AOB American Oriental Bioengineering, Inc.

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 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.

SOURCE American Oriental Bioengineering, Inc.