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:
Investor Relations:
Bob Ai
Chief Financial Officer
646-367-1747
investor.relations@aoxingpharma.com
The Trout Group
Brian Korb
646-378-2923
bkorb@troutgroup.com
