Aoxing Pharmaceutical Company Inc. Announces Financial Results For 2014 Fiscal Year

JERSEY CITY, NJ--(Marketwired - September 29, 2014) - Aoxing Pharmaceutical Company, Inc. (NYSE MKT: 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 the year ended June 30, 2014. Complete financial results can be found in the Annual Report on Form 10-K filed by Aoxing Pharma on September 29, 2014.

Financial Results:

Revenue for the year ended June 30, 2014 was $12,739,371, representing a 17.6% increase from the revenue of $10,829,839 for the year ended June 30, 2013. The increase in revenue was primarily attributable to the increase in sales price of our main product, Zhongtongan, whose sales represented 92% of our overall sales revenue during the 2014 fiscal year. We are now selling Zhongtongan directly, which yields a higher sales price than agency sales. This change contributed to the higher per unit sales price we realized during fiscal 2014.

Our cost of goods sold increased by 51.8% from fiscal 2013 to fiscal 2014, as a poor harvest led to increased raw material costs. As a result, our gross margin decreased from 57.9% in fiscal 2013 to 45.6% in fiscal 2014. Future prices for raw materials are difficult to predict. Nevertheless, we expect our cost of goods sold to be reduced in the future as we continue to reduce energy consumption and increase production capacity and efficiency.

We recorded a loss from operations of $3,334,879 for the year ended June 30, 2014, compared with loss from operations of $6,549,135 in fiscal 2013. The primary reasons for the improvement were:

• During fiscal year 2013 we recorded an impairment loss on goodwill of $7,055,364 and an impairment loss on intangible assets of $616,947.
• At the beginning of fiscal 2013 we incurred large expenditures for research and development and marketing, as we utilized the proceeds of a $10.2 million financing completed in September 2012. We have returned those expenses to a more sustainable level, with the result that research and development expenses fell by 62% from fiscal 2013 to fiscal 2014, and selling expenses fell by 41.6% from fiscal 2013 to fiscal 2014.

Our general and administrative expenses during the year ended June 30, 2014 were $3,613,657, an increase of 9.4% compared to the $3,303,824 incurred during the previous year. The increase resulted from bad debt expenses of $896,441 recorded during fiscal 2014.

Interest expense was $5,194,786 for fiscal year 2014, an increase of 73.9% compared to interest expense of $2,986,568 incurred in fiscal year 2013. The increase in interest expense is mainly due to the increase in average loan balances and higher interest rates for the long-term loans. In July 2014, we obtained a one year RMB30 million (approximately $4.9 million) loan from Postal Savings Bank of China, which replaced higher interest loans and will help reduce our interest expense going forward. Nevertheless, after adding the interest expense to our operating loss, we realized a net loss of $8,634,380 for the fiscal year ended June 30, 2014.

Our cash balance as of June 30, 2014 was $2,329,660, compared to $4,007,823 as of June 30, 2013. The loss that we incurred during fiscal 2014, coupled with the conversion of debts from long-term into short-term, caused our working capital deficit to increase during fiscal 2014. Our working capital deficit on June 30, 2014 was $23,294,188, which was $13,482,876 more than the working capital deficit on June 30, 2013. The primary reason for our working capital deficit is the fact that there are $25.9 million short-term debts owed to banks, related and unrelated parties. In accordance with banking customs in China, our bank loans have, throughout our history, been written on a short-term basis.

In July 2014, six of our creditors, including our CEO, agreed to convert $4.6 million debt to shares at a conversion rate of $0.39 per share. That conversion has alleviated that portion of our debt obligations and will reduce our interest expense.

Zhenjiang Yue, our Chairman and CEO, commented, “The Chinese pharmaceutical market continues to be challenging. I am pleased with Aoxing Pharma’s operating results, highlighted by continued growth in product sales, as well as by the faith that our lenders have continued to show in our business model.”

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 Pharma 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). Aoxing Pharma has a joint venture collaboration with Johnson Matthey Plc to produce and market narcotics and neurological drugs in China. 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, 2014, 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.