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Aoxing Pharmaceutical Company Inc. (AXN) Announces Third Quarter Fiscal 2012 Financial and Operational Results


5/16/2012 8:24:23 AM

JERSEY CITY, NJ--(Marketwire - May 15, 2012) - Aoxing Pharmaceutical Company, Inc. (NYSE Amex: AXN) ("Aoxing Pharma"), a specialty pharmaceutical company focusing on research, development, manufacturing, and distribution of narcotic, pain-management, and addiction treatment pharmaceuticals, today announced its financial and operational results for its third fiscal quarter, which ended on March 31, 2012.

Financial Results:

Sales for the quarter ended March 31, 2012 were $1,807,284, representing an 11% increase over the sales of $1,628,627 realized during the third quarter of the last fiscal year. For the nine months ended March 31, 2012, sales were $5,461,685, a 3% increase from sales of $5,309,839 realized during the same period in 2011. Sales of the Company's main product, Zhongtongan, increased significantly from the same periods in 2011, mainly due to increased promotional efforts. At the same time, sales of certain other products declined, as the Company has reduced promotional efforts on certain non-proprietary products.

For the quarter ended March 31, 2012, gross margin was 55.9%, significantly higher than the gross margin of 50.4% realized during the same period a year earlier. For the nine months ended March 31, 2012, gross margin was 57.8%, 3.2% higher than the gross margin of 54.6% for the same period a year earlier. During the nine months ended March 31, 2012, gross margin has been negatively influenced by higher raw material costs. However, the effect was more than offset by product mix shift (lower sales of low margin products) as well as overall manufacturing efficiency enhancement.

General and administrative expenses were $699,678 in the three months ended March 31, 2012, 48.7% lower than $1,364,117 incurred in the same period a year earlier. For the nine months ended March 31, 2012, general and administrative expenses were $2,210,489, 41.6% lower than $3,785,867 incurred during the nine months a year earlier. The main reasons for the decreases were the Company's effort to reduce costs and lower bad debt expenses. The Company increased its efforts to collect outstanding receivables during the period. The result was a decrease in bad debt expenses by $235,676 and $693,027 for the three and nine months ended March 31, 2012 compared to the same periods in the prior year. Other factors contributing to the decrease in general and administrative expenses included lower consulting fees and office expenses.

During the quarter ended March 31, 2012, the Company recorded a full valuation allowance for its deferred tax asset balance related to China. The deferred tax assets are substantially related to loss carry forwards for the past 5 years under Chinese tax law. At the end of 2011, the local Food and Drug Administration implemented a Chinese medical reform program for certain essential medicines, which limits unit price. Over 50,000 state owned primary-level medical and health care institutions are using this basic drug program, and the selling price of the affected drugs decreased by 30%. In addition, on April 15, 2012, a famous Chinese TV program 'Weekly Quality Report' disclosed that certain pharmaceutical enterprises purchased capsule medication containing excessive amount of chromium, which is hazardous to human health. Immediately the State Food and Drug Administration ("SFDA") began a nation-wide drug safety investigation. This resulted in the SFDA deferring all new drug approvals. The negative impact of these events on the selling prices of our current products and the expected delays in approval of our two new medicines caused the Company to reassess the forecasted future taxable income that is the basis for recording the deferred tax asset. Because of that reassessment, the Company provided a full valuation allowance of $2,815,771 for the deferred tax assets from China as of March 31, 2012, which increased the net loss for the three and nine month periods ending March 31, 2012 by that amount. Therefore, the after-tax net loss attributable to the shareholders was $3,204,384 for the three months ended March 31, 2012 and $4,309,388 for the nine months ended March 31, 2012.

Recent Highlights and Updates

  • In the three months ended March 31, 2012, the Company's subsidiary in China, Hebei Aoxing, received three local government subsidies totaling RMB 2,230,000 (approximately $351,185). In the same period in 2011, there was no such income. These government subsidies have no restrictions and are for operating activities.

  • Last month the Company completed its submission of the New Drug Application (NDA) of Tongjingshule (TJSL) for the indication of Primary Dysmenorrha ("PD"), or menstrual pain, in adult women. TJSL is a capsule form of selected herbal medicine. The market for healthcare products to address menstrual pain is estimated at $3 billion per year in China.

Zhenjiang Yue, our Chairman and CEO, commented, "The Chinese pharmaceutical market remained challenging during the quarter. I am pleased with Aoxing's operating results highlighted by continued growth in product sales and reduction of operating expenses."

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, and Phoenix PharmaLabs, Inc. For more information, please visit: www.aoxingpharma.com.

Safe Harbor Statement from Aoxing Pharmaceutical Company, Inc.
Certain 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. All forward-looking statements included herein are based upon information available to the Company as of the date hereof and, except as is expressly required by the federal securities laws, the Company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, changed circumstances or future events or for any other reason. To the extent that any statements made here are not historical, these statements are essentially forward-looking. The Company uses words and phrases such as "guidance," "forecasted," "projects," "is expected," "remain confident," "will" and/or similar expressions to identify forward-looking statements in this press release. Undue reliance should not be placed on forward-looking information. The economic, competitive, governmental, technological and other risk factors identified in the Company's filings with the Securities and Exchange Commission, specifically, Item 1A, "Risk Factors," in the Form 10-K for the year ended June 30, 2011, 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                         
                                                                            
                                                 March 31,       June 30,   
                                                    2012           2011     
                                                (unaudited)                 
                                               -------------  ------------- 
                                                                            
                    ASSETS                                                  
CURRENT ASSETS:                                                             
  Cash                                         $   3,902,723  $   2,770,744 
  Accounts receivable, net of allowance for                                 
   doubtful accounts of $574,768 and $543,697,                              
   respectively                                    2,681,589      2,008,024 
  Inventory, net                                   1,577,500      1,469,417 
  Prepaid expenses and other current assets        1,732,411      1,130,010 
                                               -------------  ------------- 
TOTAL CURRENT ASSETS                               9,894,223      7,378,195 
                                               -------------  ------------- 
                                                                            
LONG-TERM ASSETS:                                                           
  Property and equipment, net                     26,758,871     26,669,156 
  Deferred income tax                                      -      2,614,817 
  Goodwill                                        20,293,321     19,916,128 
  Other intangible assets, net                     1,328,246      1,388,704 
  Investment in joint venture                        425,748        521,541 
                                               -------------  ------------- 
TOTAL LONG-TERM ASSETS                            48,806,186     51,110,346 
                                               -------------  ------------- 
                                                                            
TOTAL ASSETS                                   $  58,700,409  $  58,488,541 
                                               =============  ============= 
                                                                            
                                                                            
     LIABILITIES AND SHAREHOLDERS' EQUITY                                   
                                                                            
CURRENT LIABILITIES:                                                        
  Accounts payable                             $   2,592,242  $   2,659,727 
  Short-term borrowing                             3,241,260        232,055 
  Loan payable - bank                              8,696,065      8,508,663 
  Current portion of loan payable - related                                 
   parties                                           213,569          5,793 
  Current portion of loan payable - other            161,905         23,515 
  Accrued expenses and other current                                        
   liabilities                                     3,489,817      3,206,009 
                                               -------------  ------------- 
TOTAL CURRENT LIABILITIES                         18,394,858     14,635,762 
                                               -------------  ------------- 
                                                                            
LONG-TERM LIABILITIES:                                                      
  Loan payable - related parties, net of                                    
   current portion                                 3,497,001      3,696,210 
    - others, net of current portion               1,688,934      1,831,838 
  Warrant liabilities                                      -          1,161 
                                               -------------  ------------- 
TOTAL LONG-TERM LIABILITIES                        5,185,935      5,529,209 
                                               -------------  ------------- 
                                                                            
  Common stock, par value $0.001, 100,000,000                               
   shares authorized, 49,469,837 and                                        
   49,158,955 shares issued and outstanding on                              
   March 31, 2012 and June 30, 2011,                                        
   respectively                                       49,470         49,159 
  Additional paid in capital                      57,870,858     57,382,109 
  Accumulated deficit                            (24,834,760)   (20,525,372)
  Other comprehensive income                       2,638,402      1,885,531 
                                               -------------  ------------- 
TOTAL SHAREHOLDERS' EQUITY OF THE COMPANY         35,723,970     38,791,427 
                                               -------------  ------------- 
                                                                            
  Non-controlling interests in subsidiaries         (604,354)      (467,857)
                                               -------------  ------------- 
TOTAL EQUITY                                      35,119,616     38,323,570 
                                               -------------  ------------- 
                                                                            
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     $  58,700,409  $  58,488,541 
                                               =============  ============= 
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
              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,        
                             2012         2011         2012         2011    
                                                                            
                                                                            
SALES                    $ 1,807,284  $ 1,628,627  $ 5,461,685  $ 5,309,839 
COST OF SALES                796,681      807,492    2,302,576    2,410,633 
                         -----------  -----------  -----------  ----------- 
GROSS PROFIT               1,010,603      821,135    3,159,109    2,899,206 
                         -----------  -----------  -----------  ----------- 
                                                                            
OPERATING EXPENSES:                                                         
  Research and                                                              
   development expense       103,237       70,362      364,177      347,760 
  General and                                                               
   administrative                                                           
   expenses                  699,678    1,364,117    2,210,489    3,785,867 
  Selling expenses           496,192      354,600    1,226,016    1,228,492 
  Depreciation and                                                          
   amortization              148,448      155,960      442,197      458,266 
                         -----------  -----------  -----------  ----------- 
    TOTAL OPERATING                                                         
     EXPENSES              1,447,555    1,945,039    4,242,879    5,820,385 
                         -----------  -----------  -----------  ----------- 
                                                                            
LOSS FROM OPERATIONS        (436,952)  (1,123,904)  (1,083,770)  (2,921,179)
                         -----------  -----------  -----------  ----------- 
                                                                            
OTHER INCOME (EXPENSE):                                                     
  Interest expense, net                                                     
   of interest income       (507,758)    (451,782)  (1,345,302)  (1,211,890)
  Change in fair value                                                      
   of warrant and                                                           
   derivative                                                               
   liabilities                     -      726,567        1,161    1,843,590 
  Equity in loss of                                                         
   joint venture             (27,527)           -     (106,457)           - 
  Subsidy income             351,185                   663,675      265,514 
                         -----------  -----------  -----------  ----------- 
    TOTAL OTHER INCOME                                                      
     (EXPENSE)              (184,100)     274,785     (786,923)     897,214 
                         -----------  -----------  -----------  ----------- 
                                                                            
LOSS BEFORE INCOME TAXES    (621,052)    (849,119)  (1,870,693)  (2,023,965)
                                                                            
  Income taxes (benefit)   2,735,675     (280,004)   2,614,817     (672,214)
                         -----------  -----------  -----------  ----------- 
                                                                            
NET LOSS                  (3,356,727)    (569,115)  (4,485,510)  (1,351,751)
                                                                            
  Net loss attributed to                                                    
   non-controlling                                                          
   interest in                                                              
   subsidiaries             (152,343)     (56,001)    (176,122)    (134,443)
                         -----------  -----------  -----------  ----------- 
LOSS ATTRIBUTABLE TO                                                        
 SHAREHOLDERS OF THE                                                        
 COMPANY                  (3,204,384)    (513,114)  (4,309,388)  (1,217,308)
                                                                            
OTHER COMPREHENSIVE                                                         
 INCOME :                                                                   
  Foreign currency                                                          
   translation                                                              
   adjustment                238,131       91,017      792,496      961,649 
                         -----------  -----------  -----------  ----------- 
                                                                            
COMPREHENSIVE LOSS        (2,966,253)    (422,097)  (3,516,892)    (255,659)
                         ===========  ===========  ===========  =========== 
                                                                            
Other comprehensive                                                         
 income attributable to                                                     
 non-controlling                                                            
 interest                     11,907        4,334       39,625       45,793 
                         -----------  -----------  -----------  ----------- 
                                                                            
COMPREHENSIVE LOSS                                                          
 ATTRIBUTABLE TO THE                                                        
 COMPANY                 $(2,978,160) $  (426,431) $(3,556,517) $  (301,452)
                         ===========  ===========  ===========  =========== 
                                                                            
                                                                            
BASIC AND DILUTED LOSS                                                      
 PER COMMON SHARE        $     (0.06) $     (0.01) $     (0.09) $     (0.03)
                         ===========  ===========  ===========  =========== 
WEIGHTED AVERAGE NUMBER                                                     
 OF SHARES OUTSTANDING    49,433,638   46,505,576   49,290,772   46,498,409 
                         ===========  ===========  ===========  =========== 
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
              AOXING PHARMACEUTICAL CO., INC. AND SUBSIDIARIES              
                   CONSOLIDATED STATEMENTS OF CASH FLOWS                    
                                (Unaudited)                                 
                                                                            
                                                 For the nine months ended  
                                                         March 31,          
                                                    2012           2011     
                                               -------------  ------------- 
OPERATING ACTIVITIES:                                                       
Net income (loss)                              $  (4,309,388) $  (1,217,308)
  Adjustments to reconcile net loss to net                                  
   cash used in operating activities:                                       
                                                                            
    Depreciation and amortization                    887,166        875,303 
    Deferred income tax                            2,614,817       (672,214)
    Inventory markdown                                11,155              - 
    Bad debts                                         18,949        714,242 
    Common stock issued for services                 489,059        415,612 
    Change in fair value of warrants and                                    
     derivative liability                             (1,161)    (1,843,590)
    Equity loss of joint venture, net                106,457              - 
    Net loss attributable to non-controlling                                
     interests                                      (176,122)      (134,443)
  Changes in operating assets and liabilities:                              
    Accounts receivable                             (643,460)    (1,389,515)
    Inventories                                      (86,294)      (350,696)
    Prepaid expenses and other current assets       (573,463)      (236,548)
    Accounts payable                                (179,633)       601,753 
    Accrued expenses and other current                                      
     liabilities                                     298,305        723,922 
                                               -------------  ------------- 
NET CASH USED IN OPERATING ACTIVITIES             (1,543,613)    (2,513,482)
                                               -------------  ------------- 
                                                                            
INVESTING ACTIVITIES:                                                       
    Acquisition of property and equipment           (195,472)    (1,136,634)
    Proceeds from unrelated parties                        -        292,896 
                                               -------------  ------------- 
NET CASH USED IN INVESTING ACTIVITIES               (195,472)      (843,738)
                                               -------------  ------------- 
                                                                            
FINANCING ACTIVITIES:                                                       
    Short-term borrowings                          2,981,047        (76,102)
    Proceeds from (repayment of) other                                      
     borrowings                                      (45,029)     2,381,565 
    Repayment of loans from related party            (72,283)             - 
                                               -------------  ------------- 
NET CASH PROVIDED BY FINANCING ACTIVITIES          2,863,735      2,305,463 
                                               -------------  ------------- 
                                                                            
EFFECT OF EXCHANGE RATE ON CASH                        7,329        183,834 
                                               -------------  ------------- 
                                                                            
INCREASE (DECREASE) IN CASH                        1,131,979       (867,923)
CASH - BEGINNING OF YEAR                           2,770,744      3,985,710 
                                               -------------  ------------- 
CASH - END OF PERIOD                           $   3,902,723  $   3,117,787 
                                               =============  ============= 
                                                                            
                                                                            
Supplemental disclosures of cash flow                                       
 information:                                                               
    Cash paid for interest                     $   1,600,040  $     879,437 
                                               =============  ============= 
    Cash paid for income taxes                             -              - 
                                               =============  ============= 
                                                                            
                                                                            
                                                                            

CONTACT:

Aoxing Pharmaceutical Company:
646-367-1747
investor.relations@aoxingpharma.com



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