<Page>

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

                                    FORM 10-Q

                                   (Mark One)

[X]   Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
      of 1934 For the quarterly period ended March 31, 2007

[ ]   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.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

           NO. 4018 JINTIAN ROAD ,ANLIAN PLAZA, 12F SUITE B02 , FUTIAN
              DISTRICT SHENZHEN PEOPLE'S REPUBLIC OF CHINA, 518026
                    (Address of principal executive offices)

                                86-451-8666-6601
                (Issuer's telephone number, including area code)

Check whether the registrant (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 [ ]

Check whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer.

Large accelerated filer [ ]   Accelerated filer [X]    Non-accelerated filer [ ]

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

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

Title of each class of Common Stock             Outstanding as of May 1, 2007
------------------------------------------    ---------------------------------
Preferred Stock, $0.001 par value                            1,000,000
Common Stock, $0.001 par value                              64,791,036

<Page>

PART I -      FINANCIAL INFORMATION............................................3

      ITEM 1 -  FINANCIAL STATEMENTS...........................................3
      ITEM 1A - RISK FACTORS
      ITEM 2 -  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS.........................18
      ITEM 3 -  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....26
      ITEM 4 -  CONTROLS AND PROCEDURES.......................................26

PART II -     OTHER INFORMATION...............................................28

      ITEM 1 -  LEGAL PROCEEDINGS.............................................28
      ITEM 2 -  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS...28
      ITEM 3 -  DEFAULTS UPON SENIOR SECURITIES...............................28
      ITEM 4 -  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........28
      ITEM 5 -  OTHER INFORMATION.............................................28
      ITEM 6 -  EXHIBITS......................................................28


                                        2



<Page>

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                  AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
                           CONDENSED CONSOLIDATED BALANCE SHEETS

                                           ASSETS
                                           ------

                                                            MARCH 31,       DECEMBER 31,
                                                              2007              2006
                                                        ----------------  ----------------
                                                           UNAUDITED
<S>                                                     <C>               <C>
CURRENT ASSETS
Cash and cash equivalents                               $    93,442,093   $    87,784,419
Accounts receivable, net of reserve of
  $54,878 and $39,776 at March 31, 2007
  and December 31, 2006, respectively                        10,469,500        11,141,057
Inventories, net of $596,360 and $615,552
  provision for slow moving inventories at
  March 31, 2007 and December 31, 2006,
  respectively                                               13,224,691        10,684,316
Advances to suppliers                                         2,533,640         1,950,101
Notes receivable                                              1,812,275         3,238,161
Other receivables                                                32,323            37,545
Due from employees                                              351,984           585,050
Deferred consulting expenses                                    310,800           166,600
                                                        ----------------  ----------------
        Total Current Assets                                122,177,306       115,587,249
                                                        ----------------  ----------------

LONG-TERM ASSETS
Plant and equipment, net                                     32,706,985        32,194,957
Land use rights, net                                         33,078,441        32,937,743
Construction in progress                                        314,545           326,121
Deferred tax assets                                           1,657,731         1,797,153
License, net                                                    363,328           383,755
Goodwill                                                      1,933,100         1,933,100
Long-term investment and advance                                138,208           113,868
                                                        ----------------  ----------------
        Total Long-Term Assets                               70,192,338        69,686,697
                                                        ----------------  ----------------

  TOTAL ASSETS                                          $   192,369,644   $   185,273,946
                                                        ================  ================


    See accompanying notes to the condensed consolidated financial statements

                                       3

<Page>

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

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

                                                         MARCH 31,       DECEMBER 31,
                                                           2007              2006
                                                     ----------------  ----------------
                                                        UNAUDITED
CURRENT LIABILITIES
Accounts payable                                     $     2,945,328   $     2,871,981
Other payables and accrued expenses                        2,633,659         4,549,867
Taxes payable                                              1,177,561         2,211,542
Short-term bank loans                                      7,750,987         8,314,679
Current portion of long-term bank loans                    1,453,565         1,450,905
Customer deposits                                          3,194,000         2,263,654
Notes payable                                                 66,455            66,216
Other liabilities                                            864,075         1,606,334
                                                     ----------------  ----------------
          Total Current Liabilities                       20,085,630        23,335,178
                                                     ----------------  ----------------

LONG-TERM LIABILITIES
Long-term bank loans, net of current portion                 911,847           915,909
Long-term notes payable                                      262,435           255,836
Deferred tax liabilities                                   4,614,058         4,580,698
Other liabilities                                              5,399             9,083
                                                     ----------------  ----------------
          Total Long-Term Liabilities                      5,793,739         5,761,526
                                                     ----------------  ----------------
   TOTAL LIABILITIES                                      25,879,369        29,096,704
                                                     ----------------  ----------------

SHAREHOLDERS' EQUITY
Preferred stock, $0.001 par value;  2,000,000
  shares authorized; 1,000,000 shares issued and
  outstanding at March 31, 2007 and December 31,
  2006, respectively                                           1,000             1,000
Common stock, $0.001 par value; 150,000,000
  shares authorized; 64,784,359 and 64,230,369
  shares issued and outstanding, respectively                 64,784            64,230
Stock to be issued                                           297,500           599,069
Additional paid-in capital                                95,265,594        92,307,960
Retained earnings (the restricted portion of
  retained earnings is $8,498,766 at March 31,
  2007 and December 31, 2006, respectively)               65,273,178        58,826,911
Accumulated other comprehensive income                     5,588,219         4,378,072
                                                     ----------------  ----------------
Total Shareholders' Equity                               166,490,275       156,177,242
                                                     ----------------  ----------------
   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY        $   192,369,644   $   185,273,946
                                                     ================  ================


    See accompanying notes to the condensed consolidated financial statements

                                       4

<Page>

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


                                                      THREE MONTHS ENDED MARCH 31,
                                                         2007              2006
                                                   ----------------  ----------------

REVENUES                                           $    25,722,577   $    19,086,901
COST OF GOODS SOLD                                       8,018,260         6,797,715
                                                   ----------------  ----------------
GROSS PROFIT                                            17,704,317        12,289,186
                                                   ----------------  ----------------

Selling and marketing                                    2,702,351         1,701,280
Advertising                                              3,822,911         2,225,187
General and administrative                               2,933,066         1,880,964
Depreciation and amortization                              333,462            98,643
                                                   ----------------  ----------------
Total operating expenses                                 9,791,790         5,906,074
                                                   ----------------  ----------------

INCOME FROM OPERATIONS                                   7,912,527         6,383,112

INTEREST INCOME, NET                                        17,759            81,661
OTHER INCOME (EXPENSE), NET                                 39,084              (988)
                                                   ----------------  ----------------
INCOME BEFORE INCOME TAXES                               7,969,370         6,463,785

INCOME TAXES                                             1,523,103         1,547,251
                                                   ----------------  ----------------
NET INCOME                                               6,446,267         4,916,534
                                                   ----------------  ----------------

OTHER COMPREHENSIVE INCOME

Foreign currency translation gain                        1,210,147           259,625
Income tax expense related to other
  comprehensive income                                    (399,349)          (85,676)
                                                   ----------------  ----------------

TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX               810,798           173,949
                                                   ----------------  ----------------

COMPREHENSIVE INCOME                               $     7,257,065   $     5,090,483
                                                   ================  ================

NET INCOME PER SHARE
     BASIC                                         $          0.10   $          0.08
     DILUTED                                       $          0.10   $          0.08

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
     BASIC                                              64,608,561        61,223,435
     DILUTED                                            66,545,541        61,318,674


    See accompanying notes to the condensed consolidated financial statements

                                       5

<Page>

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


                                                           THREE MONTHS ENDED MARCH 31,
                                                              2007              2006
                                                        ----------------  ----------------

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                            $     6,446,267   $     4,916,534
  Adjustments to reconcile net income to net
    cash provided by operating activities:
  Depreciation and amortization                                 749,968           386,947
  Loss on disposal of plant and equipment                             -               981
  Amortization of deferred consulting expenses                  115,800           245,258
  Provision for doubtful accounts                                24,897          (113,675)
  Provision for slow moving inventories                         (67,256)                -
  Deferred taxes                                                172,782            29,632
  Common stock to be issued for services                         37,500            42,802
  Stock option compensation expense                                   -            35,648
  Equity income from unconsolidated entity                       (7,077)                -

Changes in operating assets and liabilities:
(Increase) Decrease In:
  Accounts receivable                                           646,660        (1,212,162)
  Repayments of notes receivable                              1,425,886                 -
  Inventories                                                (2,473,119)       (3,169,537)
  Advances to suppliers                                        (597,775)        2,250,972
  Prepaid expenses and other receivables                         19,458            (7,152)
  Due from employees                                            233,066           (88,798)
  Advance to investee                                           (16,394)                -
Increase (Decrease) In:
  Accounts payable                                              582,014           114,590
  Other payables and accrued expenses                        (1,912,140)          376,722
  Taxes payable                                              (1,033,981)           34,346
  Customer deposits                                             930,346            (1,834)
  Other liabilities                                            (742,285)                -
                                                        ----------------  ----------------
  Net cash provided by operating activities                   4,534,617         3,841,274
                                                        ----------------  ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of construction in progress                        (433,442)         (218,261)
  Purchases of plant and equipment                             (819,929)         (190,443)
  Refundable payment to facilitate due diligence                      -        (5,160,957)
                                                        ----------------  ----------------
  Net cash used in investing activities                      (1,253,371)       (5,569,661)
                                                        ----------------  ----------------

CASH FLOWS FROM FINANCING ACTIVITIES
  Repayment of bank loans                                      (656,976)                -
  Repayments of capital lease                                    (3,653)           (2,500)
  Cash proceeds from private placement, net                           -        24,983,722
  Proceeds from exercise of warrants                          2,359,120                 -
                                                        ----------------  ----------------
  Net cash provided by financing activities                   1,698,491        24,981,222
                                                        ----------------  ----------------

NET INCREASE IN CASH AND CASH EQUIVALENTS                     4,979,737        23,252,835

  Effect of exchange rate changes on cash                       677,937           130,183
  Cash and cash equivalents, beginning of period             87,784,419        57,532,049
                                                        ----------------  ----------------

  CASH AND CASH EQUIVALENTS, END OF PERIOD              $    93,442,093   $    80,915,067
  ----------------------------------------              ================  ================


         See accompanying notes to the condensed consolidated financial statements

                                             6
</TABLE>

<Page>

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              AS OF MARCH 31, 2007
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements of American Oriental
Bioengineering, Inc. and subsidiaries (the "Company") have been prepared in
accordance with U.S. generally accepted accounting principles for interim
financial information and pursuant to the requirements for reporting on Form
10-Q. Accordingly, they do not include all the information and footnotes
required by accounting principles generally accepted in the United States of
America for annual financial statements. However, the information included in
these interim financial statements reflects all adjustments (consisting solely
of normal recurring adjustments) which are, in the opinion of management,
necessary for the fair presentation of the consolidated financial position and
the consolidated results of operations. Results shown for interim periods are
not necessarily indicative of the results to be obtained for a full year. The
condensed consolidated balance sheet information as of December 31, 2006 was
derived from the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K. These interim financial statements should
be read in conjunction with that report.

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. See
"Critical Accounting Policies and Estimates" in the Management's Discussion and
Analysis of Financial Condition and Results of Operations" section below.

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND NEW PRONOUNCEMENT

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.

INVENTORIES - Inventories consisting of raw materials, work-in-progress and
finished goods are stated at the lower of weighted average cost or market value.
Finished goods are comprised of direct materials, direct labor and an
appropriate proportion of overhead.

REVENUE RECOGNITION - Revenues represent the invoiced value of goods sold,
recognized upon the shipment of goods to customers. Revenues are recognized when
all of the following criteria are met:

      o     Persuasive evidence of an arrangement exists,
      o     Delivery has occurred or services have been rendered,

                                       7
<Page>

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              AS OF MARCH 31, 2007
                                   (UNAUDITED)

      o     The seller's price to the buyer is fixed or determinable, and
      o     Collectibility is reasonably assured.

The Company established a subsidiary in Hong Kong with a specialty retail store
to sell its products. The retail store sells certain products to certain
customers on consignment. The Company records revenue for consignment
transactions when the consignee sells the product to the end user.

STOCK BASED COMPENSATION - The Company adopted SFAS No. 123R in the first
quarter of 2006, at which time the Company began recognizing an expense for
unvested share-based compensation that has been issued or will be issued after
that date. The Company adopted SFAS No. 123R on a prospective basis.

The Company estimates fair value of restricted stock based on the number of
shares granted and the quoted price of the Company's common stock on the date of
grant. The fair value of stock options is estimated using the Black-Scholes
model. The Company's expected volatility assumption is based on the historical
volatility of Company's stock. The expected life assumption is primarily based
on historical exercise patterns and post-vesting termination behavior. The
risk-free interest rate for the expected term of the option is based on the U.S.
Treasury yield curve in effect at the time of grant.

Stock compensation expense recognized is based on awards expected to vest, and
there were no estimated forfeitures as the current options outstanding were only
issued to founders of the Company. SFAS No. 123R requires forfeitures to be
estimated at the time of grant and revised in subsequent periods, if necessary,
if actual forfeitures differ from those estimates.

There were no options issued in the first quarter of 2007 and the fair value of
stock based compensation expense for the three months ended March 31, 2006 was
$35,648.

ADOPTION OF NEW ACCOUNTING POLICY - Effective January 1, 2007, the Company
adopted Financial Accounting Standards Board Interpretation No. 48, Accounting
for Uncertainty in Income Taxes ("FIN 48"). --AN INTERPRETATION OF FASB
STATEMENT NO. 109, ACCOUNTING FOR INCOME TAXES. The Interpretation addresses the
determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under FIN 48, we may
recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. FIN 48 also provides
guidance on derecognition, classification, interest and penalties on income
taxes, accounting in interim periods and requires increased disclosures. At the
date of adoption, and as of March 31, 2007, the Company does not have a
liability for unrecognized tax benefits.

The Company files income tax returns in the U.S. federal jurisdiction and
various states. The Company is subject to U.S. federal or state income tax
examinations by tax authorities for years after 2002. During the periods open to
examination, the Company has net operating loss and tax credit carry forwards
for U.S. federal and state tax purposes that have attributes from closed
periods. Since these NOLs and tax credit carry forwards may be utilized in
future periods, they remain subject to examination. The Company also files
certain tax returns in China. As of March 31, 2007 the Company was not aware of
any pending income tax examinations by China tax authorities.


                                       8
<Page>

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              AS OF MARCH 31, 2007
                                   (UNAUDITED)

The Company's policy is to record interest and penalties on uncertain tax
provisions as income tax expense. As of March 31, 2007, the Company has no
accrued interest or penalties related to uncertain tax positions.

NEW ACCOUNTING PRONOUNCEMENT - In September 2006, the Financial Accounting
Standard Board ("FASB") issued SFAS No. 157, "Fair Value Measurements," which
provides enhanced guidance for using fair value to measure assets and
liabilities. SFAS No. 157 provides a common definition of fair value and
establishes a framework to make the measurement of fair value in generally
accepted accounting principles more consistent and comparable. SFAS No. 157 also
requires expanded disclosures to provide information about the extent to which
fair value is used to measure assets and liabilities, the methods and
assumptions used to measure fair value, and the effect of fair value measures on
earnings. SFAS No. 157 is effective for financial statements issued in fiscal
years beginning after November 15, 2007 and to interim periods within those
fiscal years. The Company is currently in the process of evaluating the effect,
if any, the adoption of SFAS No. 157 will have on its consolidated results of
operations, financial position, or cash flows.

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities -- Including an amendment of FASB
Statement No. 115 (FAS 159). FAS 159, which becomes effective for the Company on
January 1, 2008. This standard permits companies to choose to measure many
financial instruments and certain other items at fair value and report
unrealized gains and losses in earnings. Such accounting is optional and is
generally to be applied instrument by instrument. The Company does not
anticipate that election, if any, of this fair-value option will have a material
effect on the results or operations or consolidated financial position.

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 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.

                                       9
<Page>

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              AS OF MARCH 31, 2007
                                   (UNAUDITED)

Basic and diluted earnings per share are calculated as follows:

<TABLE>
<CAPTION>
                                                           Three Months Ended March 31,
                                                              2007              2006
                                                        ----------------  ----------------
<S>                                                     <C>               <C>
Basic:
Income applicable to common shareholders                $     6,446,267   $     4,916,534
Weighted average shares outstanding                          64,608,561        61,223,435
                                                        ----------------  ----------------
   Basic earnings per share                             $          0.10   $          0.08
                                                        ================  ================
Diluted:
Income applicable to common shareholders                $     6,446,267   $     4,916,534
Weighted average shares outstanding during the period        64,608,561        61,223,435
Effect of dilutive securities:
   Stock options                                                 82,215            41,719
   Warrants                                                   1,854,765            53,520
                                                        ----------------  ----------------
Diluted weighted average shares outstanding                  66,545,541        61,318,674
                                                        ================  ================

   Diluted earnings per share                           $          0.10   $          0.08
                                                        ================  ================
</TABLE>

NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments include cash and cash equivalents, accounts
receivable, advances to suppliers, notes receivable, other receivables, due from
employees, taxes payable, accounts payable, accrued expenses, debt, customer
deposits and other payables. Management has estimated that the carrying amount
approximates their fair value due to their short-term nature or long-term debt
interest rates, which approximate the current market rates.

NOTE 6 - FOREIGN CURRENCY TRANSLATION

The accompanying consolidated financial statements are presented in United
States dollars. The functional currency of the Company is the Renminbi (RMB),
the official currency of the People's Republic of China. Capital accounts of the
consolidated financial statements are translated into United States dollars from
RMB at their historical exchange rates when the capital transactions occurred.
Assets and liabilities are translated at the exchange rates as of balance sheet
date. Income and expenditures are translated at the average exchange rate of the
quarter.

                                                    2007              2006
                                              ----------------  ----------------
Quarter end RMB : US$ exchange rate                7.7410            8.0170
Average quarterly RMB : US$ exchange rate          7.7792            8.0436

                                       10
<Page>

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              AS OF MARCH 31, 2007
                                   (UNAUDITED)

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

NOTE 7 - INVENTORIES

Inventories as of March 31, 2007 and December 31, 2006 are summarized as
follows:

<TABLE>
<CAPTION>
                                                        March 31, 2007      December 31, 2006
                                                      ------------------   -------------------
                                                          Unaudited
<S>                                                   <C>                  <C>
        Raw materials                                 $      10,869,671    $        9,033,729
        Work in progress                                        798,967             1,219,796
        Finished goods                                        2,152,413             1,046,343
                                                      ------------------   -------------------
                                                             13,821,051            11,299,868
        Less provision for slow moving inventories             (596,360)             (615,552)
                                                      ------------------   -------------------
        Inventories, net                              $      13,224,691    $       10,684,316
                                                      ==================   ===================
</TABLE>

NOTE 8 - LAND USE RIGHTS

According to the law of China, the government owns all the land in China.
Companies are authorized to possess and use land through land use rights granted
by the Chinese government. Land use rights are being amortized using the
straight-line method over the lease term of 40 to 50 years. Land use rights
consist of the following as of March 31, 2007 and December 31, 2006:

<TABLE>
<CAPTION>
                                                        March 31, 2007      December 31, 2006
                                                      ------------------   -------------------
                                                          Unaudited
<S>                                                   <C>                  <C>
        Cost of land use rights                       $      34,212,632    $       33,877,618
        Less: Accumulated amortization                       (1,134,191)             (939,875)
                                                      ------------------   -------------------
        Land use rights, net                          $      33,078,441    $       32,937,743
                                                      ==================   ===================
</TABLE>

Amortization expenses for the three months ended March 31, 2007 and 2006 were
$184,111 and $65,920, respectively. As of March 31, 2007, the net book value of
land use rights pledged as collateral was $13,174,920. See Note 10.

                                       11
<Page>

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              AS OF MARCH 31, 2007
                                   (UNAUDITED)

NOTE 9 - PLANT AND EQUIPMENT

Plant and equipment consist of the following as of March 31, 2007 and December
31, 2006:

<TABLE>
<CAPTION>
                                                        March 31, 2007      December 31, 2006
                                                      ------------------   -------------------
                                                          Unaudited
<S>                                                   <C>                  <C>
        At cost:
          Buildings                                   $      27,765,729    $       27,208,232
          Machinery and equipment                            14,097,799            13,706,903
          Motor vehicles                                        878,792               827,740
          Office equipment                                      797,460               664,892
          Other equipment                                       139,151               138,472
          Leasehold improvements                                102,374                75,813
                                                      ------------------   -------------------
                                                             43,781,305            42,622,052
                                                      ------------------   -------------------
        Less: Accumulated depreciation
          Buildings                                          (2,521,744)           (2,325,950)
          Machinery and equipment                            (7,433,532)           (7,050,834)
          Motor vehicles                                       (535,796)             (502,510)
          Office equipment                                     (426,684)             (398,450)
          Other equipment                                       (94,360)              (91,071)
          Leasehold improvements                                (62,204)              (58,280)
                                                      ------------------   -------------------
                                                            (11,074,320)          (10,427,095)
                                                      ------------------   -------------------
        Plant and equipment, net                      $      32,706,985    $       32,194,957
                                                      ==================   ===================
</TABLE>

Depreciation expense for the three months ended March 31, 2007 and 2006 were
$541,754 and $320,748, respectively. As of March 31, 2007, the net book value of
plant and equipment pledged as collateral for a bank loan was $3,459,054. See
Note 10.

NOTE 10 - DEBT

Short-term bank loans are obtained from local banks with interest rates ranging
from 5.58% to 7.25% per annum. All the short-term bank loans are repayable
within one year and are secured by fixed assets and land use rights owned by the
Company.

Long-term bank loans include bank loans of $1,421,015 from the acquisition of
GLP and a mortgage of $944,397 obtained during 2006 for the expansion of our
Hong Kong office. The mortgage loan bears 5.5% interest per annum and is
repayable over 15 years. The current portion of the long-term bank loans is
mainly from GLP and bears 6.138% interest per annum, and is repayable by
December 2007. Long-term loans are secured by fixed assets and land use rights
owned by the Company.

Notes payable are from the acquisition of GLP with interest rates ranging form
6.30% to 7.06% per annum. All notes payable are non-secured and repayable on
demand.

Interest expense, which was paid quarterly, was $214,302 and $67,945 for the
first quarter of 2007 and 2006, respectively.

Also see Note 8 and 9.

                                       12
<Page>

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              AS OF MARCH 31, 2007
                                   (UNAUDITED)

NOTE 11 - SHAREHOLDERS' EQUITY

A. ISSUANCE OF COMMON STOCK

A total of 48,379 shares of common stocks were issued to three of the Company's
independent directors in January 2007 for the services rendered by them up to
December 31, 2006. All the related stock compensation expenses were fully
accrued at the end of 2006.

A total of 505,611 shares of common stocks were issued during the first quarter
of 2007 in connection with the exercise of the Company's warrants. The Company
received total proceeds of $2,359,120 from the exercise of warrants during the
first quarter of 2007.

B. WARRANTS.

On November 28, 2005, the Company entered into a stock purchase and warrant
agreement, ("Purchase Agreement"), with thirty-one (31) accredited investors.
Pursuant to the Purchase Agreement, the investors purchased 12,500,000 units,
each unit consisting of (a) one share of common stock and (b) three-tenths of
one common stock purchase warrant, at a purchase price of $4.80 per unit.

With the warrants attached to the units sold in the private placement, the
investors are entitled to purchase an aggregate of 3,750,000 shares of common
stock at an exercise price of $6.50 per share. 2,092,020 warrants were issued on
December 8, 2005 and 1,657,980 warrants were issued on January 23, 2006. All
these warrants expire on December 8, 2008.

Upon completion of the placement, the Company paid 5% of the gross proceeds in
cash to placement agents and issued to them warrants representing the right to
purchase up to 1,137,500 shares of the Company's common stock at an exercise
price of $4.80 per share. 634,579 warrants were issued on December 8, 2005 and
502,921 warrants were issued on January 23, 2006. All these warrants also expire
on December 8, 2008.

364,580 warrants were exercised as of December 31, 2006. The following tables
summarize the movement of warrants during the first quarter of 2007:

                                                          Weighted Average
                                         Warrants        of Exercise Price
                                     -------------------------------------------
Outstanding January 1, 2007.......      4,522,920               $5.51
      Granted ....................              -                   -
      Exercised ..................        505,611               $5.40
      Cancelled ..................              -                   -
                                     -------------------------------------------
Outstanding as of March 31, 2007..      4,017,309               $6.27
                                     ===========================================

Also see Note 15 on subsequent events related to the exercise of warrants.

                                       13
<Page>

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              AS OF MARCH 31, 2007
                                   (UNAUDITED)

C. STOCK OPTIONS

A new stock incentive plan (the "2006 Plan") was approved by shareholders of the
Company at an annual shareholders' meeting held in November 2006. The 2006 Plan
replaced the Company's stock option plan adopted by the Company's Board of
Directors in March 2004 (the "2004 Plan").. All stock options granted under the
2004 Plan will remain in effect pursuant to the terms of the respective grant
agreements. As of December 31, 2006, the Company had issued a total of 99,269
options under the 2004 Plan to four of the Company's executives pursuant to
their respective employment agreements. Currently, the Company is negotiating
and will enter into new 2007 employment agreements with the four executives. The
executives have agreed to waive their right to receive stock options under their
prior employment agreements. As of March 31, 2007, the Company did not make any
grants under the 2006 Plan.

The following table summarizes the stock option activity:

                                                           Weighted Average
                                        Activity            Exercise Price
                                     -------------------------------------------
Outstanding as of January 1, 2007.        99,269                 $2.00
      Granted ....................            --                    --
      Exercised ..................            --                    --
      Cancelled ..................            --                    --
                                     -------------------------------------------
Outstanding as of March 31, 2007..        99,269                 $2.00
                                     ===========================================

The following table summarizes information about stock options outstanding as of
March 31, 2007:

<TABLE>
<CAPTION>
                                   Options Outstanding                            Options Exercisable
                      --------------------------------------------------------------------------------------
                                      Weighted         Weighted Average                       Weighted
      Range of         Number of       Average       Remaining Contractual     Number of       Average
   Exercise Prices       Shares     Exercise Price      Life (in years)          Shares     Exercise Price
------------------------------------------------------------------------------------------------------------
<S>                      <C>            <C>                   <C>                <C>            <C>
        $2.00            99,269         $2.00                 3.07               99,269         $2.00
                      ------------                                            ------------
                         99,269                                                  99,269
                      ============                                            ============
</TABLE>

The weighted average fair value per share of the 99,269 options issued under the
Plan is $3.54 per share.

On April 20, 2007, the Compensation Committee of the Board of Directors of the
Company approved the grant of stock options to the Company's principal executive
officer, principal financial officer and certain other executives. Stock options
for 660,000 shares of common stock were granted under the 2006 Plan and will
vest ratably over a five year period.

D. COMMON STOCK TO BE ISSUED

For three months ended March 31, 2007, the Company recorded general and
administrative expenses of $37,500 for stock compensation in connection with the
services rendered by the Company's independent directors. Based on the five day
average share price leading up to and including January 1, 2007, a total of
3,180 shares of common stock are issuable to independent directors as of March
31, 2007. Common stock is expected to be issued at the end of 2007 pursuant to
the service agreements.

                                       14

<Page>

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              AS OF MARCH 31, 2007
                                   (UNAUDITED)

The Company entered into a financial consulting agreement in February 2007 and
agreed to issue 20,000 shares of common stock as part of the consulting fee. The
Company recorded deferred consulting expenses of $260,000 which have been and
will be amortized over a one-year service period.

NOTE 12 - CONTINGENCY AND COMMITMENTS

CAPITAL COMMITMENT

The Company entered into an unconditional purchase commitment for construction
of manufacturing facilities in Harbin and Guangxi, China. As of March 31, 2007,
the future obligations of the Company under this commitment are as follows:

                Within one year                 $       59,235
                Thereafter                                  --
                                                ---------------
                Total                           $       59,235
                                                ---------------

PURCHASE COMMITMENT

The Company entered into an unconditional purchase commitment for raw materials
and packing materials. As of March 31, 2007, the future obligations of the
Company under this commitment are as follows:

                Within one year                 $    1,161,046
                Thereafter                                   -
                                                ---------------
                Total                           $    1,161,046
                                                ---------------

LEASE COMMITMENT

As of March 31, 2007, the Company had remaining outstanding commitments with
respect to its non-cancelable operating leases for its office in New York,
Shenzhen and some regional representative offices in China. The future
obligations of the Company under this commitment are as follows:

                Within one year                 $      152,937
                Thereafter                              46,010
                                                ---------------
                Total                           $      198,947
                                                ---------------

                                       15

<Page>

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              AS OF MARCH 31, 2007
                                   (UNAUDITED)

NOTE 13 - REPORTING SEGMENTS

The Company operates in one operating segment in accordance with the provisions
of Statement of Financial Accounting Standard ("SFAS") No. 131, "DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION". Although the Company
develops, manufactures and commercializes both PBP and PBN products, the
Company's chief operating decision maker reviews and evaluates one set of
combined financial information to decide how to allocate resources and to assess
performance.

For the quarters ended March 31, 2007 and 2006, the Company's sales revenue from
Plant Based Pharmaceutical (PBP) products and Plant Based Nutraceutical (PBN)
products are as follows:

            Product                Three Months Ended March 31,
                                ----------------------------------
                                      2007              2006
                                ----------------  ----------------
        PBP products            $    18,563,673   $    12,180,157
        PBN products                  7,158,904         6,906,744
                                ----------------  ----------------
        TOTAL                   $    25,722,577   $    19,086,901
                                ================  ================

NOTE 14 - INCOME TAX

The Company has not recorded a provision for federal income tax for the period
ended March 31, 2007 due to the net operating loss carry forward in the United
States. In accordance with the relevant tax laws and regulations of the People's
Republic of China ("PRC"), the Corporate Income Tax rate ("CIT") applicable to
our subsidiaries in the PRC range from 0% to 33%. The newly acquired GLP is
entitled to a full exemption from CIT for the first two years and a 50%
reduction in CIT for the next three years, commencing from the first profitable
year after offsetting all tax losses carried forward from the previous five
years. Three Happiness, on the other hand, enjoys a favorable tax rate of 15% as
it is located in a special economic development zone and is being considered a
high technology company by the Chinese government. HSPL does not qualify for any
tax concession and has a 33% tax rate.

The Company's tax expense differs from the "expected" tax expense for the three
months ended March 31, 2007 and 2006 as follows:

                                           Three Months Ended March 31,
                                        ----------------------------------
                                              2007              2006
                                        ----------------  ----------------
        Computed "expected" expense     $     1,513,767   $    (1,547,251)
        Permanent difference                      9,336                 -
                                        ----------------  ----------------
        Income tax expense              $     1,523,103   $     1,547,251
                                        ================  ================

                                       16

<Page>

             AMERICAN ORIENTAL BIOENGINEERING, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                              AS OF MARCH 31, 2007
                                   (UNAUDITED)

The provisions for income taxes for the three months ended March 31, 2007 and
2006 are summarized as follows:

                                           Three Months Ended March 31,
                                        ----------------------------------
                                              2007              2006
                                        ----------------  ----------------
        Current                         $     1,842,368   $    (1,899,449)
        Deferred                               (319,265)         (352,198)
                                        ----------------  ----------------
        Total                           $     1,523,103   $     1,547,251
                                        ================  ================

The tax effects of temporary differences that give rise to the Company's net
deferred tax assets as of March 31, 2007 and December 31, 2006 are as follows:

                                                 March 31,        December 31,
                                                    2007              2006
                                              ----------------  ----------------
   Deferred taxation assets
     Bad debt                                 $       203,781   $       204,636
     Amortization                                      84,157            81,234
     Other costs                                      874,140         1,011,508
     Stock provision                                  333,982           330,711
     Depreciation                                     161,671           169,064
                                              ----------------  ----------------
     Total deferred taxation assets                 1,657,731         1,797,153

   Deferred taxation liabilities
     Over accrual of welfare                         (154,271)         (152,562)
     Amortization                                    (200,001)         (178,216)
     Depreciation                                     (47,197)          (45,496)
     Government grant                                (838,687)         (830,475)
     GLP acquisition                               (3,275,593)       (3,275,593)
     Others                                           (98,309)          (98,356)
                                              ----------------  ----------------
     Total deferred taxation liabilities           (4,614,058)       (4,580,698)
                                              ----------------  ----------------
   Net deferred taxation assets/liabilities   $    (2,956,327)  $    (2,783,545)
                                              ================  ================

NOTE 15 - SUBSEQUENT EVENTS

Subsequent to March 31, 2007, the Company received a total of $32,050 in
connection with the exercise of warrants to purchase 6,677 shares of the
Company's common stock. The number of warrants outstanding as of the date of
this report is 4,010,632.

                                       17

<Page>

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-K for the year ended December 31, 2006, and (2) the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. Readers
should carefully review the risk factors disclosed in the Company's Form 10-K
for the year ended December 31, 2006 filed by the Company with the SEC.

As used in this report, the terms "Company", "we", "our", "us" and "AOBO" 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,"
"AOBO believes," "management believes" and similar language. The forward-looking
statements are based on the current expectations of AOBO and are subject to
certain risks, uncertainties and assumptions, including those set forth in the
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in this report. Actual results may differ materially
from results anticipated in these forward-looking statements. We base the
forward-looking statements on information currently available to us, and we
assume no obligation to update them.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

This section should be read together with the Summary of Significant Accounting
Policies included as Note 3 to the consolidated financial statements included in
our Annual Report on Form 10-K for 2006 filed with the SEC..

      ESTIMATES AFFECTING ACCOUNTS RECEIVABLE AND INVENTORIES

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

                                       18

<Page>

      At March 31, 2007, the Company provided a $54,878 reserve against accounts
receivable. Management's estimate of the appropriate reserve on accounts
receivable at March 31, 2007 was based on the aged nature of these accounts
receivable. In making its judgment, management assessed its customers' ability
to continue to pay their outstanding invoices on a timely basis, and whether
their financial position might deteriorate significantly in the future, which
would result in their inability to pay their debts to the Company.

      At March 31, 2007, the Company provided an allowance against its
inventories amounting to $596,360. Management determination of this allowance is
based on potential impairments to the current carrying value of the inventories
due to potential obsolescence of aged inventories. In making its estimate,
management considered the probable demand for our products in the future and
historical trends in the turnover of our inventories.

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

      POLICY AFFECTING RECOGNITION OF REVENUE

      Among the most important accounting policies affecting our consolidated
financial statements is our policy of recognizing revenue in accordance with the
SEC's Staff Accounting Bulletin ("SAB") No. 104. Under this policy, all of the
following criteria must be met in order for us to recognize revenue:

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

      The majority of the Company's revenue results from sales contracts with
distributors and revenue is recorded upon the shipment of goods. The revenue
recognized from distributors is final and they have no right of return.
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.

      In August 2005, we established a subsidiary in Hong Kong with a specialty
store to sell some of our products. Our subsidiary in Hong Kong also sells
certain products to certain customers on consignment. We record revenue from
consignment transactions when the consignee sells the product to the end user.

RECENT ACCOUNTING PRONOUNCEMENT

      In September 2006, the Financial Accounting Standard Board ("FASB") issued
SFAS No. 157, "Fair Value Measurements," which provides enhanced guidance for
using fair value to measure assets and liabilities. SFAS No. 157 provides a
common definition of fair value and establishes a framework to make the
measurement of fair value in generally accepted accounting principles more
consistent and comparable. SFAS No. 157 also requires expanded disclosures to
provide information about the extent to which fair value is used to measure
assets and liabilities, the methods and assumptions used to measure fair value,
and the effect of fair value measures on earnings. SFAS No. 157 is effective for
financial statements issued in fiscal years beginning after November 15, 2007
and to interim periods within those fiscal years. The Company is currently in
the process of evaluating the effect, if any, the adoption of SFAS No. 157 will
have on its consolidated results of operations, financial position, or cash
flows.

In February 2007, the FASB issued FASB Statement No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities -- Including an amendment of FASB
Statement No. 115 (FAS 159). FAS 159, which becomes effective for the Company on
January 1, 2008. This standard permits companies to choose to measure many
financial instruments and certain other items at fair value and report
unrealized gains and losses in earnings. Such accounting is optional and is
generally to be applied instrument by instrument. The Company does not
anticipate that election, if any, of this fair-value option will have a material
effect on the results or operations or consolidated financial position.

                                       19

<Page>

RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 2007 AS COMPARED TO THREE
MONTHS ENDED MARCH 31, 2006

      The following table sets forth the amounts and the percentage relationship
to revenues of certain items in our condensed consolidated statements of income
for the three months ended March 31, 2007 and 2006:

<TABLE>
<CAPTION>
                                              Three Months Ended                 Three Months Ended
                                                   March 31,                          March 31,
                                       --------------------------------    --------------------------------
                                            2007               2006             2007              2006
                                       --------------    --------------    --------------    --------------
<S>                                    <C>               <C>                         <C>               <C>
REVENUES                               $  25,722,577     $  19,086,901               100%              100%
COST OF GOODS SOLD                         8,018,260         6,797,715             31.17             35.61
                                       --------------    --------------    --------------    --------------
GROSS PROFIT                              17,704,317        12,289,186             68.83             64.39
     Selling and marketing                 2,702,351         1,701,280             10.51              8.91
     Advertising                           3,822,911         2,225,187             14.86             11.66
     General and administrative            2,933,066         1,880,964             11.40              9.85
     Depreciation and amortization           333,462            98,643              1.30              0.52
                                       --------------    --------------    --------------    --------------
   Total operating expenses                9,791,790         5,906,074             38.07             30.94
INCOME FROM OPERATIONS                     7,912,527         6,383,112             30.76             33.44
     Interest income, net                     17,759            81,661              0.07              0.43
     Other income (expense), net              39,084              (988)             0.15              0.01
                                       --------------    --------------    --------------    --------------
INCOME BEFORE INCOME TAXES                 7,969,370         6,463,785             30.98             33.87
     Income taxes                          1,523,103         1,547,251              5.92              8.11
                                       --------------    --------------    --------------    --------------
NET INCOME                             $   6,446,267     $   4,916,534             25.06%            25.76%
                                       ==============    ==============    ==============    ==============

NET INCOME PER SHARE
     BASIC                             $        0.10     $         0.08
                                       ==============    ==============
     DILUTED                           $        0.10     $         0.08
                                       ==============    ==============
</TABLE>

REVENUE

      Revenues for the first quarter of 2007 were $25,722,577, an increase of
$6,635,676 over revenues for the first quarter of 2006. Revenues by product
categories were as follows:

<TABLE>
<CAPTION>
                                 Three Months Ended March 31,           Increase/         Increase/
      Product                       2007             2006              (Decrease)        (Decrease)
      --------------------    ----------------  ----------------    ----------------  ----------------
<S>                           <C>               <C>                 <C>                      <C>
      PBP products            $    18,563,673   $    12,180,157     $     6,383,516          52%
      PBN products                  7,158,904         6,906,744             252,160           4%
                              ----------------  ----------------    ----------------  ----------------
      TOTAL                   $    25,722,577   $    19,086,901     $     6,635,676          35%
                              ================  ================    ================  ================
</TABLE>

      Sales of our PBP products increased by $6,383,516, or 52%, as compared to
the same period during 2006 primarily due to the following factors:

                                       20

<Page>

o     Guangxi Lingfeng Pharmaceutical Co. Ltd. (GLP) contributed $5,872,424 to
      our revenue for the three months ended March 31, 2007. Revenue from GLP's
      Jinji series was approximately $4,736,019 and revenue from Yi Mu Cao, a
      new product launched in 2007 was $1,136,405. GLP was not a subsidiary
      during the same period last year.

o     The sales of other PBP products including Shuanghuanglian Injection Powder
      and Cease Enuresis Soft Gel and Patch for the first quarter of 2007
      increased slightly as compared to the same period last year.

      Sales from our PBN products increased to $7,158,904 in the first quarter
of 2007 from $6,906,744 in the same period during 2006, representing a growth of
4%. This increase was mainly attributed to the increase in sales of peptide
coffee and peptide powder. However, the increase was offset by a decrease in
sales of our Compound Bio-functional beverage series.

COST OF GOODS SOLD AND GROSS PROFIT

      Cost of goods sold was $8,018,260 for the three months ended March 31,
2007, compared to $6,797,715 for the three months ended March 31, 2006.
Expressed as a percentage of revenues, cost of goods sold was 31.17% for the
three months ended March 31, 2007, compared to 35.61% for the three months ended
March 31, 2006. The reduction in cost of goods sold as a percentage of revenues
reflected a continued focus on operating cost management, sourcing efficiencies
and operation efficiencies.

      Cost of goods sold for the quarters ended March 31, 2007 and 2006 by
product categories were as follows:

<TABLE>
<CAPTION>
                                 Three Months Ended March 31,           Increase/         Increase/
      Product                       2007             2006              (Decrease)        (Decrease)
      --------------------    ----------------  ----------------    ----------------  ----------------
<S>                           <C>               <C>                 <C>                      <C>
      PBP products            $     5,473,490   $     4,383,784     $     1,089,706          25%
      PBN products                  2,544,770         2,413,931             130,839           5%
                              ----------------  ----------------    ----------------  ----------------
      TOTAL                   $     8,018,260   $     6,797,715     $     1,220,545          18%
                              ================  ================    ================  ================
</TABLE>

      The cost of goods sold of PBP and PBN products increased by 25% and 5%,
respectively, in the three months ended March 31, 2007 compared to the same
quarter of 2006. These increases were attributed to our increase in sales.

      Gross profit increased $5,415,131, or 44%, for the three months ended
March 31, 2007 over the three months ended March 31, 2006. This increase
reflected higher net sales, improved margins and operating efficiencies
generally across our PBP businesses.

      Gross profit as a percentage of net revenues increased from 64.39% in the
comparable period of the prior year to 68.83% in the first quarter of 2007 due
to the reductions in cost of goods sold as a percentage of revenues discussed
above, improved operational efficiency and increase in the sales of PBP products
which have higher gross profit margins.

                                       21

<Page>

SELLING AND MARKETING

      Selling and marketing expenses, including distribution expenses, increased
from $1,701,280 in the three months ended March 31, 2006 to $2,702,351 in the
same period of 2007, representing a 59% increase. The details of our selling and
marketing expenses were as follows:

<TABLE>
<CAPTION>
                                    Three Months Ended March 31,           Increase/         Increase/
                                       2007              2006             (Decrease)        (Decrease)
                                 ----------------  ----------------    ----------------  ----------------
<S>                              <C>               <C>                 <C>                      <C>
Payroll                          $       618,120   $       194,292             423,828          218%
Shipping                                 438,134           434,731               3,403            1%
Promotional materials and fees           524,938           346,683             178,255           51%
Sales conference                         489,417           192,286             297,131          155%
Offices supplies                          98,493           143,234             (44,741)         (31%)
Trip and traveling                       340,308           129,395             210,913          163%
AOBO Hong Kong marketing                   7,534            23,638             (16,104)         (68%)
Other                                    185,407           237,021             (51,614)         (22%)
                                 ----------------  ----------------    ----------------  ----------------
      TOTAL                      $     2,702,351         1,701,280           1,001,071           59%
                                 ================  ================    ================  ================
</TABLE>

      The increase in selling and marketing expenses in the quarter ended March
31, 2007 compared to the same quarter during 2006 was primarily due to the
following factors:

o     GLP contributed $868,045 of selling and marketing expenses during the
      first quarter of 2007 and GLP was not a subsidiary in the same period of
      last year.

o     The increase in the payroll expenses of $423,828, or 218% was due to an
      increase in the number of employees and average salaries for people
      working in sales, marketing and distribution.

o     The increase in promotional materials and fees, sales conference expenses
      and trip and traveling fees by 51%, 155% and 163%, respectively, compared
      to the same quarter during 2006 reflects increased spending in marketing
      communications to increase market awareness of our brand and products as a
      result of launching marketing campaigns and holding more sales conferences
      in more cities in the first quarter of 2007 compared to the same quarter
      of 2006.

ADVERTISING

      Advertising expenses increased by $1,597,724, from $2,225,187 in the first
quarter of 2006 to $3,822,911 in the same quarter of 2007. The increase in
advertising expenses resulted from an increase in promotional efforts to promote
GLP's Jinji product series and Yi Mu Ca, the new product launched in the first
quarter of 2007. GLP incurred $1,644,890 in advertising expenses during the
first quarter of 2007. GLP was not a subsidiary in the same period last year.

                                       22

<Page>

GENERAL AND ADMINISTRATIVE

      General and administrative expenses increased from $1,880,964 in the first
quarter of 2006 to $2,933,066 in the same quarter of 2007, or a 56% increase.
The details of general and administrative expenses were as follows:

<TABLE>
<CAPTION>
                                              Three Months Ended March 31,           Increase/         Increase/
                                                 2007              2006             (Decrease)        (Decrease)
                                           ----------------  ----------------    ----------------  ----------------
<S>                                        <C>               <C>                 <C>                      <C>

Payroll                                    $       442,799   $       277,836             164,963           59%
Directors' remuneration                            129,250           114,250              15,000           13%
Stock compensation - directors                      37,500            78,450            (40,950)          (52%)
Stock compensation - consultants                   115,800           248,408           (132,608)          (53%)
Office rental                                       95,932            93,669               2,263            2%
Professional fees - accounting                     530,488           255,110             275,378          108%
Professional fees - legal and consulting           144,375           157,255             (12,880)          (8%)
Office supplies                                    204,619           151,178              53,441           35%
Vehicles                                            27,383            21,701               5,682           26%
Utilities                                           51,543            57,185             (5,642)          (10%)
Research                                           176,496           172,895               3,601            2%
Trip and traveling                                 264,250           160,935             103,315           64%
Provision for bad debts                             (6,279)         (115,082)            108,803          (95%)
Investors relation and listing expenses             95,423            67,086              28,337           42%
Staff welfare and insurance                        107,377            18,989              88,388          465%
Miscellaneous                                      516,110           121,099             395,011          326%
                                           ----------------  ----------------    ----------------
TOTAL                                      $     2,933,066   $     1,880,964           1,052,102           56%
                                           ================  ================    ================
</TABLE>

      The increase in general and administrative expenses in the three months
ended March 31, 2007 compared to the same period during 2006 was primarily due
to the following factors:

o     Payroll expenses increased by $164,963, or 59% compared with the first
      quarter during 2006, as a result of hiring new employees. The number of
      employees performing general and administrative functions increased from
      219 during first quarter of 2006 to 396 during the first quarter of 2007.
      The headcount for the first quarter of 2007 includes GLP's employees.

o     Professional fees related to accounting increased by $275,378, or 108%
      during the first quarter of 2007 as compared to the same period of 2006
      due to an increase in our audit fees as this was the first year our
      auditors performed additional procedures to support their opinion for year
      ended December 31, 2006 on the effectiveness of the company's internal
      control over financial reporting.

o     Expenses for trip and traveling increased by $103,315, or 64% compared
      with the same quarter of 2006, as a result of increased overseas travel to
      attend corporate and investor functions and increased local travel between
      operating facilities and new corporate office.

                                       23

<Page>

o     The company made general provisions for bad debts based on the age of its
      accounts receivable. A tight credit control policy and the consistent
      efforts in collecting long outstanding debts inherited from acquired
      subsidiaries resulted in a better receivable turnover rate and a higher
      recovery of old debts. The company reversed $6,279 provision for bad debts
      during the quarter based on the improved aging analysis.

o     Other expenses increased by $395,011 during the first quarter of 2007
      compared with the first quarter of 2006. This increase was due to increase
      in conference fee, staff training, other miscellaneous, local taxes and
      consumable amortization expenses.

DEPRECIATION AND AMORTIZATION

      Depreciation and amortization expenses increased by $234,819, or 238%, in
the quarter ended March 31, 2007 compared to the same quarter during 2006. The
increase was mainly due to the integration of GLP with the net book value of
$10,213,106 in fixed assets and $25,036,944 in intangible assets. The
depreciation and amortization expenses at GLP amounted to $165,289 for the first
quarter of 2007. GLP was not a subsidiary during the same period of 2006.

INTEREST INCOME, NET

      Net interest income was $17,759 for the three months ended March 31, 2007,
compared to net interest income of $81,661 for the three months ended March 31,
2006. Decrease in net interest income for the first quarter of 2007 was because
the interest income was offset by interest expense incurred by GLP, which was
not a subsidiary in the same period last year.

OTHER INCOME (EXPENSE), NET

      Other income was $39,083 for the three months ended March 31, 2007
compared to a net expense of $988 for the three months ended March 31, 2006.
Other income for the first quarter 2007 was primarily related to a refund of
some local tax.

INCOME TAXES

      Income tax expense for the quarter ended March 31, 2007 was $1,523,103,
compared to $1,547,251 for the quarter ended March 31, 2006. The Company's
effective tax rate for this quarter was 19%.

                                       24

<Page>

LIQUIDITY AND CAPITAL RESOURCES

CASH

      Our cash balance at March 31, 2007, was $93,442,093, representing an
increase of $5,657,674, or 6%, compared with our cash balance of $87,784,419 at
December 31, 2006. The increase was mainly attributable to net cash provided by
operating activities and the receipt of proceeds from the exercise of warrants.

CASH FLOW

      Cash flows from operations during the first quarter of 2007 amounted to
$4,534,617, representing an increase of approximately 18% compared with cash
flows from operations of $3,841,274 in the same period of 2006. The increased
cash flow was due primarily to the increase in our net income by 31%, to
$6,446,267 in the first quarter of 2007, compared with net income of $4,916,534
in the same period last year. The increased cash flow was also due in part to a
decrease in accounts receivable by $646,660 and increase in proceeds from notes
receivable of $1,425,886 during the first quarter of 2007, due to our better
control over payment from our customers. These increases were partly offset by
an increase in our inventories of $2,473,119 to support increased production
activities. The increased cash flow was also offset by a decrease in our accrued
expenses of $1,912,140 and tax payable of $1,033,981, which resulted from the
payment of accrued bonus and income tax.

      Our cash flows used in investing activities amounted to $1,253,371 in the
quarter ended March 31, 2007. During that period, we paid $819,929 for purchases
of plant and equipment and spent $433,442 on construction in progress. Compared
to the same period in 2006, our cash flows used in investing activities
decreased by $4,316,290 during the first quarter of 2007 because there was a
$5.0 million refundable payment to facilitate due diligence that occurred in the
first quarter of 2006.

      Our cash flows from financing activities amounted to $1,698,491 in the
first quarter of 2007. During that period, we repaid $656,976 bank loans and
received $2,359,120 proceeds from exercise of warrants. Compared to the same
period in 2006, our cash flows provided by financing activities decreased by
$23,282,731 during the first quarter of 2007 because we received approximately
$25.0 million in proceeds from a private placement in the first quarter of 2006.

WORKING CAPITAL

      Our working capital increased by $9,839,605 to $102,091,676 at March 31,
2007, as compared to $92,252,071 at December 31, 2006, primarily due to our
increase in cash of $5,657,674, inventories of $2,473,119 and partly offset by a
decrease of $646,660 of accounts receivable and $1,425,886 in notes receivable.
The increase in working capital was also due to the decrease in other payable
and accrued expenses of $1,912,140 and tax payable of $1,033,981. The increase
of inventory was because we maintained higher inventory level to prepare for
increased operating activities. The decrease in accounts receivable and notes
receivable was the result of better credit control. The decrease in other
payable and accrued expenses and tax payable was related to the payment of prior
year bonus and income tax.

                                       25

<Page>

      We currently generate our cash flow through operations. We believe that
our cash flow generated from operations will be sufficient to sustain operations
for at least the next twelve months. There is no identifiable expansion plan as
of March 31, 2007, but from time to time, we may identify new expansion
opportunities for which there will be a need for use of cash.

ISSUANCE OF COMMON STOCK

      See PART II Item 2 for issuance of common stock for the quarter ended
March 31, 2007.

INFLATION

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

CURRENCY EXCHANGE FLUCTUATIONS

      All of the Company's revenues and a majority of its expenses in the
quarter ended March 31, 2007 were denominated in Renminbi ("RMB"), the currency
of China, and were converted into US dollars at the exchange rate of 7.74095 to
1. In the third quarter of 2005, the Renminbi began to rise against the US
dollar. As a result of the appreciation of the RMB, we recognized a foreign
currency translation gain of $1,210,147 during the first quarter of 2007. There
can be no assurance that RMB-to-U.S. dollar exchange rates will remain stable. A
devaluation of RMB relative to the U.S. dollar would adversely affect our
business, consolidated financial condition and results of operations. We do not
engage in currency hedging.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4 - CONTROLS AND PROCEDURES.

      As of the end of the period covered by this report (the "Evaluation
Date"), our internal audit group, which consists of the Chief Executive Officer,
Chief Financial Officer, members of the board of directors and our internal
audit department, carried out an evaluation in accordance with applicable U.S.
rules. The audit group evaluated the effectiveness of the design and operation
of our disclosure controls and procedures, as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), with respect to this Quarterly Report on Form 10-Q before its filing with
the Commission. The audit group made its evaluation pursuant to Rule 13a-15
under the Exchange Act to the maximum possible extent and to the best knowledge
of the audit group.

                                       26

<Page>

      Based upon our 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 in all material
aspects 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.

      There were no changes in the Company's internal control over financial
reporting during the first quarter of 2007 that have materially affected, or are
reasonably likely to materially affect the Company's internal control over
financial reporting.

                                       27

<Page>

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

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

ITEM 1A - RISK FACTORS

      There have been no material changes to the risk factors discussed in Part
I, "Item 1A Risk Factors" in our Annual Report on Form 10-K for the year ended
December 31, 2006. The risks described in our Annual Report on Form 10-K may not
be the only risks facing our Company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, consolidated financial condition
and/or operating results.

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

There have been no sales of equity securities during the period covered by this
report.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

There have been no material defaults.

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

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

ITEM 5 - OTHER INFORMATION

Not applicable.

ITEM 6 - EXHIBITS

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

EXHIBIT NO.    DESCRIPTION
-----------    -----------

31.1           Certification of Chief Executive Officer (Principal Executive
               Officer) pursuant to Rule 13a - 14(a) of the Securities Exchange
               Act, as amended

31.2           Certification of Acting Chief Financial Officer (Principal
               Financial Officer) pursuant to Rule 13a - 14(a) of the Securities
               Exchange Act, as amended

32.1           Certification of Chief Executive Officer (Principal Executive
               Officer) and Acting Chief Financial Officer (Principal Financial
               Officer) pursuant to 18 U.S.C. 1350, as adopted.

                                       28

<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/ Tony Liu
---------------------------------------
TONY LIU
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
DATED: May 7, 2007



/s/ Yanchun Li
---------------------------------------
YANCHUN LI
ACTING CHIEF FINANCIAL OFFICER
DATED: May 7, 2007


                                       29