Full Transcript of the Prepared Remarks From American Oriental Bioengineering’s Q3 Conference Call (AOB)

Here’s the full text of the prepared remarks from American Oriental Bioengineering’s (ticker: AOB) Q3 conference call:

American Oriental Bioengineering, Inc.
Third Quarter 2005 Earnings Conference Call
November 14, 2005

Operator: Good afternoon, ladies and gentlemen, and welcome to the American Oriental Bioengineering Third Quarter 2005 Earnings Conference Call. At this time, all lines have been placed on a listen-only mode for the duration of today’s conference. It is now my pleasure to turn the floor over to Hayden Communications to read the introductory statement.

Chris Donnelly: Thank you, and welcome everyone to the first earnings conference call for American Oriental Bioengineering. Today we will be discussing the 2005 Third Quarter Financial results. Today’s press release announcing these results has been posted to the appropriate news wires. On the call today is Mr. Tony Liu, Chairman and CEO of AOBO, as well as Miss Lily Li, COO and acting CFO, who are both with us today. For simplicity, all percentages will be rounded to the nearest percent. Today’s call will be a presentation by management and will not include a Q&A session. Given that Tony and Lily are not in the same office and that there are some language barriers, we believe that it is in the best interest of time to utilize this format. We do plan to incorporate a Q&A allocation for future quarterly calls. In addition, please feel free to contact Hayden Communications at [phone] with any investor related questions on a go-forward basis.

Before we get started, I’d like to read a cautionary statement about forward-looking information. The presentation may contain, in addition to historical information, forward-looking statements within the meaning of Federal Securities laws regarding American Oriental Bioengineering. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are other than statements of historical fact. These forwardlooking statements are based on current management expectations and are subject to risk and uncertainties that may result in expectations not being realized and may cause some actual outcomes to differ materially from expectations reflected in forward-looking statements. Potential risks and uncertainties include product and service demand acceptance, changes in technology or economic conditions, the impact of competition and pricing, the impact of government regulation, and other risks contained in statements filed from time to time with the Securities and Exchange Commission. All forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressively qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statement. In addition, the Company disclaims any obligation to update any forward-looking statement to reflect events or circumstances after the date thereof. Because forwardlooking statements are subject to risks and uncertainties, we caution you not to place undue reliance on any forward-looking statements. Forward-looking statements made during the presentation speak only as of the date of this presentation. All written or oral forward-looking statements by AOBO or persons acting on behalf are qualified by these cautionary statements.

With that out of the way, I’ll turn the call over to Hong, who will speak on behalf of Mr. Tony Liu, Chairman and CEO. Hong?

Hong: Before Tony Liu speaks, I would like to explain that Tony, a very experienced founder and the CEO of the Company, does not speak English. Therefore, he will speak Chinese, and I will translate or voice over to the public.

Tony Liu (translated by Hong): Thank you, Chris, and thank you, everyone, who joined us today. It’s a pleasure to present AOBO’s first conference call to discuss quarterly earnings results. We believe regular conference calls to discuss quarterly earnings is an appropriate step to allow our shareholders to have greater transparency and insight into our operations here at AOBO, by hearing directly from senior management.

2005 has been an exciting and eventful year thus far for AOBO, as a number of positive developments have unfolded. We are very proud that in the last ten years, we have grown from a start-up in 1994 with about $100,000 of revenue to become a leading manufacturer of plant-based pharmaceutical products and plant-based nutraceutical products for the rapidly growing Chinese market. We generated sales of more than $31 million during 2004 and have seen our sales increase at 46% compound annual growth rate over the last three years. We operate in a large and growing market. We estimate that the total pharmaceutical and nutraceutical market in China was approximately $62 billion in 2004. Demographic trends in this market are favorable, as the Chinese population continues to grow and age and economic expansion in China creates wealth, which serves to increase the number of citizens who can afford healthcare. With the total market for pharmaceutical products in China, herbal and plant-based pharmaceutical remedies and products have an extensive history. Many Chinese consumers and doctors rely upon the use of plant-based products for treatment of a variety of different ailments, consistent with the Eastern philosophy of health and wellness.

Our headquarters and manufacturing facilities are located in Harbin, China, a city with a population of approximately six million, in one of four pharmaceutical corridors in China. We utilize four proprietary technologies for manufacturing products, which provide both cost and quality advantages compared to many of our competitors. We currently have more than 100 products in our portfolio, all plant-based in formulation divided into two key categories: plant-based pharmaceuticals and plant-based nutraceuticals. PBP is the larger of the Company’s two divisions as a percentage of revenue. PBP products in China require approval from the state FDA and are administered both through over-the-counter locations and through prescriptions at hospitals and clinics. The two largest products in the PBP category are Shuanghuanglian Powder Injection and Cease Enuresis Soft Gel. SLPI, our largest contributing product, as a percent of total revenue is one of the only two PBP herbal injections approved by the China state FDA for treating anti-viral indications. SLPI has been approved by China state FDA for treatment – selected by China state FDA for treating SARS during the SARS outbreak, although a definitive decision of efficacy of SLPI for the treatment of SARS has not been determined. Cease Enuresis Soft Gel is approved by the China state FDA as a prescription remedy for chronic bedwetting and nighttime urination.

PBN is the smaller of the Company’s two divisions. PBN products are not licensed by the China state FDA, but they generally require local government approval and are typically sold over the counter at the retail outlets. AOBO’s PBN division products soybean peptide products in powder and liquid forms. Soybean peptide is a cholesterol-free energy-boosting protein source that enhances the immune system and has anti-fatigue benefits. AOBO also produces a line of nutritional products through the PBN division, including the Three-Happiness nutritional drink, which are rich in vitamins and amino acids to enhance well-being and to provide energy The Three-Happiness product line is a recognized retail brand name in China.

We are very proud of the success we have had in growing both our PBP and PBN businesses. For the nine-month period ended September 30 th, 2005, we reported growth in total revenues and total net income of 81% and 85%, respectively, relative to the same nine-month period in 2004. During 2005, we have considerably improved our balance sheet and have successfully integrated HSPL, the acquisition we closed in the fourth quarter of 2004, which has expanded our product line, expanded our geographic customer footprint, and enhanced our channels of distribution.

In addition to a number of positive strategic developments achieved for the business, AOBO was listed on the American Stock Exchange, and in November we received approval for a dual listing on the Archipelago Exchange, accomplishments that we believe will enhance the Company’s profile with U.S. investors. The Pacific Exchange also announced this month that AOBO options will begin trading during November 2005. We are very proud of these achievements and believe AOBO is well-positioned for the next stage of growth and profitability.

Our continued strong performance was again the highlight for the third quarter. We achieved record quarterly revenues of $13.4 million and net income of $3.7 million, or $0.08 per weighted average full-diluted share. The Company completed the redemption of its class “A and “B