American Oriental Bioengineering 10Q/A 2009 Q3 Quarterly report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________________

FORM 10-Q/A

(Amendment No. 1)

_________________________

(Mark One)

x	Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2009

¨	Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to

Commission File No. 001-32569

_________________________

AMERICAN ORIENTAL BIOENGINEERING, INC.

(Exact Name of Registrant as Specified in Its Charter)

_________________________

NEVADA	84-0605867
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1 Liangshuihe First Ave, Beijing E-Town Economic and Technology Development Area, E-Town,

Beijing, 100176, People’s Republic of China

(Address of principal executive offices) (Zip Code)

86-10-5982-2039

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

_________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares outstanding of each class the issuer’s common stock as of the latest practicable date is stated below


Title of each class of common stock		Outstanding as of September 30, 2009
Preferred Stock, $0.001 par value		1,000,000
Common Stock, $0.001 par value		78,321,439

EXPLANATORY NOTE

We are filing this Amendment No. 1 to Quarterly Report on Form 10-Q/A to amend Item 4 of Part I: Controls and Procedures and to file Exhibit 10.11 Form of Stock Award and Non-Qualified Stock Option Grant Agreement.

This Amendment does not reflect any events occurring subsequent to November 16, 2009, the filing date of the original report.

Table of Contents


PART I – FINANCIAL INFORMATION	3

ITEM 1 – FINANCIAL STATEMENTS	3

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31

ITEM 4 – CONTROLS AND PROCEDURES	31

PART II – OTHER INFORMATION	32

ITEM 1 – LEGAL PROCEEDINGS	32

ITEM 1A – RISK FACTORS	32

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	32

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES	32

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	32

ITEM 5 – OTHER INFORMATION	32

ITEM 6 – EXHIBITS	33

PART I – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS

	SEPTEMBER 30, 2009		DECEMBER 31, 2008
	(UNAUDITED)		(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		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 and advances in unconsolidated entities		54,995,237		54,963,064
Unamortized financing cost		3,519,766		4,215,983
Total Long-Term Assets		388,682,576		396,223,762

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

See accompanying notes to the condensed consolidated financial statements

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

LIABILITIES AND EQUITY

	SEPTEMBER 30, 2009			DECEMBER 31, 2008
	(UNAUDITED)			(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, net of current portion		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 notes		115,000,000			115,000,000
Total Long-Term Liabilities		133,164,986			133,709,940
TOTAL LIABILITIES		180,220,754			179,079,205

COMMITMENTS AND CONTINGENCIES

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 (including Statutory Reserve amounted to $19,924,918
at BOTH 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
NON-CONTROLLING INTEREST		533,215			652,081
TOTAL EQUITY		382,112,936			349,596,527
TOTAL LIABILITIES AND EQUITY	$	562,333,690		$	528,675,732

See accompanying notes to the condensed consolidated financial statements

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

	THREE MONTHS ENDED SEPTEMBER 30,						NINE MONTHS ENDED SEPTEMBER 30,
	2009			2008			2009			2008
				(RESTATED)						(RESTATED)
SALES REVENUE	$	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 EXPENSE		(1,106,805	)		(1,143,013	)		(4,306,143	)		(1,156,782	)
OTHER INCOME (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
LESS: NET INCOME (LOSS) ATTRIBUTABLE TO NON-CONTROLLING INTEREST		651			-			(118,866)			-
NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST		10,027,195			16,283,053			29,748,042			39,231,126

OTHER COMPREHENSIVE INCOME		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

See accompanying notes to the condensed consolidated financial statements

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30 ,
	2009		2008
			(RESTATED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	29,629,176	$	39,231,126
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		9,228,771		7,035,052
Loss (gain) on disposal of plant and equipment		(2,283)		(7,016)
Amortization of deferred issuance cost		696,216		193,394
Amortization of deferred consulting expenses		24,000		152,500
Provision (reversal) for doubtful accounts and slow moving inventories		155,205		(189,096)
Deferred taxes		(1,001,284)		897,889
Common stock issued for services		160,800		68,000
Stock option compensation expense		1,780,028		1,223,661
Independent director stock compensation		291,000		279,334
Equity in (income) loss from unconsolidated entities		299,072		591,650

Changes in operating assets and liabilities:
(Increase) Decrease In:
Accounts receivable		(1,265,446)		(7,983,619)
Notes receivable		585,776		1,669,891
Inventories		(2,124,681)		(4,899,509)
Advances to suppliers and prepaid expenses		838,971		2,841,964
Other current asset		(433,412)		1,115,016

Increase (Decrease) In:
Accounts payable		(2,205,758)		1,351,984
Other payables and accrued expenses		4,996,540		4,893,468
Taxes payable		688,112		1,641,432
Other liabilities		81,348		(1,275,988)
Unrecognized tax benefits		1,903,342		-
Net cash provided by operating activities		44,325,493		48,831,133

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of construction in progress		(742,477)		(274,216)
Purchases of property, plant and equipment		(756,009)		(20,236,226)
Purchase of land use rights and other intangible assets		(757,662)		(15,407,685)
Refundable deposit		6,397,106		(2,907,156)
Deposit for long-term assets		(361,602)		(23,565,407)
Proceeds from disposal of plant and equipment		52,229		7,774
Investments in and advances to equity investments		(238,795)		(21,762,253)
Net cash used in investing activities		3,592,790		(84,145,169)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loans		9,951,673		6,584,312
Repayments of bank loans		(7,501,752)		(6,624,824)
Proceeds from notes payable		6,668,151		(71,240)
Net proceeds from convertible notes		-		110,358,550
Prepaid forward repurchase		-		(29,998,616)
Repayment of notes payable and interest		(6,124,418)		-
Repayment of convertible notes interest		(5,750,000)		-
Net cash used in financing activities		(2,756,346)		80,248,182

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		45,161,937		44,934,146
Effect of exchange rate changes on cash		124,952		8,382,822
Cash and cash equivalents, beginning of year		70,636,510		166,410,075

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	115,923,399	$	219,727,043

See accompanying notes to the condensed consolidated financial statements

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements of American Oriental Bioengineering, Inc. and subsidiaries (the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the requirements for reporting on Form 10-Q. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year. The condensed consolidated balance sheet as of December 31, 2008 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K/A. These interim financial statements should be read in conjunction with that report.

Basis of Consolidation - The condensed consolidated financial statements include the accounts of American Oriental Bioengineering, Inc. and its subsidiaries. Inter-company accounts and transactions have been eliminated in consolidation.

Use of Estimates - The preparation of the unaudited condensed consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates reflected in the condensed consolidated financial statements include, but are not limited to, the recoverability of the carrying amount and estimated useful lives of long-lived assets, allowance for accounts receivable, realizable values for inventories, valuation allowance of deferred tax assets, purchase price allocation of its acquisitions and share-based compensation expenses. Management makes these estimates using the best information available at the time the estimates are made; however, actual results when ultimately realized could differ from those estimates. See “Critical Accounting Policies and Estimates” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations” section below.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS

Revenue Recognition – Revenues represent the invoiced value of goods sold, recognized upon the shipment of goods to customers. Revenues are recognized when all of the following criteria are met:

●

Persuasive evidence of an arrangement exists,

●

Delivery has occurred or services have been rendered,

●

The seller's price to the buyer is fixed or determinable, and

●

Collectability is reasonably assured.

Starting 2008, the Group offered sales rebates to its major customers based on collections made during the year, provided that the customers make payments prior to certain days after year end. The rebates are calculated based on different percentages depending on settlement methods, which include settling by cash or notes receivable. Customers are entitled to either cash rebates or receiving additional free inventory based on predetermined price. In accordance with ASC 605, the Group accounted for estimated cash settlement as sales discount, and estimated free inventory as cost of sales, upon recognition of revenue.

Selling and Marketing Expenses – Selling and marketing expenses include the costs of selling merchandise, including preparing the merchandise for sale, such as picking, packing, warehousing and order charges. All shipping and handling are expensed as incurred and outbound freight is not billed to customers.

Advertising Costs – The Company expenses advertising costs as incurred or the first time advertising takes place. Point of sale materials are accounted for as inventory and charged to expense as utilized.

Research and Development – Research and development costs are expensed as incurred. Engineers and technical staff are involved in the production of our products as well as on-going research, with no segregation of the portion of their salaries relating to research and development from the portion of their salaries relating to production. The total salaries are included in cost of goods sold. Research and development expense for the three months ended September 30, 2009 and 2008 is $637,657 and $437,712, respectively and is included in general and administrative expenses.

Foreign Currency Translation – The accompanying condensed consolidated financial statements are presented in United States dollars (USD). The functional currency of the Company is United States dollars (USD) and of the Company’ subsidiaries operating in PRC is Chinese Renminbi (RMB). Capital accounts of the financial statements are translated into United States dollars from RMB at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rates as of balance sheet date. Income and expenditures are translated at the average exchange rate for the quarter.

	September 30, 2009	September 30, 2008
Quarter end RMB : US$ exchange rate	6.8376	6.8551
Average quarterly RMB : US$ exchange rate	6.8412	6.8635

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation.

Comprehensive Income – Comprehensive income is defined to include changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, items that are required to be recognized under current accounting standards as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. Comprehensive income for the Company includes net income attributable to controlling interest and the foreign currency translation gain.

Stock Based Compensation – The Company estimates fair value of restricted stock based compensation on the number of shares granted and the quoted price of the Company’s common stock on the date of grant. The fair value of stock options is estimated using the Black-Scholes model. The Company’s expected volatility assumption is based on the historical volatility of Company’s stock. The expected life assumption is presumed to be the mid-point between the vesting date and the end of the contractual term, as is permitted for “plain vanilla” employee stock options. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

Stock compensation expense recognized is based on awards expected to vest, and there were no estimated forfeitures as the current options outstanding were only issued to founders and senior executives of the Company, which have very low turnover. Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 718 “Compensation – Stock Compensation” requires forfeitures to be estimated at the time of grant and revised in subsequent periods, if necessary, if actual forfeitures differ from those estimates.

Income Taxes –The Group accounts for income taxes in accordance with ASC 740, “Accounting for Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Group records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.

Effective January 1, 2007, the Group adopted ASC 740-10-25/30 (formerly Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109” (“FIN 48”)). FIN 48 clarifies the accounting for uncertainty in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. The cumulative effects of applying FIN 48, if any, is recorded as an adjustment to retained earnings as of the beginning of the period of adoption. The Group’s adoption of FIN 48 did not result in any adjustment to the opening balance of the Group’s retained earnings as of January 1, 2007.

Segment Reporting – The Company has two operating segments based on its major lines of businesses: manufacturing and distribution. Each operating segment derives its revenues from the sale of products or services, respectively and each is the responsibility of a group of senior management of the Company who has knowledge of product and service specific operational risks and opportunities. The Company’s chief operating decision maker reviews and evaluates two sets of financial information deciding how to allocate resources and in assessing performance.

For the three and nine months ended September 30, 2009 and 2008 the Company’s manufacturing and distribution revenue are as follows:

	Three Months Ended September 30 , (Unaudited)				Nine Months Ended September 30 , (Unaudited)
	2009		2008		2009		2008

Revenue from pharmaceutical products	$	66,023,106	$	62,095,466	$	159,141,380	$	143,747,290
Revenue from nutraceutical products		9,241,744		8,498,483		27,677,227		24,625,262
Total manufacturing revenue		75,264,850		70,593,949		186,818,607		168,372,552
Distribution revenue		3,553,816		-		9,299,286		-

Total sales revenue	$	78,818,666	$	70,593,949	$	196,117,893	$	168,372,552

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

For the three and nine months ended September 30, 2009 and 2008 the Company’s operating income are as follows:

	Three Months Ended September 30 , (Unaudited)				Nine Months Ended September 30 , (Unaudited)
	2009		2008		2009		2008
			(Restated)				(Restated)

Operating income from pharmaceutical products	$	11,915,281	$	18,067,144	$	34,083,523	$	41,803,078
Operating income from nutraceutical products		3,080,589		3,556,564		10,181,561		10,096,294
Total manufacturing operating income		14,995,870		21,623,708		44,265,084		51,899,372
Distribution operating income		9,325		-		(403,497)		-

Total operating income	$	15,005,195	$	21,623,708	$	43,861,587	$	51,899,372

At September 30, 2009 and December 31, 2008, the total assets for the manufacturing, distribution and corporate segments are as follows:

	September 30 , 2009		December 31, 2008
	(Unaudited)		(Restated)

Manufacturing	$	368,173,989	$	316,767,049
Distribution		52,888,727		52,445,008
Corporate		141,270,974		159,463,675

Total assets	$	562,333,690	$	528,675,732

Cash and Cash Equivalents – The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. The majority of the Company’s cash as of September 30, 2009 is in our current working capital bank account. Restricted cash for the issuance of bank acceptance notes amounted to $3,903,718 and $2,575,741 were included in the cash and cash equivalents balance as of September 30, 2009 and December 31, 2008, respectively.

Fair Value of Financial Instruments –FASB ASC 820 “Fair Value Measurements and Disclosures” establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market.

These tiers include:

Level 1—defined as observable inputs such as quoted prices in active markets;

Level 2—defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and

Level 3—defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, notes receivable, short-term and long-term bank loans, accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of these instruments. The convertible notes are initially recognized at fair value upon issuance and subsequently accreted to the redemption value using the effective interest rate method, with any accrued and unpaid interest is included under other payables and accrued expenses.

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

Recently Issued Accounting Standards

On April 1, 2009, the FASB approved FSP FAS 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which amends Statement 141(R), as incorporated into Accounting Standards Codification Topic 805, “Business Combinations” (“ASC 805”), and eliminates the distinction between contractual and non-contractual contingencies. Under the updated standard an acquirer is required to recognize at fair value an asset acquired or liability assumed in a business combination that arises from a contingency if the acquisition-date fair value of that asset or liability can be determined during the measurement period. If the acquisition-date fair value cannot be determined, the acquirer applies the recognition criteria in Accounting Standards Codification Topic 450, “Contingencies” (“ASC 450”)(No. 5, Accounting for Contingencies and Interpretation 14, “Reasonable Estimation of the Amount of a Loss – and interpretation of FASB Statement No. 5,”) to determine whether the contingency should be recognized as of the acquisition date or after it. This guidance is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of such standard has not had a material impact on our condensed consolidated financial statements.

In April 2009, the FASB issued Staff Position (“FSP”) No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”) as incorporated into Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”). The guidance relates to determining fair values when there is no active market or where the price inputs being used represent distressed sales. It reaffirms what ASC 820 (SFAS No. 157) states is the objective of fair value measurement—to reflect how much an asset would be sold for in an orderly transaction (as opposed to a distressed or forced transaction) at the date of the financial statements under current market conditions. Specifically, it reaffirms the need to use judgment to ascertain if a formerly active market has become inactive and in determining fair values when markets have become inactive. This guidance is effective for interim and annual periods ending after June 15, 2009, but entities may early adopt this guidance for the interim and annual periods ending after March 15, 2009. The adoption of such standard has not had a material impact on our condensed consolidated financial statements.

FSP FAS 115-2 and FAS 124-2 , as incorporated into Accounting Standards Codification Topic 320, “Investments- Debt and Equity Securities” (“ASC 320”) amend the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. It does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. Disclosures for periods presented for comparative purposes at initial adoption are not required. This guidance is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. The adoption of such standard has not had a material impact on our condensed consolidated financial statements.

On April 9, 2009, the FASB approved FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments to require disclosures about fair value of financial instruments in interim period financial statements of publicly traded companies and in summarized financial information required by APB Opinion No. 28, Interim Financial Reporting. This guidance was incorporated into Accounting Standards Codification Topic 825, “Financial Instruments” (“ASC 825”) which was effective for interim and annual reporting periods ending after June 15, 2009 and was adopted starting third quarter 2009. Under the standard comparative disclosures are only required for periods ending after initial adoption.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events,” (Accounting Standards Codification Topic 855-10) which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements. The statement is effective for interim and annual periods ending after June 15, 2009. The Company has adopted the statement and evaluated all subsequent events up until November 16, 2009.

In June 2009, the FASB issued FASB Accounting Standards Update (ASU) 2009-01, which amends ASC Topic 105, “Generally Accepted Accounting Principles” ( Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162,” ) , which establishes the FASB Accounting Standards Codification TM (“Codification”) as the source of authoritative generally accepted accounting principles in the United States (“GAAP”) for nongovernmental entities. The Codification does not change GAAP. Instead, it takes the thousands of individual pronouncements that currently comprise GAAP and reorganizes them into approximately 90 accounting Topics, and displays all Topics using a consistent structure. Contents in each Topic are further organized first by Subtopic, then Section and finally Paragraph. The Paragraph level is the only level that contains substantive content. Citing particular content in the Codification involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure. FASB suggests that all citations begin with “FASB ASC”. Changes to the ASC subsequent to June 30, 2009 are referred to as Accounting Standards Updates (“ASU”).

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

In August 2009, the FASB issued Accounting Standards Update No. 2009-5, “Measuring Liabilities at Fair Value” (“ASU 2009-05”). ASU 2009-05 amends Accounting Standards Codification Topic 820, “Fair Value Measurements”. Specifically, ASU 2009-05 provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities or similar liabilities when traded as assets and/or 2) a valuation technique that is consistent with the principles of Topic 820 of the Accounting Standards Codification (e.g. an income approach or market approach). ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The Company does not anticipate that the adoption of this statement will have a material impact on its condensed consolidated financial statements.

In September 2009, the Emerging Issues Task Force reached final consensus on ASU 2009-13, “Revenue Arrangements with Multiple Deliverables”. ASU 2009-13 addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, and how the arrangement consideration should be allocated among the separate units of accounting. The topic may be applied retrospectively or prospectively for new or materially modified arrangements and early adoption is permitted. The Company is currently evaluating the potential impact of adopting this statement.

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

NOTE 3 – RESTATEMENT OF PRIOR PERIOD CONSOLIDATED FINANCIAL STATEMENTS

During the review of its third quarter September 30, 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 subsidiairies. 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 certain applicable financial statements as of and for the years ended December 31, 2008 and 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.

Because the errors also impacted the first two quarters of 2009, the following tables set forth the effects of the restatement on our previously reported unaudited interim condensed consolidated balance sheets and the related condensed consolidated statements of operations and cash flows as of and for the three month periods ended March 31, 2009 and June 30, 2009:

CONDENSED CONSOLIDATED BALANCE SHEETS

	As of March 31, 2009							As of June 30, 2009
	Previously		Adjustments			As Restated		Previously		Adjustments			As Restated
	Reported		Adjustments			As Restated		Reported		Adjustments			As Restated

Deferred tax assets	$	456,444	$	-		$	456,444	$	421,660	$	-		$	421,660
Goodwill		28,543,226		4,620,895			33,164,121		28,543,226		4,620,895			33,164,121
Total assets		524,860,987		4,620,895			529,481,882		540,796,581		4,620,895			545,417,476
Deferred tax liability - current		999,454		(805,826	)		193,628		1,121,738		(943,828	)		177,910
Other payables and accrued expenses		13,578,351		93,301			13,671,652		14,251,673		187,639			14,439,312
Deferred tax liability - non current		16,102,048		1,556,973			17,659,021		15,963,766		1,698,702			17,662,468
Unrecognized tax benefits		-		387,095			387,095		-		774,190			774,190
Total liabilities		170,340,559		1,231,543			171,572,102		172,588,137		1,716,703			174,304,840
Additional paid-in capital		196,352,466		1,560,370			197,912,836		196,752,860		1,759,609			198,512,469
Retained earnings		157,790,182		(886,069	)		156,904,113		171,019,548		(1,546,097	)		169,473,451
Accumulated other comprehensive income		29,464,472		2,715,051			32,179,523		29,510,788		2,690,680			32,201,468
Total equity		354,520,428		3,389,352			357,909,780		368,208,444		2,904,192			371,112,636
Total liabilities and shareholders’ equity	$	524,860,987	$	4,620,895		$	529,481,882	$	540,796,581	$	4,620,895		$	545,417,476

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

	Three months ended March 31, 2009							Three months ended June 30, 2009
	Previously		Adjustments			As Restated		Previously		Adjustments			As Restated
	Reported		Adjustments			As Restated		Reported		Adjustments			As Restated

General and administrative	$	4,565,643	$	348,527		$	4,914,170	$	4,315,714	$	293,577		$	4,609,291
Income from operations		11,213,435		(348,527	)		10,864,908		18,285,061		(293,577	)		17,991,484
Income before income tax		9,973,351		(348,527	)		9,624,824		16,475,405		(293,577	)		16,181,828
Income tax		2,103,299		366,465			2,469,764		3,369,107		366,451			3,735,558
Net income		7,870,052		(714,992	)		7,155,060		13,106,298		(660,028	)		12,446,270
Foreign currency translation gain		378,466		112,871			491,337		46,316		(24,371	)		21,945
Comprehensive income		8,244,967		(602,121	)		7,642,846		13,275,682		(684,399	)		12,591,283
Basic EPS		0.11		(0.01	)		0.10		0.18		(0.01	)		0.17
Diluted EPS	$	0.11	$	(0.01	)	$	0.10	$	0.17	$	(0.01	)	$	0.16

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three months ended March 31, 2009							Six months ended June 30, 2009
	Previously Reported		Adjustments			As Restated		Previously Reported		Adjustments			As Restated

Net income	$	7,870,052	$	(714,992	)	$	7,155,060	$	20,976,350	$	(1,375,020	)	$	19,601,330
Deferred tax		54,118		(40,200	)		13,918		67,471		57,865			125,336
Stock option compensation expense		234,631		255,226			489,857		673,035		454,465			1,127,500
Unrecognized tax benefits		-		387,095			387,095		-		774,190			774,190
Net cash provided by operating activities		3,641,873		(112,871	)		3,529,002		26,540,242		(88,500	)		26,451,742
Net increase (Decrease) in cash and cash equivalents		3,160,019		(112,871	)		3,047,148		29,976,336		(88,500	)		29,887,836
Effect of exchange rate change on cash	$	103,073	$	112,871		$	215,944	$	117,556	$	88,500		$	206,056

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

NOTE 4 – EARNINGS PER SHARE

Basic earnings per share are computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding, excluding common shares to be delivered under a prepaid forward repurchase contract (3,712,700 shares), during the period. Diluted earnings per share is computed similar to basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

The following is a reconciliation of the numerator and denominator used in the calculation of basic and diluted earnings per share available to common shareholders.

	Three Months Ended September 30, (Unaudited)				Nine Months Ended September 30, (Unaudited)
	2009		2008		2009		2008
			(Restated)				(Restated)
Numerator:
Net income attributable to controlling interest	$	10,027,195	$	16,283,053	$	29,748,042	$	39,231,126
Interest expense on convertible securities, net of taxes		1,437,500		1,197,917		4,312,500		1,197,917
Amortization of financing costs, net of taxes		232,072		193,394		696,217		193,394
Less: capitalization of interest on convertible securities		(543,254)		-		(543,254)		-
Net income, as adjusted	$	11,153,513	$	17,674,364	$	34,213,505	$	40,622,437

Denominator:
Weighted average shares outstanding – Basic		74,636,155		75,101,869		74,592,447		77,164,602
Effect of dilutive instruments:
Convertible notes		14,232,673		10,315,752		14,232,673		3,388,385
Warrants		-		-		-		660
Weighted average shares outstanding – Diluted		88,868,828		85,417,621		88,825,120		80,553,647

The calculation of weighted average common shares outstanding for the diluted calculation excludes consideration of stock options for the three and nine months ended September 30, 2009 and 2008, respectively, because the exercise of these options would not have been dilutive for those periods due to the fact that the exercise prices were greater than the weighted average market price of our common stock for each of those periods.

As more fully discussed in Note 14, the Company had certain convertible notes outstanding during the periods presented. The aggregate number of shares of common stock that could be issued in the future to settle these notes is deemed outstanding for the purposes of the calculation of diluted earnings per share. This approach, referred to as the if-converted method, requires that such shares be deemed outstanding regardless of whether the notes are then contractually convertible into the Company’s common stock. For this if-converted calculation, the interest expense and issuance costs (net of tax) attributable to these notes are added back to Net Income, reflecting the assumption that the notes have been converted. The effects of share options granted in current and prior years have been excluded from the computation of dilutive earnings per share for the nine months ended September 30, 2008 and 2009, respectively, as the effects are anti-dilutive.

NOTE 5 – INVENTORIES

Inventories are summarized as follows:

	September 30, 2009		December 31, 2008
	(Unaudited)

Raw materials	$	8,059,007	$	5,569,981
Work in progress		851,667		2,350,291
Finished goods		6,419,113		5,289,280
		15,329,787		13,209,552
Less: provision for slow moving inventories		(38,077)		(167,429)
Inventories, net	$	15,291,710	$	13,042,123

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

NOTE 6 – NOTES RECEIVABLE

Notes receivable are bank acceptance notes collected from customers. The notes do not bear interest and are to be received within one year.

NOTE 7 – LAND USE RIGHTS

Land use rights consist of the following:

	September 30, 2009		December 31, 2008
	(Unaudited)

Cost of land use rights	$	159,967,312	$	152,297,695
Less: Accumulated amortization		(5,733,990)		(3,308,825)
Land use rights, net	$	154,233,322	$	148,988,870

Amortization expenses for the three months ended September 30, 2009 and 2008 were $844,710 and $279,504, respectively. Amortization expenses for the nine months ended September 30, 2009 and 2008 were $2,415,575 and $823,270, respectively.

As of September 30, 2009, the net book value of land use rights pledged as collateral was $18,342,399. See Note 13.

NOTE 8 – CONSTRUCTION IN PROGRESS

Construction in progress as of September 30, 2009 and December 31, 2008 were $26,645,307 and $25,385,835, respectively. During 2008, the Company acquired land use rights located close to its operating subsidiaries and started construction projects for the expansion of manufacturing facilities. These construction projects were in progress as of September 30, 2009.

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

NOTE 9 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

	September 30, 2009		December 31, 2008
	(Unaudited)
At cost:
Buildings	$	91,381,955	$	91,261,579
Machinery and equipment		20,878,274		20,665,315
Motor vehicles		1,490,382		1,568,059
Office equipment		2,136,840		1,543,300
Other equipment		483,130		482,097
Leasehold improvement		29,220		29,150
		116,399,801		115,549,500
Less : Accumulated depreciation
Buildings		(6,014,090)		(4,732,906)
Machinery and equipment		(12,086,449)		(10,782,285)
Motor vehicles		(1,081,223)		(998,535)
Office equipment		(965,498)		(771,630)
Other equipment		(145,392)		(91,078)
Leasehold improvement		(21,916)		(18,623)
		(20,314,568)		(17,395,057)
Property, plant and equipment, net	$	96,085,233	$	98,154,443

Depreciation expenses for the three months ended September 30, 2009 and 2008 were $681,740 and $823,996, respectively. Depreciation expenses for the nine months ended September 30, 2009 and 2008 were $2,981,421 and $2,414,154, respectively.

As of September 30, 2009, the net book value of property, plant and equipment pledged as collateral for bank loans was $ 5,870,710. See Note 13.

NOTE 10 – OTHER INTANGIBLE ASSETS, NET

Other intangible assets are summarized as follows:

	September 30, 2009		December 31, 2008
	(Unaudited)
At cost:
Product licenses	$	15,523,534		15,485,939
Trademarks		10,584,294		10,558,660
Patents		4,807,822		4,796,179
Proprietary technology		282,348		281,664
Software		73,819		73,640
		31,271,817		31,196,082
Less: Accumulated amortization		(11,360,050)		(7,505,642)
Other intangible assets, net	$	19,911,767		23,690,440

Amortization expenses for the three months ended September 30, 2009 and 2008 were $1,256,768 and $1,290,173 respectively. Amortization expenses for the nine months ended September 30, 2009 and 2008 were $3,831,775 and $3,797,628 respectively.

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

NOTE 11 – INVESTMENTS AND ADVANCES IN UNCONSOLIDATED ENTITIES

Long-term investments and advances include our equity investment in China Aoxing Pharmaceutical Company, Inc. (“CAXG”), equity investments in a wholesale and distribution company in Shandong province (“Nuo Hua Affiliate”), and Hezhou Jinji Color Printing Co Ltd. (“Jinji Printing”). CAXG is a China-based pharmaceutical company specializing in research, development, manufacturing and distribution of narcotic and pain-management products in China. Nuo Hua Affiliate maintains a significant presence in pharmaceutical wholesale and retail distribution in China. Jinji Printing is a color printing company focusing on the printing of external packaging materials.

The Company owns 37% equity interest in CAXG through an initial $18 million direct investment of its common stock in April 2008 and a subsequent conversion of approximately $4.5 million worth of promissory note into additional common stock in August 2009. The promissory note was an advance of RMB30 million to CAXG in May 2008. The note bears interest at a rate of 8% payable quarterly in arrears with an initial term of one year and was subsequently extended for an additional three months. The promissory note plus accrued interest was converted into CAXG’s common stock based on a predetermined conversion rate at maturity.

The Company also owns 30% equity interest in Nuo Hua Affiliate through the acquisition of Nuo Hua Investment Company Ltd. in October 2008 and the Company owns 40% equity interest in Jinji Printing through the acquisition of Guangxi Lingfeng Pharmaceutical Co. in April 2006. Long-term investments are accounted for using the equity accounting method.

The following table summarizes the long-term investments and advances as of September 30, 2009 and December 31, 2008:

	September 30, 2009		December 31, 2008
	(Unaudited)
Cost of investments:
CAXG	$	22,759,612	$	18,000,000
Nuo Hua Affiliate		32,999,023		32,999,023
Jinji Printing printing		86,067		86,067
Share of equity income (loss):
CAXG		(3,622,490)		(1,580,344	)
Nuo Hua Affiliate		2,598,073		773,415
Jinji Printing		44,921		42,303
Advances:
CAXG		-		4,520,209
Jinji Printing		130,031		122,391

Long-term investment and advances	$	54,995,237	$	54,963,064

For the three and nine months ended September 30, 2009 the Company’s equity in earnings from above unconsolidated entities are as follows:

	Three Months Ended September 30, 2009 (Unaudited)			Nine Months Ended September 30, 2009 (Unaudited)

Equity in income from Nuo Hua Affiliate	$	644,897		$	1,740,770
Equity in loss from CAXG		(1,209,349	)		(2,042,146	)
Equity in income from Jinji Printing		844			2,304
Total equity in earnings (loss) from unconsolidated entities	$	(563,608	)	$	(299,072	)

	Three Months Ended September 30, 2008 (Unaudited)		Nine Months Ended September 30, 2008 (Unaudited)
Equity in loss from CAXG		43,799		(597,416)
Equity in income from Jinji Printing		5,618		5,766
Total equity in earnings (loss) from unconsolidated entities	$	49,417	$	(591,650)

NOTE 12 – DEPOSIT FOR LONG-TERM ASSETS

Deposits for long term assets are refundable deposits to acquire land use rights located in the PRC. The land use rights to be acquired will be utilized in the expansion of some of the Company's current manufacturing facilities and are not intended for resale. As of September 30, 2009, the deposits had been reclassified to the land use rights upon the transfers of legal title.

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

NOTE 13 – DEBT

Short-term bank loans are obtained from local banks with weighted average interest rate of 5.55% per annum. All the short-term bank loans are repayable within one year and are secured by plant and equipment and land use rights owned by the Company. See Notes 7 and 9.

Long-term loan includes a mortgage loan that bears 2.50% interest per annum and is repayable over 15 years.

Current notes payable was $4,084,893 as of September 30, 2009 with interest rate at 5.29% per annum and is repayable on demand.

Interest expenses for all debts (exclude convertible notes) were $346,283 and $204,189 for the three months ended September 30, 2009 and 2008, respectively. Interest expenses for all debts (exclude convertible notes) were $1,039,361 and $597,930 for the nine months ended September 30, 2009 and 2008, respectively.

NOTE 14 – CONVERTIBLE NOTES

On July 15, 2008, the Company closed a private offering and issued $115 million aggregate principal amount of 5.00% Convertible Senior Notes due 2015 (the “Notes”). The Notes were sold to qualified institutional buyers in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended. The net proceeds from the sale of the Notes was approximately $110 million, after deducting the placement agents’ commission and estimated offering expenses payable by the Company. The following is a brief summary of certain terms of this offering.

Total offering is $115,000,000 aggregate principal amount of 5.00% Convertible Senior Notes due on July 15, 2015.

Interest at 5.00% per year, payable semiannually in arrears in cash.

The Notes are convertible, at the option of the holder, at any time prior to the close of business on the second business day preceding the maturity date based on an initial conversion rate of 107.6195 shares per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $9.29 per share.

The initial conversion rate may be adjusted on January 15, 2009 if the volume weighted average price (“VWAP”) of our common stock for each of the 30 consecutive trading days ending on January 15, 2009 is less than $8.08 per share, then the conversion rate will be increased as a one-time purchase price adjustment such that the conversion price as adjusted would represent the greater of (1) 115.0% of such arithmetic average of the daily VWAP and (2) $8.08. As of September 30, 2009, the conversion price was set at $8.08 per share.

The conversion rate is subject to certain adjustments. In particular, holders who convert their Notes in connection with certain fundamental changes may be entitled to a make whole premium in the form of additional shares of our common stock.

Holders may require the Company to purchase all or a portion of their Notes on July 15, 2013 for cash at a price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the purchase date.

If a fundamental change occurs, holders will have the right to require the Company to purchase for cash all or any portion of their Notes. The fundamental change purchase price will be 100% of the principal amount of the Notes to be purchased plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date.

The Notes will be unsecured, unsubordinated obligations and will rank equal in right of payment to all of the Company’s existing and future unsecured and unsubordinated indebtedness. The Notes will be effectively subordinated to all of the Company’s existing and future secured indebtedness.

Convertible notes issuance costs incurred by the Company that were directly attributable to the issuance of the Notes were deferred and charged to the consolidated statements of income using the straight-line method over the term of the convertible notes, the results of which approximate the effective interest rate method.

The Company has determined that the conversion feature embedded in the Notes is not required to be bifurcated and accounted for as a derivative pursuant to FASB ASC 815 Derivatives and Hedging, since the embedded conversion feature is indexed to the Company’s own stock and would be classified in shareholders’ equity if it was a free-standing instrument pursuant to guidance in FASB ASC 815-40 “Contracts in Entity's Own Equity”. Further, since neither the conversion price upon issuance nor the adjusted conversion price reset at January 15, 2009 is less than the market price of the Company’s ordinary shares on the date of issuance, no beneficial conversion feature existed.

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

NOTE 15 – PREPAID FORWARD SHARES REPURCHASE TRANSACTION

The Company entered into a prepaid forward shares repurchase contract with an affiliate of the lead placement agent (“Merrill affiliate”). Pursuant to the prepaid forward shares repurchase contract, the Company paid approximately $30 million to the Merrill affiliate to fund the repurchase of 3.7 million shares of common stock for settlement at or about maturity of the Notes. The forward shares repurchase transaction was also intended to reduce the potential dilution of our common stock that would result from the conversion of the Notes into shares of our common stock.

The $30 million cost of the forward stock purchase transaction qualifies as an equity transaction and was separately presented under shareholder’s equity in the Balance Sheet without subsequent recognition of changes in fair value.

The Company is potentially subject to significant concentration of credit risk with respect to the prepaid forward repurchase contract. The fact that the Merrill affiliate has merged with Bank of America reduced the bankruptcy and default risk.

NOTE 16 – SHAREHOLDERS’ EQUITY

Preferred Stock

The Company has 1,000,000 shares of Series A preferred stock (“Series A”) issued and outstanding. Pursuant to the terms of the Series A, the holder holds aggregate voting power equal to 25% of the combined voting power of our common stock and preferred stock. The percentage of voting power represented by the Series A cannot be diluted by the issuance of additional shares of common stock. The Series A has a liquidation preference equal to its initial issue price that will be paid to the holders of the Series A upon liquidation, dissolution or winding up and prior to any distributions being made to holders of our common stock.

Common Stock

A. Issuance of Common Stock

During the nine months ended September 30, 2009, the Company issued 42,471 restricted common stocks as stock compensation in connection with the services rendered by the Company’s independent directors in 2008. The Company also issued 29,704 shares of common stock to a consultant as partial payment of consulting fee.

B. Stock Options

The Company recorded total stock option compensation expenses of $534,536and $1,544,037 for the three and nine months ended September 30, 2009. Of the total value of the option grants, $6,717,600 has not yet been recognized and will be amortized over the requisite service periods.

The following table summarizes the stock option activities of the Company:

	Activity		Weighted Average Exercise Price
Outstanding as of January 1, 2009		1,697,763	$	8.68
Granted		338,476		4.01
Exercised		-		-
Cancelled		-		-

Outstanding as of September 30, 2009		2,036,239	$	7.91

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

The following table summarizes information about stock options outstanding as of September 30, 2009:

	Options Outstanding					Options Exercisable
Range of Exercise Prices	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Number of Shares		Weighted Average Exercise Price
$8.54 - $10.74		969,500	$	10.04	3		387,800	$	10.04
$4.95 - $8.35		728,263	$	6.88	4		82,753	$	8.35
$4.01		338,476	$	4.01	5		-		-
		2,036,239					470,553

Options granted have no intrinsic value at grant date and at the date of these financial statements as the exercise price of all vested or unvested options was higher than the market price. The weighted average fair value per share of the 2,036,239 options issued under the Company’s 2006 Equity Incentive Plan is $5.24 per share. As of September 30, 2009, the Company has 470,553 outstanding vested stock options, with an exercise price above the average market price, which are excluded from the Company’s diluted computation.

C. Common Stock to be Issued

For the three and nine months ended September 30, 2009, the Company recorded general and administrative expenses of $69,831 and $139,662 for the stock compensation in connection with the services rendered by the Company’s executives and $48,168 and $96,336 for the senior management.

For the three and nine months ended September 30, 2009, the Company recorded general and administrative expenses of $97,000 and $291,000, respectively, for the stock compensation in connection with the services rendered by the Company’s independent directors and $40,200 and $184,400, respectively, for the consultants.

A total of 56,364 shares of common stock are issuable as of September 30, 2009.

D. Statutory Reserves

In accordance with the PRC Regulations on Enterprises with Foreign Investment, an enterprise established in the PRC with foreign investment is required to provide for certain statutory reserves, namely (i) General Reserve Fund, (ii) Enterprise Expansion Fund and (iii) Staff Welfare and Bonus Fund, which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A wholly-owned foreign enterprise (“WOFE”) is required to allocate at least 10% of its annual after-tax profit to the General Reserve Fund until the balance of such fund has reached 50% of its respective registered capital. A non wholly-own foreign invested enterprise is permitted to provide for the above allocation at the discretion of its board of directors. Appropriations to the Enterprise Expansion Fund and Staff Welfare and Bonus Fund are at the discretion of the board of directors for all foreign invested enterprises. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.

As a result, both for the years ended December 31, 2008 and for the nine month ended September 30, 2009, $19,924,918 have been appropriated to the statutory reserves (included in the retained earnings) by the Company’s PRC subsidiaries.

NOTE 17 – COMMITMENTS

As of September 30, 2009, the Company had entered into capital commitments for the manufacturing facilities under construction in the People’s Republic of China. Total commitment was $5,809,070 within one year and $13,636,583 after one year but within five years. In addition, the Company had advertisement contract commitments for $5,138,491.

As of September 30, 2009, the Company had no material purchase commitment for raw materials.

AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2009

(UNAUDITED)

NOTE 18 – TAXES

(a) Corporate Income Tax (“CIT”)

The Company has not recorded a provision for U.S. federal income tax for the quarter ended September 30, 2009 as it continues to be in a net operating loss position.

On March 16, 2007, the National People’s Congress of China approved the new Corporate Income Tax Law of the People’s Republic of China (the “New CIT Law”), which is effective from January 1, 2008. Under the new CIT Law, the corporate income tax rate applicable to most companies is 25% instead of the old tax rate of 33%. The new CIT Law also provides certain tax concession to selective eligible companies. All our manufacturing subsidiaries, including GLP, Boke, Three Happiness, HSPL and CCXA were granted high-tech enterprise status and enjoy a favorable tax rate of 15% from 2008 to 2010. High-tech enterprise status is renewable which requires re-application prior to the tax preferences expire. HQPL, Nuo Hua and GHK do not qualify for any tax concession and therefore the 25% tax rate applies.

The Company recorded income tax expense of $9,463,093 and $10,655,299 for the nine months ended September 30, 2009 and 2008, respectively. The Company’s effective tax rates are 24.2% and 21.4% for the nine months ended September 30, 2009 and 2008, respectively. The increase in effective tax rate is mainly due to deferred tax assets not recognized related to net operating loss and a change in unrecognized tax benefits. The difference between the Company’s effective tax rate and the statutory rate is mainly due to the following: tax concession, deferred tax asset not recognized related to net operating loss, and change in unrecognized tax benefits. In the nine months ended September 30, 2009, the Company’s income taxes decreased by $1,192,206 from the same period last year mainly due to decrease in net profits.

The Company recorded an addition to unrecognized tax benefits of $1,903,342 for the nine months ended September 31, 2009, which is related to preferential financing obtained by the Company’s subsidiaries. No interest and penalty has been accrued for the unrecognized tax benefits. The unrecognized tax benefits is likely to change in the next twelve months, however, the change can not be reasonably estimated at this point. The Company’s years ended December 31, 2006, 2007 and 2008 remain subject to examination by the tax authorities.

(b) Value Added Tax (“VAT”)

Enterprises or individuals who sell commodities, engage in repair and maintenance or import or export goods in the PRC are subject to a value added tax in accordance with the PRC laws. The value added tax standard rate is 17% of the gross sales price. A credit is available whereby VAT paid on the purchases of semi-finished products or raw materials used in the production of the Company’s finished products can be used to offset the VAT due on the sales of the finished products.

The VAT payable balance of $4,559,007 and $6,262,715 at September 30, 2009 and December 31, 2008 respectively are included in Other Payables and Accrued Expenses in the accompanying condensed consolidated balance sheets.

Income before income tax expenses were $39.1 million and $49.9 million for the nine months ended September 30, 2009 and 2008 and were mainly attributed to subsidiaries with operations in China. Income tax related to China income for the nine months ended September 30, 2009 was $7.6 million. The combined unaudited pro forma effects of the income tax expense exemptions and reductions available to us are as follows:

	Nine Months Ended September 30, (Unaudited)
	2009		2008
			(Restated)
Tax holiday effect	$	5,115,400	$	3,812,238
Basic net income per share excluding tax holiday effect	$	0.30	$	0.46

ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All of the financial information presented in this Item 2 has been adjusted to reflect the restatement of our condensed consolidated financial statements for the three months ended September 30, 2008. Specifically, we have restated our condensed consolidated balance sheets as of September 30, 2008 and our condensed consolidated statements of operations and cash flows for the three months ended September 30,2008 as reported in the amended annual report on Form 10K/A for the fiscal year ended December 31, 2008. The restatement is fully described in the “Explanatory Note” immediately preceding Part I, Item 1of the amended annual report on Form 10K/A for December 31, 2008 filed concurrently with this report and in Note 3 to the condensed consolidated financial statements in this report.

The following discussion should be read in conjunction with the information contained in the condensed consolidated financial statements of the Company and the notes thereto appearing elsewhere herein and in conjunction with the Management’s Discussion and Analysis set forth in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2008. Readers should carefully review the risk factors disclosed in the Company’s Form 10-K/A for the year ended December 31, 2008 filed by the Company with the Securities and Exchange Commission (SEC)..

As used in this report, the terms “Company”, “we”, “our”, “us” and “AOB” refer to American Oriental Bioengineering, Inc., a Nevada corporation.

PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements within the meaning of the federal securities laws. These include statements about our expectations, beliefs, intentions or strategies for the future, which we indicate by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “we believe,” “AOB believes,” “management believes” and similar language. The forward-looking statements are based on the current expectations of AOB and are subject to certain risks, uncertainties and assumptions, including those set forth in the discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report. Actual results may differ materially from results anticipated in these forward-looking statements. We base the forward-looking statements on information currently available to us, and we assume no obligation to update them.

Investors are also advised to refer to the information in our previous filings with the SEC, especially on Forms 10-K, 10-Q and 8-K, in which we discuss in more detail various important factors that could cause actual results to differ from expected or historic results. It is not possible to foresee or identify all such factors. As such, investors should not consider any list of such factors to be an exhaustive statement of all risks and uncertainties or potentially inaccurate assumptions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This section should be read together with the Summary of Significant Accounting Policies included as Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for 2008 filed with the SEC.

Estimates affecting accounts receivable and inventories

The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect our reporting of assets and liabilities (and contingent assets and liabilities). These estimates are particularly significant where they affect the reported net realizable value of the Company’s accounts receivable and inventories.

At September 30, 2009, the Company provided a $512,013 reserve against accounts receivable. Management’s estimate of the appropriate reserve on accounts receivable at September 30, 2009 was based on the aged nature of these accounts receivable. In making its judgment, management assessed its customers’ ability to continue to pay their outstanding invoices on a timely basis, and whether their financial position might deteriorate significantly in the future, which would result in their inability to pay their debts to the Company.

At September 30, 2009, the Company provided an allowance against its inventories amounting to $38,077. Management determination of this allowance is based on potential impairments to the current carrying value of the inventories due to slow moving of aged inventories. In making its estimate, management considered the probable demand for our products in the future and historical trends in the turnover of our inventories.

While the Company currently believes that there is little likelihood that actual results will differ materially from these current estimates, if customer demand for our products decreases significantly in the near future, or if the financial condition of our customers deteriorates in the near future, the Company could realize significant write downs for slow-moving inventories or uncollectible accounts receivable.

Policy affecting recognition of revenue

Among the most important accounting policies affecting our consolidated financial statements is our policy of recognizing revenue in accordance with ASC 605. Under this policy, all of the following criteria must be met in order for us to recognize revenue:

1. Persuasive evidence of an arrangement exists;

2. Delivery has occurred or services have been rendered;

3. The seller’s price to the buyer is fixed or determinable; and

4. Collectability is reasonably assured.

The majority of the Company’s revenue results from sales contracts with distributors and revenue is recorded upon the shipment of goods. Management conducts credit background checks for new customers as a means to reduce the subjectivity of assuring collectability. Based on these factors, the Company believes that it can apply the provisions of ASC 605 with minimal subjectivity.

RECENT ACCOUNTING PRONOUNCEMENT

A description of recent accounting pronouncements is set forth under “New Accounting Standards” in Note 2 of the Notes to the Condensed Consolidated Financial Statements contained in this Quarterly Report on Form 10-Q, and such description is incorporated herein by reference. Such description contains all of the information required with respect thereto.

RESULTS OF OPERATIONS – THREE MONTHS ENDED SEPTEMBER 30, 2009 AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2008

The following table sets forth the amounts and the percentage relationship to revenues of certain items in our condensed consolidated statements of income for the three months ended September 30, 2009 and 2008:

	Three Months Ended September 30,				Three Months Ended September 30,
	2009		2008		2009			2008
			(Restated)

SALES REVENUE	$	78,818,666	$	70,593,949		100	%		100	%
COST OF GOODS SOLD		34,687,505		23,402,407		44			33
GROSS PROFIT		44,131,161		47,191,542		56			67
Selling and marketing		12,245,746		9,938,877		16			14
Advertising		9,013,087		9,913,728		11			14
General and administrative		6,457,734		4,690,793		8			7
Depreciation and amortization		1,409,399		1,024,436		2			1
Total operating expenses		29,125,966		25,567,834		37			36
INCOME FROM OPERATIONS		15,005,195		21,623,708		19			31
Equity in earnings (loss) from unconsolidated entities		(563,608)		49,417		(1	)		0
Interest expense, net		(1,106,805)		(1,143,013)		(1	)		(2	)
Other income (expense), net		(49,165)		91,986		0			0
INCOME BEFORE INCOME TAXES		13,285,617		20,622,098		17			29
Income taxes		3,257,771		4,339,045		4			6
NET INCOME		10,027,846		16,283,053		13			23
LESS: NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST		651		-		0			0
NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST	$	10,027,195	$	16,283,053		13	%		23	%

Sales Revenue

Sales revenue for the third quarter of 2009 was $78,818,666, an increase of $8,224,717 over revenue for the third quarter of 2008. We classify our sales revenue in two segments: Manufacturing revenue, which comprises sales by our subsidiaries of our pharmaceutical and nutraceutical products, and Distribution revenue. Net sales revenue by segments and product categories were as follows:

	Three Months Ended September 30,
	2009		2008		Increase/ (Decrease)		Increase/ (Decrease)

Revenue from pharmaceutical products	$	66,023,106	$	62,095,466	$	3,927,640		6	%
Revenue from nutraceutical products		9,241,744		8,498,483		743,261		9	%
Total manufacturing revenue		75,264,850		70,593,949		4,670,901		7	%
Distribution revenue		3,553,816		-		3,553,816		100	%
Total sales revenue	$	78,818,666	$	70,593,949	$	8,224,717		12	%

Sales of our pharmaceutical products increased by $3,927,640, or 6%, as compared to the same period of 2008 primarily due to the following factors:

The sales of our prescription pharmaceutical products increased from $24,302,150 during the third quarter of 2008 to $29,825,894 in the same period of 2009, or a 23% increase. This is primarily due to the increase in sales of our prescription formulated Jinji capsule, Boke and CCXA prescription pharmaceutical products despite the decrease in sales of our SHL products. The overall increase in sales was supported by our continuous marketing efforts, increase in new prescription products offering, as well as expanding coverage to the previously unaddressed rural market; Our newly launched products, such as YuYeQingHuo Capsules which treat throat inflammation, have offset some of the negative impact from the healthcare reform; and

The sales of our OTC pharmaceutical products decreased from $37,793,316 during the third quarter of 2008 to $36,197,212in the same period of 2009, or a 4% decrease. This is primarily due to decrease in the sales of our Jinji Yimucao, which is a product included the china’s essential drug list. Our distributors reduced their order this quarter in anticipating a decrease in average selling price when the government auctions begin in the fourth quarter. We expect the sales of our OTC products will resume once the selling price is stabilized. We continue to introduce new products to diversify our product portfolio and reduce concentration risks. Our newly launched products, such as Shedanchuan beiye which treat inflammation and cough, have offset some of the negative impact from the healthcare reform.

Sales from our nutraceutical products increased from $8,498,483 during the third quarter of 2008 to $9,241,744 in the same period of 2009, representing a growth of 9%. This increase was mainly attributed to new beverage products launched in the beginning of 2009.

The Company has recorded $3,553,816 distribution revenue from Nuo Hua's majority owned subsidiary, during the three months ended September 30, 2009. Since the Company’s investment in Nuo Hua did not occur until October, 2008, the Company had no distribution revenue for the quarter ended September 30, 2008.

Cost of Goods Sold and Gross Profit

Cost of goods sold was $34,687,505 for the three months ended September 30, 2009, compared to $23,402,407 for the three months ended September 30, 2008.

	Three Months Ended September 30,
	2009		2008		Increase/ (Decrease)		Increase/ (Decrease)

Pharmaceutical products	$	26,901,622	$	20,017,437	$	6,884,185		34%
Nutraceutical products		4,387,620		3,384,970		1,002,650		30%
Total manufacturing cost		31,289,242		23,402,407		7,886,835		34%
Distribution cost		3,398,263		-		3,398,263		100%
Total cost	$	34,687,505	$	23,402,407	$	11,285,098		48%

The cost of goods sold of pharmaceutical and nutraceutical products increased by 34% and 30% in the three months ended September 30, 2009 compared to the three months ended September 30, 2008, respectively. These increases are mainly attributed to our increase in sales and the increase in production cost. The Company had no distribution revenue and thus there was no corresponding cost of goods sold with respect to distribution services for the three months ended September 30, 2008.

Gross profit decreased by $3,060,381, for the three months ended September 30, 2009 over the three months ended September 30, 2008.

Gross profit as a percentage of net revenues decreased from 67% in the comparable period of the prior year to 56% in the third quarter of 2009. The primary reason was increased sales of more lower margin products by CCXA in the third quarter of 2009 compared to the same period of 2008. Further, the purchase prices of certain raw materials increased the cost of goods sold and lower margin distribution business from Nuo Hua also contributed to lower gross profit.

Selling and Marketing

Selling and marketing expenses, including distribution expenses, increased from $9,938,877 in the three months ended September 30, 2008 to $12,245,746 in the same period of 2009, representing an increase of 23%. The details of our selling and marketing expenses are as follows:

	Three Months Ended September 30,
	2009		2008		Increase/ (Decrease)		Increase/ (Decrease)

Promotional materials and fees	$	8,063,949	$	6,524,206	$	1,539,743		24	%
Payroll		1,341,682		1,427,577		(85,895)		-6	%
Shipping		1,273,117		897,516		375,601		42	%
Traveling		523,683		448,739		74,944		17	%
Sales conference		835,979		248,052		587,927		237	%
Offices supplies		156,117		156,749		(632)		0	%
Other expenses		51,219		236,038		(184,819)		-78	%
TOTAL	$	12,245,746	$	9,938,877	$	2,306,869		23	%

The increase in selling and marketing expenses in the quarter ended September 30, 2009 compared to the same quarter during 2008 was primarily due to the following factors:

Promotional materials and fees increased 24% from $6,524,206 to $8,063,949 during the third quarter of 2009 as compared to the same quarter of 2008. This was primarily due to the increase in our promotion activities and initiatives to support the continuous growth of our revenue.

Shipping increased 42% from $897,516 to $1,273,117 during the third quarter of 2009 as compared to the same quarter of 2008. This was primarily due to the increase of net sales and the increase cost of logistics.

Sales conference increased 237% from $248,052 to $835,979 during the third quarter of 2009 as compared to the same quarter of 2008. The increase was mainly due to the additional internal conferences which being held to plan, coordinate and to formulate sales policies in response to china’s health care reform plan. The company held more external sales conference to promote existing and new prescription products. We held more promotional conferences for our SHL products in particular, to offset the negative impact caused by fatal incidents and product quality issues of similar products manufactured by other companies.

Advertising

Advertising expenses decreased by $900,641, from $9,913,728 in the third quarter of 2008 to $9,013,087 in the same quarter of 2009. Advertising expenses as a percentage of revenue decreased from 14% in the third quarter of 2008 to 11% in the same quarter of 2009. As the general advertising cost of media in the PRC continues to increase, we decreased media advertising activities but increased other promotional activities and direct sales efforts to support the continuous growth of our revenue efficiently.

General and Administrative

General and administrative expenses from $4,690,793 in the third quarter of 2008 to $6,457,734 in the same quarter of 2009, or a 38% increase. The details of general and administrative expenses were as follows:

	Three Months Ended September 30,
	2009		2008		Increase/ (Decrease)		Increase/ (Decrease)
			(Restated)

Payroll	$	774,013	$	896,810	$	(122,797)		-14	%
Directors’ remuneration		230,000		310,000		(80,000)		-26	%
Professional fees – accounting		913,925		141,783		772,142		545	%
Maintenance and repair		756,373		62,463		693,910		1111	%
Staff welfare and insurance		392,952		386,137		6,815		2	%
Research and development		637,657		437,712		199,945		46	%
Trip and traveling		257,927		237,465		20,462		9	%
Office supplies		176,861		137,119		39,742		29	%
Vehicles and utilities		152,716		137,605		15,111		11	%
Stock compensation		789,735		615,586		174,149		28	%
Other expenses		1,375,575		1,328,113		47,462		4	%
TOTAL	$	6,457,734	$	4,690,793	$	1,766,941		38	%

The increase in general and administrative expenses in the three months ended September 30, 2009 compared to the same period during 2008 was primarily due to the following factors:

Payroll expenses decreased by $122,797, or 14% as compared to the same quarter during 2008. These reflect the Company’s increased efforts in optimization of human resource management and cost control; and·

Accounting related professional fees increased by $772,142, or 545% as compared to the same quarter during 2008, due primarily to the increase in audit fees relating to our increased number of subsidiaries being audited and additional accrual of audit fee to our new auditors; and

Research and development increased by $199,945, or 46%, as compared to the same period of 2008, due to our increased R&D effort on new products and existing products enhancement; and

Maintenance and repair fees increased by $693,910, or 1111%, as compared to the same period of 2008. We incurred additional expense during the third quarter of 2009 in upgrading our existing equipments and technologies, as of result of more stringent GMP manufacturing standards and to improve production efficiency; and

Stock compensation expense increased from $615,586 in the third quarter of 2008 to $789,735 in the same quarter of 2009 due to our additional amortization cost of new stock options issued to the executives and the senior management in late 2008 and the second quarter of 2009.

Depreciation and Amortization

Depreciation and amortization expenses increased by $384,963 or 38%, in the quarter ended September 30, 2009 compared to the same quarter during 2008. This increase was primarily due to the depreciation and amortization charges of the facilities and lands acquired during 2008.

Interest Expense, Net

Net interest expense was $1,106,805 for the three months ended September 30, 2009, which was comparable to net interest expense of $1,143,013 for the three months ended September 30, 2008.

Income Taxes

Income tax expense for the quarter ended September 30, 2009 was $3,257,771, compared to $4,339,045 for the quarter ended September 30, 2008. The Company’s effective tax rate for this quarter was 24.5%.

RESULTS OF OPERATIONS – NINE MONTHS ENDED SEPTEMBER 30, 2009 AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2008

The following table sets forth the amounts and the percentage relationship to revenues of certain items in our condensed consolidated statements of income for the nine months ended September 30, 2009 and 2008:

	Nine Months Ended September 30,					Nine Months Ended September 30,
	2009		2008			2009			2008
			(Restated)

SALES REVENUE	$	196,117,893	$	168,372,552			100	%		100	%
COST OF GOODS SOLD		81,942,766		54,808,490			42			33
GROSS PROFIT		114,175,127		113,564,062			58			67
Selling and marketing		26,853,377		22,656,477			14			13
Advertising		22,360,380		21,760,300			11			13
General and administrative		15,981,195		14,235,806			8			9
Depreciation and amortization		5,118,588		3,012,107			3			2
Total operating expenses		70,313,540		61,664,690			36			37
INCOME FROM OPERATIONS		43,861,587		51,899,372			22			30
Equity in loss from unconsolidated entities		(299,072)		(591,650	)		(0	)		(0	)
Interest expense, net		(4,306,143)		(1,156,782	)		(2	)		(1	)
Other expense, net		(164,103)		(264,515	)		(0	)		(0	)
INCOME BEFORE INCOME TAXES		39,092,269		49,886,425			20			29
Income taxes		9,463,093		10,655,299			5			6
NET INCOME		29,629,176		39,231,126			15			23
LESS: NET LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST		(118,866)		-			0			0
NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST	$	29,748,042	$	39,231,126			15	%		23	%

Sales Revenue

Sales revenue for the nine months ended September 30, 2009 were $196,117,893, an increase of $27,745,341 over sales revenue for the same period of 2008. We classify our sales revenue in two segments: Manufacturing revenue, which comprises sales by our subsidiaries of our pharmaceutical and nutraceutical products, and Distribution revenue. Sales revenue by segments and product categories were as follows:

	Nine Months Ended September 30,				Increase/ (Decrease)		Increase/ (Decrease)
	2009		2008		Increase/ (Decrease)		Increase/ (Decrease)

Revenue from pharmaceutical products	$	159,141,380	$	143,747,290	$	15,394,090		11	%
Revenue from nutraceutical products		27,677,227		24,625,262		3,051,965		12	%
Total manufacturing revenue		186,818,607		168,372,552		18,446,055		11	%
Distribution revenue		9,299,286		-		9,299,286		100	%
Total sales revenue	$	196,117,893	$	168,372,552	$	27,745,341		16	%

Sales of our pharmaceutical products increased by $15,394,090, or 11%, as compared to the same period of 2008 primarily due to the following factors:

The sales of our prescription pharmaceutical products increased from $58,879,490 during the first nine months of 2008 to $71,192,969 in the same period of 2009, or a 21% increase. This is primarily due to the increase in sales of our prescription formulated Jinji capsule, BOKE and CCXA prescription pharmaceutical products despite the decrease in sales of our SHL products. The overall increase in sales was supported by our continuous marketing efforts, increase in new products offering, as well as expanding coverage to the previously unaddressed rural market; Our newly launched products, such as YuYeQingHuo Capsules which treat throat inflammation, have offset some of the negative impact from the healthcare reform and

The sales of our OTC pharmaceutical products increased from $84,867,800 to $87,948,411, or a 4% increase. This was attributable to the increase in sales of our Boke and CCXA products as a result of improved recognition of our product supported by our marketing campaigns. The increase was partially offset by decrease in the sales of our Jinji Yimucao, which is a product included the China’s essential drug list. Our distributors reduced their order in anticipating a decrease in average selling price when the government auctions begin in the fourth quarter. We expect the sales of our OTC products will resume once the selling price is stabilized. We continue to introduce new products to diversify our product portfolio and reduce concentration risks. Our newly launched products, such as Shedanchan beiye which treat inflammation and cough, have offset some of the negative impact from the healthcare reform; and

Sales from our nutraceutical products increased from $24,625,262 during the nine months ended September 30 of 2008 to $27,677,227 in the same period of 2009, representing a growth of 12%. This increase was mainly attributed to new beverage products launched during the nine months ended September 30 of 2009.

The Company has recorded $9,299,286 distribution revenue from Nuo Hua's majority owned subsidiary, during the nine months ended September 30, 2009. Since the Company’s investment in Nuo Hua did not occur until October, 2008, the Company had no distribution revenue for the first nine months ended September 30, 2008.

Cost of Goods Sold and Gross Profit

Cost of goods sold was $81,942,766 for the nine months ended September 30, 2009, compared to $54,808,490 for the nine months ended September 30, 2008.

	Nine Months Ended September 30,
	2009		2008		Increase/ (Decrease)		Increase/ (Decrease)

Pharmaceutical products	$	61,195,896	$	45,114,645	$	16,081,251		36%
Nutraceutical products		11,812,384		9,693,845		2,118,539		22%
Total manufacturing cost		73,008,280		54,808,490		18,199,790		33%
Distribution cost		8,934,486		-		8,934,486		100%
Total cost	$	81,942,766	$	54,808,490	$	27,134,276		50%

The cost of goods sold of pharmaceutical and nutraceutical products increased by 36% and 22%, respectively, in the nine months ended September 30, 2009 compared to the same period of 2008. These increases are attributed to our increase in sales and the increase in production cost.. The Company had no distribution revenue and thus there was no corresponding cost of goods sold with respect to distribution services for the nine months ended September 30, 2008.

Gross profit increased by $611,065 or 1%, for the nine months ended September 30, 2009 over the same period of 2008.

Gross profit as a percentage of net revenues decreased from 67% in the comparable period of the prior year to 58% in the nine months ended September 30, 2009 due to sales of much lower margin products by CCXA in the nine months ended quarter September 30, 2009 compared to the same period of 2008. Further, the purchase prices of certain raw materials increased the cost of goods sold and lower margin distribution business from Nuo Hua also contributed to lower gross profit.

Selling and Marketing

Selling and marketing expenses, including distribution expenses, increased from $22,656,477 in the nine months ended September 30, 2008 to $26,853,377 in the same period of 2009, representing an increase of 19%. The details of our selling and marketing expenses are as follows:

	Nine Months Ended September 30,
	2009		2008		Increase/ (Decrease)		Increase/ (Decrease)

Promotional materials and fees	$	15,476,289	$	12,007,766	$	3,468,523		29	%
Payroll		4,066,574		4,236,514		(169,940)		-4	%
Shipping		3,127,419		2,362,105		765,314		32	%
Traveling		1,790,547		1,786,251		4,296		0	%
Sales conference		1,676,922		1,035,266		641,656		62	%
Offices supplies		466,440		627,233		(160,793)		-26	%
Other expenses		249,186		601,342		(352,156)		-59	%
TOTAL	$	26,853,377	$	22,656,477	$	4,196,900		19	%

The increase in selling and marketing expenses in the nine months ended September 30, 2009 compared to the same period of 2008 was primarily due to the following factors:

Promotional materials and fees increased 29% from $12,007,766 to $15,476,289 during the nine months ended September 30, 2009 as compared to the same period of 2008. This was primarily due to the increase in our promotion activities and initiatives to support the continuous growth of our revenue.

Shipping increased 32% from $2,362,105 to $3,127,419 during the first three quarters of 2009 as compared to the same quarters of 2008. This was primarily due to the increase of net sales and the increase cost of logistics.

Sales conference increased 62% from $1,035,266 to $1,676,922 during the third quarter of 2009 as compared to the same quarter of 2008. The increase was mainly due to the additional internal conferences which being held to plan, coordinate and to formulate sales policies in response to china’s health care reform plan. The company held more external sales conference to promote existing and new prescription products. We held more promotional conferences for our SHL products in particular, to offset the negative impact caused by fatal incidents and product quality issues of similar products manufactured by other companies.

Advertising

Advertising expenses increased slightly by $600,080 from $21,760,300 in the three quarters of 2008 to $22,360,380 in the same quarters of 2009. Advertising expenses as a percentage of revenue decreased from 13% in the nine months ended September 30, 2008 to 11% in the same period of 2009. As the general advertising cost of media in the PRC continues to increase, we decreased media advertising activities but increased other promotional activities and direct sales efforts to support the continuous growth of our revenue efficiently.

General and Administrative

General and administrative expenses increased from $14,235,806 in the nine months ended September 30 of 2008 to $15,981,195 in the same period of 2009, or a 12% increase. The details of general and administrative expenses were as follows:

	Nine Months Ended September 30,
	2009		2008		Increase/ (Decrease)		Increase/ (Decrease)
			(Restated)

Payroll	$	2,371,278	$	2,762,772	$	(391,494)		-14	%
Directors’ remuneration		695,230		913,333		(218,103)		-24	%
Professional fees – accounting		2,342,122		1,332,659		1,009,463		76	%
Maintenance and repair		798,267		78,413		719,854		918	%
Staff welfare and insurance		1,011,631		1,207,057		(195,426)		-16	%
Research and development		1,269,653		926,124		343,529		37	%
Trip and traveling		754,309		768,232		(13,923)		-2	%
Office supplies		505,261		499,482		5,779		1	%
Vehicles and utilities		420,341		419,109		1,232		0	%
Stock compensation		2,255,435		1,655,493		599,942		36	%
Other expenses		3,557,668		3,673,132		(115,464)		-3	%
TOTAL	$	15,981,195	$	14,235,806	$	1,745,389		12	%

The increase in general and administrative expenses in the nine months ended September 30, 2009 compared to the same period during 2008 was primarily due to the following factors:

Accounting related professional fees increased by $1,009,463, or 76% as compared to the same quarter during 2008, due primarily to the increase in audit fees relating to our increased number of subsidiaries being audited; and additional accrual of audit fee to our new auditors; and

Maintenance and repair fees increased by $719,854, or 918%, as compared to the same period of 2008. We incurred additional expense during the three quarters of 2009 in upgrading our existing equipments and technologies, as a result of more stringent GMP manufacturing standards and to improve production efficiency; and

Payroll expenses decreased by $391,494, or 14% and Staff welfare and insurance expenses decreased by $195,426, or 16% as compared to the same quarter during 2008. These reflect the Company’s increased efforts in optimization of human resource management and cost control; and

Research and development increased by $343,529, or 37%, as compared to the same period of 2008, due to our increased R&D effort on new products and existing products enhancement; and

Stock compensation expense increased from $1,655,493 in the three quarters of 2008 to $2,255,435 in the same period of 2009 due to our additional amortization cost of new stock options issued to the executives and the senior management in late 2008 and the second quarter of 2009.

Depreciation and Amortization

Depreciation and amortization expenses increased by $2,106,481, or 70%, in the nine months ended September 30, 2009 compared to the same period of 2008. This increase was primarily due to the depreciation and amortization charges of the facilities and lands acquired during 2008.

Interest Expense, Net

Net interest expense was $4,306,143 for the nine months ended September 30, 2009, compared to net interest expense of $1,156,782 for the nine months ended September 30, 2008. The increase was mainly related to the convertible notes issued in July 2008.

Income Taxes

Income tax expense for the nine months ended September 30, 2009 was $9,463,093, compared to $10,655,299 for the nine months ended September 30, 2008. The Company’s effective tax rate during the nine months ended September 30, 2009 was 24.2%.

LIQUIDITY AND CAPITAL RESOURCES

Cash

Our cash balance at September 30, 2009 was $115,923,399, representing an increase of $45,286,889 or 64%, compared with our cash balance of $70,636,510 at December 31, 2008. The increase was mainly attributable to the net cash provided by operating activities of $44,325,493.

We plan to use our cash for acquisitions, research and development activities, sales and marketing of our products, and other general corporate purposes. We manage our cash based on thorough consideration of our corporate strategy as well as the macro economic situation. Factors we take into account when managing our cash include interest income, foreign currency fluctuation as well as the flexibility in executing our acquisition strategy.

Cash Flow

Cash flows from operations during the nine months ended September 30, 2009 amounted to $44,325,493, representing a decrease of approximately 9% compared with cash flows from operations of $48,831,133 in the same period of 2008. The decreased cash flow was primarily due to the decrease in our net income by 24%, to $29,629,176 during the nine months ended September 30, 2009, compared with net income of $39,231,126 in the same period last year. The decrease was also due to the decrease of accounts payable, by $2,205,758. The decreased cash flow was offset by an increase in our accounts receivable and inventory of $3,390,127.

Our cash flows provided by investing activities amounted to $3,592,790 during the nine months ended September 30, 2009. During that period, we received $6,397,106 for refundable deposit for due diligence. We also paid $2,256,148 for the purchases of construction in progress, plant and equipment and certain land use right during that period.

Our cash flows used in financing activities amounted to $2,756,346 during the nine months ended September 30, 2009. During that period, we repaid $7,501,752 bank loans and received $9,951,673 from the short-term bank loans. We also paid $5,750,000 convertible notes interest during the nine months ended September 30, 2009.

Working Capital

Our working capital increased by $39,512,641 to $126,595,346 at September 30, 2009 as compared to $87,082,705 at December 31, 2008, primarily due to our increase in cash of $45,286,889, inventories of $2,249,587. The increase was partly offset by a decrease in refundable deposit of $6,396,996.

We currently generate our cash flow through operations. We believe that our existing cash on hand and cash flow generated from operations will be sufficient to sustain operations for at least the next twelve months. From time to time, we may identify new expansion opportunities for which there will be a need to use cash.

As of September 30, 2009, the Company had entered into unconditional capital commitments for manufacturing facilities under construction in the People’s Republic of China for $5,809,070 within one year and $13,636,583 after one year but within five years.. In addition, the Company had advertisement contract commitments for $5,138,491.

ISSUANCE OF COMMON STOCK

During the three months ended September 30, 2009, the Company issued 20,000 shares of restricted common stock as stock compensation in connection with the services rendered by a consultant.

INFLATION

Inflation has not had a material impact on our business and we do not expect inflation to have an impact on our business in the near future.

CURRENCY EXCHANGE FLUCTUATIONS

Majority of the Company’s revenues and expenses in the three months ended September 30, 2009 were denominated in Renminbi (“RMB”), the currency of China, and were converted into US dollars at the exchange rate of 6.8412 to 1. As a result of the appreciation of the RMB against US dollar, we recognized a foreign currency translation gain of $655,400 during the nine months ended September 30, 2009. There can be no assurance that RMB-to-U.S. dollar exchange rates will remain stable. A devaluation of RMB relative to the U.S. dollar would adversely affect our business, consolidated financial condition and results of operations. We do not engage in currency hedging.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not invest in derivative instruments and do not engage in any hedging activities. Because most of our purchases and sales are made in RMB, any exchange rate change affecting the value of the RMB relative to the U.S. dollar could have an effect on our financial results as reported in U.S. dollars. If the RMB were to depreciate against the U.S. dollar, amounts reported in U.S. dollars would be correspondingly reduced. If the RMB were to appreciate against the U.S. dollar, amounts reported in U.S. dollars would be correspondingly increased.

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report (the “Evaluation Date”), we carried out an evaluation in accordance with the requirements of auditing standards and applicable U.S. rules. The Company’s internal audit group, which includes its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with respect to this Quarterly Report on Form 10-Q before its filing with the Commission. The audit group made its evaluation pursuant to Rule 13a-15 under the Exchange Act. Our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the third quarter of 2009 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

However, as disclosed in Note 3 to the Financial Statements, subsequent to the end of the third quarter during the review of the Company’s third quarter 2009 operating results, the Company identified historical accounting errors in (i) the calculation of its 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, which resulted in the misstatement of certain balance sheet and income statement items and cumulative net earnings since 2006. We have taken appropriate steps and actions to prevent these errors in the future, including the implementation of a new company-wide review and reporting system to improve processes and strengthen controls throughout the Company.

PART II – OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of our executive officers or any of our subsidiaries, threatened against or affecting our company, our common stock, or any of our subsidiaries, or against our Company’s or our Company’s subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

ITEM 1A – RISK FACTORS

There have been no material changes or new risks since our Annual Report on Form 10-K for the year ended December 31, 2008.

ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended September 30, 2009, the Company issued 29,704 shares of restricted common stock as stock compensation in connection with the services rendered by a consultant. The issuance of the foregoing shares was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

There have been no material defaults.

ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the period covered by this report.

ITEM 5 – OTHER INFORMATION

On November 15, 2009, the Company amended the 2008 and 2009 employment agreements (the “Employment Agreements”) and 2008 and 2009 stock option award agreements of each of Tony Liu (Chairman and Chief Executive Officer), Yanchun Li (Chief Financial Officer and Chief Operations Officer), Jun Min (Vice President), Binsheng Li (Chief Accounting Officer) and Wilfred Chow (V.P. of Finance) (collectively, the “Executives”).

Under the Employment Agreements each Executive was initially granted an option to purchase a certain number of shares of common stock (the "Initial Option Grant"), which number was based upon the Company's internal method for valuing each share of common stock underlying the stock option at the time of the grant (the "Per Share Value"), to reach a total annual compensation value for accounting purposes (the "Total Value"). During the review of the Company’s third quarter 2009 operating results, the Company identified historical accounting errors in the calculation of its stock based compensation. As the result of an error in the calculation of the Per Share Value, the number of shares issuable under the Initial Option Grant was incorrect for each Executive and should have been lower. However, the Total Value and the exercise price of the Initial Option Grant for each Executive remained unchanged. The Board of Directors approved the amendment to the Employment Agreements and the Compensation Committee approved the reduction in the Initial Option Grant.

The reduction in the Initial Option Grant for each Executive fore 2009 and 2008 is as follows:

	2009				2008
Name	Original Option Grant		Revised Option Grant		Original Option Grant		Revised Option Grant

Tony Liu		90,285		60,780		307,428		111,850
Yanchun Li		79,746		53,685		271,543		98,794
Jun Min		59,810		40,264		203,657		74,096
Binsheng Li		49,271		33,169		167,771		61,040
Wilfred Chow		54,876		36,942		186,857		67,983

The amendment to each Employment Agreement is attached as an Exhibit to this Quarterly Report on Form 10-Q, and incorporated herein by reference.

ITEM 6 – EXHIBITS

The following exhibits are filed as part of this Quarterly Report on Form 10-Q:

Exhibit No.	Description
10.1 *	Amendment to 2008 Employment Agreement, by and between the Company and Tony Liu, dated November 15, 2009
10.2 *	Amendment to 2008 Employment Agreement, by and between the Company and Yanchun Li, dated November 15, 2009
10.3 *	Amendment to 2008 Employment Agreement, by and between the Company and Jun Min, dated November 15, 2009
10.4 *	Amendment to 2008 Employment Agreement, by and between the Company and Binsheng Li, dated November 15, 2009
10.5 *	Amendment to 2008 Employment Agreement, by and between the Company and Wilfred Chow, dated November 15, 2009
10.6 *	Amendment to 2009 Employment Agreement, by and between the Company and Tony Liu, dated November 15, 2009
10.7 *	Amendment to 2009 Employment Agreement, by and between the Company and Yanchun Li, dated November 15, 2009
10.8 *	Amendment to 2009 Employment Agreement, by and between the Company and Jun Min, dated November 15, 2009
10.9 *	Amendment to 2009 Employment Agreement, by and between the Company and Binsheng Li, dated November 15, 2009
10.10 *	Amendment to 2009 Employment Agreement, by and between the Company and Wilfred Chow, dated November 15, 2009
10.11	Form of Stock Award and Non-Qualified Stock Option Grant Agreement, filed herewith
31.1	Certification of Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a – 14(a) of the Securities Exchange Act, as amended
31.2	Certification of Acting Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a – 14(a) of the Securities Exchange Act, as amended
32.1	Certification of Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) pursuant to 18 U.S.C. 1350, as adopted.

________________

* Previously filed.

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AMERICAN ORIENTAL BIOENGINEERING, INC.

/s/ Tony Liu

TONY LIU

CHAIRMAN AND CHIEF EXECUTIVE OFFICER

DATED: March 15, 2010

/s/ Yanchun Li

YANCHUN LI

CHIEF FINANCIAL OFFICER

DATED: March 15, 2010

EXHIBIT INDEX

Exhibit No.	Description
10.1 *	Amendment to 2008 Employment Agreement, by and between the Company and Tony Liu, dated November 15, 2009
10.2 *	Amendment to 2008 Employment Agreement, by and between the Company and Yanchun Li, dated November 15, 2009
10.3 *	Amendment to 2008 Employment Agreement, by and between the Company and Jun Min, dated November 15, 2009
10.4 *	Amendment to 2008 Employment Agreement, by and between the Company and Binsheng Li, dated November 15, 2009
10.5 *	Amendment to 2008 Employment Agreement, by and between the Company and Wilfred Chow, dated November 15, 2009
10.6 *	Amendment to 2009 Employment Agreement, by and between the Company and Tony Liu, dated November 15, 2009
10.7 *	Amendment to 2009 Employment Agreement, by and between the Company and Yanchun Li, dated November 15, 2009
10.8 *	Amendment to 2009 Employment Agreement, by and between the Company and Jun Min, dated November 15, 2009
10.9 *	Amendment to 2009 Employment Agreement, by and between the Company and Binsheng Li, dated November 15, 2009
10.10 *	Amendment to 2009 Employment Agreement, by and between the Company and Wilfred Chow, dated November 15, 2009
10.11	Form of Stock Award and Non-Qualified Stock Option Grant Agreement, filed herewith
31.1	Certification of Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a – 14(a) of the Securities Exchange Act, as amended
31.2	Certification of Acting Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a – 14(a) of the Securities Exchange Act, as amended
32.1	Certification of Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer) pursuant to 18 U.S.C. 1350, as adopted.

________________________

*Previously filed.

American Oriental Bioengineering (AOB) Inactive 10-Q/A2009 Q3 Quarterly report (amended)