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American Oriental Bioengineering Reports Second Quarter 2011 Financial Results

NEW YORK, August 10, 2011 /PRNewswire-Asia-FirstCall/ -- American Oriental Bioengineering, Inc. (NYSE: AOB), (the "Company" or "AOB"), a pharmaceutical company dedicated to improving health through the development, manufacture and commercialization of a broad range of prescription and over-the-counter ("OTC") products, today announced financial results for the second quarter ended June 30, 2011.

Second Quarter 2011 Financial Performance

In the second quarter of 2011, revenue decreased to $54.1 million from $77.3 million in the same period of 2010.

  • The Company generated revenue of $50.3 million from its manufacturing business in the second quarter of 2011 compared with $73.7 million in the prior year period. Revenue from pharmaceutical products decreased to $40.7 million from $63.8 million in the prior year period. Nutraceutical products generated revenue of approximately $9.5 million in the second quarter of 2011, compared to $9.9 million in the prior year period. We decreased the manufacturing of certain generic drugs strategically shifted the products mix toward higher-margin products from lower margin products in order to minimize the impact from the increased cost of certain raw materials and the continuing government price cut on certain products.
  • The Company generated $3.8 million from its distribution business, Nuo Hua, in the second quarter of 2011, an increase of 5.2% from $3.6 million in the prior year period.

Gross profit in the second quarter of 2011 was $25.8 million compared to $39.8 million in the second quarter of 2010. Gross margin was 47.8% compared to 51.5% in the prior year period. The margin pressure was mainly caused by the increased costs of certain raw materials and newly levied urban construction and maintenance tax and educational surcharge to foreign invested companies in China since December, 2010.

Operating income in the second quarter of 2011 decreased to $6.3 million compared with $9.1 million in the prior year period. Total operating expenses decreased 36.4% to $19.6 million from $30.8 million in the prior year period. Selling, general and administrative expenses decreased 32.4% to $11.3 million from $16.7 million in the prior year period. The decrease reflects management's continuing efforts to stringently control the spending. Advertising expense decreased 63.1% to $3.4 million in the second quarter of 2011 from $9.2 million in the prior year period, reflecting reduced advertising efforts on some of OTC drugs to correspond to the Company's selective product sales strategy and optimal product portfolio. Research and development expenses decreased 3.9% to $3.1 million from $3.3 million in the prior year period while the company continues to invest in its innovation and technology improvement.

The Company generated a gain of $1.4 million due to changes in ownership of unconsolidated entities, including investments in Nuo Hua Affiliate and Aoxing Pharmaceutical Company, Inc. ("AXN").

Net income attributable to controlling interest for the second quarter of 2011 was $3.6 million, or $0.05 per diluted share, compared to $5.1 million, or $0.07 per diluted share, in the prior year period.

First Half 2011 Financial Performance

Revenue for the first half of 2011 decreased to $106.1 million from $131.0 million in the prior year period. In the first half of 2011, gross profit was $50.9 million, compared to $68.1 million in the prior year period. Operating income in the first half of 2011was $11.8 million, compared to $15.5 million in the prior year period. Net income attributable to controlling interest in the first half of 2011 was $4.5 million, or $0.06 per diluted share, compared to $8.2 million, or $0.11 per diluted share, in the prior year period.

Balance Sheet

Our cash position at June 30, 2011 was $75 million, representing a decrease of $19.5 million compared with our cash position of $94.6 million at December 31, 2010. The decrease was mainly attributable to the decrease of investing activities of $35.7 million and partially offset by the increase from the operating and financing activities of $12.2 million and $0.2 million in the first half of 2011, respectively.

The Company generated approximately $12.2 million of operating cash flow in the first half of 2011, representing an increase of $4.4 million compared with cash flows from operations of $7.7 million for the same period of 2010 mainly from the collection of accounts and notes receivable of $19.2 million.

Our net cash used in investing activities amounted to $35.7 million in the first half of 2011 including cash outflows for a deposit of $23.8 million for a long-lived asset to be acquired, which will allow us to have the right to establish a TCM raw material trading center in Northeast China approved by SFDA. The investment is intended to be integrated with our competitive infrastructure and whole supply chain management, providing a platform for the Company to start a TCM raw material trading business, offering a long term steadier supply of quality raw materials with manageable costs covering Northeast China and generating new profit stream in addition to our existing product portfolio.

We also paid $8.5 million for purchases of construction in progress in the first half of 2011 for the expansion and upgrade of our manufacturing facilities to complement capacity improvement and efficiency enhancement.

We maintain a significant level of working capital. Our working capital decreased to $138.5 million at June 30, 2011, as compared to $162.2 million at December 31, 2010, primarily due to a decrease in cash and cash equivalents by $19.5 million, a decrease in net accounts and notes receivable by $19.0 million and partially offset by an increase of net inventories of $11.9 million.

Mr. Tony Liu, Chairman and Chief Executive Officer of AOB, commented, "Our second quarter 2011 financial results were in line with our expectations considering the increased costs of certain raw materials and the government's price reduction on certain drugs. The financial performance reflects our continuing efforts on profitability and cost control, which largely absorbed revenue pressure and mitigated margin decline. We are also excited to benefit from our long-term investments in R&D both domestically and internationally."

Conference Call

The Company will hold a conference call at 8:00 am ET on Wednesday, August 10, 2011, to discuss its results. Listeners may access the call by dialing 1-800-299-0148 or 1-617-801-9711 for international callers, access code: 43793141. A webcast will also be available through AOB's website at www.bioaobo.com. A replay of the call will be available through August 17, 2011. Listeners may access the replay by dialing 1-888-286-8010 or 1-617-801-6888 for international callers, access code: 22224178.

About American Oriental Bioengineering, Inc.

American Oriental Bioengineering, Inc. is a pharmaceutical company dedicated to improving health through the development, manufacture and commercialization of a broad range of prescription and over the counter products.

Safe Harbor Statement

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 factors identified in the Company's filings with the Securities and Exchange Commission 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.

Contact:

ICR, LLC

Christine Duan or Ashley Ammon

203-682-8200



AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)




THREE MONTHS ENDED
JUNE 30


SIX MONTHS ENDED
JUNE 30



2011


2010


2011


2010



















Revenues

$

54,051,796

$

77,296,212

$

106,053,906

$

131,045,980










Cost of sales


28,206,945


37,455,860


55,133,145


62,968,907










GROSS PROFIT


25,844,851


39,840,352


50,920,761


68,077,073










Selling, general & administrative expenses


11,258,098


16,663,566


22,497,345


27,406,278

Advertising costs


3,399,355


9,217,247


7,220,503


15,965,717

Research and development costs


3,125,276


3,250,882


5,826,488


6,029,691

Depreciation and amortization


1,784,380


1,622,989


3,555,091


3,219,947










Total operating expenses


19,567,109


30,754,684


39,099,427


52,621,633










INCOME FROM OPERATIONS


6,277,742


9,085,668


11,821,334


15,455,440










Equity in earnings (losses) from unconsolidated entities


551,461


(296,301)


141,575


(41,086)

Gain (loss) on changes in ownership of unconsolidated entities


1,417,878


125,502


1,417,878


(12,240)

Interest expense, net


(1,518,810)


(1,371,246)


(3,032,395)


(2,937,031)

Other income (expenses), net


11,887


(30,039)


437,767


(17,792)










INCOME BEFORE INCOME TAXES


6,740,158


7,513,584


10,786,159


12,447,291

Income tax


3,169,813


2,395,850


6,294,668


4,211,780










NET INCOME


3,570,345


5,117,734


4,491,491


8,235,511










Net loss attribute to non-controlling interest


10,673


6,476


13,679


11,876










NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST


3,581,018


5,124,210


4,505,170


8,247,387










OTHER COMPREHENSIVE INCOME


8,277,811


1,843,654


11,410,277


1,936,503










COMPREHENSIVE INCOME

$

11,858,829

$

6,967,864

$

15,915,447

$

10,183,890










EARNINGS PER COMMON SHARE









Basic

$

0.05

$

0.07

$

0.06

$

0.11

Diluted

$

0.05

$

0.07

$

0.06

$

0.11










WEIGHTED AVERAGE SHARES OUTSTANDING









Basic


74,675,136


74,743,986


74,788,633


74,680,327

Diluted


76,621,881


75,857,073


76,328,242


75,502,489



AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)





JUNE 30,


DECEMBER 31,




2011


2010







CURRENT ASSETS





Cash and cash equivalents

$

75,030,526

$

94,568,520

Restricted Cash


1,306,706


537,297

Accounts and notes receivable, net


61,582,172


80,598,919

Inventories, net


24,562,693


12,665,586

Advances to suppliers and prepaid expenses


18,038,742


14,246,144

Deferred tax assets


319,197


649,503

Other current assets


2,867,258


2,986,005

Total Current Assets


183,707,294


206,251,974







LONG-TERM ASSETS





Property, plant and equipment, net


110,060,705


109,547,616

Land use rights, net


157,244,683


155,433,311

Other long term assets


38,112,044


8,167,880

Construction in progress


31,479,655


22,516,044

Other intangible assets, net


13,539,694


14,889,127

Goodwill


33,164,121


33,164,121

Other long-term investment


41,772,510


-

Investments in and advances to equity investments


19,759,725


59,068,491

Deferred tax assets


90,519


147,024

Unamortized financing costs


1,895,259


2,359,404

Total Long-Term Assets


447,118,915


405,293,018







TOTAL ASSETS

$

630,826,209

$

611,544,992







LIABILITIES AND SHAREHOLDERS' EQUITY
















JUNE 30,


DECEMBER 31,




2011


2010






CURRENT LIABILITIES





Accounts payable

$

14,663,333

$

10,716,686

Notes payable


1,306,706


537,297

Other payables and accrued expenses


14,175,197


18,039,557

Taxes payable


2,550,152


1,237,169

Short-term bank loans


8,166,337


6,957,258

Current portion of long-term bank loans


62,148


61,405

Other liabilities


4,107,599


6,284,107

Deferred tax liabilities


171,650


243,304

Total Current Liabilities


45,203,122


44,076,783






LONG-TERM LIABILITIES





Long-term bank loans, net of current portion


648,560


679,866

Deferred tax liabilities


15,671,928


15,837,479

Unrecognized tax benefits


6,666,147


5,050,157

Convertible Notes


115,000,000


115,000,000

Total Long-Term Liabilities


137,986,635


136,567,502

TOTAL LIABILITIES


183,189,757


180,644,285






EQUITY





SHAREHOLDERS' EQUITY





Preferred stock, $0.001 par value; 2,000,000 shares authorized;






1,000,000 shares issued and outstanding at
June 30, 2011 and December 31, 2010, respectively


1,000


1,000

Common stock, $0.001 par value; 150,000,000 shares authorized;






78,915,514 shares and 78,598,604 shares issued as of June 30, 2011 and December 31, 2010, respectively; 78,466,351 shares and 78,598,604 shares outstanding as of June 30, 2011 and December 31, 2010, respectively


78,915


78,598

Common stock to be issued


157,333


350,500

Additional paid-in capital


205,149,497


203,322,671

Retained earnings (the restricted portion of retained earnings is






$26,471,124 at both June 30, 2011
and December 31, 2010)


212,020,274


207,515,104

Less: Treasury stock, at cost (449,163 shares and nil as of June 30, 2011 and December 31, 2010, respectively)


(799,999)


-

Less: Prepaid forward repurchase contract


(29,998,616)


(29,998,616)

Accumulated other comprehensive income


60,536,528


49,126,251

Total Shareholders' Equity


447,144,932


430,395,508

Non-controlling Interest


491,520


505,199

TOTAL EQUITY


447,636,452


430,900,707

TOTAL LIABILITIES AND EQUITY

$

630,826,209

$

611,544,992



Source: American Oriental Bioengineering, Inc.; Aoxing Pharmaceutical Company, Inc.; Nuo Hua Affiliate
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