American Oriental Bioengineering second-quarter revenue up 8.5%

American Oriental Bioengineering, Inc. (NYSE: AOB), ("the Company" or "AOBO"), a pharmaceutical company dedicated to improving health through the development, manufacture and commercialization of a broad range of prescription and over the counter ("OTC") products, today announced financial results for the second quarter ended June 30, 2010.

Second Quarter 2010 Financial Performance

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

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

Gross profit in the second quarter of 2010 was $39.8 million, compared to $41.6 million in the second quarter of 2009. Gross margin was 51.5%, compared to 58.4% in the prior year period and 52.5% in the prior quarter reflecting a greater proportion of generic product sales in the rural market. Further, the increased purchase prices of certain raw materials increased the cost of sales also contributed to lower gross profit.

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

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

Six Month Financial Performance

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

Balance Sheet

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

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