<PAGE>

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

                                   FORM 10-QSB

                                   (Mark One)
[X]     Quarterly report under Section 13 or 15(d) of the Securities Exchange
        Act of 1934
        For the quarterly period ended June 30, 2005

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

                           Commission File No. 0-29785

                     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.308 XUEFU ROAD, NANGANG DISTRICT, HARBIN, CHINA, 150086
                    (Address of principal executive offices)
                                86-451-8666-6601
                (Issuer's telephone number, including area code)

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
                                                                    ---      ---

The number of shares outstanding of each of the issuer's class of equity as of
the latest practicable date is stated below:

Title of each class of Common Stock              Outstanding as of June 30, 2005
--------------------------------------------------------------------------------
Preferred Stock, $0.001 par value                         1,000,000
Common Stock, $0.001 par value                           40,104,327

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



<PAGE>



                        --------------------------------
                                TABLE OF CONTENTS
                        --------------------------------

PART I - FINANCIAL INFORMATION

Item 1.     Financial Statements
                o   Condensed Consolidated Balance Sheets
                o   Condensed Consolidated Statements of Income
                o   Condensed Consolidated Statements of Cash Flows
                o   Notes to Condensed Consolidated Financial Statements
Item 2.     Management's Discussion & Analysis of Financial Condition and
            Results of Operations
Item 3.     Controls and Procedures

PART II - OTHER INFORMATION

Item 1.     Legal Proceedings
Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds
Item 3.     Defaults Upon Senior Securities
Item 4.     Submission of Matters to a Vote of Security Holders
Item 5.     Other Information
Item 6.     Exhibits

                                       2


<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

                                     ASSETS
                                     ------

                                                          JUNE 30,  DECEMBER 31,
                                                              2005          2004
                                                       -----------   -----------
                                                         UNAUDITED
CURRENT ASSETS
 Cash and cash equivalents                             $14,874,770   $11,404,149
 Accounts receivable (net of allowance for doubtful
 accounts of $562,620 at June 30, 2005)                  5,798,414     4,736,901
 Inventories                                             9,285,195     5,673,059
 Advances to suppliers                                     472,831       518,589
 Other receivables                                          13,492       156,062
 Due from employees and other assets                       204,557       182,099
 Deferred consulting expenses                            1,172,036     1,686,652
                                                       -----------   -----------
          TOTAL CURRENT ASSETS                          31,821,295    24,357,511

PLANT AND EQUIPMENT, NET                                 7,636,514     8,068,776
DEFERRED TAX ASSETS                                        435,544       159,958
LICENSE, NET                                               496,988       542,168
CONSTRUCTION IN PROGRESS                                 2,623,360     1,836,714
LAND USE RIGHTS, NET                                     7,788,912     7,871,497

                                                       -----------   -----------
    TOTAL ASSETS                                       $50,802,613   $42,836,624
    ------------                                       ===========   ===========


    See accompanying notes to the condensed consolidated financial statements

                                       3


<PAGE>

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS


                                                         JUNE 30,  DECEMBER 31,
                                                             2005          2004
                                                      -----------   -----------
                                                        UNAUDITED

                      LIABILITIES AND SHAREHOLDERS' EQUITY
                      ------------------------------------

CURRENT LIABILITIES
Accounts payable                                      $   991,790   $   755,266
Short-term bank loans                                   5,060,241     5,060,241
Customer deposits                                         182,101       160,504
Advance for stock purchase                                290,048            --
Taxes payable                                           1,273,227     1,096,545
Other payables and accrued expenses                     1,380,206     1,064,411
Due to shareholders                                     2,437,879     1,404,522
Current portion of obligations under capital leases        13,142        12,952
                                                      -----------   -----------
          TOTAL CURRENT LIABILITIES                    11,628,634     9,554,441

LONG-TERM PORTION OF OBLIGATIONS UNDER CAPITAL LEASES      26,888        34,548
DEFERRED TAX LIABILITIES                                  163,875       107,201
                                                      -----------   -----------
TOTAL LIABILITIES                                      11,819,397     9,696,190
                                                      -----------   -----------

SHAREHOLDERS' EQUITY
Preferred stock, $0.001 par value; 2,000,000 shares
authorized; 1,000,000 shares issued and outstanding
at June 30, 2005 and December 31, 2004, respectively        1,000         1,000
Common stock, $0.001 par value; 60,000,000 shares
authorized; 40,104,327 and 39,746,827 shares issued
and outstanding, respectively                              40,105        39,747
Additional paid-in capital                             17,203,821    16,900,303
Retained earnings (the restricted portion of
retained earnings is $1,294,689 and $1,294,689 at
June 30, 2005 and December 31, 2004, respectively)     21,738,290    16,199,384
                                                      -----------   -----------
           TOTAL SHAREHOLDERS' EQUITY                  38,983,216    33,140,434
                                                      -----------   -----------
   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY         $50,802,613   $42,836,624
   ------------------------------------------         ===========   ===========

    See accompanying notes to the condensed consolidated financial statements

                                       4


<PAGE>

<TABLE>
                     AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
                           CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                           (UNAUDITED)


                                 THREE MONTHS ENDED JUNE 30,       SIX MONTHS ENDED JUNE 30,
                                        2005            2004            2005            2004
                                ------------    ------------    ------------    ------------

<S>                             <C>             <C>             <C>             <C>
REVENUES                        $ 11,902,470    $  6,003,960    $ 21,555,252    $ 11,910,579

COST OF GOODS SOLD                (4,188,755)     (1,842,825)     (7,816,319)     (3,662,586)
                                ------------    ------------    ------------    ------------

GROSS PROFIT                       7,713,715       4,161,135      13,738,933       8,247,993

Selling and marketing               (550,446)       (550,423)     (1,205,821)     (1,029,154)

Advertising                         (589,350)       (761,431)     (1,404,084)     (1,607,204)

General and administrative        (1,803,799)       (849,680)     (3,029,193)     (1,881,710)

Depreciation and amortization       (303,946)       (145,572)       (608,927)       (291,055)
                                ------------    ------------    ------------    ------------

INCOME FROM OPERATIONS             4,466,174       1,854,029       7,490,908       3,438,870

INTEREST EXPENSE, NET                (65,401)        (23,811)       (157,075)        (47,791)

OTHER INCOME (EXPENSE), NET           (7,277)         14,392          (7,277)         26,742
                                ------------    ------------    ------------    ------------
INCOME BEFORE INCOME TAXES         4,393,496       1,844,610       7,326,556       3,417,821

INCOME TAXES                      (1,037,779)       (336,861)     (1,787,646)       (650,033)
                                ------------    ------------    ------------    ------------

NET INCOME                      $  3,355,717    $  1,507,749    $  5,538,910    $  2,767,788
                                ============    ============    ============    ============

NET INCOME PER SHARE
         BASIC                  $       0.08    $       0.05    $       0.14    $       0.08
                                ============    ============    ============    ============
         DILUTED                $       0.08    $       0.05    $       0.13    $       0.08
                                ============    ============    ============    ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
         BASIC                    39,927,624      32,909,190      39,837,225      32,817,508
         DILUTED                  42,506,207      32,936,131      42,447,551      32,848,200

            See accompanying notes to the condensed consolidated financial statements

                                               5
</TABLE>


<PAGE>

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (UNAUDITED)

                                                      SIX MONTHS ENDED JUNE 30,
                                                            2005           2004
                                                     -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                         $ 5,538,910    $ 2,767,788
  Adjustments to reconcile net income to net
  cash provided by operating activities:
  Depreciation and amortization                          608,927        291,055
  Amortization of deferred merger costs                       --         16,666
  Amortization of deferred consulting expenses           514,616        460,866
  Allowance for doubtful accounts                        562,620             --
  Deferred taxes                                        (218,914)            --
  Common stock issued for consulting services                 --         97,210
  Stock option compensation expense                           --         32,000
  Buyback of warrants                                         --         25,000
  Changes in operating assets and liabilities,
  net of the effects of the acquisition:
  (Increase) Decrease In:
  Accounts receivable                                 (1,624,133)      (129,217)
  Inventories                                         (3,612,136)    (1,034,725)
  Advances to suppliers                                   45,758        226,696
  Other receivables                                      142,570       (278,887)
  Due from employees and other assets                    (22,458)       (30,082)

Increase (Decrease) In:
  Accounts payable                                       236,524        255,438
  Customer deposits                                       21,597             --
  Taxes payable                                          176,682         26,381
  Other payables and accrued expenses                    315,795             --
  Payable to related party                                    --         45,423
                                                     -----------    -----------
  Net cash provided by operating activities            2,686,358      2,771,612
                                                     -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of construction in progress                 (786,646)            --
  Purchases of plant and equipment                       (48,902)        (4,450)
  Addition to notes receivable                                --     (2,441,928)
  Deposit for machinery                                       --       (379,934)
  Deposit for leasehold improvement                           --       (386,000)
                                                     -----------    -----------
  Net cash used in investing activities                 (835,548)    (3,212,312)
                                                     -----------    -----------


    See accompanying notes to the condensed consolidated financial statements

                                       6


<PAGE>

<TABLE>
             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (UNAUDITED)

                                                           SIX MONTHS ENDED JUNE 30,
                                                                2005            2004
                                                        ------------    ------------
<S>                                                     <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from exercise of warrants                         303,876              --
  Advance for stock purchase                                 290,048              --
  Repayments of capital lease                                 (7,470)         (3,917)
  Due to shareholders                                      1,033,357              --
                                                        ------------    ------------
  Net cash provided by (used in) financing activities      1,619,811          (3,917)
                                                        ------------    ------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS       3,470,621        (444,617)

  Cash and cash equivalents, beginning of year            11,404,149       5,366,857

                                                        ------------    ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD                $ 14,874,770    $  4,922,240
----------------------------------------                ============    ============
SUPPLEMENTARY CASH FLOW INFORMATION

1. Interest paid                                        $     48,014    $     23,679
                                                        ------------    ------------

2. Income taxes paid                                    $  1,782,169    $    313,172
                                                        ------------    ------------

3. Issued 321,000 shares of common stock valued at $165,975 for consulting
services in 2004.

4. Issued 700,000 shares of common stock valued at $1,190,000 for deferred
consulting services in 2004.


    See accompanying notes to the condensed consolidated financial statements

                                       7


<PAGE>
</TABLE>

             AMERICAN ORIENTAL BIOENGINEERING, INC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2005
                                   (UNAUDITED)
              ----------------------------------------------------

NOTE 1 - BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements of American Oriental
Bioengineering, Inc. and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and pursuant to the requirements for reporting on Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. However, such
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for the fair
presentation of the consolidated financial position and the consolidated results
of operations. Results shown for interim periods are not necessarily indicative
of the results to be obtained for a full year. The condensed consolidated
balance sheet information as of December 31, 2004 was derived from the audited
consolidated financial statements included in the Company's Annual Report Form
10-KSB/A. These interim financial statements should be read in conjunction with
that report.

Certain prior period amounts have been reclassified to conform to the current
period's presentation.

NOTE 2 - USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles 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.

NOTE 3 - STOCK BASED COMPENSATION

The Company's stock option plan is subject to the provisions of Statement of
Financial Accounting Standards ("SFAS") No 123, Accounting for Stock-Based
Compensation and the disclosure provisions of SFAS No.148. Under the provisions
of these standards, employee stock-based compensation expense is measured using
either the intrinsic-value method as prescribed by Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees and related
Interpretations, or the fair value method described in SFAS No. 123. The Company
has elected to account for its employee stock-based awards under the provisions
of APB Opinion No. 25. Under APB Opinion No. 25, compensation cost for stock
options is measured as the excess, if any, of the fair value of the underlying
common stock on the date of grant over the exercise price of the stock option.

                                       8


<PAGE>

Companies choosing the intrinsic-value method are required to disclose the pro
forma impact of the fair value method on net income.

In June 2004, employment agreements for certain executive officers and directors
of the Company were amended to include a provision that if the Company's closing
stock price was less than $2.00 on the last day of the quarter, the employees
would not be entitled to their quarterly stock options. On the last day of the
quarter ended June 30, 2005, the closing stock price was $1.70 and therefore no
options were granted to any of executive officers and directors for the current
quarter.

Stock options issued under the employment agreements as pursuant to the employee
stock option plan for the second quarter of 2005 were as follows:

                                                            Options Granted
                                                            ---------------
          Outstanding at December 31, 2004                      43,097
                 Granted                                          --
                 Exercised                                        --
                 Cancelled                                        --
                                                            ---------------
          Outstanding at June 30, 2005                          43,097
                                                            ===============

The pro forma effect on net income and income per share relating to the stock
option grants, net of the previously recognized intrinsic value expense, are as
follows:

                                           Six Months Ended    Six Months Ended
                                              June 30, 2005       June 30, 2004
                                           -----------------   -----------------

Net income as reported                           $5,538,910          $2,767,788
Pro forma net income                             $5,538,910          $2,740,292

Basic net income per share as reported                $0.14               $0.08
Pro forma basic net income per share                  $0.14               $0.08

The fair value of options granted under the Company's stock option plan were
estimated on the date of grant using the Black-Scholes pricing model with the
following assumptions:

                Weighted average of expected risk-free interest rates      3.00%
                Expected years to exercise date                                5
                Expected stock volatility                                 81.49%
                Expected dividend yield                                       0%

NOTE 4 - EARNINGS PER SHARE

Basic earnings per share are computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share are 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.

                                       9


<PAGE>

Basic and diluted earnings per share are calculated as follows:

                                                        SIX MONTHS ENDED JUNE 30
                                                           2005         2004
                                                        -----------  -----------

Earnings:
   Net income                                           $ 5,538,910  $ 2,767,788
                                                        -----------  -----------
Income applicable to common shareholders                $ 5,538,910  $ 2,767,788
                                                        ===========  ===========

Basic:
Income applicable to common shareholders                $ 5,538,910  $ 2,767,788
Weighted average shares outstanding during the period    39,837,225   32,817,508
                                                        -----------  -----------
   Basic earnings per share                             $      0.14  $      0.08
                                                        ===========  ===========

Diluted:
Income applicable to common shareholders                $ 5,538,910  $ 2,767,788
Weighted average shares outstanding during the period    39,837,225   32,817,508
Effect of dilutive securities:
   Stock options                                                 --        8,935
   Warrants                                               2,610,326       21,757
                                                        -----------  -----------
Diluted weighted common shares outstanding               42,447,551   32,848,200
                                                        ===========  ===========

   Diluted earnings per share                           $      0.13  $      0.08
                                                        ===========  ===========


NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of financial instruments including cash and cash equivalents,
accounts receivable, advances to suppliers, other receivables, due from
employees and other assets, accounts payable, short-term bank loans, customer
deposits, taxes payable, other payables and accrued expenses and debt,
approximates their fair value at June 30, 2005 and December 31, 2004 due to the
relatively short-term nature of these instruments.

NOTE 6 - FOREIGN CURRENCY CONVERSION

The Company's financial information is presented in US dollars. People's
Republic of China currency (Renminbi), the functional currency of the Company,
has been converted into US dollars at the exchange rate of 8.3 to 1. On July 22,
2005, Renminbi rose about 2 percent against the US dollar at the exchange rate
of 8.11 to 1.



                                       10


<PAGE>

NOTE 7 - INVESTMENT AGREEMENTS AND WARRANTS

On November 23, 2004, the Company completed a private placement of its
securities to "accredited investors" pursuant to Regulation D under the
Securities Act of 1933, as amended. The Company entered into stock subscription
agreements (collectively, the "Subscription Agreement"), with eighty-five (85)
accredited investors ("Subscribers"). Pursuant to the Subscription Agreement,
the Subscribers purchased six million (6,000,000) shares of the Company's common
stock at a per share purchase price of $1.00 in the private placement, resulting
in $6,000,000 of gross proceeds to the Company. The Company issued a total of
7,500,000 shares of Class A stock warrants and 3,000,000 shares of Class B
warrants pursuant to the Subscription Agreement. The Company paid fees and
commissions in the aggregate amount of $561,386 in connection with this
offering.

Upon the execution of the Subscription Agreement, the Company issued to the
Subscribers (i) ten (10) Class A warrants exercisable at $0.85 and (ii) five (5)
Class B warrants for every ten (10) Shares purchased by them under the
Subscription Agreement exercisable at $1.60. The warrants will expire three (3)
years from the effective date of the registration statement the Company agreed
to file with the Securities and Exchange Commission in connection with the
private placement. In addition, the warrants contain a cashless exercise
provision.

In addition, under the terms of the Subscription Agreement, the Company agreed
to file with the Securities and Exchange Commission a registration statement to
register the number of shares of common stock issued to the Subscribers under
the Subscription Agreement, as well as the number of shares underlying the
warrants the Company granted to the Subscribers. On March 14, 2005, the Company
filed a registration statement on Form SB-2 under the Securities Act to register
the securities issued in the private placement on November 23, 2004 and on April
29, 2005. The registration statement was declared effective by Securities and
Exchange Commission.

Westminster Securities Corporation of New York served as placement agent in
connection with this offering. As compensation for its services, Westminster
received Class A stock purchase warrants exercisable for a total of 1.5 million
shares of the Company's common stock, subject to adjustment provisions set forth
in such warrants, and otherwise on the same terms and conditions as the Class A
stock purchase warrants issued to the investors in the offering.

From May 12, 2005 to June 30, 2005, a total of 357,500 shares of Class A stock
purchase warrants were exercised by the Investors for total proceeds of
$303,876.

NOTE 8 - ACQUISITIONS

On September 8, 2004, the Company signed a purchase agreement relating to the
acquisition of Heilongjiang Songhuajiang Pharmaceutical Co., Ltd ("HSPL") and
the acquisition was completed on November 22, 2004. The following unaudited pro
forma combined condensed statements of income for the six months ended June 30,
2004 have been prepared as if the acquisition had occurred on January 1, 2004.


                                       11


<PAGE>

The statements are based on accounting for the business acquisition under
purchase accounting. The pro forma information may not be indicative of the
results that actually would have occurred if the merger had been in effect from
and on the dates indicated or which may be obtained in the future.

                                                 Pro Forma Combined
                                                        (Unaudited)
                                                 ------------------

REVENUES                                         $       14,340,898

GROSS PROFIT                                              8,653,913

INCOME FROM OPERATIONS                                    3,806,813

NET INCOME                                       $        3,135,731
                                                 ==================

NET INCOME PER SHARE
         BASIC                                   $             0.08
         DILUTED                                 $             0.08

On May 6, 2005, the Company announced the signing of a legally-binding letter of
intent to acquire Heilongjiang Qitai Pharmaceutical Limited ("HQPL"), a leading
Chinese distributor of pharmaceuticals. The Company plans to use $4 million to
acquire approximately $4.5 million (unaudited) worth of HQPL's net assets, a
HQPL pharmaceutical wholesale and retail network that covers the entire country
of China, a HQPL pharmaceutical retail distribution license and a HQPL Chinese
herbal and medicinal material wholesale exchange which was GSP certified as well
as certified by the Chinese government. As of the date of this report, the
Company did not enter into any definitive agreement with HQPL and the
acquisition was not completed.

NOTE 9 - COMMITMENTS

The Company occupies one retail store space leased from a third party. The terms
of the lease commitment began on April 20, 2005 and expires on November 6, 2006.
Accordingly, for the six months ended June 30, 2005, the Company recognized
rental expense for this space of $19,062.

As of June 30, 2005, the Company has commitments with respect to the
non-cancelable operating lease for the retail store, as follows:

                                                     JUNE 30, 2005
                                                 -----------------
Within 1 year                                    $         184,615
There after                                                 69,231
                                                 -----------------
Total                                            $         253,846
                                                 =================

The Company entered into a non-cancelable construction contract during 2005 for
a new peptide workshop in Harbin. The terms of the contract will expire in 2005.
The future obligations of the Company under this commitment are as follows:

                                       12


<PAGE>

                                                     JUNE 30, 2005
                                                 -----------------
Within 1 year                                    $         473,494
There after                                                     --
                                                 -----------------
Total                                            $         473,494
                                                 =================

NOTE 10 - SUBSEQUENT EVENTS

On July 13, 2005, the Company filed a current report on Form 8-K pursuant to
section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, to
announce that the American Stock Exchange approved the listing of the Company's
common stock, par value $0.001 per shar,e for listing. The ticket symbol for the
Company on American Stock Exchange is "AOB".


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

The following discussion should be read in conjunction with the information
contained in the condensed consolidated financial statements of the Company and
the notes thereto appearing elsewhere herein and in conjunction with the
Management's Discussion and Analysis set forth in (1) the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2004 (which is also
incorporated by reference herein) and (2) Quarterly Report on Form 10-QSB for
the quarter ended June 30, 2004.

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

PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
-----------------------------------------------------

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

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

                                       13


<PAGE>

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
------------------------------------------

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

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

The Company had not provided any reserves against its inventory at December 31,
2004 and at June 30, 2005. Management's estimation that there are no reserves is
based on the current facts that the current inventory turnover is sufficient to
realize the current carrying value of the inventories. In making their judgment,
management has assumed that there will be continued demand for their products in
the future, thereby maintaining adequate turnover of the inventories.

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

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

We recognize revenue in accordance with Staff Accounting Bulletin ("SAB") No.
104. All of the following criteria must exist in order for us to recognize
revenue:

         1.   Persuasive evidence of an arrangement exists;
         2.   Delivery has occurred or services have been rendered;
         3.   The seller's price to the buyer is fixed or determinable; and
         4.   Collectibility is reasonably assured.

                                       14


<PAGE>

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

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

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

Revenues for the quarter ended June 30, 2005 were $11,902,470, an increase of
$5,898,510 from $6,003,960 for the quarter ended June 30, 2004. Compared to
2004, our sales revenues from our two main categories of products in 2005 were
as follows:

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

Plant based pharmaceuticals           $  7,420,609    $ 2,298,567    $ 5,122,042
products (PBP Products)
Plant based nutraceuticals               4,481,861      3,705,393        776,468
products(PBN Products)

                                      ------------    -----------    -----------
TOTAL                                 $ 11,902,470    $ 6,003,960    $ 5,898,510
                                      ============    ===========    ===========

In the second quarter of 2005, the sales of our PBP Products increased by
$5,122,042 or 223% as compared to the same period in 2004. This was mainly due
to increase in Cease Enuresis Soft Gel sales. Also, the acquisition of HSPL
contributed to an increase in sales of PBP Products because HSPL produced and
sold additional types of PBP Products that amounted to $3,909,917.

The sales revenue from our PBN Products increased to $4,481,861 in the second
quarter of 2005 from $3,705,393 from the same period in 2004, representing a
growth of 21%. In the second quarter of 2005 our marketing and promotion efforts
continued to help us to increase our sales in PBN Products.

Cost of revenues for the quarter ended June 30, 2005 were $4,188,755, an
increase of $2,345,930 from $1,842,825 for the same quarter last year. The
increases in costs of sales by product categories were as follows:

                                       15


<PAGE>


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

PBP Products                      $2,647,978        $  644,138        $2,003,840
PBN Products                       1,540,777         1,198,687           342,090

                                  ----------        ----------        ----------
TOTAL                             $4,188,755        $1,842,825        $2,345,930
                                  ==========        ==========        ==========

The cost of sales of our PBP Products increased by $2,003,840, or 311% in the
second quarter of 2005 compared to the same period in 2004. This increase
resulted from our 223% increase in sales revenue from our PBP Products sold
through Harbin Bioengineering in the same period as compared to last year and
our sales of PBP Products through HSPL. The cost of sales increased in higher
proportion than our increase in revenue because the gross profit margin of HSPL
was lower than that of Harbin Bioengineering and in the same quarter of 2004 the
revenue and cost of sales of HSPL had not been consolidated into AOB.

The cost of sales of our PBN Products increased by $342,090, or 29%, in the
second quarter of 2005 compared to the same period in 2004. This increase
resulted from our 21% increase in sales revenue from PBN Products during the
second quarter of 2005 as compared to same period in 2004. The percentage
increase in cost of sales was higher than the percentage increase in sales
revenue because there was a slight decrease in percentage profit margin.

Compared to the second quarter of 2004, the percentage profit margin for our
Company decreased from 69% to 65% in the current quarter. The decrease in
percentage profit margin was mainly attributable to the percentage profit margin
of HSPL of 61%, which was lower than the average percentage profit margin of all
products of Harbin Bioengineering, which was 67%.

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

Selling and marketing expenses amounted to $550,446 in the second quarter of
2005, which is almost the same in the same period in 2004 that amounted to
$550,423. The detailed breakdown of the expenses were as follows:

                                                    Three Months Ended June 30,
                                                    ---------------------------
                                                           2005            2004
                                                    -----------     -----------

Payroll expenses for Harbin Bioengineering          $   162,919     $   109,697
Non payroll expenses for Harbin Bioengineering          224,330         440,726
Payroll expenses for HSPL                                22,748               0
Non payroll expenses HSPL                               129,490               0
Overhead for offices in Hong Kong and US                 10,959               0

                                                    -----------     -----------
TOTAL                                               $   550,446     $   550,423
                                                    ===========     ===========

                                       16


<PAGE>

In the second quarter of 2005, the Company incurred $162,919 for the payroll of
our sales and marketing executives and employees in Harbin Bioengineering, or an
increase of 49% from $109,697 in the same quarter in 2004. This increase was
mainly due to an increase in the number of employees in our sales and marketing
department. In the second quarter of 2005, HSPL incurred $22,748 in payroll
expenses for sales and marketing executives and employees and $129,490 in
overhead expenses. AOB also incurred $10,959 for sales and marketing activities
in our Hong Kong and US offices.

Advertising
-----------

Advertising expenses for the quarter ended June 30, 2005 amounted to $589,350, a
decrease of 23% as compared with $761,431 in the same quarter in 2004 as the
Company determined that the effect of advertising efforts for last year was
sufficient to cover the current quarter ended June 30, 2005 and therefore the
Company has reduced its effort on advertising in the second quarter of 2005
compared to the same period in 2004.

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

General and administrative expenses increased from $849,680 in the second
quarter of 2004 to $1,803,799 in the same quarter this year, or a 112% increase.
Compared to the same quarter in 2004, our increase in expenses was because of
the following:

Breakdown of expenses:                 Three Months Ended June 30,
                                       ---------------------------   Increase /
                                               2005           2004   (Decrease)
-----------------------------------    ------------   ------------   ----------
Harbin Bioengineering - payroll        $    133,429   $     88,764   $   44,665
Harbin Bioengineering - non payroll         243,027        364,943     (121,916)
HSPL - payroll                               63,610              0       63,610
HSPL - non payroll                           30,905              0       30,905
AOB Hong Kong office overhead                75,305         43,330       31,975
AOB US office overhead                       58,408              0       58,408
Professional fees                           287,437              0      287,437
Stock based consultant expenses             257,308        352,643      (95,335)
Executive compensation                       91,750              0       91,750
Allowance for doubtful accounts             562,620              0      562,620

                                       ------------   ------------   ----------
TOTAL                                  $  1,803,799   $    849,680   $  954,119
                                       ============   ============   ==========

During the second quarter of 2005, the Company incurred $133,429 in payroll
expenses for Harbin Bioengineering as compared to $88,764 in 2004. This increase
resulted from an increase in the total number of employees. However, Harbin
Bioengineering reduced the expenditure in non payroll expenses by $121,916 as a
result of a slow down in miscellaneous spending on administrative activities
during the second quarter of 2005 as compared to the same quarter last year.
During the second quarter of 2005, HSPL incurred $63,610 and $30,905 on payroll
and non payroll expenses, respectively. There were no similar expenditures in
the same quarter of 2004. The Company incurred $75,305 and $58,408 in overhead


                                       17


<PAGE>

expenses for Hong Kong and US offices, respectively. In the same period last
year the Company incurred a total of $43,330 to maintain the Hong Kong offices.
In the current quarter of 2005, the Company provided an allowance of $562,620
for aged accounts receivables, of which the Company had not provided any during
the same period last year.

Depreciation and Amortization
-----------------------------

Depreciation and amortization of plant and equipment increased $158,374 in the
second quarter of 2005 compared to the same period in 2004. The increase was
mainly due to an increase in assets as a result of the HSPL acquisition.

Income Taxes
------------

Income tax expense was $1,037,779 for the quarter ended June 30, 2005, as
compared to $336,861 for the quarter ended June 30, 2004. The increase was due
to the increase in income before income taxes of Harbin Bioengineering and the
contribution of profit from HSPL, which could not be offset against the losses
of AOB.

The income tax was provided at 15% of income before tax at the Harbin
Bioengineering level and 33% at the HSPL level in China. The effective tax rate
applied for tax expenses in the current quarter, however, was 24% instead of 18%
in 2004 (weighted average of the tax rate for Harbin Bioengineering and HSPL).
This was because there were other operating expenses incurred at the holding
company level as well as AOB HK and AOB US, and these expenses could not enjoy
tax benefits in China and so the effective income tax rate provided for the
Company was 24%.

Net Income
----------

In the second quarter of 2005, our net income increased by $1,847,968 to a net
income of $3,355,717 from a net income of $1,507,749 in the same quarter in
2004.

RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2005 AS COMPARED TO SIX MONTHS
--------------------------------------------------------------------------------
ENDED JUNE 30, 2004
-------------------

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

Revenues for six months ended June 30, 2005 were $21,555,252, an increase of
$9,644,673 from $11,910,579 for six months ended June 30, 2004. Compared to same
period in 2004, our sales revenues from our two main categories of products in
the six months ended 2005 were as follows:

Product                              Six Months Ended June 30,
                                  ----------------------------        Increase /
                                        2005              2004        (Decrease)
-----------------------------    -----------       -----------       -----------

PBP Products                     $13,425,707       $ 7,253,722       $ 6,171,985
PBN Products                       8,129,545         4,656,857         3,472,688

                                 -----------       -----------       -----------
TOTAL                            $21,555,252       $11,910,579       $ 9,644,673
                                 ===========       ===========       ===========

                                       18


<PAGE>

In the first six months of 2005, the sales of PBP Products increased by
$6,171,985 or 85% as compared to the same period in 2004. This was mainly due to
an increase in Cease Enuresis Soft Gel sales by Harbin Bioengineering and also
by an increase in sales of PBP Products subsequent to the acquisition of HSPL.
HSPL produced and sold additional types of PBP Products and resulted in an
increase of sales revenue.

The sales revenue from our PBN Products increased to $8,129,545 in the first six
months of 2005 from $4,656,857 from the same period in 2004, representing a
growth of 75%. In first six months of 2005 our marketing and promotion efforts
continued to help us to increase our sales in health food supplements and
resulted in an increase in sales.

Cost of revenues for the first six months ended June 30, 2005 were $7,816,319,
an increase of $4,153,733 from $3,662,586 for the same period last year. The
increases in costs of sales by product categories were as follows:

Product                                Six Months Ended June 30,
                                      --------------------------
                                            2005            2004      (Decrease)
--------------------------------      ----------      ----------      ----------

PBP Products                          $4,985,882      $2,237,823      $2,748,059
PBN Products                           2,830,437       1,424,763       1,405,674

                                      ----------      ----------      ----------
TOTAL                                 $7,816,319      $3,662,586      $4,153,733
                                      ==========      ==========      ==========

The cost of sales of our PBP Products increased by $2,748,059, or 123%, in the
first six months of 2005 compared to same period in 2004. The increase resulted
from our 85% increase in sales revenue from our PBP Products sold through Harbin
Bioengineering in the same period as compared to last year and the increase in
sales of PBP Products through HSPL subsequent to the acquisition.

The cost of sales of our PBN Products increased by $1,405,674, or 99%, in the
first six months of 2005 compared to the same period in 2004. This increase
resulted from our 75% increase in sales revenue from our PBN Products during the
first six months of 2005 as compared to same period in 2004. The percentage
increase in cost of sales was higher than the percentage increase in sales
revenue as in the same quarter of 2004 because the Company recorded an
exceptional improvement in profit margin in the first six months of 2004 that
was not repeated in the same period in 2005.

Compared to the first six months of 2004, the percentage profit margin for our
Company decreased from 69% to 64% in the same quarter of 2005. The decrease in
percentage profit margin was mainly attributable to the percentage profit margin
of HSPL of 59%, which was lower than the average percentage profit margin of all
products of Harbin Bioengineering, which was 69%.


                                       19


<PAGE>

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

Selling and marketing expenses increased from $1,029,154 in the first six months
of 2004 to $1,205,821 in the same period in 2005, representing a 17% increase.
The details of selling and marketing expenses for the first six months of 2005
were as follows:

                                                       Six Months Ended June 30,
                                                        ------------------------
Product                                                   2005           2004
----------------------------------------------          ----------    ----------

Payroll expenses for Harbin Bioengineering              $  331,371    $  204,751
Non payroll expenses for Harbin Bioengineering             632,299       824,403
Payroll expenses for HSPL                                   38,159             0
Non payroll expenses HSPL                                  190,057             0
Overhead for offices in Hong Kong and US                    13,935             0

                                                        ----------    ----------
TOTAL                                                   $1,205,821    $1,029,154
                                                        ==========    ==========

In the first six months of 2005, the Company incurred $331,371 for the payroll
of our sales and marketing executives and employees in Harbin Bioengineering, or
an increase of 62% from $204,751 in the same quarter in 2004. This increase was
mainly due to an increase in the number of employees in our sales and marketing
department. In the first six months of 2005, HSPL incurred $38,159 in payroll
expenses for sales and marketing executives and employees.

Despite the increase in our sales and marketing executives and employees,
compared to the first six months of 2004, Harbin Bioengineering has reduced its
expenditures for selling and marketing overhead by 23% in the first six months
of 2005.

In the first six months of 2005, HSPL incurred $190,057 on selling and marketing
overhead.

Advertising
-----------

Advertising expenses for the first six months ended June 30, 2005 amounted to
$1,404,084, a 13% decrease as compared with $1,607,204 in the same period in
2004, as the Company determined that the effect of advertising efforts last year
was sufficient to cover the first half of the year ended June 30, 2005 and
therefore the Company has reduced its effort on advertising in the period of six
months ended 2005 compared to the same period in 2004.

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

General and administrative expenses increased from $1,881,710 in the first six
months of 2004 to $3,029,193 in the same period this year, or a 61% increase.
Compared to the same period in 2004, our increase in the expenses was because of
the following:

                                       20


<PAGE>

Breakdown of expenses:                  Six Months Ended June 30,
                                        -------------------------    Increase /
                                               2005          2004    (Decrease)
--------------------------------------  -----------   ------------  -----------

Harbin Bioengineering - payroll         $   243,989   $    169,481  $    74,508
Harbin Bioengineering - non payroll         605,488        915,740     (310,252)
HSPL - payroll                               96,992              0       96,992
HSPL - non payroll                           65,343              0       65,343
AOB Hong Kong office overhead               136,090         43,330       92,760
AOB US office overhead                       98,436              0       98,436
Professional fees                           522,119              0      522,119
Stock based consultant expenses             514,616        629,409     (114,793)
Executive compensation                      183,500        123,750       59,750
Allowance for doubtful accounts             562,620              0      562,620
                                        -----------   ------------  -----------
TOTAL                                   $ 3,029,193   $  1,881,710  $ 1,147,483
                                        ===========   ============  ===========


During the first six months of 2005, the Company incurred $243,989 in payroll
expenses for Harbin Bioengineering as compared to $169,481 in same period of
2004. This increase resulted from an increase in the total number of employees.
However, Harbin Bioengineering reduced the expenditures in non payroll expenses
by $310,252 as a result of a slow down in miscellaneous spending on
administrative activities during the first six months of 2005 as compared to the
same period last year. During the first six months of 2005, HSPL incurred
$96,992 and $65,343 on payroll and non payroll expenses, respectively. There
were no similar expenditures in the same period in 2004. The Company incurred
$136,090 and $98,436 in overhead expenses for Hong Kong and US offices,
respectively. In the same period last year the Company incurred $43,330 in
maintaining the Hong Kong offices. In the current quarter of 2005, the Company
provided an allowance of $562,620 for aged accounts receivables, of which the
Company had not provided any during the same period last year.

Depreciation and Amortization
-----------------------------

Depreciation and amortization of plant and equipment increased $317,872 in the
first six months of 2005 compared to same period in 2004. The increase was
mainly due to an increase in assets as a result of the HSPL acquisition.

Income Taxes
------------

Income tax expense was $1,787,646 for the six month period ended June 30, 2005,
as compared to $650,033 for the same period in 2004. The increase was due to the
increase in pre-tax income of Harbin Bioengineering and the contribution of
profit from HSPL, which could not be offset against the losses of AOB.

                                       21


<PAGE>

The income tax was provided at 15% of income before tax at the Harbin
Bioengineering level and 33% at the HSPL level in China. The effective tax rate
applied for tax expenses in the current period, however, was 25% instead of 19%
in 2004 (weighted average of the tax rate for Harbin Bioengineering and HSPL).
This was because there were other operating expenses incurred at the holding
company level as well as AOB HK and AOB US, and these expenses could not enjoy
tax benefits in China and so the effective income tax rate provided for the
Company was 25%.

Net Income
----------

In the first six months of 2005, our net income increased by $2,771,122 to a net
income of $5,538,910 from a net income of $2,767,788 in the same period in 2004.

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

Cash
----

Our cash balance increased by $3,470,621 to $14,874,770 as of June 30, 2005, as
compared to $11,404,149 as of December 31, 2004. The increase was mainly
attributable to our cash flow generated from operations, which amounted to
$2,686,358 during the first six months of 2005. The increased cash flow was due
to our net income from operations of $5,538,910 offset by an increase in account
receivables and inventories of $1,624,133 and $3,612,136, respectively, during
the first six months of this year. In the current period we also increased
accounts payable by $236,524 and this increase positively contributed to the
cash flow.

Our cash flow used for investing activities amounted to $835,548, of which
$786,646 was for the purchases of assets. Our cash flow from financing
activities amounted to $1,619,811, of which $593,924 was from equity related
transactions and $1,033,357 was from shareholder advances.

Working Capital
---------------

Our working capital increased by $5,389,591 to $20,192,661 at June 30, 2005, as
compared to $14,803,070 at December 31, 2004. The increase in working capital at
June 30, 2004 was mainly attributable to our increase in cash, account
receivables and inventories by $3,470,621, $1,061,513 and $3,612,136,
respectively.

The Company currently generates its cash flow through operations and the Company
believes that its cash flow generated from operations will be sufficient to
sustain operations for the next twelve months. Also, from time to time, the
Company may require extra funding through financing activities and investments
for expansion. On November 23, 2004, we completed a $6,000,000 private placement
from which we received net cash proceeds of $5,438,614. During 2004 the Company
also used $7,228,916 in cash for the HSPL acquisition. Also, from time to time,
the Company may come up with new expansion opportunities for which our
management may consider seeking external funding and financing. However, as of
June 30, 2005, the Company did not have any plan for additional capital through
external funding and financing.

On May 6, 2005, the Company announced the signing of a legally-binding letter of
intent to acquire Heilongjiang Qitai Pharmaceutical Limited ("HQPL"), a leading
Chinese distributor of pharmaceuticals. AOB plans to use $4 million to acquire
approximately $4.5 million (unaudited) worth of HQPL's net assets, which may
cause changes to working capital. As of the date of this report, the Company did
not enter into any definitive agreement with HQPL and the acquisition was not
completed.


                                       22


<PAGE>


ITEM 3.  CONTROLS AND PROCEDURES.

As of the end of the period covered by this report (the "Evaluation Date"), we
carried out an evaluation in accordance with the requirements by the Chinese
auditing standards as well as the applicable rules in the United States. The
Company had set up an audit group consisted of the Chief Executive Officer,
Chief Financial Officer, one of the members from the board of directors and 2
executives (including the manager) from the internal audit department and was
under the supervision of Chief Executive Officer and Chief Financial Officer.
The Company's audit group evaluated the effectiveness of the design and
operation of our disclosure controls and procedures of our Form 10QSB before it
was filed with the Commission. The audit group made their evaluation in pursuant
to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the
"Exchange act") to the maximum possible extent and to the best knowledge of the
audit group. Based upon this evaluation, our Chief Executive Officer and our
Chief Financial Officer concluded that, as of the Evaluation Date, our
disclosure controls and procedures were effective and basically sound under Rule
13a-15. However, given the fact that our major operations are located China, the
Company and the audit group consistently make efforts to coordinate the evolving
control and disclosure environment in China with the regulatory environment in
the United States. The Company has identified this aspect as an area for
improvement and is taking measures to train its staff for better performance.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

The Company may from time to time be involved in various claims, lawsuits, and
disputes with third parties, actions involving allegations of discrimination, or
breach of contract actions incidental to the operation of its business. The
Company is not currently involved in any such litigation that it believes could
have a materially adverse effect on its financial condition or results of
operations.

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

From May 12, 2005 to June 30, 2005, a total of 357,500 shares of Class A stock
purchase warrants that were issued under the Subscription Agreement described in
PART 1 NOTE 7 were exercised by the Investors, resulted in a total of 357,500
shares of common stock of the Company newly issued and outstanding. A total of
$303,876 was received by the Company as a result of exercise of warrants by the
warrant holders. The details of the exercises are as follows:

                                       23


<PAGE>

            Date of exercise                  Number of warrants exercised
            ----------------                  ----------------------------

            May 12, 2005                                 300,000
            May 16, 2005                                 25,000
            June 3, 2005                                 10,000
            June 30, 2005                                22,500

                                              ----------------------------
            TOTAL                                        357,500
                                              ============================


ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

There have been no material defaults.

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

No matters were submitted to the security holders for a vote during the period
covered by this report.

ITEM 5 - OTHER INFORMATION

Potential Acquisition
---------------------

On May 6, 2005, the Company announced the signing of a legally-binding letter of
intent to acquire Heilongjiang Qitai Pharmaceutical Limited ("HQPL"), a leading
Chinese distributor of pharmaceuticals. AOB plans to use $4 million to acquire
approximately $4.5 million (unaudited) worth of HQPL's net assets. As of the
date of this report, the Company has not signed definitive agreement with HQPL
and the transaction was not completed.

Appointment of director
-----------------------

On June 22, 2005, the Board of Directors of the Company increased the number of
directors to seven and appointed Eileen Brody to the Board of Directors. Ms.
Brody, age 44, is an experienced senior retail executive, with 21 years of
experience helping retailers increase growth and profitability. From 1997 to
2004, Ms. Brody was Vice President of Merchandising and the General
Merchandising Manager for Carter's Childrenwear's Retail Division, a division of
The William Carter Company. There, she was in charge of the merchandising profit
and loss for the 175 store nationwide chain. She helped lead a turnaround
effort, which produced record sales and profitability for seven consecutive
years. While there, she assisted the company in its successful New York Stock
Exchange Initial Public Offering.

                                       24


<PAGE>

From 1983 to 1990 she was a Senior Manager and a CPA at the accounting firm of
KPMG Peat Marwick. Ms. Brody received her Undergraduate and MBA degrees from
Pace University and a second MBA from the Harvard Graduate School of Business.
She received the Fitzie Foundation Award in 1991, where she was chosen by the
Harvard Business School and Fitzie Board of Trustees as the HBS Woman Best
Demonstrating Exemplary Leadership, Academic Excellence and Commitment to
Community.

Simultaneous with her appointment as a director, the Board has appointed Ms.
Brody as a member and chairperson of the Board's Audit Committee.

Ms. Brody has no family relationships with any of the executive officers or
directors of the Company. There have been no transactions in the past two years
to which the Company or any of its subsidiaries was or is to be a party, in
which Ms. Brody had, or will have, a direct or indirect material interest. The
Company and Ms. Brody have entered into a service agreement, dated as of June
22, 2005, pursuant to which Ms. Brody shall carry out the duties of an
independent director. Under this service contract, the Company will pay Ms.
Brody an annual retainer of $30,000 cash, payable monthly, and $30,000 in market
value of registered common stock of the Company for every year of service to the
Company, payable at the end of each calendar year. The service agreement
continues until Ms. Brody is removed or not re-elected as a director of the
Company.

ITEM 6 - EXHIBITS

The following exhibits are filed as part of this quarterly report on Form
10-QSB:

Exhibit No.               Description
-----------               -----------

31.1       Certification of Chief Executive Officer pursuant to Section 302 of
           the Sarbanes-Oxley Act of 2002

31.2       Certification of Acting Chief Financial Officer pursuant to Section
           302 of the Sarbanes-Oxley Act of 2002

32.1       Certification of Chief Executive Officer pursuant to Section 906 of
           the Sarbanes-Oxley Act of 2002

32.2       Certification of Acting Chief Financial Officer pursuant to Section
           906 of the Sarbanes-Oxley Act of 2002


                                       25


<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.



/s/ Shujun Liu
---------------------------------------
SHUJUN LIU
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DATED: August 15, 2005


/s/ Yanchun Li
---------------------------------------
YANCHUN LI
ACTING CHIEF FINANCIAL OFFICER
DATED: August 15, 2005


                                       26