AOB

[valueseeker]

Hi Michael,

You and Dave are the one who drew me to AOB. So big appaude!

I sold AOB at yesterday's pre-market at $7.45, a huge gain after $2.38. This is by far my largest gain after VPHM, which I am still holding a big % from $6.35.

I will be a buyer of AOB again shortly.


-Louis

[AussieTrader]

Quote Michael: I bought the first time at 1.85 and are still holding these shares at a 289% profit. I am not saying this to brag but simply to point out that a buy and hold strategy seems to work with shares that are so fundamentally strong as AOB.

Michael is spot on here, however the difficulty for anyone is having the right approach to stay with a trade as long as possible to maximise profit. The best method I have found for this is to take a step back from your view of the market (most people here probably looking at intra and daily charts). Use weekly charts once a trade is in your favour as this takes you away from the noise and lets you see the real trend taking place (Use daily in conjunction of course to catch deep reversals). Look at my AOB chart, its easy to see that by tracking below the 9 ema with protect profit stops (placed below 9ema and below most recent reaction lows) you can stay with a good trade longer and get those 200%+ winners as opposed to 30% ins and outs. Sounds easy, but one of the things here is that you do have to have your stop quite a distance from the action to a) keep you in and b) away from the noise spikes. Managing those stops requires discipline and a systematic approach.
In fact look at other winners this year on a weekly chart (VPHM, HOM e.g.) and you will see the same methodology will apply.

[lalitha0]

From Wallst.net:

On October 6, American Oriental Bioengineering, Inc. (AMEX: AOB) announced the opening of its first specialty store, Life Peptide, in the Times Square District of Hong Kong. The new distribution channel will afford AOB an opportunity to increase its customer base with relatively low overhead, and "also give us the opportunity to increase sales in the region on a faster basis," according to the Company's chairman and chief executive officer, Tony Liu. "This opening of 'Life Peptide' exemplifies our strategic business model of increasing the availability of our products to potential customers in under-penetrated and fast-growing markets."

Fast growth seems to be a recurring theme with the Company, which specializes in the development and manufacturing of a broad range of pharmaceutical and nutraceutical products. Shares of AOB have more than doubled since August 2005, largely due to the Company's consistent financial growth, and ability to capitalize on the privatization of state-owned assets in China.

For the quarter ending June 30, AOB reported revenue of $11.9 million, up 98.2 percent from the $6 million in revenue it reported in the same quarter a year ago. The Company's quarterly net income rose 122 percent to $3.4 million over the previous year. For the first six months of the year, AOB reported revenue of $21.6 million, an 81 percent increase from the $11.9 million it reported in the same six-month period a year ago.

"AOBO has an operating history of over 10 years, and it is one of those companies that is booming in the privatization processes in China," said the Company's co-founder and chief operating officer, Lily Li. "Also, we feel we have a humungous opportunity in the ongoing privatization of state-owned assets in China."

According to Burrill Greater China Group, a life-sciences merchant bank, China's pharmaceutical market, including over-the-counter drugs, is estimated to an approximately $11 billion industry, with roughly $3 billion of that attributed to traditional Chinese medicines, and the remaining $8 billion to Western medicines.

"We believe this environment is very conducive to our fast growth," Li said. The Company will report its third quarter results on Monday.

–Staff Reports

[tokyopua]

I watched the opening Friday on Level II to see if there was going to be a Cramer effect like there was last time he mentioned the stock, and it started going up instead, so I stayed in the stock all day.  There was news of AOB starting to trade on the Archipelago exchange which may have cancelled out the Cramer effect.

Also, I found a link that I think validates my idea about AOB benefiting from the bird flu scare in Asia:

http://find.thestreet.com/cgi-bin/texis/cramertake?tkr=AOB&site=tsc

then on that page this link:


'Bird Flu' Stocks Still Look Healthy
11/9/2005 11:58 AM EST
By Dan Fitzpatrick
These three charts from the 'bird flu sector' show that their uptrends remain vital.
more

Now the first time I clicked on the "more" link it actually let me see part of the article, and it was talking about AOB.  I dont have a subscription to real money, so now when I check I cant see the article again to confirm what I remember reading quickly, thinking I could go back to it later.

If this is true about bird flu increasing sales, then the fact that China is only now starting to admit to outbreaks (they are happening left and right now) then the panic is going to accelerate and the next quarter sales will be even stronger.

Any one else agree about AOB being a sleeper bird flu play?

[tokyopua]

I am lucky lucky lucky.

Was watching AOB realtime on level 2 just now and saw a selloff coming so got out at 7.15, its at 5.70 now only 20 minutes later...

I think when the MACD goes positive again I may buy back and hope for good earnings.

[ScottishTrader]

Anyone know what is going on???

AOB is in freefall - I thought that looked like earnings hould be good.

Wasn't looking and it has cleared 25%+ now.  Don't even know if I should hold for a pullback at this stage - anyone else have thoughts on this???

[Se7en]

Earnings are excellent at first sight, maybe a sell the news thing?!

[tokyopua]

Back in at 5.56, I think this was a decent discount and the stock can still go up longterm, and maybe even rebound quickly after earnings today.  Even if I go down a bit now, its not as bad as what it would have been if I didnt sell at 7.15.  Whewwww.

[tokyopua]

Scottish Trader,

I think AOB got ahead of itself for a bit which is why I was watching level 2 today so closely.  But at the very moment my daily chart shows a definite rebound, so I personally would stick it out, its back to 5.85 as I type.

[wisebuys]

Nice moves Tokyopua!  Thanks to all the posts on this thread, I also purchased on today's dip.

What exactly clued you into the selloff?  How can I look for similar situtions?

Thanks for the help, I'm trying to learn.

[Michael]

Yeah seems like AOB got a little ahead of itself.

I guess people were disappointed about the revenue figure. From my perspective the result was more or less as expected. AOB is in line to exceed both the revenue and profit estimates for the year with at least 20%.



Revenue is up with 82% and profit is up with 66%. Q4 is the strongest month for AOB with around 1/3 of the revenue so the full year will be great



It seems like the up trend is still intact so this is just a little noise in the chart generated by momentum players. The rest of us can look forward to owning a stock which long term will contribute to our early retirement  

[tokyopua]

Nice moves Tokyopua!  Thanks to all the posts on this thread, I also purchased on today's dip.

What exactly clued you into the selloff?  How can I look for similar situtions?

Thanks for the help, I'm trying to learn.

Thanks, but I am also a relatively new trader, as I said there was a big element of luck to this.  In this case I knew that the gains in AOB were so fast over the last few weeks that it could not all be due to people investing in the stock for fundamentals, I knew there was a lot of people just looking to trade the stock.  So, over the last few days I kept a fairly regular eye on the real time quotes on Level II (I use power Etrade).  I almost sold it at 6.85 Friday morning as I said below, but again watching the candlesticks I saw an immediate upward trend and held pat in the stock.

I also didnt know when earnings would be announced ahead of the CC, so I had to be watching.  Michael's post indicates that earnings were released, but oddly I cant find the news.  So if it was the earnings dropping the stock price, then I didnt know that, I only saw the selloff based on the charts.

So to answer your question WRT the charts: today I was seeing the candlesticks move down rather quickly after a strong open.  I dont have a way to show you what I was seeing on Level II, but here is a link to how the candlesticks were looking:

http://finance.yahoo.com/q/bc?s=AOB&t=1d&l=on&z=m&q=c&c=

This just yelled selloff to me at this point (the MACD on my chart was already dipping, the Bid/Ask started to flash rapidly compared to what it had been showing sudden increased volume, etc), but I will be honest and say I didnt think it was going to be THAT bad.  I expected it would drop to $6.5 at most, and I might not have bought it back if that was all it had dipped to.

I also had a sense of where to sell since David had done the TA last week to say he would be out at 6.85, so I revised that up after the stock went up again, and figured I would sell about around 7.20 or so if I saw what I saw today.

As Michael shows below, the net trend is still up for this stock if you draw lines through the candlestick bottoms, and I believe the apparent seasonal strength in Q4 will also be augmented further up by the bird flu scare in the region leading people to want to be as healthy as possible in light of the fact there is no vaccine for H5N1.

[tokyopua]

Can somebody tell me when the earnings were realeased, if they have indeed been released?  I dont see them on the website, on my etrade news, or on Yahoo. 

[Se7en]

You can find them on Yahoo!

http://biz.yahoo.com/e/051114/aob10qsb.html

Form 10QSB for AMERICAN ORIENTAL BIOENGINEERING INC


--------------------------------------------------------------------------------

14-Nov-2005

Quarterly Report



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 (1) the Company's Annual Report on Form 10-KSB for the year ended December 31, 2004, as amended (which is also incorporated by reference herein) and (2) Quarterly Report on Form 10-QSB for the quarter ended September 30, 2004.

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 languages. 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" on this report. The 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 filings with the Securities and Exchange Commission, especially on Forms 10-KSB, 10-QSB 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



We have identified one policy area as critical to the understanding of our consolidated financial statements. The preparation of our consolidated financial statements 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 consolidated financial statements and the reported amounts of sales and expenses during the reporting periods. With respect to net realizable value of the Company's accounts receivable and inventories, significant estimation judgments are made and actual results could differ materially from these estimates.

The Company had not provided any reserves against its accounts receivable at December 31, 2004. In 2005, the management of the Company provided reserves on its accounts receivable to reflect management's expectation on the collectibility of aged accounts receivable. Management's estimation of the reserves on accounts receivable at September 30, 2005 was based on the current facts that there is significant aged accounts receivable. In making their judgment, management has assessed customers' ability to continue to pay their outstanding invoices timely, and whether their financial position will deteriorate significantly in the future, which would result in their inability to pay their debts to the Company. As at September 30, 2005, the Company provided $307,106 reserves for accounts receivable.

The Company had not provided any reserves against its inventories at December 31, 2004. At September 30, 2005, the Company provided $606,927 against its inventories, of which $131,551 was provided against the inventories of Three Happiness and $475,376 was provided against the inventories of HSPL. Management's estimation that a provision is needed is based on the current facts that there are potential impairments on the current carrying value of the inventories due to potential obsolescence as a result of aged inventories. The Company might not be able to realize the existing carrying value of the inventories. In making their judgment, management made their estimations on the potential impairments based on the demand for their products in the future and the trends of turnover of the inventories.

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

We believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies, as described in our consolidated financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.

We recognize revenue in accordance with Staff Accounting Bulletin ("SAB") No.
104. All of the following criteria must exist 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. Collectibility is reasonably assured.

The majority of the Company's revenue results from sales contracts with distributors and revenues are generated upon the shipment of goods. The Company's pricing structure is fixed and there are no rebate or discount programs. Management conducts credit background checks for new customers as a means to reduce the subjectivity of assuring collectibility. Based on these factors, the Company believes that it can apply the provisions of SAB 104 with minimal subjectivity.

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2005 AS COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 2004




Revenues, Cost of Revenues and Gross Margin
-------------------------------------------

Revenues for the quarter ended September 30, 2005 were $13,407,237, an increase
of $6,034,682 from $7,372,555 for the quarter ended September 30, 2004. Compared
to the same quarter in 2004, our sales revenues from our two main categories of
products in the current quarter of 2005 were as follows:


                                                            Three Months Ended September 30,
                                                   ----------------------------------------------         Increase /
Product                                                             2005                     2004         (Decrease)
---------------------------------------------      ---------------------     --------------------     ---------------
Plant based pharmaceuticals products (PBP
Products)                                          $          8,626,712      $         3,150,091      $    5,476,621
Plant based nutraceuticals products (PBN
Products)                                                     4,780,525                4,222,464             558,061

                                                   ---------------------     --------------------     ---------------
TOTAL                                              $         13,407,237      $         7,372,555      $    6,034,682
                                                   =====================     ====================     ===============

In the third quarter of 2005, the sales of our PBP Products increased by
$5,476,621 or 174% as compared to the same period in 2004. This was mainly due
to the increase in Cease Enuresis Soft Gel sales. Also, the acquisition of HSPL,
completed on November 22, 2004 contributed to an increase in sales of PBP
Products because HSPL produces and sells various types of PBP Products to the
market and through the acquisition of HSPL, AOB enriched its product mix on PBP
Products.

The sales revenue from our PBN Products increased to $4,780,525 in the third
quarter of 2005 from $4,222,464 from the same period in 2004, representing an
increase of 13%. In the third quarter of 2005, our marketing and promotion
efforts continued to help us to increase our sales in PBN Products.

Cost of revenues for the quarter ended September 30, 2005 were $4,911,990, an
increase of $2,475,833 from $2,436,157 for the same quarter last year. The
increases in costs of sales by product categories were as follows:

                                                             Three Months Ended September 30,
                                                   ----------------------------------------------         Increase /
Product                                                             2005                     2004         (Decrease)
---------------------------------------------      ---------------------     --------------------     ---------------

PBP Products                                       $          3,198,873      $           993,441      $    2,205,432
PBN Products                                                  1,713,117                1,442,716             270,401

                                                   ---------------------     --------------------     ---------------
TOTAL                                              $          4,911,990      $         2,436,157      $    2,475,833
                                                   =====================     ====================     ===============




The cost of sales of our PBP Products increased by $2,205,432, or 222% in third quarter of 2005 compared to same period in 2004. This increase resulted from our 174% increase in sales revenue from our PBP Products sold through Harbin Bioengineering in the same period as compared to last year and our sales of additional PBP Products resulting from our acquisition of HSPL completed on November 22, 2004. The cost of sales increased in higher proportion than our increase in revenue because the gross profit margin of HSPL was lower than that of Harbin Bioengineering and in the same quarter of 2004 the revenue and cost of sales of HSPL had not been consolidated into AOB.

The cost of sales of our PBN Products increased by $270,401, or 19% in the third quarter of 2005 compared to the same period in 2004. This increase resulted from our 13% increase in sales revenue from PBN Products during the third quarter of 2005 as compared to same period in 2004. The percentage increase in cost of sales was slightly higher than the percentage increase in sales revenue because of normal fluctuations in production overhead and spoilage during the production process.

Compared to the third quarter of 2004, the percentage profit margin for our Company decreased from 67% to 63% in the current quarter. The decrease in the percentage profit margin was mainly attributable to the average percentage profit margin of HSPL, which was lower than the average percentage profit margin of all products of Harbin Bioengineering. The profit margin for PBP Products decreased from 68% in the same quarter last year to 63% in current quarter. The decrease was due to the profit margin of PBP Products from HSPL, which was lower than the average profit margin of PBP Products from Three Happiness while in the same quarter last year the financial results of HSPL was not incorporated in AOB. For PBN Products, the profit margin decreased from 66% in the same quarter last year to 64% in current quarter. The decrease was due to normal fluctuations in production overhead and spoilage during the production process.


Selling and Marketing

Selling and marketing expenses amounted to $850,167 in the third quarter of
2005, an increase of $341,690 as compared to the same period in 2004 of
$508,477. The breakdown of the expenses were as follows:

                                                                            Three Months Ended September 30,
                                                                    -------------------------------------------------
                                                                                      2005                      2004
                                                                    -----------------------     ---------------------
Payroll expenses for Harbin Bioengineering                          $              160,648      $            138,531
Non payroll expenses for Harbin Bioengineering                                     285,686                   369,382
Payroll expenses for HSPL                                                           44,060                         0
Non payroll expenses HSPL                                                          352,970                         0
Overhead for offices in Hong Kong and the United States                              6,803                       564

                                                                    -----------------------     ---------------------
TOTAL                                                               $              850,167      $            508,477
                                                                    =======================     =====================




In the third quarter of 2005, the Company incurred $160,648 for the payroll of our sales and marketing executives and employees in Harbin Bioengineering, or an increase of 16% from $138,531 in the same quarter in 2004. This increase was mainly due to an increase in the number of employees in our sales and marketing department. In the third quarter of 2005, HSPL incurred $44,060 in payroll

expenses for sales and marketing executives and employees and $352,970 in overhead expenses. In the same quarter last year there was no such expense because operating results of HSPL was not yet consolidated with the Company. AOB also incurred $6,803 for sales and marketing activities in our Hong Kong and US offices, an increase of $6,239 from the same quarter last year.

Advertising



Advertising expenses for the quarter ended September 30, 2005 amounted to $756,541, an increase of 4% as compared with $728,802 in the same quarter in 2004. The Company spent roughly the same expenses in advertising in the current quarter compared to the same quarter last year.


General and Administrative
--------------------------

General and administrative expenses increased from $892,701 in the third quarter
of 2004 to $1,939,514 in the same quarter this year, or a 117% increase.
Compared to the same quarter in 2004, our increase in the expenses was due to
the following:


                                                                  Three Months Ended
                                                                     September 30,
                                                       ------------------------------------------         Increase /
Breakdown of expenses:                                                2005                   2004         (Decrease)
--------------------------------------------------     -------------------     ------------------     ---------------
Harbin Bioengineering - payroll                        $          121,266      $          89,932      $       31,334
Harbin Bioengineering - non payroll                               387,123                304,712              82,411
HSPL - payroll                                                     26,844                    - -              26,844
HSPL - non payroll                                                283,166                    - -             283,166
AOB Hong Kong office overhead                                     115,272                 44,974              70,298
AOB US office overhead                                             77,257                    - -              77,257
Professional fees                                                 595,128                    - -             595,128
Stock based consultant expenses                                   209,708                361,333            (151,625)
Executive compensation                                             91,750                 91,750                 - -
ESOP expense                                                       32,000                    - -              32,000

                                                       -------------------     ------------------     ---------------
TOTAL                                                  $        1,939,514      $         892,701      $    1,046,813
                                                       ===================     ==================     ===============




During the third quarter of 2005, the Company incurred $121,266 in payroll expenses for Harbin Bioengineering as compared to $89,932 in 2004. This increase resulted from an increase in the total number of employees. The non payroll expenses of Harbin Bioengineering increased by $82,411. This was mainly due to $131,551 reserves against inventories in the third quarter of 2005 that was not happened in the same quarter last year, offset by reduction in general overhead of $49,140 as a result of shift of portion of administrative activities to Hong Kong and US offices.

During the third quarter of 2005, HSPL incurred $26,844 and $283,166 of payroll and non payroll expenses, respectively. There were no similar expenditures in the same quarter of 2004 because the operation of HSPL was not consolidated with AOB in the same quarter last year.

The Company incurred $115,272 and $77,257 in overhead expenses for Hong Kong and US offices, respectively. In the same period last year the Company incurred a total of $44,974 to maintain the Hong Kong offices. The increase was due to increase in administrative activities in Hong Kong office and in the same quarter last year the US office was not established.

In the current quarter of 2005, the Company incurred professional expenses of $595,128 for professional expenses related to $6 million investments and related warrants administrations that did not occur in the same quarter last year.

The Company spent $32,000 in ESOP expenses in the current quarter and there was no ESOP expenses incurred in the same quarter last year. In the same quarter last year the Company did not issue any employee stock options to any of the directors.

Depreciation and Amortization



Depreciation and amortization of plant and equipment increased $164,648 in the third quarter of 2005 compared to the same period in 2004. The increase was mainly due to an increase in assets as a result of the HSPL acquisition.

Income Taxes



Income tax expense was $1,126,721 for the quarter ended September 30, 2005, as compared to $444,361 for the quarter ended September 30, 2004. The increase was due to the increase in income before income taxes of Harbin Bioengineering and the contribution of profit from HSPL, which could not be offset against the losses of AOB.

The income tax was provided at 15% of income before tax at the Harbin Bioengineering level and 33% at the HSPL level in China. The effective tax rate applied for tax expense in the current quarter, however, was 23% instead of 17% in 2004 (weighted average of the tax rate for Harbin Bioengineering and HSPL). This was because there were other operating expenses incurred at the holding company level as well as AOB HK and AOB US, and these expenses could not enjoy tax benefits in China and so the effective income tax rate provided for the Company was 23%.

Net Income



In the third quarter of 2005, our net income increased by $1,468,719 to a net income of $3,709,764 from a net income of $2,241,045 in the same quarter in 2004.

Foreign Currency Translation Gain



In the third quarter of 2005, we recognized foreign currency translation gain of $854,058 as a result of appreciation of Renminbi against US Dollar during July 2005. There was no such appreciation in the same quarter last year.


RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2005 AS COMPARED TO NINE
--------------------------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 2004
-------------------------------

Revenues, Cost of Revenues and Gross Margin
-------------------------------------------

Revenues for nine months ended September 30, 2005 were $34,962,489, an increase
of $15,679,355 from $19,283,134 for nine months ended September 30, 2004.
Compared to same period in 2004, our sales revenues from our two main categories
of products in the nine months ended 2005 were as follows:



                                                        Nine Months Ended September 30,
                                              ----------------------------------------------          Increase /
Product                                                        2005                     2004          (Decrease)
-----------------------------------------     ---------------------      -------------------     ----------------
PBP Products                                  $         22,052,419       $       10,403,812      $    11,648,607
PBN Products                                            12,910,070                8,879,322            4,030,748

                                              ---------------------      -------------------     ----------------
TOTAL                                         $         34,962,489       $       19,283,134      $    15,679,355
                                              =====================      ===================     ================

In the first nine months of 2005, the sales of PBP Products increased by
$11,648,607 or 112% as compared to the same period in 2004. This was mainly due
to the increase in Cease Enuresis Soft Gel sales by Harbin Bioengineering and
also to the increase in sales of PBP Products subsequent to the acquisition of
HSPL. HSPL contributed to an increase in sales of PBP Products because HSPL
produces and sells various types of PBP Products to the market and through
acquisition of HSPL, AOB enriched its product mix on PBP Products.

The sales revenue from our PBN Products increased to $12,910,070 in the first
nine months of 2005 from $8,879,322 from the same period in 2004, representing
an increase of 45%. In first nine months of 2005 our marketing and promotion
efforts continued to help us to increase our sales in health food supplements,
which resulted in an increase in sales.

Cost of revenues for the first nine months ended September 30, 2005 were
$12,728,309, an increase of $6,629,566 from $6,098,743 for the same period last
year. The increases in costs of sales by product categories were as follows:

                                                         Nine Months Ended September 30,
                                              ----------------------------------------------          Increase /
Product                                                        2005                     2004          (Decrease)
-----------------------------------------     ---------------------      -------------------     ----------------

PBP Products                                  $          8,184,755       $        3,168,688      $     5,016,067
PBN Products                                             4,543,554                2,930,055            1,613,499

                                              ---------------------      -------------------     ----------------
TOTAL                                         $         12,728,309       $        6,098,743      $     6,629,566
                                              =====================      ===================     ================




The cost of sales of our PBP Products increased by $5,016,067, or 158% in first nine months of 2005 compared to the same period in 2004. The increase resulted from our 112% increase in sales revenue from our PBP Products sold through Harbin Bioengineering in the same period as compared to last year and the increase in sales of PBP Products through HSPL subsequent to the acquisition.

The cost of sales of our PBN Products increased by $1,613,499, or 55% in the first nine months of 2005 compared to the same period in 2004. This increase resulted from our 45% increase in sales revenue from our PBN Products during the first nine months of 2005 as compared to same period in 2004. The percentage increase in cost of sales was higher than the percentage increase in sales revenue as in the same period of 2004 because the Company recorded exceptional higher profit margin of PBN products in the same period last year that did not repeated this year.

Compared to the first nine months of 2004, the percentage profit margin for our Company decreased from 68% to 64% in the same period of 2005. The decrease in percentage profit margin was mainly attributable to the percentage profit margin of HSPL was lower than the average percentage profit margin of all products of Harbin Bioengineering. The profit margin for PBP Products decreased from 70% in the period ended September 30 last year to 63% in same period in the current year. The decrease was due to the profit margin of PBP Products from HSPL was lower than the average profit margin of PBP Products from Three Happiness while in the same period last year the financial results of HSPL was not incorporated in AOB. For PBN Products, the profit margin decreased from 67% in the first nine month last year to 65% in same period in the current year. The decrease was due to normal fluctuations in production overhead and spoilage during the production process.


Selling and Marketing
---------------------

Selling and marketing expenses increased from $1,537,631 in the first nine
months of 2004 to $2,055,988 in the same period in 2005, representing a 34%
increase. The details of selling and marketing expenses for the first nine
months of 2005 and 2004 were as follow:

                                                             Nine Months Ended September 30,
                                                     -------------------------------------------------
                                                                       2005                      2004
                                                     -----------------------     ---------------------
Payroll expenses for Harbin Bioengineering           $              492,019      $            343,282
Non payroll expenses for Harbin Bioengineering                      917,985                 1,193,785
Payroll expenses for HSPL                                            82,219                       - -
Non payroll expenses HSPL                                           543,027                       - -
Overhead for offices in Hong Kong and US                             20,738                       564

                                                     -----------------------     ---------------------
TOTAL                                                $            2,055,988      $          1,537,631
                                                     =======================     =====================




In the first nine months of 2005, the Company incurred $492,019 for payroll expenses of our sales and marketing executives and employees in Harbin Bioengineering, or an increase of 43% from $343,282 in the same period in 2004. This increase was mainly due to an increase in the number of employees in our sales and marketing department. In the first nine months of 2005, HSPL incurred $82,219 in payroll expenses for sales and marketing executives and employees. In the same period last year there was no such expense in the Company because the operations of HSPL was not yet consolidated into the Company.

Despite the increase in our sales and marketing executives and employees, compared to the first nine months of 2004, Harbin Bioengineering has reduced its . . .

[wisebuys]

Thanks so much for your detailed reply Tokyopua.  I prefer to think of luck as knowing when to grasp an opportunity.  Thanks, especially to Michael for all his groundwork on this stock.  When I saw it at 5.4, I had the legwork done to purchase it.  I would not do this with an unknown stock since I have already caught more than my fair share of falling knives.

Have a GRRRRREAT DAY ALL !!!!