It was another disappointing quarter for American Oriental Bioengineering (NYSE: AOB) shareholders as the company fell short of expectations for the fifth straight quarter. The familiar trend of rising revenue and falling profit continues to hold true to form.

Revenue was up 16.1% to $91.5 million, but gross margin fell to 51.7% from 56% in last year's third quarter. Net income was down nearly 50% to $13.1 million, or $0.07 per share.

The reduction in net income was due to higher costs across all operating expenses, especially in research and development. R&D costs increased to $4.7 million as the company builds its own product development capability.

Those worried about constant share increases at Chinese firms will be happy to note that share count has been virtually flat over the past year, and the company ended the quarter with $92.5 million in cash. That is nearly half of the company's market cap of $202 million.

R&D is supposed to bring growth and better margins, but AOB has a long way to go to prove that the investment in R&D will pay off. For the time being, all investors see is falling net income and gross margin as R&D costs increase.

If you're looking at shares, value is definitely there with a price/book value of 0.55, but beware of the risks. Chinese companies have a history of restatements, allegations of misleading the SEC, and rumors of evil management. Fuqi International (Nasdaq: FUQI) and Motley Fool Global Gains pick China Green Agriculture (NYSE: CGA) have both been on a roller-coaster ride lately because of supposedly shady accounting.

China Green Agriculture has been in limbo since investors found out about allegations of misleading statements last month, which crushed the stock. AOB has had its own problems having to restate earnings in the past as well, so it's something to be aware of.

Be careful with this one. American Oriental Bioengineering may look like a value, but investing in this Chinese company isn't for the faint of heart.

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Fool contributor Travis Hoium owns no shares. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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