American Oriental Bioengineering Reports Third Quarter 2011 Financial Results

PR Newswire

JERSEY CITY, N.J., Nov. 14, 2011

JERSEY CITY, N.J., Nov. 14, 2011 /PRNewswire-Asia-FirstCall/ -- American Oriental Bioengineering, Inc. 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 third quarter ended September 30, 2011.

2011 Third Quarter Financial Results

Total Revenue for the third quarter of 2011 was $53.9 million, compared to $91.5 million in the same period of 2010. We strategically shift the products mix, decreasing the manufacturing of certain generic drugs from lower margin products toward higher-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.

Revenue from manufacturing business was $49.1 million for the third quarter of 2011, compared to $ 87.5 million in the same period of 2010.

Revenue from pharmaceutical products was $40.3 million in the third quarter of 2011, compared to $77.2 million in the same period of 2010.
Revenue from nutraceutical products was $8.8 million in the third quarter of 2011, compared to $10.3 million in the same period of 2010.

Revenue from distribution business was $4.9 million for the third quarter of 2011, compared to $4.1 million in the same period of 2010.

Gross profit for the third quarter of 2011 was $25.2 million, compared to $47.3 million in the same period of 2010. Gross margin for the third quarter of 2011 was 46.7%, compared to 51.7% in the same period of 2010. 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.

Selling, general and administrative expenses for the third quarter of 2011 were $12.1 million, which represented a decrease of 42.3% from $20.9 million for the same period of 2010. As a percentage of total revenue, selling, general and administrative expenses decreased to 22.4% for the third quarter of 2011 from 22.9% in the same period of 2010. The decrease reflects management's continuing focus on the efficiency of the business through existing and newly identified process improvements and cost reduction initiatives.

Advertising expense for the third quarter of 2011 were $3.0 million, which represented a decrease of 73.0% from $ 11.0 million for the same period of 2010. As a percentage of total revenue, advertising expenses decreased to 5.5% for the third quarter of 2011 from 12.0% in the same period of 2010. The decrease reflects 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 for the third quarter of 2011 were $2.8 million, compared to $4.7 million for the same period of 2010. Expressed as a percentage of revenue, research and development costs were 5.2% for both the third quarter of 2011 and 2010. Our research and development activities consist of near term, middle term and long term stages which contribute to both our current and future business strategies.

Income from operations for the third quarter of 2011 was $8.2 million, compared to $ 9.0 million in the same period of 2010.

Net Income attributable to controlling interest for the third quarter of 2011 was $ 7.7 million, or $ 0.10 per diluted share, compared to $4.2 million, or $ 0.06 per diluted share, in the same period of 2010.

First Nine Months of 2011 Financial Performance

Total revenue for the nine months of 2011 was $ 160.0 million, compared to $ 222.6 million in the same period of 2010. Gross profit for the first nine months of 2011, was $76.1 million, compared to $ 115.4 million in the same period of 2010. Operating income for the nine months of 2011was $ 20.0 million, compared to $ 24.4 million in the same period of 2010. Net income attributable to controlling interest for the first nine months of 2011 was $ 11.2 million, or $ 0.15 per diluted share, compared to $ 12.5 million, or $ 0.17 per diluted share, in the same period of 2010.

Balance Sheet

Our cash position as of September 30, 2011 was $ 83.0 million, compared to $ 94.6 million as of December 31, 2010. The decrease was mainly attributable to the decrease of investing activities of $39.6 million and partially offset by the operating and financing activities of $ 20.8 million and $2.0 million.

The Company generated approximately $ 20.8 million of operating cash flow in the nine months of 2011, representing an increase of $ 13.5 million, compared to $ 7.3 million for the same period of 2010. The increase was primarily due to the collection of accounts and notes receivable of $16.6 million.

Our net cash used in investing activities amounted to $ 39.6 million in the nine months of 2011, including cash outflows for a deposit of $ 30.4 million, which allow us to have the right to establish a TCM raw material trading center in Northeast China approved by the China's SFDA amounted to $26,503,473. 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.

We have paid $8.9 million construction in progress during the nine months of 2011, for the expansion and upgrade of our manufacturing facilities to complement capacity improvement and efficiency enhancement.

Our working capital decreased to $ 184.6 million as of September 30, 2011, compared to $200.7 million as of December 31, 2010. The decrease was primarily due to the decrease in cash and cash equivalents by $11.6 million and decrease in net accounts and notes receivable by $ 16.5 million, partially offset by the increase of net inventories at $ 11.5 million.

Mr. Tony Liu, Chairman and Chief Executive Officer of AOB, commented: "China remains as a major commercial opportunity with significant growth potential. Leaving aside near-term healthcare reform policy headwinds, we keep long-term positive view on the pharmaceutical business. The financial results demonstrate our ability to execute and deliver on a consistent basis. We are fully committed to executing our growth strategy, driving innovation and delivering value to our customers and our shareholders."

Conference Call
To be announced as soon as the conference call number is arranged, expected in the hour.

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:

American Oriental Bioengineering, Inc.
Hong Zhu
(646) 367-1765

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

			SEPTEMBER 30,		DECEMBER 31,
			2011		2010
					(RESTATED)
CURRENT ASSETS
Cash and cash equivalents		$	83,018,431	$	94,568,520
Restricted Cash			654,977		537,297
Accounts and notes receivable, net			64,117,238		80,598,919
Inventories, net			24,201,066		12,665,586
Advances to suppliers and prepaid expenses			19,547,924		14,246,144
Deferred tax assets			221,222		649,503
Receivable for disposal of investment			39,832,547		38,567,410
Other current assets			1,839,855		2,986,005
Total Current Assets			233,433,260		244,819,384

LONG-TERM ASSETS
Property, plant and equipment, net			136,405,433		109,547,616
Land use rights, net			157,892,698		155,433,311
Other long term assets			12,281,370		8,167,880
Construction in progress			32,378,396		22,516,044
Other intangible assets, net			12,858,509		14,889,127
Investments in and advances to equity investments			18,922,088		19,179,235
Goodwill			33,164,121		33,164,121
Deferred tax assets			84,176		147,024
Unamortized financing costs			1,580,721		2,359,404
Total Long-Term Assets			405,567,512		365,403,762

TOTAL ASSETS		$	639,000,772	$	610,223,146

LIABILITIES AND SHAREHOLDERS' EQUITY

			SEPTEMBER 30,		DECEMBER 31,
			2011		2010
					(RESTATED)
CURRENT LIABILITIES
Accounts payable		$	14,304,039	$	10,716,686
Notes payable			654,977		537,297
Other payables and accrued expenses			14,987,564		18,039,557
Taxes payable			845,753		1,237,169
Short-term bank loans			12,766,861		6,957,258
Current portion of long-term bank loans			62,472		61,405
Other liabilities			5,160,521		6,284,107
Deferred tax liabilities			87,382		243,304
Total Current Liabilities			48,869,569		44,076,783

LONG-TERM LIABILITIES
Long-term bank loans, net of current portion			631,990		679,866
Deferred tax liabilities			14,263,066		15,837,479
Unrecognized tax benefits			7,874,802		6,055,656
Convertible Notes			109,500,000		115,000,000
Total Long-Term Liabilities			132,269,858		137,573,001
TOTAL LIABILITIES			181,139,427		181,649,784

EQUITY
SHAREHOLDERS' EQUITY
Preferred stock, $0.001 par value; 2,000,000 shares authorized;
	1,000,000 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively		1,000		1,000
Common stock, $0.001 par value; 150,000,000 shares authorized;
	78,952,544 shares and 78,598,604 shares issued as of September 30, 2011 and December 31, 2010, respectively; 78,503,381 shares and 78,598,604 shares outstanding as of September 30, 2011 and December 31, 2010, respectively		78,952		78,598
Common stock to be issued			224,333		350,500
Additional paid-in capital			205,971,757		203,322,671
Retained earnings (the restricted portion of retained earnings is
	$26,293,785 at both September 30, 2011 and December 31, 2010)		216,442,093		205,260,681
Less: Treasury stock, at cost (449,163 shares and nil as of September 30, 2011 and December 31, 2010, respectively)			(799,999)		-
Less: Prepaid forward repurchase contract			(29,998,616)		(29,998,616)
Accumulated other comprehensive income			65,421,859		49,053,329
Total Shareholders' Equity			457,341,379		428,068,163
Non-controlling Interest			519,966		505,199
TOTAL EQUITY			457,861,345		428,573,362
TOTAL LIABILITIES AND EQUITY		$	639,000,772	$	610,223,146

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)

		THREE MONTHS ENDED				NINE MONTHS ENDED
		SEPTEMBER 30				SEPTEMBER 30
		2011		2010		2011		2010

				(RESTATED)				(RESTATED)
Revenues	$	53,934,602	$	91,533,044	$	159,988,508	$	222,579,024

Cost of sales		28,730,424		44,250,846		83,863,569		107,219,753

GROSS PROFIT		25,204,178		47,282,198		76,124,939		115,359,271

Selling, general & administrative expenses		12,080,424		20,920,522		34,577,769		48,326,800
Advertising costs		2,964,877		10,983,946		10,185,380		26,949,663
Research and development costs		2,825,967		4,724,703		8,652,455		10,754,394
Depreciation and amortization		1,804,888		1,682,058		5,359,979		4,902,005
Debt extinguishment (gain)		(2,666,829)		-		(2,666,829)		-

Total operating expenses		17,009,327		38,311,229		56,108,754		90,932,862

INCOME FROM OPERATIONS		8,194,851		8,970,969		20,016,185		24,426,409

Equity in (losses) earnings from unconsolidated entities		(796,727)		242,183		(857,811)		201,097
Impairment Loss on eqiuty investment		-		(1,083,637)		-		(1,083,637)
Gain (loss) on changes in ownership of unconsolidated entities		-		-		658,540		(12,240)
Interest expense, net		(1,802,954)		(1,456,062)		(4,850,651)		(4,393,093)
Other (expenses) income, net		(116,196)		(67,548)		321,571		(85,340)

INCOME BEFORE INCOME TAXES		5,478,974		6,605,905		15,287,834		19,053,196
Provision for income taxes		(2,203,013)		2,366,398		4,091,655		6,578,178

NET INCOME		7,681,987		4,239,507		11,196,179		12,475,018

Net (income) loss attributable to non-controlling interest		(28,446)		7,679		(14,767)		19,555

NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST		7,653,541		4,247,186		11,181,412		12,494,573

OTHER COMPREHENSIVE INCOME		5,020,779		7,780,438		16,368,530		9,716,941

COMPREHENSIVE INCOME	$	12,674,320	$	12,027,624	$	27,549,942	$	22,211,514

EARNINGS PER COMMON SHARE
Basic	$	0.10	$	0.06	$	0.15	$	0.17
Diluted	$	0.10	$	0.06	$	0.15	$	0.17

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic		74,845,855		74,934,428		74,801,120		74,765,028
Diluted		76,524,003		75,965,266		76,307,044		75,647,024

SOURCE American Oriental Bioengineering, Inc.

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