------

TOTAL ASSETS                                    $ 59,767,055  $ 58,327,494
                                                ============  ============


      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-Term borrowings                         $    983,091  $    293,746
  Accounts payable                                 3,502,815     2,965,514
  Current portion of long term debt - other          102,846        46,999
  Current portion of long term debt - related
   parties                                           146,865        94,760
  Accrued expenses and taxes payable and other
   sundry current liabilities                      2,459,485     2,076,555
  Loan payable - Bank                              8,318,461     8,078,019
                                                ------------  ------------
TOTAL CURRENT LIABILITIES                         15,513,563    13,555,593
                                                ------------  ------------

LONG-TERM DEBT-- RELATED PARTIES                   6,517,505     6,329,118
                                                ------------  ------------
 OTHER                                             2,272,954     2,221,943
                                                ------------  ------------
WARRANT AND DERIVATIVE LIABILITIES                   796,511     1,913,534
                                                ------------  ------------

Common stock, par value $0.001, 100,000,000
 shares authorized, 46,502,108 and 46,494,
 903 shares issued and outstanding at December
 31, 2010 and June 30, 2010, respectively             46,502        46,495


Additional paid in capital                        49,865,766    49,594,553
Accumulated deficit                              (16,302,794)  (15,598,600)
Other comprehensive income                         1,354,728       525,555
                                                ------------  ------------
TOTAL STOCKHOLDERS' EQUITY OF THE COMPANY         34,964,202    34,568,003
                                                ------------  ------------

NONCONTROLLING INTEREST IN SUBSIDIARIES             (297,680)     (260,697)
                                                ------------  ------------
TOTAL EQUITY                                      34,666,522    34,307,306
                                                ------------  ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $ 59,767,055  $ 58,327,494
                                                ============  ============





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

                                For the three            For the six
                                 months ended            months ended
                                 December 31,            December 31,
                               2010        2009        2010        2009

SALES                       $1,940,539  $1,556,431  $3,681,212  $3,003,094
COST OF SALES                  775,846     540,516   1,603,141     990,659
                            ----------  ----------  ----------  ----------
GROSS PROFIT                 1,164,693   1,015,915   2,078,071   2,012,435
                            ----------  ----------  ----------  ----------

COSTS AND EXPENSES:
  Research and development
   expense                     191,950      78,761     277,398     192,064
  General and
   administrative expenses   1,247,180     825,503   2,156,236   1,702,987
  Selling expenses             362,071     287,404     873,892     548,297
  Depreciation and
   amortization                150,262     109,473     302,306     218,690
                            ----------  ----------  ----------  ----------
    TOTAL COSTS AND
     EXPENSES                1,951,463   1,301,141   3,609,832   2,662,038
                            ----------  ----------  ----------  ----------

LOSS FROM OPERATIONS          (786,770)   (285,226) (1,531,761)   (649,603)
                            ----------  ----------  ----------  ----------

OTHER INCOME (EXPENSE):
  Interest expense, net of
   interest income            (385,327)   (451,070)   (760,108) (1,043,155)
  Change in fair value of
   warrant and derivative
   liabilities                 894,306   4,623,692   1,117,023   2,481,533
  Gain on foreign currency
   transactions                      0         241           0         241
  Loss on disposal of
   assets                            0           0           0     (21,415)
  Forgiveness of debt                0   3,579,085           0   3,579,085
                            ----------  ----------  ----------  ----------
    TOTAL OTHER INCOME
     (EXPENSE)                 508,979   7,751,948     356,915   4,996,289
                            ----------  ----------  ----------  ----------

INCOME (LOSS) BEFORE INCOME
 TAXES                        (277,791)  7,466,722  (1,174,846)  4,346,686

Income taxes (credit)         (189,613)  2,020,568    (392,210)  1,211,315
                            ----------  ----------  ----------  ----------
NET INCOME (LOSS)              (88,178)  5,446,154    (782,636)  3,135,371

Net income attributed to
 non-controlling interest      (37,923)    163,984     (78,442)    147,808
                            ----------  ----------  ----------  ----------
INCOME (LOSS) ATTRIBUTABLE
 TO THE SHAREHOLDERS OF THE
 COMPANY                       (50,255)  5,282,170    (704,194)  2,987,563

OTHER COMPREHENSIVE INCOME
 (LOSS) :
  Foreign currency
   translation adjustment      649,958     (27,744)    870,632       9,934
                            ----------  ----------  ----------  ----------

COMPREHENSIVE INCOME (LOSS) $  599,703   5,254,426     166,438   2,997,497
                            ==========  ==========  ==========  ==========

Other comprehensive income
 attributable to
 non-controlling interest       30,950           0      41,459           0
                            ----------  ----------  ----------  ----------

COMPREHENSIVE INCOME (LOSS)
 ATTRIBUTABLE TO THE
 COMPANY                    $  568,753   5,254,426  $  124,979   2,997,497
                            ==========  ==========  ==========  ==========


BASIC AND DILUTED EARNINGS
 (LOSSES) PER COMMON SHARE        0.01        0.06        0.00        0.03
                            ==========  ==========  ==========  ==========
WEIGHTED AVERAGE NUMBER OF
 SHARES OUTSTANDING         46,494,981  91,669,562  46,494,942  89,540,442
                            ==========  ==========  ==========  ==========






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

                                                  For the six months ended
                                                        December 31,
                                                      2010         2009
OPERATING ACTIVITIES:
  Net income (loss)                               $  (704,194) $ 2,987,563
  Adjustments to reconcile net loss to net cash
   used in operating activities:
    Depreciation and amortization                     576,962      538,657
    Deferred tax assets                              (392,210)   1,211,315
    Loss on desposal on assets                              -       21,416
    Forgiveness of debt                                     -   (3,640,718)
    Non-cash interest expense related to
    debentures and warrants                                 -       89,561
    Stock issued for services                         252,559      273,454
    Change in fair value of warrants and
     derivative liability                          (1,117,023)  (2,481,533)
    Minority interest                                 (78,442)     147,808
  Changes in operating assets and liabilities:
    Accounts receivable                              (469,755)    (189,611)
    Inventories                                       (10,874)    (413,919)
    Prepaid expenses and sundry current assets       (134,167)    (187,396)
    Accounts payable                                  449,032      122,885
    Accrued expenses, taxes and sundry current
     liabilities                                      298,371      922,215
                                                  -----------  -----------
NET CASH USED IN OPERATING ACTIVITIES              (1,329,741)    (598,303)
                                                  -----------  -----------

INVESTING ACTIVITIES:
  Acquisition of property and equipment            (1,044,528)    (420,692)
  Loans to unrelated parties                          291,049            -
  Cash Proceeds from sale of assets                         -      950,626
                                                  -----------  -----------
NET CASH PROVIDED BY (USED IN) INVESTING
 ACTIVITIES                                          (753,479)     529,934
                                                  -----------  -----------

FINANCING ACTIVITIES:
  Repayment of bank loan                                    -   (4,270,485)
  Short-term borrowings                               680,601            -
  Other borrowings                                     39,324    3,753,122
  Loans from related party                             49,457      715,504
  Sale of common stock                                      -    5,000,000
                                                  -----------  -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES             769,382    5,198,141
                                                  -----------  -----------

EFFECT OF EXCHANGE RATE ON CASH                       136,874      (17,979)
                                                  -----------  -----------

INCREASE (DECREASE) IN CASH                        (1,176,964)   5,111,793
CASH - BEGINNING OF YEAR                            3,985,710    1,271,922
                                                  -----------  -----------
CASH - END OF PERIOD                              $ 2,808,746    6,383,715
                                                  ===========  ===========

Supplemental disclosures of cash flow
 information:
  Non-cash financing activities:
    Conversion of 33MM RMB AOB loanand accrued
     interest into common stock                             -    4,830,847
                                                  ===========  ===========
    Cash paid for interest                            588,227            -
                                                  ===========  ===========
    Cash paid for income tax                          235,103            -
                                                  ===========  ===========

Contact Information

  • CONTACT:

    Aoxing Pharmaceutical
    Bob Ai
    CFO
    646-367-1747

    Investor Relations:
    The Trout Group
    Brian Korb
    646-378-2923