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American Oriental Bioengineering Reports Second Quarter 2011 Financial Results
Date:8/9/2011

NEW YORK, Aug. 9, 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 PerformanceIn 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 2011Financial PerformanceRevenue 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 SheetOur 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 CallThe 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 StatementStatements 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, LLCChristine Duan or Ashley Ammon203-682-8200AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME(UNAUDITED)THREE MONTHS ENDED
    JUNE 30SIX MONTHS ENDED
    JUNE 302011201020112010Revenues$54,051,796

    $77,296,212

    $106,053,906

    $131,045,980Cost of sales28,206,94537,455,86055,133,14562,968,907GROSS PROFIT25,844,85139,840,35250,920,76168,077,073Selling, general & administrative expenses11,258,09816,663,56622,497,34527,406,278Advertising costs3,399,3559,217,2477,220,50315,965,717Research and development costs3,125,2763,250,8825,826,4886,029,691Depreciation and amortization 1,784,3801,622,9893,555,0913,219,947Total operating expenses 19,567,10930,754,68439,099,42752,621,633INCOME FROM OPERATIONS6,277,7429,085,66811,821,33415,455,440Equity in earnings (losses) from unconsolidated entities551,461(296,301)141,575(41,086)Gain (loss) on changes in ownership of unconsolidated entities1,417,878125,5021,417,878(12,240)Interest expense, net(1,518,810)(1,371,246)(3,032,395)(2,937,031)Other income (expenses), net11,887(30,039)437,767(17,792)INCOME BEFORE INCOME TAXES6,740,1587,513,58410,786,15912,447,291Income tax3,169,8132,395,8506,294,6684,211,780NET INCOME3,570,3455,117,7344,491,4918,235,511Net loss attribute to non-controlling interest10,6736,47613,67911,876NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST3,581,0185,124,2104,505,1708,247,387OTHER COMPREHENSIVE INCOME8,277,8111,843,65411,410,2771,936,503COMPREHENSIVE INCOME$11,858,829

    $6,967,864

    $15,915,447

    $10,183,890EARNINGS PER COMMON SHAREBasic$0.05

    $0.07

    $0.06

    $0.11Diluted$0.05

    $0.07

    $0.06

    $0.11WEIGHTED AVERAGE SHARES OUTSTANDINGBasic74,675,13674,743,98674,788,63374,680,327Diluted76,621,88175,857,07376,328,24275,502,489AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)JUNE 30,DECEMBER 31,20112010CURRENT ASSETSCash and cash equivalents

    $

    75,030,526

    $

    94,568,520Restricted Cash1,306,706537,297Accounts and notes receivable, net61,582,17280,598,919Inventories, net24,562,69312,665,586Advances to suppliers and prepaid expenses18,038,74214,246,144Deferred tax assets319,197649,503Other current assets2,867,2582,986,005Total Current Assets183,707,294206,251,974LONG-TERM ASSETSProperty, plant and equipment, net110,060,705109,547,616Land use rights, net157,244,683155,433,311Other long term assets38,112,0448,167,880Construction in progress31,479,65522,516,044Other intangible assets, net13,539,69414,889,127Goodwill33,164,12133,164,121Other long-term investment41,772,510-Investments in and advances to equity investments19,759,72559,068,491Deferred tax assets90,519147,024Unamortized financing costs1,895,2592,359,404Total Long-Term Assets447,118,915405,293,018TOTAL ASSETS$

    630,826,209

    $

    611,544,992LIABILITIES AND SHAREHOLDERS’ EQUITYJUNE 30,DECEMBER 31,20112010CURRENT LIABILITIESAccounts payable

    $

    14,663,333

    $

    10,716,686Notes payable1,306,706537,297Other payables and accrued expenses14,175,19718,039,557Taxes payable2,550,1521,237,169Short-term bank loans8,166,3376,957,258Current portion of long-term bank loans62,14861,405Other liabilities 4,107,5996,284,107Deferred tax liabilities171,650243,304Total Current Liabilities45,203,12244,076,783LONG-TERM LIABILITIESLong-term bank loans, net of current portion648,560679,866Deferred tax liabilities15,671,92815,837,479Unrecognized tax benefits6,666,1475,050,157Convertible Notes115,000,000115,000,000Total Long-Term Liabilities137,986,635136,567,502TOTAL LIABILITIES183,189,757180,644,285EQUITYSHAREHOLDERS’ EQUITYPreferred 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, respectively1,0001,000Common 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, respectively78,91578,598Common stock to be issued157,333350,500Additional paid-in capital205,149,497203,322,671Retained earnings (the restricted portion of retained earnings is$26,471,124 at both June 30, 2011
    and December 31, 2010)212,020,274207,515,104Less: Treasury stock, at cost (449,163 shares and nil as of June 30, 2011 and December 31, 2010, respectively)(799,999)-Less: Prepaid forward repurchase contract(29,998,616)(29,998,616)Accumulated other comprehensive income60,536,52849,126,251Total Shareholders’ Equity447,144,932430,395,508Non-controlling Interest491,520505,199TOTAL EQUITY447,636,452430,900,707TOTAL LIABILITIES AND EQUITY$

    630,826,209

    $

    611,544,992
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    SOURCE American Oriental Bioengineering, Inc.
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