American Oriental Bioengineering Reports Third Quarter 2009 Financial Results

NEW YORK, Nov. 16 /PRNewswire-Asia-FirstCall/ -- American Oriental Bioengineering, Inc. (NYSE:AOB), ("the Company" or "AOBO"), 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, 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 for the Company's core pharmaceutical and nutraceutical products. Revenue from pharmaceutical products increased 6.3% to $66.0 million from $62.1 million in the third quarter of 2008. Revenue from prescription pharmaceutical products increased 22.7% to $29.8 million during the third quarter of 2009, reflecting a year over year increase in sales from prescription formulated Jinji capsule, Boke and CCXA products, which offset declines in sales of Shuanghuanglian Injection Powder ("SHL"). The overall increase in sales was also supported by continuous marketing efforts, an increase in new product offerings, as well as expansion of coverage to previously unaddressed rural markets. OTC pharmaceutical products generated $36.2 million in revenue during the third quarter of 2009, in comparison to $37.8 million in the prior year's period, primarily reflecting lower sales performance of Jinji Yimucao, a drug included in China's Essential Drug list, as distributors reduced orders in anticipation of pricing uncertainty related to healthcare reform. Nutraceutical products generated 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 sales of new beverage products launched in the beginning of 2009. The Company generated $3.6 million from its distribution business in the third quarter of 2009.

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%, compared to 66.8% in the prior year period, reflecting continued revenue mix shift to CCXA's generic product sales, increasing raw material prices and lower margin distribution business from Nuo Hua.

Operating income in the third quarter of 2009 was $15.0 million compared to $21.6 million in the third quarter of 2008. Selling and marketing expenses increased 23.2% to $12.2 million from $9.9 million in the prior year period. The increase primarily reflects increased marketing and promotional initiatives related to enhancing prescription product sales. Advertising expense was $9.0 million in the third quarter of 2009, compared to $9.9 million in the prior year period, reflecting a greater focus on promotional activities and direct sales efforts. General and administrative expenses increased 37.7% to $6.5 million from $4.7 million in the prior year period, primarily driven by expenses related to improving production efficiency and testing equipment and technology upgrades as a result of more stringent GMP manufacturing standards.

Net income attributable to controlling interest for the third quarter of 2009 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 $0.2 million of amortized financing costs related to the Company's outstanding convertible notes, the Company's net income attributable to controlling interest was $11.2 million, or $0.13 per diluted share. In the third quarter of 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. During the same time period, gross profit increased slightly by 0.5% to $114.2 million from $113.6 million in the first nine months of 2008. Operating income in the first nine months of 2009 was $43.9 million compared to $51.9 million in the first nine months of 2008. Net income attributable to controlling interest 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 interest expense on convertible securities and $0.7 million of amortized financing costs related to the Company's outstanding convertible notes, the Company's net income attributable to controlling interest was $34.2 million, or $0.39 per diluted share. In the first nine months of 2008, net income per diluted share was approximately $0.50.

Balance Sheet

As of September 30, 2009, the Company had $115.9 million in cash and generated approximately $44.3 million of operating cash flow during the first nine months of 2009.

Mr. Tony Liu, Chairman and Chief Executive Officer of American Oriental Bioengineering, commented, "Despite the tough business environment we are currently experiencing, we are pleased with our third quarter performance as we continued to enhance our diversified product portfolio and pursue further vertical integration. We are witnessing uncertainty around product pricing related to healthcare reform, and this has caused select disruption in purchasing patterns. Nonetheless, we continue to actively monitor the regulatory landscape and we will adapt our business strategy accordingly. For example, the potential inclusion of our Jinji products in the upcoming national insurance catalog, along with our marketing capabilities, extensive distribution platform, diversified product offering and ongoing rural expansion, should help us navigate the challenging sales environment related to healthcare reform. We continue to drive revenue growth and consistently generate cash despite the uncertain regulatory environment, and we appreciate the hard work and contributions by our entire team."

Restatement of Certain Historical Results

During the review of its third quarter 2009 operating results, the Company identified historical accounting errors in: (i) the calculation of stock based compensation, (ii) the recognition of deferred tax liabilities of certain acquired assets and (iii) the provision of deferred tax liabilities on undistributed earnings of foreign subsidiaries. The accounting errors have resulted in the misstatement of certain balance sheet and income statement items and the cumulative net earnings since 2006. The errors did not result from any fraud or intentional misconduct and the Company undertook a review to determine the total amount of the errors and the accounting periods in which the errors occurred. As a result, the Company chose to restate its previously reported financial statements.

The Company has restated its consolidated balance sheets and the related consolidated statements of income, statements of shareholders' equity and statements of cash flows as of and for the years ended December 31, 2008, 2007 and 2006 as reported in its amended annual report on Form 10K/A for the fiscal year ended December 31, 2008. The restated financial information for each of the three interim quarterly periods for 2008 and 2007 were also included in the 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 for the years ended December 31, 2008 and 2007 are as follows:

  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




The cumulative effects of the restatement on selected balance sheet line items as of December 31, 2008 and 2007 are as follows:

  Increase/(Decrease) in balance sheet
   line items                                     2008              2007

  Goodwill                                    $4,620,895        $4,620,895
  Deferred tax assets                                 --            15,297
  Deferred tax liability - current              (667,095)         (109,733)
  Deferred tax liability - non current         1,551,743         4,050,444
  Accumulated other comprehensive
   income                                      2,602,180          (346,670)
  Retained earnings                             (171,077)          575,197
  Additional paid-in capital                   1,305,144           466,954


  Conference Call


The Company will hold a conference call at 8:00 am ET on Tuesday, November 17, 2009 to discuss third quarter 2009 results. Listeners may access the call by dialing 1-866-770-7051 or 1-617-213-8064 for international callers, access code: 89648638. A webcast will also be available through AOB's website at http://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 1-617-801-6888 for international callers, access code: 58148119.

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.

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, including the Form 10-K for the year ended December 31, 2008, 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.

         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,
                            2009         2008         2009          2008
                                     As Restated                As Restated

  REVENUES              $78,818,666  $70,593,949  196,117,893  $168,372,552
  COST OF GOODS SOLD     34,687,505   23,402,407   81,942,766    54,808,490

  GROSS PROFIT           44,131,161   47,191,542  114,175,127   113,564,062

  Selling and marketing  12,245,746    9,938,877   26,853,377    22,656,477
  Advertising             9,013,087    9,913,728   22,360,380    21,760,300
  General and
   administrative         6,457,734    4,690,793   15,981,195    14,235,806
  Depreciation and
   amortization           1,409,399    1,024,436    5,118,588     3,012,107

  Total operating
   expenses              29,125,966   25,567,834   70,313,540    61,664,690

  INCOME FROM
   OPERATIONS            15,005,195   21,623,708   43,861,587    51,899,372

  EQUITY IN EARNINGS
   (LOSS) FROM
   UNCONSOLIDATED
   ENTITIES                (563,608)      49,417     (299,072)     (591,650)
  INTEREST INCOME
   (EXPENSE), NET        (1,106,805)  (1,143,013)  (4,306,143)   (1,156,782)
  OTHER (EXPENSE), NET      (49,165)      91,986     (164,103)     (264,515)

  INCOME BEFORE INCOME
   TAXES                 13,285,617   20,622,098   39,092,269    49,886,425
  INCOME TAXES            3,257,771    4,339,045    9,463,093    10,655,299

  NET INCOME             10,027,846   16,283,053   29,629,176    39,231,126

  NON-CONTROLLING
   INTEREST                    (651)           0      118,866             0

  NET INCOME ATTRIBUTE
   TO CONTROLLING
   INTEREST              10,027,195   16,283,053   29,748,042    39,231,126

  OTHER COMPREHENSIVE
   INCOME
  Foreign currency
   translation gain,
   net of tax               142,118      646,405      655,400    15,743,396
  OTHER COMPREHENSIVE
   INCOME, NET OF TAX       142,118      646,405      655,400    15,743,396

  COMPREHENSIVE INCOME  $10,169,313  $16,929,458   30,403,442   $54,974,522

  NET INCOME PER COMMON
   SHARE
  BASIC                       $0.13        $0.22         0.40         $0.51
  DILUTED                     $0.13        $0.21         0.39         $0.50

  WEIGHTED AVERAGE
   NUMBER OF COMMON
   SHARES OUTSTANDING
  BASIC                  74,636,155   75,101,869   74,592,447    77,164,602
  DILUTED                88,868,828   85,417,621   88,825,120    80,553,647




                American Oriental Bioengineering, Inc. and Subsidiaries
                   Condensed Consolidated Balance Sheets (Unaudited)

                                            September 30,      December 31,
                                               2009               2008
                                                               As Restated
  CURRENT ASSETS
  Cash and cash equivalents                 $115,923,399       $70,636,510
  Accounts receivable, net of reserve
   of $512,013 and $226,330
   at September 30 , 2009 and December
   31, 2008, respectively                     37,961,967        36,982,167
  Inventories, net of provision for
   slow moving inventories                    15,291,710        13,042,123
  Advances to suppliers                        2,798,860         3,593,979
  Notes receivable                               122,300           708,076
  Refundable deposit                                  --         6,396,996
  Deferred tax assets                            398,563           347,216
  Other current assets                         1,154,315           744,903
          Total Current Assets               173,651,114       132,451,970

  LONG-TERM ASSETS
  Property, plant and equipment, net          96,085,233        98,154,443
  Land use rights, net                       154,233,322       148,988,870
  Deposit for long-term assets                        --         6,347,174
  Construction in progress                    26,645,307        25,385,835
  Deferred tax assets                            127,823         1,313,832
  Other intangible assets, net                19,911,767        23,690,440
  Goodwill                                    33,164,121        33,164,121
  Investments in and advances to equity
   investments                                54,995,237        54,963,064
  Unamortized financing costs                  3,519,766         4,215,983
         Total Long-Term Assets              388,682,576       396,223,762

              TOTAL ASSETS                  $562,333,690      $528,675,732

  LIABILITIES AND SHAREHOLDERS' EQUITY

                                            September 30,      December 31,
                                                2009              2008
                                                               As Restated

  CURRENT LIABILITIES
  Accounts payable                           $10,082,129       $12,287,887
  Notes payables                               4,084,893         3,262,877
  Other payables and accrued expenses         19,556,446        19,766,652
  Taxes payable                                1,108,783           420,671
  Short-term bank loans                        9,652,509         7,140,148
  Current portion of long-term bank
   loans                                          59,771            58,659
  Other liabilities                            2,334,788         2,253,440
  Deferred tax liability                         176,449           178,931
        Total Current Liabilities             47,055,768        45,369,265

  LONG-TERM LIABILITIES
  Long-term bank loans                           759,597           804,521
  Long-term notes payable                             --           269,908
  Deferred tax liabilities                    15,502,047        17,635,511
  Unrecognized tax benefits                    1,903,342
  Convertible Note                           115,000,000       115,000,000
       Total Long-Term Liabilities           133,164,986       133,709,940
            TOTAL LIABILITIES                180,220,754       179,079,205

  EQUITY
  SHAREHOLDERS' EQUITY
  Preferred stock, $0.001 par value;
   2,000,000 shares authorized;
   1,000,000 shares issued and
   outstanding at September 30 , 2009
   and December 31, 2008,
   respectively                                    1,000             1,000
  Common stock, $0.001 par value;
   150,000,000 shares authorized;
   78,321,439 and 78,249,264 shares
   issued and outstanding at
   September 30, 2009 and December
   31, 2008, respectively.                        78,321            78,249
  Common stock to be issued                      291,000           376,335
  Prepaid forward repurchase contract        (29,998,616)      (29,998,616)
  Additional paid-in capital                 199,363,784       197,046,688
  Retained earnings (the restricted
   portion of retained earnings is
   $19,924,918
   at September 30 , 2009 and December
   31, 2008, respectively)                   179,500,646       149,752,604
  Accumulated other comprehensive
   income                                     32,343,586        31,688,186
       Total Shareholders' Equity            381,579,721       348,944,446
  NONCONTROLLING INTEREST                        533,215           652,081
              TOTAL EQUITY                   382,112,936       349,596,527
   TOTAL LIABILITIES AND SHAREHOLDERS'
                 EQUITY                     $562,333,690      $528,675,732


DATASOURCE: American Oriental Bioengineering, Inc.



CONTACT: Integrated Corporate Relations, Inc., Ashley M. Ammon, +1-646-

277-1227



Web site: http://www.bioaobo.com/ 

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