SOURCE: China Aoxing Pharmaceutical Co., Inc.

October 14, 2009 09:30 ET

China Aoxing Pharmaceutical Company Reports Fiscal Year 2009 Financial Results

NEW YORK, NY--(Marketwire - October 14, 2009) - China Aoxing Pharmaceutical Company, Inc. (OTCBB: CAXG) ("China Aoxing"), a China-based pharmaceutical company specializing in research, development, manufacturing and distribution of narcotic and pain-management products, today announced financial results for the fiscal year ended June 30, 2009.

Revenues for our fiscal year ended June 30, 2009 were $8,941,907, representing a 27% increase from revenues of $7,065,015 for our fiscal year ended June 30, 2008. The increase was driven by our increased marketing efforts, improved brand recognition and effective pricing strategy.

Gross profit in the year ended June 30, 2009 increased by $576,213 from gross profit during the year ended June 30, 2008.

Research and development expenses increased from $700,202 in fiscal year 2008 to $722,567 in fiscal year 2009 as we continued advancing our development programs including Oxycodone, Tilidine, Codeine Phosphate, Buprenorphine and other products.

General and administrative expenses decreased from $4,001,282 in fiscal year 2008 to $3,804,296 in fiscal year 2009, as a result of our efforts to control expenditures on both cash and non-cash based items. During the fiscal year 2009, we reduced our staff from 465 employees at June 30, 2008 to our current roster of 360 employees. We also reduced professional fees by 45% on legal, accounting, and other services.

Loss from our operations was $4,003,065 in fiscal year 2009 as compared to the loss of $3,578,966 in fiscal year 2008, an increase in $424,098 or 12%, primarily due to the increase in our bad debt reserve in the amount of $1,461,789 in fiscal year 2009, which offset the savings achieved from the operation improvement.

We incurred interest expenses of $1,919,143 in fiscal year 2009, compared to $2,514,840 in fiscal year 2008, a 24% decrease primarily due to the conversion of our 10% convertible debenture into common stock as of September 30, 2008.

We continue improving our capital structure and financial strength and anticipate that interest expense will continue to decrease in the coming years. The completion of a $5 million private placement of equity in early August 2009 was an important first step in that program. Also in late August 2009, we paid off a convertible term note to American Oriental Bioengineering Inc. ("AOB") in the total amount of $4,830,847, in the form of 3,578,405 shares of restricted common stock. As of October 14, 2009, AOB owns 33,578,405 shares, or approximately 37% of our common stock.

During the fiscal year 2009, we recorded impairment loss in the amount of $2,345,420, primarily attributable to our revaluation of LRT's property and equipment in connection with our consolidation efforts of LRT subsidiary. The impairment loss was offset in part by a one-time gain on forgiveness of debt in the amount of $1,461,299 during the same year.

Net cash outflows from operations during fiscal year ended June 30, 2009 amounted to $642,598, representing 34% improvement compared with net cash outflows from operation of $982,947 in the fiscal year 2008. Our cash flows used in investing activities amounted to $2,227,309 in acquisition of property and equipment in fiscal year 2009 as compared to $17,135,612 in fiscal year 2008. During fiscal year 2008, we paid $12,232,123 and $3.42m respectively to acquire 100% equity ownership of LRT and 35% of equity ownership of Hebei Aoxing Pharmaceutical Group Company, our main operating subsidiary in China.

According to the accounting treatment of embedded derivative instruments required by the US GAAP, the Company recognized other income of approximately $627,183 and $8,547,000 during the years ended June 30, 2009 and 2009 respectively, as a result of marking-to-market the value of warrants and derivative liabilities related to the convertible debentures issued by the Company in earlier periods. In addition, we also recognized income tax credit of $3,281,059 in fiscal year 2009. As a result, the net loss for the fiscal year 2009 was $2,695,050, or $0.03 per fully diluted share, compared to a net income of $3,646,859, or $0.08 per fully diluted share in the prior year.

Mr. Zhenjiang Yue, Chairman and Chief Executive Officer of China Aoxing, commented, "We are very pleased with our 2009 fiscal year financial and business results. We revised our capital structure and improved our financial condition significantly, forming an important basis of our future business expansion. Our clinical development team achieved significant progress toward finishing several clinical trials of narcotic products by June 2009. In addition, we are very optimistic about new product licenses and product launches in the coming year, which would lead us to a new commercialization era in the company history."

About China Aoxing Pharmaceutical Company, Inc.

China Aoxing Pharmaceutical Company, Inc. (OTCBB: CAXG) is a pharmaceutical company located in China specializing in research, development, manufacturing and distribution of a variety of narcotics and pain-management products. It has a strategic alliance with American Oriental Bioengineering, Inc. (NYSE: AOB) to develop and market various narcotic drugs in China. Headquartered in Shijiazhuang City, the pharmaceutical capital of China, outside of Beijing, China Aoxing has China's largest and the most advanced manufacturing facility for highly regulated narcotic medicines, addressing a very under-served and fast-growing market in China. Its facility is one of the few GMP facilities licensed for narcotics medicines. The Company is working closely with the Chinese government and SFDA to assure the strictly regulated availability to medical professionals of its narcotic drugs and pain medicines throughout China.

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-KSB for the year ended June 30, 2008, 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.

          CHINA AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
                        CONSOLIDATED BALANCE SHEET

                                                      ----June 30,----
                                                     2009          2008
                             ASSETS
CURRENT ASSETS:
  Cash                                          $  1,271,922  $  1,565,513
  Accounts receivable, net of allowance for
   doubtful accounts of $1,461,091 and $0          1,064,381     2,536,047
  Inventory                                          712,521       848,959
  Deposits with suppliers                            261,780        78,052
  Deferred tax assets                              3,331,045             -
  Prepaid expenses and sundry current assets         302,449       225,156
                                                ------------  ------------
TOTAL CURRENT ASSETS                               6,944,098     5,253,727
                                                ------------  ------------

LONG-TERM ASSETS
Property and equipment, net of accumulated
 depreciation                                     29,324,362    30,331,143
Other intangible assets                            1,549,497     1,635,375
Goodwill                                          18,926,527    18,904,845
                                                ------------  ------------
TOTAL LONG-TERM ASSETS                            49,800,386    50,871,363
                                                ------------  ------------

TOTAL ASSETS                                    $ 56,744,484  $ 56,125,090
                                                ============  ============

                LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Short-Term borrowings                         $    292,193  $    291,800
  Accounts payable                                 2,816,711     3,544,795
  Deposit payable                                  3,871,552             -
  Current portion of long term debt - other          144,635       380,070
  Current portion of long term debt -
   stockholders                                    4,494,629     1,862,868
  Accrued expenses and taxes payable and
   other sundry current liabilities                2,403,185     4,851,314
  Loan payable - Bank                              6,094,428     7,545,239
                                                ------------  ------------
TOTAL CURRENT LIABILITIES                         20,117,333    18,476,086
                                                ------------  ------------

LONG-TERM DEBT -- STOCKHOLDERS                     4,104,201     4,098,687
                                                ------------  ------------
               -- OTHER                            3,491,113     3,127,643
                                                ------------  ------------
CONVERTIBLE DEBENTURES                             1,023,733     1,098,362
                                                ------------  ------------
WARRANT AND DERIVATIVE LIABILITIES                 3,368,901     4,161,678
                                                ------------  ------------
MINORITY INTEREST                                          -        24,598
                                                ------------  ------------

Common stock, par value $0.001,
 100,000,000 shares authorized, 82,827,999 and
 81,089,919 shares issued and outstanding at
 June 30, 2009 and 2008, respectively                 82,828        81,090
Preferred stock, par value $0.001,
 300,000 shares authorized, 277,018 shares
 issued and outstanding at June 30,2009 and
 2008, respectively                                      277           277
Additional paid in capital                        39,104,309    36,749,956
Accumulated deficit                              (15,009,228)  (12,314,178)
Other compensive income                              461,017       620,891
                                                ------------  ------------
TOTAL STOCKHOLDERS' EQUITY                        24,639,203    25,138,036
                                                ------------  ------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      $ 56,744,484  $ 56,125,090
                                                ============  ============




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

                                                     Year ended June 30,
                                                     2009          2008

SALES                                           $  8,941,907  $  7,065,015
COST OF SALES                                      5,135,661     3,834,982
                                                ------------  ------------
GROSS PROFIT                                       3,806,246     3,230,033
                                                ------------  ------------

COSTS AND EXPENSES:
  Research and development expense                   722,567       700,202
  General and administrative expenses              3,804,296     4,001,282
  Bad Debt expenses                                1,461,789             -
  Selling expenses                                 1,480,118     1,449,909
  Depreciation and amortization                      340,541       657,606
                                                ------------  ------------
    TOTAL COSTS AND EXPENSES                       7,809,311     6,808,999
                                                ------------  ------------

LOSS FROM OPERATIONS                              (4,003,065)   (3,578,966)
                                                ------------  ------------

OTHER INCOME (EXPENSE):
  Interest expense                                (1,919,143)   (2,514,840)
  Change in fair value of warrant and
   derivative liabilities                            627,183     8,547,374
  Gain on foreign currency transactions              203,037       677,365
  Impairment loss                                 (2,345,420)            -
  Forgiveness of debt                              1,461,299             -
                                                ------------  ------------
     TOTAL OTHER INCOME (EXPENSE)                 (1,973,044)    6,709,899
                                                ------------  ------------

INCOME (LOSS) BEFORE MINORITY INTEREST AND
 INCOME TAXES                                     (5,976,109)    3,130,933

Minority interest in (income) losses of
 subsidiary                                                -       515,926
                                                ------------  ------------
INCOME (LOSS) BEFORE INCOME TAXES                 (5,976,109)    3,646,859

Income taxes (credit)                              3,281,059             -
                                                ------------  ------------
NET INCOME (LOSS)                                 (2,695,050)    3,646,859

OTHER COMPREHENSIVE INCOME (LOSS):
  Foreign currency translation adjustment           (159,874)      239,483
                                                ------------  ------------

COMPREHENSIVE INCOME (LOSS)                     $ (2,854,924) $  3,886,342
                                                ============  ============

BASIC AND DILUTED EARNINGS (LOSSES) PER
 COMMON SHARE                                   $      (0.03) $       0.08
                                                ============  ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING     82,402,736    49,242,639
                                                ============  ============




          CHINA AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES
                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                     Year ended June 30,
                                                     2009          2008

OPERATING ACTIVITIES:
Net income (loss)                               $ (2,695,050) $  3,646,859
Adjustments to reconcile net loss to net cash
 used in operating activities:
  Depreciation and amortization                    1,017,559       730,570
  Deferred tax assets                             (3,331,045)            -
  Impairment loss on land and building             2,345,420             -
  Bad debt                                         1,461,453             -
  Forgiveness of debt                             (1,460,963)            -
  Non-cash interest expense related to
   debentures and warrants                           215,371     1,432,462
  Stocks issued for services and interest          1,000,506     1,695,898
  Change in fair value of warrants and
   derivative liability                             (627,183)   (8,547,374)
  Minority interest                                  (24,598)     (515,927)
Changes in operating assets and liabilities:
  Accounts receivable                                 25,543      (525,085)
  Inventories                                        137,581      (168,807)
  Prepaid expenses and sundry current assets        (272,729)       85,506
  Accounts payable                                (1,240,164)    1,627,658
  Accrued expenses, taxes and sundry current
   liabilities                                     2,805,701      (442,707)
                                                ------------  ------------
NET CASH USED IN OPERATING ACTIVITIES               (642,598)     (980,947)
                                                ------------  ------------

INVESTING ACTIVITIES:
  Acquisition of property and equipment           (2,227,309)   (1,483,489)
  Cash paid for acquisition of subsidiary                  -   (12,232,123)
  Acquisition of minority interest                         -    (3,420,000)
                                                ------------  ------------
NET CASH USED IN INVESTING ACTIVITIES             (2,227,309)  (17,135,612)
                                                ------------  ------------

FINANCING ACTIVITIES:
  Repayment of bank borrowings                             -    (4,895,950)
  Other borrowings                                   123,316     2,837,959
  Loans from stockholders                          2,629,655     2,953,664
  Sale of convertible debentures                           -       425,000
  Sale of common stock                                     -    17,100,000
                                                ------------  ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES          2,752,971    18,420,673
                                                ------------  ------------

EFFECT OF EXCHANGE RATE ON CASH                     (178,655)     (247,728)
                                                ------------  ------------

INCREASE (DECREASE) IN CASH                         (295,591)       56,386
CASH - BEGINNING OF PERIOD                         1,567,513     1,511,127
                                                ------------  ------------
CASH - END OF PERIOD                            $  1,271,922     1,567,513
                                                ============  ============

Supplemental disclosures of cash flow
 information:
  Non-cash financing activities:
    Conversion of convertible debentures into
     common stock                                    290,000             -
                                                ============  ============

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