Aoxing Pharmaceutical Company Inc. 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 - =========== ===========