<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ----------------------

                                   FORM 10-KSB
(MARK ONE)
[X]   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
      For the annual period ended December 31, 2002

[ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934
      For the transition period from _________ to _________

                           COMMISSION FILE NO. 0-29015


                     AMERICAN ORIENTAL BIOENGINEERING, INC.
                     --------------------------------------
                 (Name of Small Business Issuer in Its Charter)

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


            NO.12 JIANCE ROAD, NANGANG DISTRICT, HARBIN, CHINA, 15008
                    (Address of principal executive offices)

                                 86-451-666-6601
                (Issuer's telephone number, including area code)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
                                     (None)

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                         COMMON STOCK, PAR VALUE $0.001
                                (Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the exchange Act during the past 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 the number of shares outstanding of each of the issuer's class of
common stock as of the latest practicable date:

Title of each class of Common Stock            Outstanding as December 31, 2002
-----------------------------------            --------------------------------
Common Stock, $0.001 par value                             11,341,017

Transitional Small Business Disclosure Format (check one):
      Yes [ ]       No [X]

<PAGE>

                                TABLE OF CONTENTS

                                     PART I

Item 1.     Description of Business
Item 2.     Description of Property
Item 3.     Legal Proceeding
Item 4.     Submission of Matters to a Vote of Security Holders

                                     PART II

Item 5.     Market for Common Equity and Related Stockholder Matters
Item 6.     Management Discussion and Analysis
Item 7.     Financial Statements
Item 8.     Changes in and Disagreements with Accountants on Accounting and
            Financial Disclosures

                                    PART III

Item 9.     Directors, Executive Officers, Promoters and Control Persons,
            compliance with Section 16(a) of the Exchange Act
Item 10.    Executive Compensation
Item 11.    Security Ownership of Certain Beneficial Owners and Management
Item 12.    Certain Relationships and Related Transaction
Item 13.    Exhibits and Reports on Form 8K

This annual report contains certain 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," "the Company believes," "management believes" and similar
language. The forward-looking statements are based on our current expectations
and are subject to certain risks, uncertainties and assumptions, including those
set forth in the discussion under "Description of Business," including the "Risk
Factors" described in that section, and "Management's Discussion and Analysis or
Plan of Operation." Our actual results may differ materially from results
anticipated in these forward-looking statements. We base our forward-looking
statements on information currently available to us, and we assume no obligation
to update them.

                                       2
<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

HISTORY
-------

American Oriental Bioengineering, Inc. (the "Company") was founded as Champion
Ventures, Inc. on November 30, 1970. On May 7, 1999 the Company acquired
Internet Golf Association, Inc. From 1999 until 2001, the Company attempted to
build a business that would organize and conduct interactive golf tournaments on
the internet. The Company's business model was not successful. During the fiscal
year ended 2001, the Company ceased to have any operations. The Company had no
employees on December 31, 2001.

On December 18, 2001, the Company and Harbin Three Happiness Bioengineering Co.,
Ltd. ("Harbin Bioengineering"), a company organized under the laws of the
People's Republic of China, entered into an exchange agreement whereby the
Company would acquire 100% of the equity interest of Harbin Bioengineering
through the exchange of 8,538,943 shares of restricted common stock for the
ownership of Harbin Bioengineering. This was a triangular merger with Bestkey
International, Ltd, a British Virgin land's corporation, and has been treated as
a reverse merger for accounting purposes. An Information Statement pursuant to
Schedule 14C was filed on December 21, 2001 and as amended Information Statement
Amendment No. 1 to Schedule 14C was filed on April 15, 2002 in conjunction to
the acquisition. The merger was complete on June 26, 2002.

Through the Company's subsidiary, Harbin Bioengineering, the Company is engaged
in the development and production of bioengineered products and traditional
Chinese medicinal products. Due to its technology and market competitiveness,
the Company is well-positioned to take advantage of the increasing demand for
traditional Chinese medicinal products as well as significant opportunities for
its newly developed bioengineered products. The Company has become a leading
developer and producer of bioengineered products as well as traditional Chinese
medicinal products in China. Ever since its establishment Harbin Bioengineering
has focused on new product research which combines modern bio-technology and
traditional Chinese medical technology and has developed a series of biotech
products marketed in China and these researches provide business foundations to
the Company's development in biotech industry subsequent to its acquisition.

BUSINESS OVERVIEW
-----------------

The Company, subsequent to the acquisition of Harbin Bioengineering, has become
a leading nutracuetical company in China focused on new product research and
commercialization to combine biotechnology and traditional Chinese medical
technologies to capture the increasing demand for traditional Chinese medicines
and health supplements, both domestically and internationally.

                                       3
<PAGE>

Headquartered in the city of Harbin, in the Northeastern part of China, the
Company owns:

1.       A piece of land with an area of 220,000 square feet;
2.       A bio-pharmaceuticals manufacturing facility;
3.       A bio food processing factory;
4.       A biotech research institute; and
5.       12 sales and marketing branches and a working relationship with over
         1,000 retail distributors around China

THE EMPLOYEES
-------------

On December 31, 2002, the Company has a total of 430 employees, of which over
one-third have been professionally trained in the field of biotechnology and
related research.

RESEARCH AND DEVELOPMENT
------------------------

The Company has its own research center located in its Harbin headquarters. The
Company has its own laboratory located within its premises manned by the
Company's own professional research and development team. The Company also
cooperates with other outside research institutes in China for joint research
and developments. The following are some of the research institutes:

o        Medical Plants Research Institute under the Chinese Academy of Medical
         Sciences
o        Heilongjiang Chinese Medical University
o        Harbin University of Medical Sciences
o        Ocean Research Institute of the Chinese Academy of Sciences
o        Ecological Research Institute of the Chinese Academy of Sciences

These joint research alliances provide the Company with access to over 60
professors and experts in the fields of traditional Chinese medicine, marine
bioengineering, food engineering, and chemistry associated with the Company's
research and development

THE PRODUCTS
------------

The Company has a series of health products targeted to specific niches of the
market. The most popular ones are as follows:

                                       4
<PAGE>

o        COMPOUND BIO-FUNCTIONAL BEVERAGE: It is derived from honey products,
         marine plants and natural herbs (which are all abundant in the
         Northeastern part of China) through advance bioengineer processing. The
         compound bio-functional beverage is rich in natural amino acids, and
         vitamins. It is a nutritional beverage and was the first one of its
         kind recognized as health product by the Ministry of Health of China in
         November 1996. The Company passed the inspection of the Environment
         Quality Management of Chinese Beverage Enterprises in December 1997.
o        CEASE-ENURESIS SOFT GEL: This product, which composes of triterpeniod
         saponin, is specially formulated to help alleviate bed - wetting and
         urination disorder (especially at night or urinal incontinence). This
         natural Chinese herbal formula helps control bed - wetting and night
         time urination disorder.
o        SOYBEAN PROTEIN PEPTIDE TABLET: It contains more than 30% protein
         peptide per tablet piece. Protein in the form of peptides may be easily
         absorbed by the human body. Soybean protein peptide may effectively
         maintain or improve protein nutrient condition of the human body.
o        ANGEL OF LIFE: It is a concentrate source of high - quality protein
         peptide found to enhance immunity. Composed of Soybean protein peptide,
         white granulated sugar and vegetable oil, it is appropriate for middle
         - aged and elderly with elevated protein needs and those recovering
         from trauma and infection.

PRODUCTION FACILITIES AND EQUIPMENT
-----------------------------------

The Company has fully automated production lines producing bioengineered and
health food products. The Company has a fully mechanized controlled soybean
protein peptide production line, which carries out automated production process
including soybean decomposition, dehydration, sterilization, compilation and
packaging. Also, the production facilities of the Company are flexible enough to
handle mass production of various products in the form of bottles, powders,
tablets, sachets and liquid.

DISTRIBUTION CHANNELS
---------------------

During the past 6 years, the Company has established a channel sales network
throughout China. The Company owns and operates 11 sales branches that cover
most of the provinces of the country, with over 1,000 distributors, sales
outlets, hospital and clinics to support these 11 sales branches to ensure
complete product coverage in the following cities:

o   Beijing        o   Urumchi            o   Jinan           o   Shanghai
o   Harbin         o   Shijiazhuang       o   Taiyuan         o   Nanjing
o   Changchun      o   Hangzhou           o   Xian            o   Wuhai
o   Dalian         o   Guangzhou          o   Zhengzhou       o   Chengdu

                                       5
<PAGE>

BUSINESS DEVELOPMENT AND ACQUISITIONS
-------------------------------------

The Information Statement Pursuant to Section 14(c) of the Securities Exchange
Act of 1934, filed by the Company on October 15, 2002, announced that a total of
20,284,810 shares of Common Stock and 1,000,000 shares of Class A Preferred
Stock would be issued by the Company in consideration for all of the ownership
interest in a soybean protein peptide biochemical engineering project (the
"Project") as described in the Purchase Agreement dated as of August 17, 2002
between the Company and Shujun Liu, the existing Chairman and CEO of the
Company. Shujun Liu agreed to assign, transfer and deliver to the Company, free
and clear of all liens, pledges, encumbrances, charges, restrictions or known
claims of any kind, nature or description, the whole ownership interest of the
Project at closing for the consideration. The stock was valued at $3,205,000.
Details of the share issuance were as pursuant to the Information Statement
Section 14(c) filed on October 15, 2002. The transaction closed in February,
2003.

The Project was established by Shujun Liu in conjunction with Harbin Medical
University in Harbin City, Heilongjiang Province, People Republic of China. The
Project includes derivatives and extractions of soybean protein peptides. A
patent application was filed in 2000 on the technical know-how of the extraction
and production of soybean peptide in China. The patent registration is expected
to be issued 2003.

Soybean protein peptides consist of a combination of enzymes that are
biologically functional. Soybean peptides are derived from soybeans through a
biochemical engineering process involving cutting, decomposition, conversion and
synthesis of soybean protein. Soybean peptides may be absorbed by the body. In
addition to adsorbing soybean peptide directly in the form of various tablets or
powders, soybean peptide may be used as an additive in various foods and
beverages including milk, tea and coffee.

By acquiring the Project, among other assets, the Company acquired ownership of
the properties associated with the Project, the manufacturing plant,
manufacturing equipment and environmental control equipment. In addition, the
Company received the right to produce the products, which resulted from the
Project as well as the ownership rights of the pending patent in China. The
Project, including the production, marketing and sales of various functional
soybean peptide medical tablets and powders, was valued by Vigers, an
independent appraiser in Hong Kong, on June 30, 2002, to have a fair market
value of $40,406,000. The purchased Project is crucial to the Company's
expansion and growth in the field of bioengineering. It is also important to the
Company's over-all technological strategy. Acquiring the Project will enable the
Company to develop new products and increase the Company's revenue in the
future.

ITEM 2.  DESCRIPTION OF PROPERTIES

A description of the properties owned by the Company is as follows:

o        A piece of land with approximate area of 220,000 sq.ft. located at
         Harbin, China

                                       6
<PAGE>

o        5 buildings including manufacturing plants, office, research
         laboratory, warehouse and staff facilities

The historical costs of the Company's properties are as follows:


     Land and buildings at historical cost                 $3,113,243
     Accumulated amortization up to 2002                    (289,636)
                                                            - - - - -
     Net book value of land and building                   $2,823,607

ITEM 3.  LEGAL PROCEEDING

The Company was not involved in any reportable legal proceedings during the
period covered by this report.

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

ACQUISITION OF SOYBEAN PROTEIN PEPTIDE PROJECT
----------------------------------------------

As described in "Item 1 - Description of Business", an Information Statement
Pursuant to Section 14(c) of the Securities Exchange Act of 1934, filed by the
Company on October 15, 2002, the Company had announced that a total of
20,284,810 shares of Common Stock and 1,000,000 shares of Class A Preferred
Stock would be issued by the Company in consideration for all of the ownership
interest in the Project originally owned by Shujun Liu. The record date for
security holders voting on this proposal was August 2, 2002. As of August 2,
2002, the number of shares outstanding and eligible to vote in this matter was
10,141,017, of which 7,161,997 voted in favor of the proposal. In connection
with the proposal, each and every security holder was sent a copy of this
information statement. NO proxy was solicited by the Company in respect to the
shareholders and shareholders were not required to submit a proxy to the
Company. No proposal in opposition to this proposal was received by the Company.


INCREASE OF AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
-------------------------------------------------------

Pursuant to Item 19 - Amendments of the Charter, By-laws or Other Documents of
the Information Statement Pursuant to Section 14(c) of the Securities Exchange
Act of 1934, filed by the Company on October 15, 2002, the Company's
stockholders voted on August 9, 2002 to amend the Company's Articles of
Incorporation to increase the authorized number of shares of Common Stock from
20,000,000 to 60,000,000 and to create a class of Preferred Stock, the number of
authorized shares of which shall be 2,000,000 at $0.001 per share. The amendment
would become effective approximately 20 days after the filing of the information
statement. NO proxy was solicited by the Company in respect to the shareholders,
and shareholders were not required to submit a proxy to the Company.
Furthermore, no proposal in opposition to this proposal was received by the
Company.

                                       7
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock had been quoted on the Over the Counter Bulletin
Board (OTC BB) under the symbol "IGAI." Beginning on February 13, 2002, the
Company's common stock has been listed on the OTC BB under the symbol "AOBO".

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Company, based upon the average bid and asked price of
such common equity on March 21, 2003 as reported by the OTC Bulletin Board, was
approximately $1,292,705. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the outstanding Common Stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.

Trading in the Common Stock has been limited and sporadic. The following table
shows the range of high and low bid quotations reported by the OTC Electronic
Bulletin Board in each fiscal quarter from January 1, 2001 to December 31, 2002.
The OTC Electronic Bulletin Board quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.

BID PRICES FOR THE REPORTING PERIOD
-----------------------------------

YEAR               PERIOD                        HIGH                   LOW
----               ------                        ----                   ---
2002               First Quarter                1.400                 0.600
                   Second Quarter               0.770                 0.350
                   Third Quarter                0.450                 0.110
                   Fourth quarter               0.510                 0.260

2001               First Quarter                0.095                 0.006
                   Second Quarter               0.135                 0.006
                   Third Quarter                1.500                 0.006
                   Fourth quarter               2.300                 0.020

ISSUANCE OF SHARES
------------------

With reference to "Item 1 - Description of Business", an Information Statement
pursuant to Schedule 14C was filed on December 21, 2001 and an Amended
Information Statement as Amendment No. 1 to Schedule 14C was filed on April 15,
2002 to announce the Company's issuance of the following shares of common stock
in consideration for transferring all of their equity interest in Harbin
Bioengineering to the Company:

                                       8
<PAGE>

       Shujun Liu                                    4,900,319
       Jun Min                                       1,206,228
       Yanchun Li                                    1,055,450
       Binsheng Li                                     376,946
       Hai Yu                                          100,000
       Yongxiang Chen                                  100,000
       Zhengjun Zhu                                    275,000
       Dijia Feng                                      180,000
       Xiaojin Wong                                    152,000
       Hungia Zhou                                      70,000
       Ying Wang                                        70,000
       Tongfa Fong                                      33,000
                                                        20,000
                                                     ----------
       Dongtai Yang                                  8,538,943

On June 2, 2002, the Company entered into consulting agreements for services as
summarized below with Zhang Bing Xiao, Bai Cao and Koa Yu Min:

<TABLE>
<CAPTION>

RECIPIENT AND NUMBER OF SHARES               PURPOSE
-------------------------------------------- -----------------------------------------------------
<S>                                          <C>
300,000 common shares to Zhang Bing Xiao     Researched and reported on the market for
                                             the Company's products and those of the
                                             competitors. In light of the conclusions, he
                                             formulated the Company's sales strategies,
                                             promotional and sale campaigns.

450,000 common shares to Bai Cao             Conducted research and development in the
                                             field bio-engineering technology, health
                                             supplement and food products. He performed
                                             research to the application of such results
                                             to commercial production.

450,000 common shares to Kou Yu Min          Provided expertise on the production work
                                             flow for the manufacturing of
                                             cancer-treatment products that employs
                                             protein peptide. He developed solutions to
                                             problems that arose in connection with the
                                             manufacture of such products.

</TABLE>

                                       9
<PAGE>

In conjunction with the signing the consulting agreements, an S-8 Registration
Statement under the Securities Act of 1933 was filed on June 12, 2002 with the
Security and Exchange Commission. The Company was advised by the consultants
that they might sell all or a portion of the shares from time to time through
securities brokers/dealers. The Company received no proceeds from the sale of
any of the shares registered.

As described in "Item 1 - Description of Business", an Information Statement
Pursuant to Section 14(c) of the Securities Exchange Act of 1934 was filed by
the Company on October 15, 2002 to announce a total of 20,284,810 shares of
Common Stock and 1,000,000 shares of Class A Preferred Stock to be issued by the
Company in consideration for all of the ownership interest in the Project
details as follows:

     Shujun Liu              11,484,810 shares of Common Stock
                             1,000,000 shares of Preferred Stock
     Chang Min Wang          1,500,000 shares of Common Stock
     Gui Xiang Qiu           1,500,000 shares of Common Stock
     Wei Hu                  1,400,000 shares of Common Stock
     Yan Wang                1,400,000 shares of Common Stock
     Zi Yun Zhou             1,500,000 shares of Common Stock
     Sheng Jiang             1,500,000 shares of Common Stock

The shares of common stock to be issued were identical in rights, privileges and
preferences to those shares of the Company's common stock already issued and
outstanding. The shares of Class A Preferred Stock to be issued would provide
their holder(s) with aggregate voting rights constituting 25% of total voting
rights in the Company as well as a liquidation preference.

As of March 21, 2003 there were approximately 850 record holders of the common
stock. The Company had not paid any cash dividends on its Common Stock, and it
currently intends to retain future earnings to fund the development and growth
of its business.

ITEM 6.  MANAGEMENT DISCUSSION AND ANALYSIS

This annual 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,"
"the Company believes," "management believes" and similar language. The
forward-looking statements are based on the Company's current expectations and
are subject to certain risks, uncertainties and assumptions, including those set
forth in the discussion under "Description of Business," including the "Risk
Factors" described in that section, and "Management's Discussion and Analysis or
Plan of Operation." The actual results may differ materially from results
anticipated in these forward-looking statements. The Company bases the
forward-looking statements on information currently available to the Company,
and the Company assumes no obligation to update them.

                                       10
<PAGE>

On December 18, 2001, the Company entered into an exchange agreement to acquire
Harbin Bioengineering. The exchange had been treated as a reverse merger for
accounting purposes. As such, the financial information reflected activity
subsequent to the merger for the Company and its subsidiaries and financial
activity of Harbin Bioengineering prior to the merger. The Company will continue
the business operations conducted by Harbin Bioengineering. The Company also has
acquired a soybean protein peptide project. The transaction closed in 2003. The
Company believes the project will help the Company develop new products and
increase revenues.

RESULTS OF OPERATIONS
---------------------

The following table sets forth selected statement of operations data as a
percentage of revenues for the periods indicated.

<TABLE>
<CAPTION>
                                                     Year Ended         Year Ended
                                              December 31, 2002  December 31, 2001
--------------------------------------------- ------------------ ------------------
<S>                                                     <C>                <C>
Revenues                                                100.00%            100.00%
Cost of Revenues                                         38.32%             45.39%
Gross Margin                                             61.68%             54.61%
Selling, general and administrative expense              40.74%             31.39%
Merger cost                                               5.94%              0.00%
Depreciation                                              3.95%              4.90%
Interest                                                  0.84%              1.17%
Income tax                                                3.13%              2.79%

Net profit                                               11.05%             16.79%

</TABLE>

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
---------------------------------------------------------------------

REVENUES, COST OF REVENUES AND GROSS MARGIN
Revenues for the year ended December 31, 2002 were $10,199,756, an increase of
$2,359,414 from $ 7,840,342 for the year ended December 31, 2001. Cost of
revenues for the year ended December 31, 2002 were $3,908,072, an increase of
$349,400 from $ 3,558,672 for the year ended December 31, 2001. The majority of
increases in revenues and cost of revenues when comparing the year ended
December 31, 2002 with the comparable 2001 period related to increase of sales
of products of the Company. Cost of revenues, as a percentage of revenues, was
38% for the year ended December 31, 2002 compared with 45% for the year ended
December 31, 2001. Gross margin for the year ended December 31, 2002 was $
6,291,684, an increase of $ 2,010,014 from $ 4,281,670 for the year ended
December 31, 2001.

                                       11
<PAGE>

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative expenses totaled $ 4,155,198 for the year
ended December 31, 2002, an increase of $ 1,694,451 from $ 2,460,747 for the
year ended December 31, 2001. The majority of this increase was due to higher
business activity levels in 2002 over 2001 that resulted in increased in general
and administrative costs of $612,352 (from $642,181 for the year ended December
31, 2001 to $1,254,533 for the year ended December 31, 2002), increased selling
costs of $451,364 (from $522,196 for the year ended December 31, 2001 to
$973,560 for the year ended December 31, 2002) and an increase in advertising
expenses of $ 630,735 (from $ 1,296,370 for the year ended December 31, 2001 to
$ 1,927,105 for the year ended December 31, 2002).

MERGER RELATED COST
The Company expensed merger related cost totaling $605,691 during 2002
associated with the merger of Harbin Bioengineering.

DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property plant and equipment increased $18,770
in 2002 over 2001.

INCOME TAXES
Income tax expense was $318,752 for the year ended December 31, 2002, as
compared to $218,932 for the year ended December 31, 2001. The increase was due
to increase in profit of Harbin Bioengineering which could not be offset against
the losses of the Company.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

CASH
The Company's cash balance increased by $1,491,270 to $2,816,723 at December 31,
2002, as compared to $1,325,453 at December 31, 2001 as a result of cash
provided from operations of $2,021,401 and $530,131 used to purchase equipment.

WORKING CAPITAL
The Company's working capital increased by $1,994,347 to $3,451,150 at December
31, 2002, as compared to $1,456,803 at December 31, 2001. When compared to
balances at December 31, 2001, the increase in working capital at December 31,
2002 was the result of cash provided from operations.

                                       12
<PAGE>

PROPERTY AND EQUIPMENT ADDITIONS
For the year ended December 31, 2002, additions to property and equipment
aggregated $530,131.

ISSUANCE OF COMMON STOCK
Effective June 26, 2002, pursuant to an exchange agreement, 8,538,943 common
shares were issued for Harbin Bioengineering. The Company issued 1,200,000
common shares August 2, 2002 valued at $600,000 for consulting services.

INFLATION
---------

Inflation has not had a material impact on the Company's business.

CURRENCY EXCHANGE FLUCTUATIONS
------------------------------

All of Company's revenues and majority of the expenses in 2002 were denominated
primarily in Renminbi ("RMB"), the currency of the People's Republic of China.
There could 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
the Company's business, financial condition and results of operations. The
Company does not engage in currency hedging.

                                       13
<PAGE>

ITEM 7.     FINANCIAL STATEMENTS





                              FINANCIAL STATEMENTS

                          INDEX TO FINANCIAL STATEMENTS


                                                                           Pages
                                                                           -----

AMERICAN ORIENTAL BIOENGINEERING, INC.
--------------------------------------

December 31, 2002 and 2001
--------------------------

Report of Independent Auditors                                               F-2

Consolidated Balance Sheets as of December 31, 2002 and December 31, 2001    F-3

Consolidated Statements of Operations for the years ended December 31,
   2002 and 2001                                                             F-4

Consolidated Statements of Changes in Shareholders' Equity
  for the years ended December 31, 2002 and 2001                             F-5

Consolidated Statements of Cash Flows for the years ended
  December 31, 2002 and 2001                                                 F-6

Notes to Financial Statements                                             F-7-15


                                      F-1

<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


To the Board of Directors and Stockholders
of American Oriental Bioengineering, Inc.


We have audited the accompanying balance sheet of American Oriental
Bioengineering, Inc. (the "Company") as of December 31, 2002 and 2001, and the
related statements of income, retained earnings, and cash flows for the two
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the over-all
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Oriental
Bioengineering, Inc. and subsidiaries as of December 31, 2002 and 2001, and the
results of its operations and its cash flows for the two years then ended in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Thomas Leger & Co., L.L.P.

Thomas Leger & Co., L.L.P.
Houston, Texas
March 15, 2003

                                      F-2

<PAGE>
<TABLE>

                        AMERICAN ORIENTAL BIOENGINEERING, INC.
                      (FORMERLY INTERNET GOLF ASSOCIATION, INC.)
                             CONSOLIDATED BALANCE SHEETS
                               (United States Dollars)

                                        ASSETS
<CAPTION>

                                                                 December 31,
                                                          --------------------------
                                                              2002          2001
                                                          ------------  ------------
<S>                                                       <C>           <C>
CURRENT ASSETS
  Cash and bank balances                                  $ 2,816,723   $ 1,325,453
  Trade receivables, net of provisions                      1,472,694     1,089,572
   Inventory                                                  495,749       603,520
   Prepayments for goods                                      143,584       535,873
   Due from related parties                                   288,793       108,908
   Advances to employees                                       95,788        30,058
   Deferred taxes                                              68,772       103,116
   Deferred merger costs                                       66,666        30,361
   Deferred consulting expenses                               415,625            --
                                                          ------------  ------------

TOTAL CURRENT ASSETS                                        5,864,394     3,826,861

FIXED ASSETS, net of depreciation                           4,260,718     4,043,301

OTHER ASSETS, net of amortization                             722,892       813,253
                                                          ------------  ------------

TOTAL ASSETS                                              $10,848,004   $ 8,683,415
                                                          ============  ============


                        LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable and accrued expenses                  $   582,242   $   429,647
   Prepayments for materials                                  153,830       278,982
   Bank loans                                               1,445,783     1,445,783
   Government grant                                                --       120,482
   Taxes payable                                               49,163        88,031
   Payable to related party                                   182,226         7,133
                                                          ------------  ------------

TOTAL CURRENT LIABILITIES                                   2,413,244     2,370,058
                                                          ------------  ------------

MEMBERS' EQUITY                                                    --     6,313,357
                                                          ------------  ------------

SHAREHOLDERS' EQUITY
    Preferred stock, $0.001 par value; 2,000,000 shares
       authorized; no shares issued or outstanding
       at December 31, 2002
    Common stock, $.001 par value, 60,000,000 shares
       authorized: 11,341,017 and 10,141,017 issued and
       outstanding at December 31, 2002 and 2001               11,341            --
    Additional paid-in capital                              4,597,263            --
    Retained Earnings                                       3,826,156            --
    Equity in the amount of $807,501 and $550,202
       is restricted at December 31, 2002 and 2001
                                                          ------------  ------------

TOTAL EQUITY                                                8,434,760     6,313,357
                                                          ------------  ------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                $10,848,004   $ 8,683,415
                                                          ============  ============

     The accompanying notes are an integral part of these financial statements.

                                         F-3
</TABLE>

<PAGE>
<TABLE>

                     AMERICAN ORIENTAL BIOENGINEERING, INC.
                   (FORMERLY INTERNET GOLF ASSOCIATION, INC.)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             (United States Dollars)

<CAPTION>

                                                            December 31,
                                                   -----------------------------
                                                        2002            2001
                                                   -------------   -------------
<S>                                                <C>             <C>
SALES                                              $ 10,199,756    $  7,840,342

COST OF SALES                                         3,908,072       3,558,672
                                                   -------------   -------------

GROSS PROFIT                                          6,291,684       4,281,670

SELLING AND ADMINISTRATIVE EXPENSE                      973,560         522,196

ADVERTISING                                           1,927,105       1,296,370

GENERAL AND ADMINISTRATIVE EXPENSES                   1,254,533         642,181

DEPRECIATION AND AMORTIZATION                           403,075         384,305
                                                   -------------   -------------

INCOME FROM OPERATIONS                                1,733,411       1,436,618

MERGER COSTS                                           (605,691)             --

INTEREST                                                (85,506)        (91,705)

GRANT INCOME                                            120,482              --

OTHER INCOME                                            283,313         190,127
                                                   -------------   -------------

INCOME BEFORE INCOME TAXES                            1,446,009       1,535,040

INCOME TAXES                                            318,752         218,932
                                                   -------------   -------------

NET INCOME                                         $  1,127,257    $  1,316,108
                                                   =============   =============



WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
  BASIC AND DILUTED                                  10,640,743      10,141,017 (1)
BASIC NET INCOME PER SHARE
  BASIC AND DILUTED                                $       0.11    $       0.13
                                                   =============   =============


(1) Number of shares outstanding the day of the merger for comparison only.

   The accompanying notes are an integral part of these financial statements.

                                       F-4
</TABLE>

<PAGE>
<TABLE>


                            AMERICAN ORIENTAL BIOENGINEERING, INC.
                          (FORMERLY INTERNET GOLF ASSOCIATION, INC.)
                  CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                   (United States Dollars)
<CAPTION>

                                            Common       Common      Paid - in    Retained
                                            Shares       Stock        Capital     Earnings
                                          -----------  -----------  -----------  -----------
<S>                                       <C>          <C>          <C>          <C>
Balance at December 31, 2000                      --   $       --   $3,614,458   $1,382,791

Net income                                        --           --           --    1,316,108
                                          -----------  -----------  -----------  -----------

Balance at December 31, 2001                      --           --    3,614,458    2,698,899

Capitalization for merger June 26, 2002   10,141,017       10,141      384,005           --

Stock issued for services                  1,200,000        1,200      598,800

Net income                                        --           --           --    1,127,257
                                          -----------  -----------  -----------  -----------

Balance at December 31, 2002              11,341,017   $   11,341   $4,597,263   $3,826,156
                                          ===========  ===========  ===========  ===========


          The accompanying notes are an integral part of these financial statements.

                                             F-5
</TABLE>


<PAGE>
<TABLE>

                                    AMERICAN ORIENTAL BIOENGINEERING, INC.
                                  (FORMERLY INTERNET GOLF ASSOCIATION, INC.)
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                           (United States Dollars)
<CAPTION>
                                                                                  Year Ended December 31,
                                                                                 ---------------------------
                                                                                    2002            2001
                                                                                 ------------   ------------
<S>                                                                              <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income                                                                       $ 1,127,257    $ 1,316,108
Adjustments to reconcile net income to
 net cash provided by operating:
   Depreciation and amortization                                                     403,075        384,305
    Deferred taxes                                                                    34,344        (63,049)
(Increase)decrease in assets:
    Inventory                                                                        107,771        228,225
    Trade receivables                                                               (383,122)      (742,702)
    Prepayments for goods                                                            392,289        105,937
    Due from related parties                                                        (245,615)       (18,450)
    Deferred merger costs                                                            357,841        (30,361)
    Deferred consulting expenses                                                     184,375             --
Increase(decrease) in liabilities:
    Trade payables and accrued expenses                                              152,595         51,917
    Payable to related party                                                         175,093       (128,054)
    Due to shareholders                                                                   --          7,133
    Income taxes payable                                                             (38,868)       (13,578)
    Government grant                                                                (120,482)            --
    Prepayments for materials                                                       (125,152)       (82,218)
                                                                                 ------------   ------------

Net cash provided by operating activities                                          2,021,401      1,015,213
                                                                                 ------------   ------------


CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of fixed assets                                                        (530,131)      (160,208)
                                                                                 ------------   ------------
    Net cash used in investing activities                                           (530,131)      (160,208)
                                                                                 ------------   ------------

CASH FLOWS FROM FINANCING ACTIVITIES
    Proceeds from borrowings                                                              --             --
                                                                                 ------------   ------------

NET INCREASE IN CASH AND BANK BALANCES                                             1,491,270        855,005
    Cash and bank balances, beginning of period                                    1,325,453        470,448
                                                                                 ------------   ------------

    Cash and bank balances, at end of period                                     $ 2,816,723    $ 1,325,453
                                                                                 ============   ============

SUPPLEMENTARY CASH FLOWS DISCLOSURES
     1. Interest paid                                                            $    85,506    $    91,705
                                                                                 ============   ============
     2. Taxes paid                                                               $   323,275    $   227,536
                                                                                 ============   ============
     3.  Effective June 26, 2002 issued 8,538,943 common shares
         pursuant to an exchange agreement. The following
         amounts represent the non-cash portion of the transaction:
                          Deferred Merger Costs                                  $  386,800
                          Other                                                       7,346
                                                                                 -----------
                                                                                 $  394,146
                                                                                 ============

      4.  Issue 1,200,000 common shares August 2, 2002 valued at
          $600,000 for consulting services.


                  The accompanying notes are an integral part of these financial statements.

                                                     F-6
</TABLE>
<PAGE>


                     AMERICAN ORIENTAL BIOENGINEERING, INC.
                   (FORMERLY INTERNET FOLF ASSOCIATION, INC.)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
--------------------------------------------------------------------------------

NOTES

1.            ORGANIZATION AND PRINCIPAL ACTIVITIES

              Internet Golf Association, Inc. ("Internet Golf"), a Nevada
              corporation, was formed on February 4, 1999 and was inactive until
              the reorganization. Effective May 7, 1999 and pursuant to a plan
              of reorganization, Internet Golf completed a reorganization
              transaction with and into Champion Ventures, Inc. ("Champion"), a
              Nevada corporation. Under the terms of the agreement, all of
              Internet Golf's outstanding stock was exchanged for 2,550,000
              shares of Champion common stock and Internet Golf became a wholly
              owned subsidiary of Champion. Internet Golf has treated the
              transaction as a reverse merger for accounting purposes, as the
              Internet Golf shareholders had control of the combined entity
              before and after the transaction. Therefore, Internet Golf has
              treated the transaction as the acquisition of Champion. Internet
              Golf changed its name to IGAT, Inc.; Champion changed its name to
              Internet Golf Association, Inc.

              In an agreement dated December 18, 2001, Internet Golf Association
              agreed to acquire Harbin Three Bioengineering Limited, a limited
              liability company formed in the People's Republic of China
              ("PRC"). Under terms of the agreement, the Company had reversed
              split the stock 100 to 1, reduced the authorized shares to
              20,000,000 shares and changed its name to American Oriental
              Bioengineering, Inc. (the "Company"). The Company's year-end is
              December 31. The Company also acquired Bestkey International,
              Ltd., a British Virgin Island Corporation. The Company treated
              this transaction as a reverse merger for accounting purposes.

              The Company's wholly owned subsidiary, Harbin Three Happiness
              Bioengineering Limited was formed in the PRC in 1995.

              The consolidated financial statements include the accounts of the
              Company, Bestkey International, Ltd., and Harbin Three Happiness
              Bioengineering Limited.

              The principal activities of Harbin Three are research, manufacture
              and sale of prescription and non-prescription health care
              products.

2.            BASIS OF PRESENTATION

              The consolidated financial statements are prepared in accordance
              with generally accepted accounting principles used in the United
              States of America. This basis of accounting differs from that used
              in the statutory financial statements in the PRC. No material
              adjustment was required.

              Certain amounts in prior years have been reclassified to conform
              to current year's classification.

                                      F-7
<PAGE>


                     AMERICAN ORIENTAL BIOENGINEERING, INC.
                   (FORMERLY INTERNET FOLF ASSOCIATION, INC.)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
--------------------------------------------------------------------------------


3.            SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

              ECONOMIC AND POLITICAL RISKS
              ----------------------------
              The Company faces a number of risks and challenges since its
              operations are in the PRC and its primary market is in the PRC.

              CASH AND CASH EQUIVALENTS
              -------------------------
              The Group considers cash and cash equivalents to include cash on
              hand and demand deposits with banks.

              The Company maintains no bank accounts in the United States of
              America.

              INVENTORY
              ---------
              Inventories are stated at the lower of cost or market on the
              first-in, first-out basis, and includes finished goods, raw
              materials, packaging material and product merchandise. Finished
              goods include costs of raw materials, packaging, labor used in
              production, and warehousing.

              PROPERTY, PLANT AND EQUIPMENT
              -----------------------------
              Property, plant and equipment are carried at cost. The cost of
              repairs and maintenance is expensed as incurred; major
              replacements and improvements are capitalized.

              When assets are retired or disposed of, the cost and accumulated
              depreciation are removed from the accounts, and any resulting
              gains or losses are included in income in the year of disposition.

              In accordance with Statement of Financial Accounting Standards
              (SFAS) No. 144, "Accounting for the Impairment of Long-Lived
              Assets and Long-Lived Assets to be Disposed Of", the Group
              examines the possibility of decreases in the value of fixed assets
              when events or changes in circumstances reflect the fact that
              their recorded value may not be recoverable. The Company does not
              believe the adoption of SFAS 144 will have a material effect on
              the Company's financial statements.

              Depreciation is calculated on a straight-line basis over the
              estimated useful life of the assets. The percentages applied are:

              o      Leasehold land and buildings                2% - 10%
              o      Machines and equipment                      10%
              o      Vehicles                                    20%
              o      Office equipment and furnishings            20%
              o      Other                                       20%

              OTHER ASSETS
              ------------

              Other assets are comprised of intangible assets such as licensing
              fees, which are amortized over the estimated useful life,
              generally twelve years.

                                      F-8
<PAGE>


                     AMERICAN ORIENTAL BIOENGINEERING, INC.
                   (FORMERLY INTERNET FOLF ASSOCIATION, INC.)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
--------------------------------------------------------------------------------

              ADVERTISING COSTS
              -----------------
              Advertising costs are expensed as incurred or the first time
              advertising takes place. Point of sale materials are accounted for
              as inventory and charged to expense as utilized.

              INCOME TAXES
              ------------
              Taxes are calculated in accordance with taxation principles
              currently effective in the PRC. Income taxes are determined under
              the liability method as required by Statement of Financial
              Accounting Standard No. 109 "Accounting for Income Taxes".

              STATUTORY CAPITAL
              -----------------
              The Republic of China requires the Company to reserve a portion of
              its equity in the event of liquidation of the Company. Equity in
              the amount of $807,501 and $550,202 is restricted at December 31,
              2002 and 2001.

              FOREIGN CURRENCY TRANSLATION
              ----------------------------
              The Company maintains its books and accounting records in Renminb
              ("RMB"), the PRC's currency. Translation of amounts from RMB in
              United States dollars ("US$") has been made at the single rate of
              exchange of US$1.00:RMB8.30. No representation is made that RMB
              amounts could have been or could be, converted into US$ at that
              rate.

              On January 1, 1994, the PRC government introduced a single rate of
              exchange as quoted daily by the People's Bank of China (the
              "Unified Exchange Rate").

              The quotation of the exchange rates does not imply free
              convertibility of RMB to other foreign currencies. All foreign
              exchange transactions continue to take place either through the
              Bank of China or other banks authorized to by and sell foreign
              currencies at the exchange rates quoted by the People's Bank of
              China. Approval of foreign currency payments by the Bank of China
              or other institutions requires submitting a payment application
              form together with supplier's invoices, shipping documents and
              signed contracts.

              USE OF ESTIMATES
              ----------------
              The preparation of financial statements in conformity with GAAP
              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 financial
              statements, and the reported amounts of revenue and expenses
              during the reporting period. Actual results when ultimately
              realized could differ from those estimates.

              REVENUE RECOGNITION
              -------------------
              Revenue is recognized when merchandise is shipped and title passes
              to the customer.

                                      F-9
<PAGE>


                     AMERICAN ORIENTAL BIOENGINEERING, INC.
                   (FORMERLY INTERNET FOLF ASSOCIATION, INC.)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
--------------------------------------------------------------------------------

              EMPLOYEES' BENEFITS
              -------------------
              Mandatory contributions are made to the Government's health,
              retirement benefit and unemployment schemes at the statutory rates
              in force during the period, based on gross salary payments. The
              cost of these payments is charged to the statement of income in
              the same period as the related salary cost.

              EARNINGS PER SHARE
              ------------------
              The Company has adopted Statement of Financial Accounting
              Standards No. 128 (SFAS 128"), "Earnings Per Share". Under SFAS
              128, basic earnings per share is computed by dividing income
              available to common shareholders by the weighted-average number of
              common shares assumed to be outstanding during the period of
              computation. 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.

              Per share amounts and shares have been adjusted for the 100 to 1
              reverse stock split on October 15, 2001.

              RECENT PRONOUNCEMENTS
              ---------------------
              In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
              Associated with Exit or Disposal Activities. SFAS 146 addresses
              financial accounting and reporting for costs associated with exit
              or disposal activities and nullifies Emerging Issues Task Force
              ("EITF") Issue No. 94-3, Liability Recognition for Certain
              Employee Termination Benefits and Other Costs to Exit an Activity
              (including Certain costs Incurred in a Restructuring). SFAS 146
              requires recognition of a liability for a cost associated with an
              exit or disposal activity when the liability is incurred, as
              apposed to when the entity commits to an exit plan under EITF No.
              94-3. SFAS 146 is to be applied prospectively to exit or disposal
              activities initiated after December 31, 2002. The Company does not
              believe that the adoption of SFAS 146 will have a material effect
              on the Company's financial position, results of operations, or
              cash flows.

              In June 2001, the FASB issued Statement No. 143 "Accounting for
              Asset Retirement Obligations". The statement addresses financial
              accounting and reporting for obligations associated with the
              retirement of tangible long-lived assets and the associated asset
              retirement costs. The statement is effective for the Company in
              fiscal 2003. The Company does not expect the adoption of Statement
              No. 143 to have a material impact on the Company's future results
              of operations or financial position.

              In August 2001, the FASB issued Statement No. 144 "Accounting for
              the Impairment or Disposal of Long-Lived Assets". This statement
              supersedes Statement No. 121, "Accounting for the Impairment of
              Long-Lived Assets and for Long-Lived Assets to be Disposed of",
              and the accounting and reporting provisions of APB Opinion 30,
              "Reporting the Results of Operations - Reporting the Effects of


                                      F-10
<PAGE>


                     AMERICAN ORIENTAL BIOENGINEERING, INC.
                   (FORMERLY INTERNET FOLF ASSOCIATION, INC.)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
--------------------------------------------------------------------------------

              Disposal of a Segment of a Business, and Extraordinary, Unusual
              and infrequently Occurring Events and Transactions", for the
              disposal of a segment of a business. The statement is effective
              for the Company in fiscal 2003. The Company does not expect the
              adoption of Statement No. 144 to have a material impact on the
              Company's future results of operations or financial position.
              In April, 2002, the FASB issued SFAS No. 145, Rescission of FASB
              Statements Nos. 4, 44, and 64, Amendment of FASB Statement No. 13,
              and Technical Corrections. SFAS 145 eliminates the requirement to
              classify gains and losses from extinguishments of indebtedness as
              extraordinary, requires certain lease modifications to be treated
              the same as a sale-leaseback transaction, and makes other
              non-substantive technical corrections to existing pronouncements.
              SFAS 145 is effective for fiscal years beginning after May 15,
              2002, with earlier adoption encouraged. The Company is required to
              adopt SFAS 145 effective January 2003. The Company does not
              believe that the adoption of SFAS 145 will have a material effect
              on the Company's financial position, results of operations, or
              cash flows.


4. FIXED ASSETS(at cost)

                                                     2002                2001
                                                 -----------         -----------
Leasehold land and buildings                     $3,113,243          $3,113,243
Plant and machinery                               2,173,539           1,617,851
Motor vehicles                                      241,184             241,184
Furniture and fixtures                              118,271             110,205
Other                                                97,583             131,206
                                                 -----------         -----------
                                                  5,743,820           5,213,689
                                                 -----------         -----------

Less Accumulated depreciation:
Leasehold land and buildings                        289,636             221,659
Plant and machinery                                 896,110             729,259
Motor vehicles                                      168,104             128,446
Furniture and fixtures                               76,875              55,651
Other                                                52,377              35,373
                                                 -----------         -----------
                                                  1,483,102           1,170,388
                                                 -----------         -----------

Net book value                                   $4,260,718          $4,043,301
                                                 ===========         ===========


All the Company's land and buildings are located in the PRC under a land use
right for 10 to 50 years commencing in 1995.

                                      F-11
<PAGE>

                     AMERICAN ORIENTAL BIOENGINEERING, INC.
                   (FORMERLY INTERNET FOLF ASSOCIATION, INC.)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
--------------------------------------------------------------------------------


5.       Other (Intangible) Asset

                                                     2002                2001
                                                  -----------        -----------
Cost - Licensing agreement                        $1,084,337         $1,084,337
Less : Accumulated amortization                      361,445            271,084
                                                  -----------        -----------
Net book value                                    $  722,892         $  813,253
                                                  ===========        ===========


6.       INVENTORIES

                                                          December 31,
                                                  ------------------------------
                                                    2002                 2001
                                                  ---------            ---------
Raw materials                                     $430,413             $582,744
Finished goods                                      65,336               20,776
                                                  ---------            ---------
                                                  $495,749             $603,520
                                                  =========            =========


7.       AMOUNT DUE FROM RELATED PARTIES

         The amounts are unsecured, interest-free and repayable on demand.

8.       BANK LOANS

         The loans bearing interest at a rate of 6.435% per annum are due within
         one year and are guaranteed by a related company. The related company
         has agreed to continue to provide the guarantees until the loans are
         fully repaid.

9.       INCOME TAXES

         The Company's income (loss) before income taxes was comprised of the
         following for the years ended December 31, 2002 and 2001:


                                                2002                    2001
                                            ------------            ------------
United States                               $  (512,476)            $        --
PRC                                           1,958,485               1,535,040
                                            ------------            ------------
                                            $ 1,446,009             $ 1,535,040
                                            ============            ============


         Taxes are calculated on a separate entity basis because consolidation
         is not allowed for tax purposes. There currently is no tax benefit or
         burden recorded for the United States.


                                      F-12
<PAGE>

                     AMERICAN ORIENTAL BIOENGINEERING, INC.
                   (FORMERLY INTERNET FOLF ASSOCIATION, INC.)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
--------------------------------------------------------------------------------


         The provisions for income taxes for the years ended December 31 are
         summarized as follows:

            PRC:                                  2002                   2001
                                               ----------             ----------
            Current                            $ 318,752              $ 281,981
            Deferred                                  --                (63,049)
                                               ----------             ----------
                                               $ 318,752              $ 218,932
                                               ==========             ==========


         The provision for income taxes differ from amounts computed at the
         statutory rate as follows:

                                                       Year ended December 31,
                                                   -----------------------------
                                                      2002               2001
                                                   ----------         ----------
PRC income tax at statutory rate                   $ 293,866          $ 230,256
Reconciling items:
   Permanent differences                              (9,458)           (11,324)
   Temporary differences                              34,344             63,049
                                                   ----------         ----------
                                                   $ 318,752          $ 281,981
                                                   ==========         ==========


         The Company's deferred tax assets and tax liabilities at December 31:

                                                       2002              2001
                                                    ----------        ----------
Merger costs                                        $  43,352         $      --
Accounts receivable                                    29,379                --
Property, plant and equipment                           4,590            47,592
Inventory                                               6,332            11,915
Other                                                   4,999            43,609
Net operating loss                                    174,000                --
Valuation allownace                                  (174,000)               --
                                                    ----------        ----------
                                                       88,652           103,116
The Company's deferred tax liabilities:
Accounts Receivable                                    19,880                --
                                                    ----------        ----------
                                                    $  68,772         $ 103,116
                                                    ==========        ==========


         Taxes payable at December 31 are as follows:

                                                       2002               2001
                                                     --------           --------
Corporation income tax                               $49,163            $88,031
                                                     ========           ========


                                      F-13
<PAGE>

                     AMERICAN ORIENTAL BIOENGINEERING, INC.
                   (FORMERLY INTERNET FOLF ASSOCIATION, INC.)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
--------------------------------------------------------------------------------

10.      PREFERRED STOCK
         The Company authorized 2,000,000 shares $.001 par value Class A
         Preferred Stock. The Class A Preferred Stock provides the holder(s)
         with aggregate voting rights constituting 25% of total voting rights in
         the company as well as a liquidation preference.


11.      RELATED PARTY TRANSACTIONS
         The Company is affiliated with other companies through common
         ownership. As discussed in Note 8, one affiliated company provides a
         guarantee on all bank debts. There are no transactions involving sales
         or purchases with these companies.

         ACCOUNT RECEIVABLE DUE FROM XIN CHENG COMPANY
         ---------------------------------------------

         As of December 31, 2002, the Company accounts showed that $172,226 was
         due from Xin Cheng Company, a company owned by Shujun Liu, the
         Chairman, CEO and over 5% shareholder of the Company.

         Xin Cheng Company paid the account receivable as of March 12, 2003.


         ACCOUNT PAYABLE DUE TO HARBIN THREE HAPPINESS GROUP
         ---------------------------------------------------

         As of December 31, 2002, the Company accounts showed $175,093 was due
         to Harbin Three Happiness Group, a company owned by the majority
         shareholders of the Company.

         The Company fully paid the account as of February 2003.

         All amounts aforementioned were unsecured and bear no interest.


12.      CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

         The Company's operations are conducted in the PRC. Accordingly, the
         Company's business, financial condition and results of operations may
         be influenced by the political, economic and legal environments in the
         PRC, and by the general state of the PRC economy.

         The Company's operations in the PRC are subject to special
         considerations and significant risks not typically associated with
         companies in North America and Western Europe. These include risks
         associated with, among others, the political, economic and legal
         environments legal environments and foreign currency exchange.

                                      F-14
<PAGE>

                     AMERICAN ORIENTAL BIOENGINEERING, INC.
                   (FORMERLY INTERNET FOLF ASSOCIATION, INC.)
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002
--------------------------------------------------------------------------------


         The Company's results may be adversely affected by changes in the
         political and social conditions in the PRC, and by changes in
         governmental policies with respect to laws and regulations,
         anti-inflationary measures, currency conversion and remittance abroad,
         and rates and methods of taxation, among other things.

13.      SUBSEQUENT EVENTS

         The Company issued 20,284,810 shares of common Stock and 1,000,000
         shares of Class A Preferred stock February 22, 2003 valued at
         $3,205,000 for the purchase of 100% ownership in a peptide protein
         project. The acquisition was from Shun Liu the Chairman and chief
         executive officer of the Company. See Form 8-K filed March 28, 2003
         proforma balance sheet.


                                      F-15
<PAGE>

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURES

On April 11, 2002, the Company filed a Current Report on Form 8-K to report the
change in the Company's certifying accountant in conjunction with the Directors
of the Company's authorization of the engagement of Thomas Leger & Co, L.L.P. as
independent auditor to audit the Company's financial statements. This
appointment replaced Larry O'Donnell, CPA, P.C. as the independent auditor
engaged to audit the Company's financial statements. There were no disagreement
with Larry O'Donnell, CPA, P.C. on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedures.







                                       14
<PAGE>

                                    PART III


ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

The following table sets forth the names and ages of the Company's current
Directors and executive officers, their principal offices and positions and the
date each such person became a director or executive officer of the Company. The
Company's executive officers are elected annually by the Board of Directors. The
Company's directors serve one year terms until their successors are elected. The
executive officers serve terms of one year or until their death, resignation or
removal by the Board of Directors. There are no family relationships between any
of the directors and executive officers. In addition, there was no arrangement
or understanding between any executive officer and any other person pursuant to
which any person was selected as an executive officer.

The directors and executive officers of the Company are as follows:

NAME               AGE       POSITION                     DATE OF APPOINTMENT
------------------ --------- ---------------------------- ----------------------

Shujun Liu         49        Director and CEO             December 18, 2001
Jun Min            43        Director                     May 8, 2002
Yanchun Li         35        Director and COO             May 8, 2002
Binsheng Li        38        Director                     May 8, 2002

Here below are the brief descriptions of the backgrounds and experiences of the
officers and directors:

SHUJUN LIU - CHIEF EXECUTIVE OFFICER, DIRECTOR AND CHAIRMAN OF BOARD
--------------------------------------------------------------------
Shujun Liu, age 49, is the Chairman and the chief executive officer of the
Company. He was graduated from Wuhan Communication College and he has also
completed the EMBA study in Qinghua University. He is the representative of the
National People's Congress (The national legislative of China) of Harbin and was
elected as the outstanding entrepreneur of the Three Northeast Provinces of
China. He was appointed as the senior manager of Three-Happiness Bioengineering
Company Limited in 1994. The research and development projects that he has
personally taken in charge of have gained several outstanding awards including
Third Class Prize of Harbin Scientific and Technological Advancement, Second
Class Prize of HeiLongJiang Scientific and Technological Advancement and three
scientific research achievements awards granted by HeiLongJiang Province.

                                       15
<PAGE>

JUN MIN - DIRECTOR AND VICE PRESIDENT
-------------------------------------
Jun Min, age 43 and was university educated in China. He used to be the Chief
Executive of the Prices Checking Department of HeiLongJiang Province Price
Bureau. He is responsible for the Company's capital control and liquidity
management. He has over 20 years of working experience in financial management
and China securities market with extensive business networks over the securities
companies, banks and investment consultation organizations in China.

YANCHUN LI - CHIEF OPERATIONS OFFICE, DIRECTOR AND SECRETARY OF BOARD
---------------------------------------------------------------------
Yanchun Li, age 32 and university educated in China, has extensive experience in
market planning and sales operations. Before joining the Company, she has
responsible for the marketing and selling campaign of the frozen food brand,
"RuiDa". The product has later become one of the best branding in the frozen
food market in China.

MR. LI BINSHENG - DIRECTOR AND SENIOR CERTIFIED ACCOUNTANT
----------------------------------------------------------
Mr. Li, age 38, is also the chief accounting and finance officer of the Company,
who is in charge of all financial management and accounting work of the Company.
He was graduated from Dalian University of Finance and Economics and majored in
financial management. He has over 18 years of working experience in accounting
and finance.

The Company's articles of incorporation limit the liability of directors to the
maximum extent permitted by Nevada law. This limitation of liability is subject
to exceptions including intentional misconduct, obtaining an improper personal
benefit and abdication or reckless disregard of director duties. The Company's
articles of incorporation and bylaws provide that the Company may indemnify its
directors, officer, employees and other agents to the fullest extent permitted
by law. The Company's bylaws also permit the Company to secure insurance on
behalf of any officer, director, employee or other agent for any liability
arising out of his or her actions in such capacity, regardless of whether the
bylaws would permit indemnification. The Company currently does not have such an
insurance policy.

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to the Company's directors, officers and controlling 1934
persons pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.


ITEM 10. EXECUTIVE COMPENSATION

The executives of the Company received no compensation from the Company for the
year of 2002.

                                       16
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial
ownership of common stock as of December 31, 2002 by each person known to the
Company to own beneficially more than 5% of the Company's common stock, each of
the Company's directors, each of the Company's named executive officers; and all
executive officers and directors as a group.

NAME                  POSITION HELD                  SHARES OWNED           %
--------------------- --------------------------- ---------------- -----------

Shujun Liu            Director and CEO                  4,900,319      43.21%
Jun Min               Director                          1,206,228      10.64%
Yanchun Li            Director and COO                  1,055,450       9.31%
Binsheng Li           Director                            376,946       3.32%

All directors and executive officers as a whole         7,538,943      66.48%


ITEM 12.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTION

ACQUISITION OF SOYBEAN PROTEIN PEPTIDE PROJECT
----------------------------------------------

As described in "Item 1 - Description of Business", an Information Statement
Pursuant to Section 14(c) of the Securities Exchange Act of 1934 was filed by
the Company on October 15, 2002 to announce the purchase of the Project by the
Company from Shujun Liu. Shujun Liu, being the CEO, Chairman of Board of
Directors of the Company and more than 5% shareholder of the Company (4,900,319
Common Stock before the acquisition of the Project out of total of 10,141,017
shares), was deemed to be the related party of the Company and this transaction
was deemed to be a related party transaction.

ACCOUNT RECEIVABLE DUE FROM XIN CHENG COMPANY
---------------------------------------------

As of December 31, 2002, the Company accounts showed that $172,226 was due from
Xin Cheng Company, a company owned by Shujun Liu, the Chairman, CEO and over 5%
shareholder of the Company.

Xin Cheng Company has fully paid back the receivable as of March 12, 2003.

ACCOUNT PAYABLE DUE TO HARBIN THREE HAPPINESS GROUP
---------------------------------------------------

As of December 31, 2002, the Company accounts showed that $175,093 was due to
Harbin Three Happiness Group, a company owned by shareholders of the Company.

The Company paid this account if full by February 2003.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8K

NIL

                                       17
<PAGE>


                                   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.


By     /s/  Shunjun Liu
      ----------------------------------------
SHUNJUN LIU
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
DATED: APRIL 11, 2003


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


                                       18
<PAGE>

                  CERTIFICATION OF CHIEF EXECUTIVE OFFICER PER
                      SECTION 302 OF THE SARBANES-OXLEY ACT

I, Shunjun Liu, certify that:

1.   I have reviewed this annual report on Form 10-KSB of American Oriental
     Bioengineering, Inc.

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         annual report (the "Evaluation Date"); and

     c)  presented in this quarterly report our conclusions about the
         effectiveness of the disclosure controls and procedures based on our
         evaluation as of the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  April 11, 2003                      /s/  Shunjun Liu
                                           ----------------------------------
                                           Shunjun Liu
                                           Chief Executive Officer & Chairman


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


                                       19
<PAGE>

                  CERTIFICATION OF CHIEF FINANCIAL OFFICER PER
                      SECTION 302 OF THE SARBANES-OXLEY ACT

I, Yanchun Li, certify that:

1.   I have reviewed this annual report on Form 10-KSB of American Oriental
     Bioengineering, Inc.

2.   Based on my knowledge, this annual report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual report, fairly present in all material
     respects the financial condition, results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The registrant's other certifying officers and I are responsible for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)  designed such disclosure controls and procedures to ensure that
         material information relating to the registrant, including its
         consolidated subsidiaries, is made known to us by others within those
         entities, particularly during the period in which this annual report is
         being prepared;

     b)  evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         annual report (the "Evaluation Date"); and

     c)  presented in this annual report our conclusions about the effectiveness
         of the disclosure controls and procedures based on our evaluation as of
         the Evaluation Date;

5.   The registrant's other certifying officers and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a)  all significant deficiencies in the design or operation of internal
         controls which could adversely affect the registrant's ability to
         record, process, summarize and report financial data and have
         identified for the registrant's auditors any material weaknesses in
         internal controls; and

     b)  any fraud, whether or not material, that involves management or other
         employees who have a significant role in the registrant's internal
         controls; and

6.   The registrant's other certifying officers and I have indicated in this
     annual report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date:  April 11, 2003                                   /s/ Yanchun Li
                                                        -----------------------
                                                        Yanchun Li
                                                        Chief Financial Officer


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

                                       20
<PAGE>

                                  CERTIFICATION



The undersigned, the Chief Executive Officer and Chairman and acting Chief
Financial Officer of American Oriental Bioengineering, Inc. (the "Issuer"),
hereby certify that the 10-KSB for the period ended December 31, 2002 filed with
the Commission on April 11, 2003 and containing certain financials statements
for fiscal year ended December 31, 2002 fully complies with the requirements of
section 13(a) and 15(d) of the Securities Exchange Act of 1934 and that
information contained in the 10-KSB fairly represents, in all material respects,
the financial condition and results of operations of the Issuer.




By     /s/  Shunjun Liu
      ------------------------------------------
SHUNJUN LIU
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
DATED: APRIL 11, 2003


By     /s/  Yanchun Li
      ------------------------------------------
YANCHUN LI
ACTING CHIEF FINANCIAL OFFICER
DATED: APRIL 11, 2003





                                       21