American Oriental Bioengineering Inc. (AOBI)

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AOB Reports Second Quarter 2010 Financial Results
- Prescription and New Product Sales Ramp Up -
- Initial Success of R&D and Rural Area Focus Strategy Realized -

Press Release Source: American Oriental Bioengineering, Inc. On Monday August 9, 2010, 6:00 am EDT
NEW YORK, Aug. 9 /PRNewswire-Asia-FirstCall/ -- American Oriental Bioengineering, Inc. (NYSE:AOB - News), ("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 second quarter ended June 30, 2010.

Second Quarter 2010 Financial Performance

Revenue in the second quarter of 2010 increased 8.5% year over year to $77.3 million from $71.2 million, reflecting continued demand for the Company's core prescription products.


-- Revenue from pharmaceutical products increased 9.1% to $63.8 million from $58.4 million in the second quarter of 2009. Revenue from prescription pharmaceutical products increased 20.8% to $30.4 million from $25.2 million in the prior year period, primarily due to the increase sales of the Jinji capsule, SHL powder, YYQH capsule and the expansion of CCXA generic pharmaceutical products in the rural market. The overall increase in sales was supported by our continuous marketing efforts, increase in new products offerings, as well as expanding coverage in the rural market. OTC pharmaceutical products generated $33.4 million in revenue during the second quarter of 2010, compared to $33.3 million in the prior year period. -- Nutraceutical products generated revenue of approximately $9.9 million in the second quarter of 2010, up 4.3% from $9.5 million in the prior year period, reflecting increased sales of soybean milk as the market expanded. -- The Company generated $3.6 million from its distribution business, Nuo Hua, in the second quarter of 2010. An increase of 10.0% was mainly attributed to Nuo Hua's expanding market coverage.
Gross profit in the second quarter of 2010 was $39.8 million, compared to $41.6 million in the second quarter of 2009. Gross margin was 51.5%, compared to 58.4% in the prior year period and 52.5% in the prior quarter reflecting a greater proportion of generic product sales in the rural market. Further, the increased purchase prices of certain raw materials increased the cost of sales also contributed to lower gross profit.

Operating income in the second quarter of 2010 was $9.1 million, compared to $18.0 million in the prior year period. Selling and marketing expenses increased 22.4% to $11.5 million from $9.4 million in the prior year period, and advertising expense increased 18.5% to $9.2 million in the second quarter of 2010 from $7.8 million in the prior year period. General and administrative expenses increased 28.1% to $5.2 million from $4.0 million in the prior year period. Research and development expenses increased to $3.3 million from $0.8 million in the prior year period, reflecting the Company's continued efforts in research and development activities. Our research and development activities consist of near term, middle team and long term stages which contribute to both our current and future business strategies.

Net income attributable to controlling interest for the second quarter of 2010 was $5.1 million, compared to $12.6 million in the prior year period. The Company's net income attributable to controlling interest was $0.07 per diluted share, compared to $0.16 per diluted share in the same period of 2009.

Six Month Financial Performance

Revenue for the six months ended June 30, 2010 increased 11.7% to $131.0 million from $117.3 million in the first six months of 2009. During the same time period, gross profit was $68.1 million, compared to $70.0 million in the first six months of 2009. Operating income in the first six months of 2010 was $15.5 million, compared to $28.9 million in the first six months of 2009. Net income attributable to controlling interest for the first six months of 2010 was $8.2 million, compared to $19.7 million in the prior year period. In the first six months of 2010, net income per diluted share was approximately $0.11.

Balance Sheet

As of June 30, 2010, the Company had $96.4 million in cash and cash equivalents, and generated approximately $7.7 million of operating cash flow during the first half of 2010. Working capital was $147.0 million as of June 30, 2010, reflecting an increase of 12.3% from $130.9 million as of December 31, 2009.

Mr. Tony Liu, Chairman and Chief Executive Officer of American Oriental Bioengineering, commented, "AOBO's prescription product division ramped up very quickly in the second quarter of 2010. The double digit growth is a result of our previous investment in new products as well as continued strong demand for existing branded products. During the past quarter, we continued to execute our R&D-driven strategy, which consumed 4.2% of total revenue. Our focus on upgrading existing products and developing new ones will proactively prepare AOB for both near term and long term growth. Furthermore, we continued to strengthen and integrate AOBO's unified mega brand through an effective advertising campaign as well as fortify our presence in rural areas with advanced sales network expansion. Meanwhile, we consistently monitored our inventory of raw materials and assiduously controlled costs, which partially offset the two prevalent influences of rising raw material costs and labor costs. These combined efforts are aimed to help AOBO more effectively adjust to policy changes and capitalize on emerging opportunities."

Conference Call

The Company will hold a conference call at 8:00 am ET on Monday, August 9, to discuss its results. Listeners may access the call by dialing 1-800-573- 4842 or 1-617-224-4327 for international callers, access code: 10613898. A webcast will also be available through AOB's website at http://www.bioaobo.com . A replay of the call will be available through August 16, 2010. Listeners may access the replay by dialing 1-888-286-8010 or 1-617-801-6888 for international callers, access code: 35043398.

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.


AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 2010 2009 2010 2009 Revenues $77,296,212 $71,222,037 $131,045,980 $117,299,227 Cost of sales 37,455,860 29,594,923 62,968,907 47,255,261 GROSS PROFIT 39,840,352 41,627,114 68,077,073 70,043,966 Selling and marketing expenses 11,505,462 9,396,129 17,481,688 14,607,631 Advertising costs 9,217,247 7,779,936 15,965,717 13,347,293 Research and development costs 3,250,882 809,584 6,029,691 1,559,382 General and administrative expenses 5,158,104 4,026,425 9,924,590 8,417,126 Depreciation and amortization 1,622,989 1,623,556 3,219,947 3,256,142 Total operating expenses 30,754,684 23,635,630 52,621,633 41,187,574 INCOME FROM OPERATIONS 9,085,668 17,991,484 15,455,440 28,856,392 Equity in earnings (loss) from unconsolidated entities (170,799) (173,258) (53,326) 264,536 Interest expense, net 1,371,246 1,620,069 2,937,031 3,199,338 Other expenses, net 30,039 16,329 17,792 114,938 INCOME BEFORE INCOME TAXES 7,513,584 16,181,828 12,447,291 25,806,652 Income tax 2,395,850 3,735,558 4,211,780 6,205,322 NET INCOME 5,117,734 12,446,270 8,235,511 19,601,330 Net loss attributable to non-controlling interest 6,476 123,068 11,876 119,517 NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST 5,124,210 12,569,338 8,247,387 19,720,847 OTHER COMPREHENSIVE INCOME 1,843,654 21,945 1,936,503 513,282 COMPREHENSIVE INCOME $6,967,864 $12,591,283 $10,183,890 $20,234,129 EARNINGS PER COMMON SHARE Basic $0.07 $0.17 $0.11 $0.27 Diluted $0.07 $0.16 $0.11 $0.26 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 74,743,986 74,582,920 74,680,327 74,560,809 Diluted 75,857,073 88,815,593 75,502,489 86,939,711 AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) JUNE 30, DECEMBER 31, 2010 2009 CURRENT ASSETS Cash and cash equivalents $96,433,832 $91,126,486 Restricted Cash 1,103,535 3,298,379 Accounts and notes receivable, net 66,767,659 57,504,454 Inventories, net 19,016,578 10,015,711 Advances to suppliers and prepaid expenses 5,937,021 13,901,180 Deferred tax assets 550,535 824,451 Other current assets 1,347,639 1,246,647 Total Current Assets 191,156,799 177,917,308 LONG-TERM ASSETS Property, plant and equipment, net 95,445,470 95,468,265 Land use rights, net 152,594,995 153,604,196 Other long term assets 7,967,784 7,909,086 Construction in progress 29,324,123 28,975,386 Other intangible assets, net 16,329,103 18,695,554 Goodwill 33,164,121 33,164,121 Investments in and advances to equity investments 57,441,048 57,325,887 Deferred tax assets 143,781 134,268 Unamortized financing costs 2,823,549 3,287,694 Total Long-Term Assets 395,233,974 398,564,457 TOTAL ASSETS $586,390,773 $576,481,765 LIABILITIES AND SHAREHOLDERS' EQUITY JUNE 30, DECEMBER 31, 2010 2009 CURRENT LIABILITIES Accounts payable $11,477,039 $7,497,143 Notes payable 1,103,535 3,392,575 Other payables and accrued expenses 16,935,522 22,320,757 Taxes payable 605,024 947,338 Short-term bank loans 8,959,257 10,384,368 Current portion of long-term bank loans 60,629 60,108 Other liabilities 4,842,631 2,199,280 Deferred tax liabilities 173,496 172,473 Total Current Liabilities 44,157,133 46,974,042 LONG-TERM LIABILITIES Long-term bank loans, net of current portion 710,598 743,957 Deferred tax liabilities 15,652,960 15,961,465 Unrecognized tax benefits 3,871,701 2,746,561 Convertible Notes 115,000,000 115,000,000 Total Long-Term Liabilities 135,235,259 134,451,983 TOTAL LIABILITIES 179,392,392 181,426,025 EQUITY SHAREHOLDERS' EQUITY Preferred stock, $0.001 par value; 2,000,000 shares authorized; 1,000,000 shares issued and outstanding at at June 30, 2010 and December 31, 2009, respectively 1,000 1,000 Common stock, $0.001 par value; 150,000,000 shares authorized; 78,580,138 and 78,321,419 shares issued and outstanding at June 30, 2010 and December 31, 2009,respectively. 78,580 78,321 Common stock to be issued 181,500 388,000 Prepaid forward repurchase contract (29,998,616) (29,998,616) Additional paid-in capital 201,806,789 199,829,921 Retained earnings (the restricted portion of retained earnings is $23,757,901 at June 30 and December 31, 2009.) 199,421,141 191,173,754 Accumulated other comprehensive income 34,986,727 33,050,224 Total Shareholders' Equity 406,477,121 394,522,604 Non-controlling Interest 521,260 533,136 TOTAL EQUITY 406,998,381 395,055,740 TOTAL LIABILITIES AND EQUITY $586,390,773 $576,481,765 For more information, please contact: ICR, LLC Christine Duan or Ashley Ammon Tel: [phone]