NEW YORK, Nov. 16 American OrientalBioengineering, Inc. (NYSE: AOB), ("the Company" or "AOBO"), a pharmaceuticalcompany dedicated to improving health through the development, manufacture andcommercialization of a broad range of prescription and over the counter ("OTC")products, today announced financial results for the third quarter endedSeptember 30, 2009.
Third Quarter 2009 Financial Performance
Revenue in the third quarter of 2009 increased 11.7% to $78.8 million from$70.6 million in the third quarter of 2008, reflecting continued demand forthe Company's core pharmaceutical and nutraceutical products. Revenue frompharmaceutical products increased 6.3% to $66.0 million from $62.1 million inthe third quarter of 2008. Revenue from prescription pharmaceutical productsincreased 22.7% to $29.8 million during the third quarter of 2009, reflectinga year over year increase in sales from prescription formulated Jinji capsule,Boke and CCXA products, which offset declines in sales of ShuanghuanglianInjection Powder ("SHL"). The overall increase in sales was also supported bycontinuous marketing efforts, an increase in new product offerings, as well asexpansion of coverage to previously unaddressed rural markets. OTCpharmaceutical products generated $36.2 million in revenue during the thirdquarter of 2009, in comparison to $37.8 million in the prior year's period,primarily reflecting lower sales performance of Jinji Yimucao, a drug includedin China's Essential Drug list, as distributors reduced orders in anticipationof pricing uncertainty related to healthcare reform. Nutraceutical productsgenerated revenue of approximately $9.2 million in the third quarter of 2009,up 8.7% from $8.5 million in the prior year period, reflecting increased salesof new beverage products launched in the beginning of 2009. The Companygenerated $3.6 million from its distribution business in the third quarter of2009.
Gross profit in the third quarter of 2009 was $44.1 million compared to$47.2 million in the third quarter of 2008. Gross margin was 56.0%, comparedto 66.8% in the prior year period, reflecting continued revenue mix shift toCCXA's generic product sales, increasing raw material prices and lower margindistribution business from Nuo Hua.
Operating income in the third quarter of 2009 was $15.0 million comparedto $21.6 million in the third quarter of 2008. Selling and marketing expensesincreased 23.2% to $12.2 million from $9.9 million in the prior year period.The increase primarily reflects increased marketing and promotionalinitiatives related to enhancing prescription product sales. Advertisingexpense was $9.0 million in the third quarter of 2009, compared to $9.9million in the prior year period, reflecting a greater focus on promotionalactivities and direct sales efforts. General and administrative expensesincreased 37.7% to $6.5 million from $4.7 million in the prior year period,primarily driven by expenses related to improving production efficiency andtesting equipment and technology upgrades as a result of more stringent GMPmanufacturing standards.
Net income attributable to controlling interest for the third quarter of2009 was $10.0 million, compared to $16.3 million in the prior year period.Excluding $0.9 million of interest expense on convertible securities and $0.2million of amortized financing costs related to the Company's outstandingconvertible notes, the Company's net income attributable to controllinginterest was $11.2 million, or $0.13 per diluted share. In the third quarterof 2008, net income per diluted share was approximately $0.21.
Nine Months Ended September 30, 2009 Financial Performance
Revenue for the nine months ended September 30, 2009 increased 16.5% to$196.1 million from $168.4 million in the first nine months of 2008. Duringthe same time period, gross profit increased slightly by 0.5% to $114.2million from $113.6 million in the first nine months of 2008. Operating incomein the first nine months of 2009 was $43.9 million compared to $51.9 millionin the first nine months of 2008. Net income attributable to controllinginterest for the first nine months of 2009 was $29.7 million, compared to$39.2 million in the prior year period. Excluding $3.8 million of interestexpense on convertible securities and $0.7 million of amortized financingcosts related to the Company's outstanding convertible notes, the Company'snet income attributable to controlling interest was $34.2 million, or $0.39per diluted share. In the first nine months of 2008, net income per dilutedshare was approximately $0.50.
As of September 30, 2009, the Company had $115.9 million in cash andgenerated approximately $44.3 million of operating cash flow during the firstnine months of 2009.
Mr. Tony Liu, Chairman and Chief Executive Officer of American OrientalBioengineering, commented, "Despite the tough business environment we arecurrently experiencing, we are pleased with our third quarter performance aswe continued to enhance our diversified product portfolio and pursue furthervertical integration. We are witnessing uncertainty around product pricingrelated to healthcare reform, and this has caused select disruption inpurchasing patterns. Nonetheless, we continue to actively monitor theregulatory landscape and we will adapt our business strategy accordingly. Forexample, the potential inclusion of our Jinji products in the upcomingnational insurance catalog, along with our marketing capabilities, extensivedistribution platform, diversified product offering and ongoing ruralexpansion, should help us navigate the challenging sales environment relatedto healthcare reform. We continue to drive revenue growth and consistentlygenerate cash despite the uncertain regulatory environment, and we appreciatethe hard work and contributions by our entire team."
Restatement of Certain Historical Results
During the review of its third quarter 2009 operating results, the Companyidentified historical accounting errors in: (i) the calculation of stock basedcompensation, (ii) the recognition of deferred tax liabilities of certainacquired assets and (iii) the provision of deferred tax liabilities onundistributed earnings of foreign subsidiaries. The accounting errors haveresulted in the misstatement of certain balance sheet and income statementitems and the cumulative net earnings since 2006. The errors did not resultfrom any fraud or intentional misconduct and the Company undertook a review todetermine the total amount of the errors and the accounting periods in whichthe errors occurred. As a result, the Company chose to restate its previouslyreported financial statements.
The Company has restated its consolidated balance sheets and the relatedconsolidated statements of income, statements of shareholders' equity andstatements of cash flows as of and for the years ended December 31, 2008, 2007and 2006 as reported in its amended annual report on Form 10K/A for the fiscalyear ended December 31, 2008. The restated financial information for each ofthe three interim quarterly periods for 2008 and 2007 were also included inthe amended annual report on Form 10-K/A for the fiscal year ended December 31,2008.
The effects of the restatement on selected income statement line items forthe years ended December 31, 2008 and 2007 are as follows:
The cumulative effects of the restatement on selected balance sheet lineitems as of December 31, 2008 and 2007 are as follows:
The Company will hold a conference call at 8:00 am ET on Tuesday, November17, 2009 to discuss third quarter 2009 results. Listeners may access the callby dialing 1-866-770-7051 or 1-617-213-8064 for international callers, accesscode: 89648638. A webcast will also be available through AOB's website athttp://www.bioaobo.com .
A replay of the call will be available through November 24, 2009.Listeners may access the replay by dialing 1-888-286-8010 or 1-617-801-6888for international callers, access code: 58148119.
About American Oriental Bioengineering, Inc.
American Oriental Bioengineering, Inc. is a pharmaceutical companydedicated to improving health through the development, manufacture andcommercialization of a broad range of prescription and over the counterproducts.
Statements made in this press release are forward-looking and are madepursuant to the safe harbor provisions of the Securities Litigation Reform Actof 1995. Such statements involve risks and uncertainties that may cause actualresults to differ materially from those set forth in these statements. Theeconomic, competitive, governmental, technological and other factorsidentified in the Company's filings with the Securities and ExchangeCommission, including the Form 10-K for the year ended December 31, 2008, maycause actual results or events to differ materially from those described inthe forward looking statements in this press release. The Company undertakesno obligation to publicly update or revise any forward-looking statements,whether because of new information, future events, or otherwise.Increase/(Decrease) in income statement line items 2008 2007 General and administrative $838,190 $466,954 Income before income tax (838,190) (466,954) Income tax (91,916) (1,042,151) Net income attributable to common shareholders (746,274) 575,197 Net income per common share attributable to common shareholders - basic -- 0.01 Net income per common share attributable to common shareholders - diluted $-- $0.01
SOURCE American Oriental Bioengineering, Inc.