================================================================================

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

     [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

               For the quarterly period ended September 30, 2006.

     [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                  For the transition period from _____ to_____.

                         Commission File Number: 0-49666

                         TIENS BIOTECH GROUP (USA), INC.
             (Exact name of registrant as specified in its charter)

                  Delaware                            75-2926439
        ----------------------------       ------------------------------
        (State or other jurisdiction       (I.R.S. Employer incorporation
            of Identification No.)                or organization)

                               No. 6, Yuanquan Rd.
                         Wuqing New Tech Industrial Park
                              Tianjin, China 301700
          ------------------------------------------------------------
          (Address of principal executive offices, including zip code)

               Registrant's Telephone Number: 011 86-22-8213-7658

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and larger accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

  Large Accelerated Filer [ ] Accelerated Filer [ ] Non-Accelerated Filer [X]

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

There were 71,333,586 shares of the Company's common stock outstanding on
November 11, 2006.

================================================================================

<PAGE>

                         TIENS BIOTECH GROUP (USA), INC.
                               INDEX TO FORM 10-Q

<TABLE>
<CAPTION>
                                                                             PAGE
                                                                             ----
<S>                                                                            <C>
Part I. Financial Information                                                   3

Item 1. Financial Statements (unaudited)                                        3

Consolidated Balance Sheets as of September 30, 2006 and December 31, 2005      3

Consolidated Statements of Income and Other Comprehensive Income for the
 three months and nine months ended September 30, 2006 and 2005                 4

Consolidated Statements of Shareholders' Equity for the nine months ended
 September 30, 2006 and 2005                                                    5

Consolidated Statements of Cash Flows for the nine months ended
 September 30, 2006 and 2005                                                    6

Notes to Consolidated Financial Statements                                      7

Item 2. Management's Discussion and Analysis of Financial Condition and
 Results of Operations                                                         24

Item 3. Quantitative and Qualitative Disclosures About Market Risk             33

Item 4. Controls and Procedures                                                34

Part II. Other Information                                                     34

Item 1A. Risk Factors                                                          34

Item 6. Exhibits                                                               36
</TABLE>

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                 AS OF SEPTEMBER 30, 2006 AND DECEMBER 31, 2005

<TABLE>
<CAPTION>
                                                                      September 30,     December 31,
                                                                           2006             2005
                                                                       (Unaudited)
                                                                      --------------   --------------
<S>                                                                   <C>              <C>
                              ASSETS
                              ------
CURRENT ASSETS:
    Cash                                                              $   58,771,981   $   77,545,991
    Accounts receivable, trade - related parties, net of
     allowance for doubtful accounts of $211,255 and $206,916
     as of September 30, 2006 and December 31, 2005, respectively         11,989,706        2,165,958
    Other receivables                                                        500,690          234,486
    Other receivables - related parties                                    3,306,690        3,281,081
    Inventories                                                            6,871,958        7,516,352
    Loans receivable - related parties                                    25,320,000                -
                                                                      --------------   --------------
       Total current assets                                              106,761,025       90,743,868
                                                                      --------------   --------------
PLANT AND EQUIPMENT, net                                                  27,624,487       24,877,688
                                                                      --------------   --------------
OTHER ASSETS:
    Intangible assets, net                                                   461,055          476,637
    Employee advances                                                        352,694          145,071
    Deposits                                                               5,681,680        5,380,890
                                                                      --------------   --------------
       Total other assets                                                  6,495,429        6,002,598
                                                                      --------------   --------------
          Total assets                                                $  140,880,941   $  121,624,154
                                                                      ==============   ==============
               LIABILITIES AND SHAREHOLDERS' EQUITY
               ------------------------------------
CURRENT LIABILITIES:
    Accounts payable                                                  $    4,078,426   $    2,698,813
    Advances from customers - related parties                              1,531,406        2,077,130
    Accrued liabilities                                                      719,296        1,045,052
    Other taxes payable                                                    1,547,042        1,413,054
    Other payables                                                           429,333          339,390
    Other payables - related parties                                         534,846        1,816,534
    Dividend payable to minority interest                                    235,336                -
    Current portion of long term debt, related party                       2,130,000        2,130,000
                                                                      --------------   --------------
       Total current liabilities                                          11,205,685       11,519,973
LONG TERM DEBT, net of current portion, related party                      7,462,742        8,527,742
                                                                      --------------   --------------
       Total liabilities                                                  18,668,427       20,047,715
                                                                      --------------   --------------
MINORITY INTEREST                                                          9,778,864       11,929,040
                                                                      --------------   --------------
SHAREHOLDERS' EQUITY:
    Common stock, $0.001 par value, 260,000,000 shares authorized,
     71,333,586 issued and outstanding, respectively                          71,334           71,334
    Paid-in-capital                                                        8,842,009        8,842,009
    Statutory reserves                                                     9,420,783        9,420,783
    Retained earnings                                                     89,468,512       69,079,060
    Accumulated other comprehensive income                                 4,631,012        2,234,213
                                                                      --------------   --------------
       Total shareholders' equity                                        112,433,650       89,647,399
                                                                      --------------   --------------
          Total liabilities and shareholders' equity                  $  140,880,941   $  121,624,154
                                                                      ==============   ==============
</TABLE>

The accompanying notes are an integral part of this consolidated statement.

                                        3
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

        CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
     FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                Three months ended September 30,     Nine months ended September 30,
                                                ---------------------------------   ---------------------------------
                                                      2006            2005                2006            2005
                                                ---------------   ---------------   ---------------   ---------------
<S>                                             <C>               <C>               <C>               <C>
REVENUE - RELATED PARTIES                       $    19,187,748   $    19,126,809   $    50,203,306   $    50,730,467

COST OF SALES                                         5,066,051         4,954,198        13,714,739        12,609,428
                                                ---------------   ---------------   ---------------   ---------------
GROSS PROFIT                                         14,121,697        14,172,611        36,488,567        38,121,039

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES          2,803,859         2,795,414         8,641,512         7,894,965
                                                ---------------   ---------------   ---------------   ---------------
INCOME FROM OPERATIONS                               11,317,838        11,377,197        27,847,055        30,226,074

OTHER INCOME (EXPENSE), NET                             164,104          (126,969)          127,458          (814,133)
                                                ---------------   ---------------   ---------------   ---------------
INCOME BEFORE PROVISION FOR INCOME TAXES
   AND MINORITY INTEREST                             11,481,942        11,250,228        27,974,513        29,411,941

PROVISION FOR INCOME TAXES                              878,931           869,769         2,188,491         2,315,214
                                                ---------------   ---------------   ---------------   ---------------
INCOME BEFORE MINORITY INTEREST                      10,603,011        10,380,459        25,786,022        27,096,727

MINORITY INTEREST                                     2,167,747         2,175,715         5,396,570         5,691,784
                                                ---------------   ---------------   ---------------   ---------------
NET INCOME                                            8,435,264         8,204,744        20,389,452        21,404,943

OTHER COMPREHENSIVE INCOME
   Foreign currency translation adjustment            1,411,012         2,047,847         2,396,799         2,048,846
                                                ---------------   ---------------   ---------------   ---------------
COMPREHENSIVE INCOME                            $     9,846,276   $    10,252,591   $    22,786,251   $    23,453,789
                                                ===============   ===============   ===============   ===============
EARNINGS PER SHARE, BASIC AND DILUTED           $          0.12   $          0.14   $          0.29   $          0.33
                                                ===============   ===============   ===============   ===============
WEIGHTED AVERAGE NUMBER OF SHARES                    71,333,586        71,333,586        71,333,586        71,333,586
                                                ===============   ===============   ===============   ===============
</TABLE>

The accompanying notes are an integral part of this consolidated statement.

                                        4
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                                                                         other
                                       Number     Common     Paid-in      Statutory     Retained     comprehensive
                                     of shares    stock      capital      reserves      earnings     income (loss)       Totals
                                     ----------  --------  ------------  -----------  -------------  --------------   -------------
<S>                                  <C>         <C>       <C>           <C>          <C>            <C>              <C>
BALANCE, December 31, 2004           71,333,586  $ 71,334  $  8,842,009  $ 9,420,783  $  42,200,940  $      (12,167)  $  60,522,899

  Net Income                                                                             21,404,943                      21,404,943
  Foreign currency translation gain                                                                       2,048,846       2,048,846
                                     ----------  --------  ------------  -----------  -------------  --------------   -------------
BALANCE, September 30, 2005          71,333,586    71,334     8,842,009    9,420,783     63,605,883       2,036,679      83,976,688

  Net Income                                                                              5,473,177                       5,473,177
  Foreign currency translation gain                                                                         197,534         197,534
                                     ----------  --------  ------------  -----------  -------------  --------------   -------------
BALANCE, December 31, 2005           71,333,586    71,334     8,842,009    9,420,783     69,079,060       2,234,213      89,647,399

  Net Income                                                                             20,389,452                      20,389,452
  Foreign currency translation gain                                                                       2,396,799       2,396,799
                                     ----------  --------  ------------  -----------  -------------  --------------   -------------
BALANCE, September 30, 2006          71,333,586  $ 71,334  $  8,842,009  $ 9,420,783  $  89,468,512  $    4,631,012   $ 112,433,650
                                     ==========  ========  ============  ===========  =============  ==============   =============
</TABLE>

The accompanying notes are an integral part of this consolidated statement.

                                        5
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                   2006             2005
                                                              --------------   --------------
<S>                                                           <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                $   20,389,452   $   21,404,943
    Adjustments to reconcile net income to cash
     provided by (used in) operating activities:
         Minority interest                                         5,396,570        5,691,784
         Depreciation                                              1,738,855        1,231,056
         Amortization                                                 61,199           66,493
         Loss (gain) on sale of assets                                 3,064          (81,997)
       (Increase) decrease in assets:
         Accounts receivable, trade - related parties             (9,653,207)         598,697
         Other receivables                                          (257,944)         496,928
         Other receivables - related parties                         447,827       (9,828,031)
         Inventories                                                 791,733       (4,491,901)
         Employee advances                                          (201,963)        (423,081)
         Deposits                                                   (175,692)      (1,530,911)
       Increase (decrease) in liabilities:
         Accounts payable                                          1,306,096        1,488,305
         Accounts payable - related parties                                -           38,045
         Advances from customers - related parties                  (581,737)          69,607
         Accrued liabilities                                        (341,672)         286,625
         Other taxes payable                                         103,025          734,426
         Other payables                                               81,827                -
         Other payables - related parties                         (1,300,687)         404,559
                                                              --------------   --------------
           Net cash provided by operating activities              17,806,746       16,155,547
                                                              --------------   --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Increase in loans receivable - related parties               (24,992,000)               -
    Increase in intangible assets                                    (41,074)         (87,056)
    Proceeds from sales of equipment and automobiles                  35,082           25,380
    Purchase of equipment and automobiles                         (4,382,904)      (5,224,870)
                                                              --------------   --------------
           Net cash used in investing activities                 (29,380,896)      (5,286,546)
                                                              --------------   --------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments, net of borrowings on short term notes payable       (1,065,000)        (155,442)
    Dividend payments to minority interest shareholders           (7,307,666)               -
                                                              --------------   --------------
           Net cash used in financing activities                  (8,372,666)        (155,442)
                                                              --------------   --------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                            1,172,806        2,048,846
                                                              --------------   --------------

(DECREASE) INCREASE IN CASH                                      (18,774,010)      12,762,405

CASH, beginning of period                                         77,545,991       39,243,872
                                                              --------------   --------------
CASH, end of period                                           $   58,771,981   $   52,006,277
                                                              ==============   ==============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for income taxes                                    $    1,863,250   $    1,445,440
                                                              ==============   ==============

Cash paid for interest expense                                $      264,254   $      433,353
                                                              ==============   ==============
</TABLE>

The accompanying notes are an integral part of this consolidated statement.

                                        6
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BACKGROUND

Tiens Biotech Group (USA), Inc. (the "Company" or "Tiens") was incorporated on
July 13, 1990 as Super Shops, Inc. in the State of Michigan. In October 2000,
Super Shops, Inc. reincorporated in Delaware and changed its name to MIA
Acquisition Corp., and subsequently to Strategika, Inc. in February 2002.

Pursuant to an Agreement and Plan of Reorganization, dated August 22, 2003 (the
"Agreement"), the Company, Tianshi International Group Limited ("Tianshi
International"), and Jinyuan Li, Wenjun Jiao and Yupeng Yan, all Chinese
Nationals who were stockholders of Tianshi International (the "Tianshi
Stockholders"), on September 9, 2003 the Company received from the Tianshi
Stockholders all of the issued and outstanding common stock of Tianshi
International in exchange for the issuance by the Company of 68,495,000 shares
of its common stock to the Tianshi Stockholders, representing 95% of the issued
and outstanding common stock of the Company at such time, after giving effect to
the issuance.

The purchase of Tianshi International and the issuance of the Company's common
stock in connection with the purchase have been accounted for as a reverse
acquisition presented as a recapitalization, except no goodwill or other
intangible assets have been recorded. For accounting purposes, the original
Tianshi International is considered the acquirer in the reverse acquisition. The
historical financial statements are those of the original Tianshi International.

Tianshi International was incorporated March 24, 2003, in the territory of the
British Virgin Islands. On June 18, 2003, Tianshi International acquired 80% of
Tianjin Tianshi Biological Development Co., Ltd. ("Biological") from Tianshi
Hong Kong International Development Co., Ltd., which is 100% owned by the
Company's Chairman, Chief Executive Officer and President, Jinyuan Li.
Biological is a Chinese-foreign equity joint venture company established under
the laws of the PRC on March 27, 1998. Biological is subject to the Law on Sino
Foreign Equity Joint Ventures, its implementation regulations and other related
rules and regulations. Biological is an independent legal entity having the
legal structure of a limited liability company, similar to a regular corporation
with limited liability organized under state laws in the United States of
America. The Articles of Association of Biological provides for a 50 year term
with registered capital of $10,000,000. As an approved Chinese-foreign equity
joint venture, Biological receives special income tax incentive treatment from
both the local (Wuqing County) and central governments in China.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The reporting entity
--------------------

The financial statements in the Strategika, Inc. filings became those of Tiens.
The consolidated financial statements of Tiens reflect the activities of the
following Company subsidiaries:

                                        7
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

The reporting entity, (continued)
---------------------------------

<TABLE>
<CAPTION>
                  Subsidiary                                               % Ownership
-----------------------------------------------   ----------------------   ------------
<S>                                               <C>                             <C>
Tianshi International Holdings Group Limited      British Virgin Islands          100.0%
Tianjin Tianshi Biological Development Co., Ltd   PRC                              80.0%
Tiens Yihai Co., Ltd.                             PRC                              99.4%
</TABLE>

Tianshi International is a corporation organized under the laws of the British
Virgin Islands. Tianshi International is a holding company for Tiens' 80%
investment in Biological and its 99.4% investment in Tiens Yihai.

Tiens Yihai Co. Ltd. ("Tiens Yihai") is a foreign investment joint venture which
is incorporated under the laws of the People's Republic of China ("PRC" or
"China"). Tiens Yihai is classified as a Foreign Investment Enterprise (FIE) in
the PRC and is subject to the FIE laws of the PRC. Tiens Yihai is a Chinese
registered limited liability company with a legal structure similar to a regular
corporation and a limited liability company organized under state laws in the
United States of America. The Articles of Association provides for a 50-year
term beginning on May 27, 2004 with registered capital of $200,000,000.

Related Parties
---------------

Tianjin Tianshi Pharmaceuticals Co., Ltd. ("Tianshi Pharmaceuticals"), a Chinese
company, owns the remaining 20% of Biological. Tianjin Pharmaceuticals is 87.66%
owned by Tianjin Tianshi Group Co., Ltd. ("Tianshi Group"), a Chinese company,
and 7.29% owned by Mr. Li's daughter, Ms. Baolan Li. Tianshi Group is 90% owned
by Mr. Li and 10% owned by Ms. Li. Tianshi Group also owns 51% of Tianshi
Engineering, the entity to which the Company sells all of its products for
consumption in China and that owns all of the related party distributors which
sell the Company's products in China. Ms. Li owns the remaining 49% of Tianshi
Engineering. Tiens Yihai is 0.6% owned by Tianshi Pharmaceuticals.

Nature of operations
--------------------

The Company through its subsidiaries is primarily engaged in the manufacturing
of nutritional supplement products, including wellness products and dietary
supplement products, and personal care products. In the PRC, the Company sells
its products to Tianshi Engineering. Tianshi Engineering, in turn, sells the
products to end-users through its chain stores and Chinese affiliated companies.
Outside the PRC, the Company sells its products to an extensive direct sales
force of overseas affiliates and independent distributors who use the products
themselves and/or resell them to other distributors or consumers. The Company
sells to affiliated companies located in 61 countries.

                                        8
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

Revenue recognition
-------------------

The Company recognizes revenue from domestic sales by distributors in China, net
of sales commissions and taxes, only when the related Chinese distributor
recognizes sales of the Company's products to unaffiliated third parties. The
Company recognizes revenue from international sales (non-Chinese) to both
affiliated and unaffiliated third parties, net of commissions and taxes as goods
are shipped and clear review by the international customs department.

The Company is generally not contractually obligated to accept returns. However,
on a case by case negotiated basis, the Company permits customers to return
their products. In accordance with SFAS No. 48, "Revenue Recognition when the
Right of Return Exists", revenue is recorded net of an allowance for estimated
returns. Such reserves are based upon management's evaluation of historical
experience and estimated costs. The amount of the reserves ultimately required
could differ materially in the near term from amounts included in the
accompanying consolidated financial statements.

Foreign currency translation
----------------------------

The reporting currency of the Company is the US dollar. Biological's and Tiens
Yihai's financial records are maintained and the statutory financial statements
are stated in its local currency, Renminbi (RMB), as their functional currency.
Results of operations and cash flow are translated at average exchange rates
during the period, and assets and liabilities are translated at the unified
exchange rate as quoted by the People's Bank of China at the end of each
reporting period.

This quotation of the exchange rates does not imply free convertibility of RMB
to other foreign currencies. All foreign exchange transactions continue to take
place either through the People's Bank of China or other banks authorized to buy
and sell foreign currencies at the exchange rate quoted by the People's Bank of
China.

Approval of foreign currency payments by the Bank of China or other institutions
requires submitting a payment application form together with invoices, shipping
documents and signed contracts.

Translation adjustments resulting from this process are included in accumulated
other comprehensive income in the consolidated statement of shareholders' equity
and amounted to $4,631,012 and $2,234,213 as of September 30, 2006 and December
31, 2005, respectively. The balance sheet amounts, with the exception of equity
at September 30, 2006, were translated at 7.90 RMB to 1.00 USD as compared to
8.06 RMB at December 31, 2005. The equity accounts were stated at their
historical rate. The weighted average translation rate of 8.00 RMB to 1.00 USD
for the nine months ended September 30, 2006 was applied to income statement
accounts.

                                        9
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

Foreign currency translation, (continued)
-----------------------------------------

Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred. These amounts are not
material to the consolidated financial statements.

Income taxes
------------

The Company has adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS 109). SFAS 109 requires the recognition of
deferred income tax liabilities and assets for the expected future tax
consequences of temporary differences between income tax basis and financial
reporting basis of assets and liabilities. Provision for income taxes consist of
taxes currently due plus deferred taxes. There are no deferred tax amounts at
September 30, 2006 and December 31, 2005.

The charge for taxation is based on the results for the year as adjusted for
items, which are non-assessable or disallowed. It is calculated using tax rates
that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in
respect of temporary differences arising from differences between the carrying
amount of assets and liabilities in the financial statements and the
corresponding tax basis used in the computation of assessable tax profit.

In principle, deferred tax liabilities are recognized for all taxable temporary
differences, and deferred tax assets are recognized to the extent that it is
probable that taxable profit will be available against which deductible
temporary differences can be utilized.

Deferred tax is calculated at the tax rates that are expected to apply to the
period when the asset is realized or the liability is settled. Deferred tax is
charged or credited in the income statement, except when related items are
credited or charged directly to equity, in which case the deferred tax is also
dealt with in equity.

Deferred tax assets and liabilities are offset when they relate to income taxes
levied by the same taxation authority and the Company intends to settle its
current tax assets and liabilities on a net basis.

The Company is subject to income taxes on an entity basis on income arising in
or derived from the tax jurisdiction in which each entity is domiciled. The
Company's subsidiary, Tianshi International, was incorporated in the British
Virgin Islands and is not liable for income taxes.

                                       10
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

Income taxes, (continued)
-------------------------

The Company's subsidiaries, Biological and Tiens Yihai, are Sino-Foreign Joint
Ventures incorporated in the PRC. Pursuant to the income tax laws of the PRC
concerning Foreign Investment Enterprises and foreign Enterprises and various
local income tax laws (the "Income Tax Law"), Sino-foreign joint venture
enterprises generally are subject to income tax at an effective rate of 33% (30%
state income taxes plus 3% local income taxes) on income as reported in their
statutory financial statements unless the enterprise is located in
specially-designated regions or cities for which more favorable effective rates
apply.

Biological is located in a Special Economic Zone and is subject to the special
reduced income tax rate of 15%. Pursuant to the approval of the relevant PRC tax
authorities, Biological is fully exempt from PRC income taxes for two years
starting from the year profits are first made, followed by a 7.5% reduced tax
rate for the next three years.

Prior to the year ended December 31, 2002, Biological suffered operating losses.
Biological started generating taxable profits in the year ended December 31,
2003. Effective January 1, 2005, the two-year 100% exemption for income taxes
expired for Biological and it became subject to income tax at a reduced rate of
7.5%.

Tiens Yihai is located in a Special Industry Zone and is subject to the special
reduced income tax rate of 15%. Pursuant to the approval of the relevant local
Chinese tax authorities, Tiens Yihai is fully exempt from PRC income taxes for
two years starting from the first year profits were made, followed by a 7.5%
reduced tax rate for the next three years. In addition, in order to encourage
Tiens Yihai doing business in the Special Industry Zone, the local Chinese tax
authorities agreed to refund 50% of the total income tax after the five-year tax
break.

Tiens Yihai was established for the purposes of being in the business of
research and development, production and marketing of healthcare, home care and
personal care products. As of September 30, 2006, Tiens Yihai is in the
developmental stage of its organization and did not have any operating income.

Provision for income taxes for the nine months ending September 30, 2006 and
2005 were $2,188,491 and $2,315,214, respectively.

                                       11
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

Income taxes, (continued)
-------------------------

The following table reconciles the U.S. statutory rates to the Company's
effective tax rate:

                                             2006          2005
                                          ----------    ----------
U.S. Statutory rate                             34.0%         34.0%
Foreign income not recognized in USA           (34.0)        (34.0)
China income taxes                              33.0          33.0
China income tax savings                       (25.5)        (25.5)
                                          ----------    ----------
Total provision for income taxes                 7.5%          7.5%
                                          ==========    ==========

The estimated tax savings due to the reduced tax rate for the nine months ending
September 30, 2006 and 2005 amounted to $7,440,869 and $6,272,295, respectively.
The net effect on earnings per share if the income tax had been applied would
decrease earnings per share for the nine months ended September 30, 2006 and
2005 by $0.11 and $0.09, respectively.

Plant and equipment, net
------------------------

Plant and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Depreciation expense for the nine months ended
September 30, 2006 and 2005 amounted to $1,738,855, and $1,231,056,
respectively.

Estimated useful lives of the assets are as follows:

                                           Estimated Useful Life
                                           ---------------------
Buildings                                        20 years
Machinery and equipment                          10 years
Computer, office equipment and furniture          5 years
Automobiles                                       5 years

Construction in progress represents the costs incurred in connection with the
construction of buildings or new additions to the Company's plant facilities. No
depreciation is provided for construction in progress until such time as the
relevant assets are completed and are ready for their intended use.

The cost and related accumulated depreciation of assets sold or otherwise
retired are eliminated from the accounts and any gain or loss is included in the
consolidated statements of operations. Maintenance, repairs and minor renewals
are charged directly to expenses as incurred. Major additions and betterment to
buildings and equipment are capitalized.

                                       12
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

Plant and equipment, net, (continued)
-------------------------------------

Long-term assets of the Company are reviewed annually as to whether their
carrying value has become impaired. The Company considers assets to be impaired
if the carrying value exceeds the future projected cash flows from related
operations. The Company also re-evaluates the periods of amortization to
determine whether subsequent events and circumstances warrant revised estimates
of useful lives. As of September 30, 2006, the Company expects these assets to
be fully recoverable.

Plant and equipment consist of the following at September 30, 2006 and December
31, 2005:

                                    September 30, 2006   December 31, 2005
                                    ------------------   -----------------
Buildings and improvements          $       14,437,562   $      13,907,626
Office facilities                              336,530             283,503
Computer equipment and software              1,527,275           1,441,159
Equipment                                    8,544,394           7,352,056
Vehicles                                     4,197,509           3,619,837
Construction in progress                     6,152,600           3,991,285
                                    ------------------   -----------------
   Total                                    35,195,870          30,595,466
Less: Accumulated depreciation               7,571,383           5,717,778
                                    ------------------   -----------------
   Plant and equipment, net         $       27,624,487   $      24,877,688
                                    ==================   =================

Use of estimates
----------------

The preparation of financial statements in conformity with generally accepted
accounting principles of the United States of America requires management to
make estimates and assumptions that affect the amounts reported in the combined
financial statements and accompanying notes. Management believes that the
estimates utilized in preparing its financial statements are reasonable and
prudent. Actual results could differ from these estimates.

Fair value of financial instruments
-----------------------------------

The Company's financial instruments consist primarily of cash, trade
receivables, trade payables, advances, other receivables, and debt instruments.
Management believes that the carrying values of these financial instruments
approximate their fair values because of their short-term nature. Long-term debt
is carried at face value less unamortized discount.

                                       13
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

Recently issued accounting pronouncements
-----------------------------------------

In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid
Financial Instruments" ("FAS 155"), which amends SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133") and SFAS No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("FAS 140"). FAS 155 provides guidance to simplify the
accounting for certain hybrid instruments by permitting fair value remeasurement
for any hybrid financial instrument that contains an embedded derivative, as
well as, clarifies that beneficial interests in securitized financial assets are
subject to FAS 133. In addition, FAS 155 eliminates a restriction on the passive
derivative instruments that a qualifying special-purpose entity may hold under
FAS 140. FAS 155 is effective for all financial instruments acquired, issued or
subject to a new basis occurring after the beginning of an entity's first fiscal
year that begins after September 15, 2006. The adoption of FAS No. 155 is not
expected to have material effect on the Company's financial position or results
of operations.

In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of
Financial Assets" ("FAS 156"), which amends SFAS No. 140. FAS 156 specifically
provides guidance addressing the recognition and measurement of separately
recognized servicing assets and liabilities, common with mortgage securitization
activities, and provides an approach to simplify efforts to obtain hedge
accounting treatment. FAS 156 is effective for all separately recognized
servicing assets and liabilities acquired or issued after the beginning of an
entity's fiscal year that begins after September 15, 2006, with early adoption
being permitted. The adoption of FAS No. 156 is not expected to have a material
effect on the Company's financial position or results of operations.

In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109" ("FIN
48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in a company's financial statements in accordance with FAS 109, "Accounting for
Income Taxes". FIN 48 prescribes a recognition threshold and measurement
attribute for the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition. The requirements of FIN 48 are
effective for our fiscal year beginning January 1, 2007.

The Company is currently analyzing the proposed Interpretation and has not
determined its potential impact on our Consolidated Financial Statements. While
the Company cannot predict with certainty the rules in the final Interpretation,
there is risk that the final Interpretation could result in a cumulative effect
charge to earnings upon adoption, increases in future effective tax rates,
and/or increases in future interperiod effective tax rate volatility.

                                       14
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

Recently issued accounting pronouncements, (continued)
------------------------------------------------------

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements,"
which addresses the measurement of fair value by companies when they are
required to use a fair value measure for recognition or disclosure purposes
under generally accepted accounting principles in the United States ("GAAP").
SFAS No. 157 provides a common definition of fair value to be used throughout
GAAP which is intended to make the measurement of fair value more consistent and
comparable and improve disclosures about those measures. SFAS No. 157 will be
effective for an entity's financial statements issued for fiscal years beginning
after November 15, 2007. The Company is currently evaluating the effect SFAS No.
157 will have on its consolidated financial position, liquidity, or results of
operations.

In September 2006, the FASB issued SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans-an amendment of FASB
Statements No. 87, 88, 106, and 132(R)". One objective of this standard is to
make it easier for investors, employees, retirees and other parties to
understand and assess an employer's financial position and its ability to
fulfill the obligations under its benefit plans. SFAS No. 158 requires employers
to fully recognize in their financial statements the obligations associated with
single-employer defined benefit pension plans, retiree healthcare plans, and
other postretirement plans. SFAS No. 158 requires an employer to fully recognize
in its statement of financial position the overfunded or underfunded status of a
defined benefit postretirement plan (other than a multiemployer plan) as an
asset or liability and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income. This Statement also
requires an employer to measure the funded status of a plan as of the date of
its year-end statement of financial position, with limited exceptions. SFAS No.
158 requires an entity to recognize as a component of other comprehensive
income, net of tax, the gains or losses and prior service costs or credits that
arise during the period but are not recognized as components of net periodic
benefit cost pursuant to SFAS No. 87. This Statement requires an entity to
disclose in the notes to financial statements additional information about
certain effects on net periodic benefit cost for the next fiscal year that arise
from delayed recognition of the gains or losses, prior service costs or credits,
and transition asset or obligation. Management does not currently believe
adoption will have a material impact on the Company's financial position or
results of operations.

Cash and concentration of risk
------------------------------

Cash includes cash on hand and demand deposits in accounts maintained with banks
within the PRC. Total cash in banks at September 30, 2006 and December 31, 2005
amounted to $58,952,617 and $70,904,722, respectively, of which no deposits are
covered by insurance. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant risks on its cash in
bank accounts. The difference between the total cash in banks and cash in bank
on balance sheet is due to the temporary difference between the amounts stated
on historical bank statements and the amounts actually in hand in bank accounts
of the Company.

                                       15
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

Short-term investment
---------------------

Short-term investment is accounted for in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," ("SFAS 115"). The Company purchased an investment product of
RMB 110,000,000 (approximately $13.6 million) from China Agriculture Bank on
January 25, 2006. The total amount invested was returned on the due date, July
25, 2006, and realized an investment income of approximately $176,000.

Accounts receivable - related parties
-------------------------------------

The Company's trade accounts receivables are 100% due from related companies.
Management believes that the accounts are fully collectible as these amounts are
being collected throughout the year. Also, management reviews its accounts
receivable on a regular basis to determine if the bad debt allowance is
adequate.

Inventories
-----------

Inventories are stated at the lower of cost or market using the first-in,
first-out basis and consist of the following at September 30, 2006 and December
31, 2005, respectively:

                                    September 30, 2006   December 31, 2005
                                    ------------------   -----------------
Raw materials                       $        4,469,112   $       4,654,596
Work-in-progress                               113,384             129,144
Finished goods                               2,289,462           2,732,612
                                    ------------------   -----------------
Total                               $        6,871,958   $       7,516,352
                                    ==================   =================

The Company reviews its inventory annually for possible obsolete goods or to
determine if any reserves are necessary for potential obsolescence. The Company
has written off the obsolete goods that amounted to $0 and $154,525 for the nine
months ended September 30, 2006 and the year ended December 31, 2005,
respectively.

Intangible assets
-----------------

All the land located in the PRC is owned by the government and cannot be sold to
any individual or company. However, the government grants the user a "land use
right" to use the land. The Company acquired two land use rights for fifty years
from the PRC on December 1, 1999 and October 4, 2004 for $665,220 in total. The
costs of the rights are being amortized over ten years, using the straight-line
method. Other intangible assets include patents and trademarks and are amortized
over the estimated useful life ranging from five to ten years.

                                       16
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (continued)

Intangible assets, (continued)
------------------------------

Amortization expense for the nine months ended September 30, 2006 and 2005
amounted to $61,199 and $66,493, respectively, and intangible assets consists of
the following:

                                    September 30, 2006   December 31, 2005
                                    ------------------   -----------------
Land use rights                     $          665,220   $         635,795
Other intangible assets                        237,080             150,965
Less amortization                             (441,245)           (310,123)
                                    ------------------   -----------------
Intangible assets, net              $          461,055   $         476,637
                                    ==================   =================

Deposits - non-current
----------------------

The Company as of September 30, 2006 and December 31, 2005 had outstanding
deposits of $5,681,680 and $5,380,890, respectively. The outstanding deposits
consist of $3.59 million deposit made in October 2004 with a local government
agency to acquire the land use right for land located in Shanghai, China and
deposits with vendors for purchases of equipment and construction in progress.
The land use right deposit is in connection with its joint venture project
described in Note 8 and is non-refundable. The land use right is for a term of
50 years and, as of September 30, 2006, the Company has not legally acquired the
right from the government, but the Company is actively pursuing and working with
the government to complete the necessary procedures to obtain final approval on
the land use right.

Reclassification
----------------

Certain prior year amounts have been reclassified to conform to the current
presentation.

NOTE 3 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Income taxes paid for the nine months ended September 30, 2006 and 2005 amounted
to $1,863,250 and $1,445,440, respectively. Interest paid amounted to $264,254
and $77,053 for the nine months ended September 30, 2006 and 2005, respectively.

During the three months ended September 30, 2006, there was a transfer of
$434,821 from construction in progress to other receivables-related parties for
the assets that were not necessary for production (see Note 7, "Related party
transactions--Other receivables and loans receivable").

In April 2006, the board of Biological declared a dividend in the amount of
$7,540,401 to its minority shareholder (Tianshi Pharmaceuticals), and it paid a
dividend in the amount of $7,307,666 to Tianshi Pharmaceuticals on June 22,
2006. The remaining balance of $235,336 is disclosed under dividend payable to
minority interest in the accompanying consolidated balance sheet.

                                       17
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 - EARNINGS PER SHARE

The Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (SFAS 128). SFAS 128 requires the presentation of earnings
per share (EPS) as Basic EPS and Diluted EPS. There are no differences between
Basic and Diluted EPS for the periods ended September 30, 2006 and 2005.

The weighted average number of shares used to calculate EPS for the periods
ended September 30, 2006 (71,333,586) and 2005 (71,333,586) reflect only the
shares issued and outstanding for those periods.

NOTE 5 - LONG TERM DEBT

Note payable - related party
----------------------------

On September 10, 2004, Tianshi International signed a loan agreement with
Tianyuan Capital Development Corp. Ltd. ("Tianyuan Capital") to borrow $10.65
million to fund Tianshi International's contribution due to Tiens Yihai. Mr.
Jinyuan Li, the president and major shareholder of the Company, is a director of
Tiens Yihai and a director of Tianyuan Capital.

The principal of the loan will be paid in ten consecutive semi-annual
installments of $1,065,000 on the last day of each June and December commencing
June 30, 2006, and ending December 31, 2011. The first interest payment was due
on December 31, 2004 at an annual interest rate of 5%. Interest of $264,254 was
paid for the six months ended June 30, 2006, and $1,065,000 of the first
installment payment was made at the end of June 2006. Interest of $120,895 was
accrued for the three months ended September 30, 2006.

Total principal payment obligations for the next five years on all long-term
debt are as follows:

<TABLE>
<CAPTION>
                                               September 30, 2006   December 31, 2005
                                               ------------------   -----------------
<S>                                            <C>                  <C>
Note payable to Tianyuan Capital Development
  Corp. Ltd., related party                    $        9,592,742   $      10,657,742
Less current portion of long term debt                  2,130,000           2,130,000
                                               ------------------   -----------------
     Total                                     $        7,462,742   $       8,527,742
                                               ==================   =================
</TABLE>

                     Year ending
                     September 30,      Amount
                    --------------   ------------
                        2007         $  2,130,000
                        2008            2,130,000
                        2009            2,130,000
                        2010            2,130,000
                        2011            1,072,742

                                       18
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - MINORITY INTEREST

Minority interest represents the outside shareholders' 20% ownership of
Biological and 0.6% ownership of Tiens Yihai. As of September 30, 2006, no
accumulated other comprehensive income was assigned to minority interest.

NOTE 7 - RELATED PARTY TRANSACTIONS

The following is a description of the various individuals and companies
discussed in the footnotes and their relationship to the Company.

Baolan Li - individual - daughter of Jinyuan Li

Jinyuan Li - individual - Chairman, Chief Executive Officer and President and
majority shareholder

Tianjin Tianshi Biological Development Co., LTD - Chinese joint venture which
Tianshi International Holdings Group Limited owns 80%

Tianjin Tianshi Biological Engineering Co., LTD - Chinese company owned 49% by
Baolan Li and 51% by Tianjin Tianshi Group Co., Ltd.

Tianjin Tianshi Group Co., Ltd. - owned 90% by Jinyuan Li and 10% by Baolan Li

Tianjin Tianshi Pharmaceuticals Co., LTD - a Chinese company and the majority
shareholder is Tianjin Tianshi Group Co., Ltd.

Tianshi Hong Kong International Development Co., Limited - Hong Kong Company
owned 100% by Jinyuan Li.

Tianshi International Holdings Group Limited - British Virgin Island company
owned 100% by the Company.

Sales
-----

The Company sells products to distributors that are related to the Company
through common ownership. The related party distributors in turn market and sell
the Company's products to independent distributors or end users of the products.
The related party distributors are solely responsible for all marketing and
payments of sales commissions to independent distributors.

Related party sales amounted to $50,203,306 and $50,730,467 for the nine months
ended September 30, 2006 and 2005, which represent 100% of total sales for the
periods then ended. Related party accounts receivable related to these sales
amounted to $11,989,706 and $2,165,958 as at September 30, 2006 and December 31,
2005, respectively, net of allowances for doubtful accounts of $211,255 and
$206,916, respectively.

                                       19
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - RELATED PARTY TRANSACTIONS, (continued)

Other receivables and loans receivable
--------------------------------------

The Company, through its 100% owned subsidiary, Tianshi International Holdings
Group Limited, and its Chinese joint ventures, Tianjin Tianshi Biological
Development Co., Ltd. and Tiens Yihai Co. Ltd., is owed additional amounts
classified as other receivables from various related parties totaling $3,306,690
and $3,281,081 as of September 30, 2006 and December 31, 2005, respectively.
Further, loans receivable to related parties amounted to $25,320,000 and $0 as
of September 30, 2006 and December 31, 2005, respectively.

The other receivables and loans receivable consisted of the following:

<TABLE>
<CAPTION>
                                                   September 30,    December 31,
Other receivables - related parties                    2006            2005
-----------------------------------------------   --------------   --------------
<S>                                               <C>              <C>
Tianjin Juchao Commercial and Trading Co., Ltd    $            -   $    2,411,657
Tianjin Tianshi Biological Engineering Co., Ltd          767,205                -
Xongshi Real Estate Development                                -          620,000
JinMao (Group) Holding                                         -          101,044
Tianjin Tianshi Group Co., Ltd                         2,538,844          148,380
Tianyuan Development Corp. Ltd                               641                -
                                                  --------------   --------------
     Total                                        $    3,306,690   $    3,281,081
                                                  ==============   ==============

Loans receivable - related parties
-----------------------------------------------
Tianjin Tianshi Biological Engineering Co., Ltd   $   25,320,000   $            -
Tianyuan Development Corp. Ltd                                 -                -
                                                  --------------   --------------
     Total                                        $   25,320,000   $            -
                                                  ==============   ==============
</TABLE>

During the last quarter of 2005, Tianshi Engineering borrowed RMB 200,000,000
($25,320,000) from Tianjin Tianshi Biological Development Co., Ltd. This amount
was repaid to Biological by December 31, 2005. Then this amount was loaned to
Tianshi Engineering on January 1, 2006. The new loan was due on March 31, 2006,
and extended to June 30, 2006, and extended again until December 31, 2006. The
purpose of the loan is to help Tiens Engineering strengthen its sales network in
China. Since the Company started selling semi-finished products from the
beginning of 2006, some of the assets not necessary for the current production
have been transferred from the Company to Tianshi Group. Among the transactions,
there was a transfer of $434,821 from Biological's construction in progress to
Tianshi Group. Since Tianshi Group has not made the payment for the transfer
yet, the amount is recorded under other receivables - related parties as of
September 30, 2006.

                                       20
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - RELATED PARTY TRANSACTIONS, (continued)

Other receivables and loans receivable, (continued)
---------------------------------------------------

On January 23, 2006, the Company entered a short-term finance agreement with
Tianyuan Capital to provide a short-term finance in the principal amount of
$4,400,000. The term of the agreement was for 7 days, and was extended
automatically for another 7-day term until the Company called it back. The
short-term finance bore an interest rate of London Inter-bank Offer Rate minus
five basis points (LIBOR-5BP), which would be calculated at the end of each
7-day term. Both the principal and interest of $151,597 were paid back on
September 26, 2006.

Other receivables are generated by the Company making various cash advances and
short-term loans and the allocation of various expenses to related parties.
These are recurring transactions. The Company does not charge interest on these
receivables.

Other payables-related parties
------------------------------

The Company has amounts classified as other payables due to related parties
which amounted to $534,846 and $1,816,534 as of September 30, 2006 and December
31, 2005, respectively. These amounts arose from various operational
transactions incurred with related parties.

Rent expense
------------

On June 30, 2002, the Company entered a written lease agreement with Tianshi
Group to pay annual rent on these facilities at 1% of total gross revenues. The
term of this agreement is for five years commencing on January 1, 2003.

In addition, the Company is obligated to pay insurance, maintenance and other
expenses related to the premises. The total amount paid on this lease amounted
to $450,506 and $504,470 for the nine months ended September 30, 2006 and 2005,
respectively.

NOTE 8 - INVESTMENT IN TIENS YIHAI CO., LTD.

On April 20, 2004, Tianshi International entered a joint venture contract (the
"Joint Venture Project") with Tianshi Pharmaceuticals to establish Tiens Yihai.
On September 15, 2004, the board of directors of Tianshi International ratified
the Joint Venture Project. Tiens Yihai is located in Shanghai, PRC, and is in
the business of research and development, production and marketing of
healthcare, home care and personal care products.

The total amount to be invested in Tiens Yihai will amount to $400 million, of
which $200 million will be registered capital. Tianshi International will
contribute $198.8 million, representing approximately 99.4% of the registered
capital of Tiens Yihai, and Tianshi Pharmaceuticals will contribute $1.2 million
representing 0.6% of the registered capital of Tiens Yihai. Tianshi
International will secure additional financing for the remaining $200 million.

                                       21
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - INVESTMENT IN TIENS YIHAI CO., LTD. (continued)

A total of 15%, or approximately $30,000,000, of the registered capital is
required to be contributed by the joint venture partners, within three months
after the business license has been issued. The remaining registered capital
amounts are required to be contributed by each joint venture partner by May 27,
2007. Tianshi International has made its required capital contribution in the
amount of $29,861,853.

In 2005, the Chinese central government issued its "Adjustment of Macro-Economic
Policy". This policy implements a new scheme of investment and use of
state-owned assets, including land. Pursuant to this policy, local government
organizations have been adjusting and re-allotting projects, including
investment, construction and reconstruction of state-owned resources. As a
result, projects and enterprises that have been affected, including Tiens Yihai,
which project is being constructed on state-owned property, are currently
awaiting further decisions by state and local government. Presently, we are
unable to forecast the direction, outcome and/or completion date of the Tiens
Yihai project. As of September 30, 2006, Tiens Yihai was a developmental stage
company and had not yet conducted any operations.

NOTE 9 - EMPLOYEE ADVANCES

Employee advances represents cash advances to various employees of the Company.
In the PRC, a majority of business transactions are completed in cash. These
cash advances represent monies advanced to certain employees to pay for various
expenses and purchases related to the Company's daily operations. Employee
advances amounted to $352,694 and $145,071 at September 30, 2006 and December
31, 2005, respectively.

NOTE 10 - RETIREMENT PLAN

Regulations in the PRC require the Company to contribute to a defined
contribution retirement plan for all employees. All Biological employees are
entitled to a retirement pension amount calculated based upon their salaries at
their dates of retirement and length of service in accordance with a government
managed pension plan. The PRC government is responsible for the pension
liability to retired personnel.

Biological is required to make contributions to the state retirement plan at 20%
of the employees' monthly salaries. Employees are required to contribute 7% of
their salaries to the plan. Total pension expense incurred by the Company
amounted to $359,863 and $213,075 for the nine months ended September 30, 2006
and 2005, respectively.

The Company also has an unemployment insurance plan for its employees. The plan
requires each employee to contribute 1% of salary to the plan. The Company
matches the contributions in an amount equal to two times the contribution of
each participant. The Company made contributions to the unemployment insurance
plan of $34,510 and $28,887 for the nine months ended September 30, 2006 and
2005, respectively. All contributions are paid to a PRC insurance company, which
in turn, is responsible for the liability.

                                       22
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10 - RETIREMENT PLAN, (continued)

On January 1, 2002, the Company introduced a basic medical insurance plan for
its employees. Pursuant to the new medical insurance plan, the Company is
required to pay an amount equal to 10% of its employees' salaries to a PRC
insurance company, which amounted to $195,970 and $111,191 for the nine months
ended September 30, 2006 and 2005, respectively.

NOTE 11 - MINORITY INTEREST DISTRIBUTIONS

Minority interest represents the outside shareholders' 20% ownership of
Biological and 0.6% ownership of Tiens Yihai. The board of directors of
Biological has authorized the following distributions to their shareholders in
direct proportion to their ownership percentages.

<TABLE>
<CAPTION>
                                    Tianshi             Minority
           Date                  International         Shareholder           Total
--------------------------       -------------        -------------       -------------
<S>                          <C>                  <C>                 <C>
March 22, 2004               RMB    82,430,670    RMB    20,607,668   RMB   103,038,338
June 30, 2004                       80,525,905           20,131,476         100,657,381
December 31, 2004                  100,000,000           25,000,000         125,000,000
Amount paid                       (182,430,670)         (65,739,144)       (248,169,814)
                                 -------------        -------------       -------------
December 31, 2004 Balance           80,525,905                    -          80,525,905

June 30, 2005                      112,862,432           48,996,288         161,858,720
Amount paid                        (49,105,499)         (48,996,288)        (98,101,787)
                                 -------------        -------------       -------------
September 30, 2005 Balance         144,282,838                    -         144,282,838
Amount paid                        (16,171,200)                   -         (16,171,200)
                                 -------------        -------------       -------------
December 31, 2005 Balance          128,111,638                    -         128,111,638

April, 2006                        243,012,224           60,753,056         303,765,280
Amount paid                        (12,474,455)         (58,894,151)        (71,368,606)
                                 -------------        -------------       -------------
September 30, 2006 Balance   RMB   358,649,407    RMB     1,858,905   RMB   360,508,312
                                 =============        =============       =============

September 30, 2006 Balance   USD    45,405,015    USD       235,336   USD    45,640,351
                                 =============        =============       =============
</TABLE>

The dividends paid to Tianshi International had been used to invest in Tiens
Yihai, as described in note 8, and loaned to Tianyuan Capital in the amount of
$4,400,000 in January 2006. This loan was paid back in September 2006, along
with accrued interest. Biological declared dividends in April 2006 for a total
of RMB 303,765,280 and dividends of RMB 12,474,455 and RMB 58,894,151 have been
paid to Tianshi International and the minority shareholder, respectively.

                                       23
<PAGE>

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

In this Quarterly Report on Form 10-Q, references to "dollars" and "$" are to
United States Dollars. References to "we", "us", the "Company" or "Tiens USA"
include Tiens Biotech Group (USA), Inc. and its subsidiaries, except where the
context requires otherwise.

FORWARD-LOOKING STATEMENTS:

The following discussion of the financial condition and results of operations
should be read in conjunction with the consolidated financial statements and
related notes thereto. The words or phrases "would be," "will allow," "expect
to", "intends to," "will likely result," "are expected to," "will continue," "is
anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements". Such statements include those concerning
our expected financial performance, our corporate strategy and operational
plans. Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of risks and uncertainties,
including:

(a) those risks and uncertainties related to general economic conditions in
China, including regulatory factors that may affect such economic conditions;

(b) whether we are able to manage our planned growth efficiently and operate
profitable operations;

(c) whether Tianshi Biological Engineering Co. Ltd., the entity to which we sell
all of our products in China, is granted a direct selling license by the Chinese
government;

(d) whether Chinese central government policies may adversely affect the
direction, outcome and/or completion date of the Tiens Yihai Co., Ltd. project;

(e) whether our management will be able to identify, hire, train, retain,
motivate and manage required personnel or that management will be able to
successfully manage and exploit existing and potential market opportunities;

(f) whether we are able to generate sufficient revenues or obtain financing to
sustain and grow our operations; and

(g) whether we are able to successfully fulfill our primary requirements for
cash which are explained below under "Liquidity and Capital Resources."

Statements made herein are as of the date of the filing of this Form 10-Q with
the Securities and Exchange Commission and should not be relied upon as of any
subsequent date.

Unless otherwise required by applicable law, we do not undertake, and we
specifically disclaim any obligation, to update any forward-looking statements
to reflect occurrences, developments, unanticipated events or circumstances
after the date of such statement.

The following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto and other
financial information contained elsewhere in this Form 10-Q.

                                       24
<PAGE>

OVERVIEW

Tiens USA researches, develops, manufactures, and markets nutrition supplement
products, including wellness products and dietary supplement products, and
personal care products. Our operations are conducted from our headquarters in
Tianjin, People's Republic of China ("China") through our 80% owned subsidiary,
Tianjin Tianshi Biological Development Co. Ltd. ("Biological"). We sell our
products to affiliated companies in China and internationally.

Tiens USA is a Delaware corporation. We own 100% of Tianshi International
Holdings Group Ltd., a British Virgin Islands company ("Tianshi International").
Tianshi International owns 80% of Biological.

Tianjin Tianshi Pharmaceuticals Co., Ltd. ("Tianshi Pharmaceuticals"), a Chinese
company, owns the remaining 20% of Biological. Tianshi Pharmaceuticals is 87.66%
owned by Tianjin Tianshi Group Co., Ltd. ("Tianshi Group"), a Chinese company,
and 7.29% owned by Mr. Li's daughter, Ms. Baolan Li. Tianshi Group is 90% owned
by Mr. Li and 10% owned by Ms. Li. Tianshi Group also owns 51% of Tianjin
Tianshi Biological Engineering Co. Ltd. ("Tianshi Engineering"), the entity to
which we sell all of our products for consumption in China. Ms. Li owns the
remaining 49% of Tianshi Engineering.

In April 2004, Tianshi International entered a joint venture contract with
Tianshi Pharmaceuticals to establish Tiens Yihai Co., Ltd., a Chinese-Foreign
Equity Joint Venture ("Tiens Yihai"). Tiens Yihai is 99.4% owned by Tianshi
International and 0.6% owned by Tianshi Pharmaceuticals. Tiens Yihai is located
in Shanghai, China, and was established to build a new research and development
facility which would also produce our nutrition supplement, home care, and
personal care products. As of September 30, 2006, Tiens Yihai was a
developmental stage company and had not yet conducted any operations.

CRITICAL ACCOUNTING POLICIES

Management's discussion and analysis of its financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. Our financial statements reflect the selection and application of
accounting policies which require management to make significant estimates and
judgments. See note 2 to our consolidated financial statements, "Summary of
Significant Accounting Policies." Management bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. We believe that the following reflect the
more critical accounting policies that currently affect our financial condition
and results of operations.

REVENUE RECOGNITION

We recognize revenue from sales by distributors in China, net of sales
commissions and taxes, when the related Chinese distributor recognizes sales of
our products to unaffiliated third parties. We recognize revenue from
international (non-Chinese) sales to both affiliated and unaffiliated third
parties, net of commissions and taxes, when goods are shipped and cleared by the
international customs department. As of September 30, 2006, Tianshi Engineering,
an affiliated company, continued to own all of the related party distributors
which sell our products in China.

                                       25
<PAGE>

We are generally not contractually obligated to accept returns. However, on a
case by case negotiated basis, we permit customers to return product. In
accordance with SFAS No. 48, "Revenue Recognition when the Right of Return
Exists", revenue is recorded net of an allowance for estimated returns. Such
reserves are based upon management's evaluation of historical experience and
estimated costs. The amount of the reserves ultimately required could differ
materially in the near term from amounts included in the accompanying
consolidated financial statements.

BAD DEBTS

Our business operations are conducted primarily in China. During the normal
course of business, we extend unsecured credit to our customers, all of whom are
affiliated parties. Management reviews our accounts receivable on a regular
basis to determine if the bad debt allowance is adequate at each fiscal year
end. We record a provision for accounts receivable trade which ranges from 0.3%
to 0.5% of our outstanding accounts receivable balance in accordance with
generally accepted accounting principles in China.

INVENTORIES

We record reserves against our inventory to provide for estimated obsolete or
unsalable inventory based on assumptions about future demand for its products
and market conditions. If future demand and market conditions are less favorable
than management's assumptions, additional reserves could be required. Likewise,
favorable future demand and market conditions could positively impact future
operating results.

                                       26
<PAGE>

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2006
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2005 AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2006 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 2005

<TABLE>
<CAPTION>
                                              Three months                                  Nine months
                                           ended September 30,                          ended September 30,
                                      ------------------------------               ------------------------------
                                          2006             2005          Change         2006            2005          Change
                                      -------------    -------------     ------    -------------    -------------     ------
<S>                                   <C>              <C>                 <C>     <C>              <C>                 <C>
Revenue-related party                 $  19,187,748    $  19,126,809        0.3%   $  50,203,306    $  50,730,467       -1.0%
Cost of sales                         $   5,066,051    $   4,954,198        2.3%   $  13,714,739    $  12,609,428        8.8%
Gross profit                          $  14,121,697    $  14,172,611       -0.4%   $  36,488,567    $  38,121,039       -4.3%
Selling, general and
 administrative expense               $   2,803,859    $   2,795,414        0.3%   $   8,641,512    $   7,894,965        9.5%
Other income (expense), net           $     164,104    $    (126,969)         -    $     127,458    $    (814,133)         -
Provision for income taxes            $     878,931    $     869,769        1.1%   $   2,188,491    $   2,315,214       -5.5%
Minority interest                     $   2,167,747    $   2,175,715       -0.4%   $   5,396,570    $   5,691,784       -5.2%
Net income                            $   8,435,264    $   8,204,744        2.8%   $  20,389,452    $  21,404,943       -4.7%
Gross profit margin                            73.6%            74.1%      -0.5%            72.7%            75.1%      -2.4%
Selling, general and administrative
 expense as a percentage of sales              14.6%            14.6%         0%            17.2%            15.6%       1.6%
Net profit margin                              44.0%            42.9%       1.1%            40.6%            42.2%      -1.6%
</TABLE>

REVENUE. For the three months ended September 30, 2006, revenue was nearly
constant at $19.2 million compared to $19.1 million for the same period in 2005.
For the nine months ended September 30, 2006, revenue was $50.2 million compared
to $50.7 million for the same period in 2005, a decrease of 1.0%.

The breakdown of revenue between Chinese and international sales is as follows.

<TABLE>
<CAPTION>
                                              Three months                                  Nine months
                                           ended September 30,                          ended September 30,
                                      ------------------------------               ------------------------------
                                          2006             2005          Change         2006            2005          Change
                                      -------------    -------------     ------    -------------    -------------     ------
<S>                                   <C>              <C>                <C>      <C>              <C>                <C>
China                                 $   7,240,485    $   9,181,333      -21.1%   $  20,281,510    $  27,494,733      -26.2%
International                         $  11,947,263    $   9,945,476       20.1%   $  29,921,796    $  23,235,734       28.8%
                                      -------------    -------------               -------------    -------------
Total                                 $  19,187,748    $  19,126,809        0.3%   $  50,203,306    $  50,730,467       -1.0%
</TABLE>

                                       27
<PAGE>

For the three months ended September 30, 2006, revenues in China were $7.2
million, a decrease of 21.1% compared to the same period in 2005. For the nine
months ended September 30, 2006, revenues in China were $20.3 million, a
decrease of 26.2% compared to the same period in 2005. At the beginning of 2006,
we began selling semi-finished products to Tianshi Engineering. In order to
qualify for a direct selling license in China, Tianshi Engineering, our related
party customer in China, is required to produce a part of the products that it
sells in China. As a result, in 2006, we began to sell semi-finished products to
Tianshi Engineering, which jointly shares with us licenses to produce,
manufacture and sell the products. These semi-finished products have a lower
sales price than the finished products we had previously sold to Tianshi
Engineering.

In addition, we believe that sales to China were negatively impacted by other
factors, including:

o continued consumer uncertainty in China regarding the impact of recently
enacted direct selling regulations and uncertainty regarding the timing of the
direct selling license application process and approval; and

o increased government and media scrutiny on the direct selling industry,
particularly following last year's publication of the new direct selling
regulations.

The application of Tianshi Engineering for a direct selling license in China is
still pending.

For the three months ended September 30, 2006, international revenues were $11.9
million, an increase of 20.1% compared to the same period in 2005. For the nine
months ended September 30, 2006, international revenues were $29.9 million, an
increase of 28.8% compared to the same period in 2005. The increase in
international sales for the nine months ended September 30, 2006 was mainly due
to a significant sales increase in Indonesia, as well as strong revenue growth
in Nigeria, South Africa, Ghana, Kazakstan, Uzbekistan, Congo, Kenya, Hungary
and Uganda.

COST OF SALES. Cost of sales for the three months ended September 30, 2006
increased to $5.1 million, or by 2.3%, compared to $5.0 million for the same
period in 2005. For the nine months ended September 30, 2006, cost of sales was
$13.7 million compared to $12.6 million for the same period in 2005, an increase
of 8.8%. In order to improve the quality of our products, during 2006 we have
introduced some new manufacturing procedures and stricter quality control
testing than previously, which added to our manufacturing costs. However, we
believe that once our production team becomes more familiar with the new
production procedures, the manufacturing costs of our products will decrease.

GROSS PROFIT. Gross profit remained constant at $14.1 million for the three
months ended September 30, 2006 compared to $14.2 million for the same period in
2005. For the nine months ended September 30, 2006, gross profit was $36.5
million compared to $38.1 million for the same period in 2005, a decrease of
4.3%. The gross profit margins for the three months ended September 30, 2006 was
73.6% compared to 74.1% for the same period in 2005 and 72.7% for the nine
months ended September 30, 2006 compared to 75.1% for the same period in 2005.

The decrease in our margins was primarily due to the lower margin on our
semi-finished products that we sell to Tianshi Engineering compared to our
finished goods, as well as the added manufacturing costs on our goods due to new
manufacturing procedures, as discussed in cost of sales above. Because sales in
our Chinese market have decreased, the average fixed cost per unit is
comparatively higher than in 2005.

                                       28
<PAGE>

If Tianshi Engineering receives a direct selling license from the Chinese
government, all existing and newly developed products that we sell to Tianshi
Engineering will be required to be sold in a semi-finished state in order to
comply with Tianshi Engineering's qualification for, and maintenance of, a
direct selling license in China.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses was $2.8 million for both the three months ended
September 30, 2006 and for the same period in 2005. For the nine months ended
September 30, 2006, selling, general and administrative expense was $8.6 million
compared to $7.9 million for the same period in 2005, an increase of 9.5%. The
increase was primarily due to an increase in the number of employees and in the
level of salaries, and to a lesser extent, an increase in research and
development expenses. These increases have been made to support growth of our
international sales. These increases have also been made in anticipation of
Tianshi Engineering receiving a direct selling license in China and the related
increase in our sales and marketing efforts which management believes will
follow. The selling and administrative expenses as a percentage of sales was
14.6% for both the three months ended September 30, 2006 and for the same period
in 2005 and increased to 17.2% for the nine months ended September 30, 2006,
from 15.6% for the same period in 2005.

OTHER INCOME (EXPENSE), NET. Other income (expense), net was $0.2 million of
income for the three months ended September 30, 2006, compared to $0.1 million
of expense for the same period in 2005. For the nine months ended September 30,
2006, other income (expense), net was $0.1 million of income compared to $0.8
million of expense for the same period in 2005. During the first quarter of
2005, we incurred a one-time expense of $339,299 for additional taxes and
penalties paid by us to the Chinese government related to a VAT examination by
the local government. Other income derived mainly from us testing other
company's products and from investment and interest income.

PROVISION FOR INCOME TAXES. Provision for income taxes was $0.9 million for both
the three months ended September 30, 2006 and for the same period in 2005. For
the nine months ended September 30, 2006, provision for income taxes was $2.2
million compared to $2.3 million for the same period in 2005. From January 1,
2005 through December 31, 2007, Biological is subject to income tax at a reduced
rate of 7.5%. From January 1, 2008 forward, Biological will be subject to a 15%
income tax rate.

NET INCOME. As a result of the foregoing factors, net income for the three
months ended September 30, 2006 was $8.4 million, an increase of 2.8% compared
to $8.2 million for the same period in 2005. Net income for the nine months
ended September 30, 2006 was $20.4 million compared to $21.4 million for the
same period in 2005, a decrease of 4.7%.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We market all of our products through various domestic and international
business entities that are related to our company through common ownership.
Related party sales amounted to 100% of our total consolidated sales.

                                       29
<PAGE>

We have a sales contract with Tianshi Engineering which requires Tianshi
Engineering to purchase all of our products to be sold in China. We sell our
finished products to Tianshi Engineering at a price equal to 25% of the Chinese
market price for the products. This 25% figure was negotiated between the
parties in 2003, before we acquired Tianshi International, and we believe that
it is a reasonable sales price for us to receive. All of Tianshi Engineering's
Chinese affiliated companies are owned in whole or in part by Mr. Jinyuan Li's
immediate family members.

Internationally, we sell our products directly to our overseas affiliates. Due
to the common ownership, there are no formal sales or administrative agreements
among Biological and those overseas related parties. The business operations
among these related entities are regulated through internal ordinances.

The following tables are provided to facilitate your understanding of the
relationships between the related parties and us and their transactions with us
during 2006 and 2005.

<TABLE>
<CAPTION>
                                                September 30, 2006   December 31, 2005
                                                ------------------   ------------------
<S>                                             <C>                  <C>
Accounts receivable, trade - related parties,
 net of allowance for doubtful accounts of
 $211,255 and $206,916 as of September 30,
 2006 and December 31, 2005, respectively       $       11,989,706   $        2,165,958
Other receivables - related parties             $        3,306,690   $        3,281,081
Loans receivable - related parties              $       25,320,000   $                0
Advances from customers - related parties       $        1,531,406   $        2,077,130
Other payables - related parties                $          534,846   $        1,816,534
</TABLE>

ACCOUNTS RECEIVABLE, TRADE - RELATED PARTIES. Accounts receivable,
trade - related parties increased by $9.8 million for the nine months ended
September 30, 2006. We believe that the Chinese market has great potential. In
order to increase its market share of the Chinese market, Tianshi Engineering
has been spending on sales and marketing in China, such as advertising on
Chinese television. To support these efforts by Tianshi Engineering, we extended
the date to collect payment for our sales to Tianshi Engineering. We continued
to collect a portion of the accounts receivable from Tianshi Engineering during
the third quarter of 2006.

OTHER RECEIVABLES - RELATED PARTIES. We were owed $3.3 million as of September
30, 2006 and December 31, 2005, classified as other receivables from related
parties. These receivables are generated from our various cash advances and the
allocation of administrative and operating costs incurred with related parties.

                                       30
<PAGE>

LOANS RECEIVABLE - RELATED PARTIES. Loans receivable to related parties were
$25.3 million and $0 as of September 30, 2006 and December 31, 2005,
respectively. On January 1, 2006, Biological loaned RMB 200,000,000 ($25.3
million) to Tianshi Engineering, which was due on June 30, 2006. The loan was
non-interest bearing, and the purpose of the loan was to enable Tianshi
Engineering to increase its sales and marketing efforts in the Chinese Market.
We sell our products exclusively through Tianshi Engineering in China. On June
29, 2006, Biological extended the loan to December 31, 2006. If Engineering is
not able to repay the loan by the end of its term on December 31, 2006, then we
will review our options to extend the loan on different terms, including the
accrual interest. In such case, we will balance our cash needs versus the
importance of Tianshi Engineering continuing to develop the Chinese market in
anticipation of receiving a direct selling license.

                                       31
<PAGE>

On January 23, 2006, the Company entered into a short-term finance agreement
with Tianyuan Capital to provide short-term finance in the principal amount of
$4,400,000. The short-term finance bore an interest rate of London Inter-Bank
Offer Rate minus five basis points. Both the principal and interest of $151,597
were paid back on September 26, 2006.

Advances from customers - related parties. Advances from related party customers
were $1.5 million as of September 30, 2006 compared to $2.1 as of December 31,
2005. Advances from customers reflect the prepayment by certain of our customers
to insure that they can continue to obtain enough of our products to meet their
demand. The decrease reflects a decrease in advances from Tianshi Engineering
resulting from a decrease in sales in China.

Other payable - related parties. Other payables due to related parties as of
September 30, 2006 and December 31, 2005, were $0.5 million and $1.8 million,
respectively. These amounts arose from various operational transactions incurred
with related parties.

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

Net cash provided by operating activities was $17.8 million for the nine months
ended September 30, 2006, compared to $16.2 million for the same period in 2005.
Net cash used in investing activities as of September 30, 2006 increased to
$29.4 million compared to $5.3 million for the same period in 2005. This was
mainly due to the loan of $25.3 million to Tianshi Engineering.

Net cash used in financing activities was $8.4 million for the nine months ended
September 30, 2006, compared to $0.2 million in the same period for 2005. For
the nine months ended September 30, 2006, we paid a dividend of $7.3 million to
the minority shareholder of Biological and paid the first installment of $1.1
million back to Tianyuan on its $10.65 million loan to us.

As of September 30, 2006 and December 31, 2005, we had cash of $58.8 million and
$77.5 million, respectively, a decrease of $18.8 million. This decrease is
primarily due to the loans of $25.3 million to Tiens Engineering and the payment
of a $7.3 million dividend to a minority shareholder. In addition, our accounts
receivable-trade related party increased by $9.8 million for the nine months
ended September 30, 2006. Approximately 70% of the cash was held in the bank
account of Biological, 19% in the bank account of Tiens Yihai, and 11% in the
bank account of Tianshi International.

Inventories were $6.9 million and $7.5 million as of September 30, 2006 and
December 31, 2005, respectively. The amount of raw materials, work-in-progress
and finished goods decreased by $644,394. The primary reason for this decrease
is that the amount of inventory, including raw materials and finished goods,
stored at the end of 2005 was relatively large because we took advantage of
volume discounts on raw materials and this inventory has been used during 2006
In addition, Biological started selling semi-finished good to Engineering at the
beginning of 2006. Therefore, the number of finished products in inventory
decreased. We currently produce semi-finished products on order from Tiens
Engineering and do not maintain inventories of semi-finished products.

Accounts payable was $4.1 million and $2.7 million as of September 30, 2006 and
December 31, 2005, respectively. The increase in accounts payable was primarily
due to the lengthening of the credit term given by our suppliers.

                                       32
<PAGE>

Going forward, our primary requirements for cash consist of:

o the continued production of existing products and general overhead and
personnel related expenses to support these activities;

o continued promotion of networking sales activities;

o the development costs of new products;

o construction and development of the business plan for Tiens Yihai, and

o expansion of production scale to meet the demands of our growing markets.

We anticipate that our current operating activities will enable us to meet the
anticipated cash requirements for the 2006 fiscal year.

MANAGEMENT ASSUMPTIONS

Management anticipates, based on internal forecasts and assumptions relating to
our current operations that existing cash and funds generated from operations
will be sufficient to meet working capital for at least the next 12 months. In
the event that plans change, our assumptions change or prove inaccurate or if
other capital resources and projected cash flow otherwise prove to be
insufficient to fund operations (due to unanticipated expense, technical
difficulties, or otherwise), we could be required to seek additional financing.
There can be no assurance that we will be able to obtain additional financing on
terms acceptable to it, or at all.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

EFFECTS OF INFLATION

We are subject to commodity price risks arising from price fluctuations in the
market prices of the various raw materials that comprise our products. Price
risks are managed by each business unit through productivity improvements and
cost-containment measures. For the time being, the management does not believe
that inflation risk is material to our business or our consolidated financial
position, results of operations or cash flows.

EFFECT OF FLUCTUATION IN FOREIGN EXCHANGE RATES

Our operating subsidiary, Biological, is located in China, and buys all of its
raw materials in China and sells 50% of our products in China using the Chinese
Renminbi ("RMB") as the functional currency. Based on Chinese government
regulations, all foreign currencies under the category of current accounts are
allowed to be freely exchanged with hard currencies. On July 21, 2005, the
Chinese government approved the increase in the valuation of RMB against the US
dollar by 2%.

                                       33
<PAGE>

Substantially all our revenues and expenses are denominated in the Chinese
Renminbi. However, we use the United States dollar for financial reporting
purposes. The value of Chinese Renminbi against the United States dollar and
other currencies may fluctuate and is affected by, among other things, changes
in China's political and economic conditions. As our operations are primarily in
China, any significant revaluation of the Chinese Renminbi may materially and
adversely affect our cash flows, revenues and financial condition. For example,
to the extent that we need to convert United States dollars into Chinese
Renminbi for our operations, appreciation of this currency against the United
States dollar could have a material adverse effect on our business, financial
condition and results of operation. Conversely, if we decide to convert our
Chinese Renminbi into United States dollars for other business purposes and the
United States dollar appreciates against this currency, the United States dollar
equivalent of the Chinese Renminbi would be reduced.

Given the uncertainty of exchange rate fluctuations, we cannot estimate the
effect of these fluctuations on our future business, product pricing, results of
operations or financial condition. Currently we have not entered agreements or
purchased instruments to hedge our exchange rate risks, although we may do so in
the future.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of management, including our
chief executive officer and the chief financial officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as of the end of the period covered by this
report (the "Evaluation Date"). Based on this evaluation, our chief executive
officer and chief financial officer concluded as of the Evaluation Date that our
disclosure controls and procedures were effective such that the material
information required to be included in our Securities and Exchange Commission
("SEC") reports is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms relating to our company, including our
consolidating subsidiaries, and was made known to them by others within those
entities, particularly during the period when this report was being prepared.

Additionally, there were no significant changes in our internal controls or in
other factors that could significantly affect these controls subsequent to the
Evaluation Date. We have not identified any significant deficiencies or material
weaknesses in our internal controls, and therefore there were no corrective
actions taken.

                           PART II - OTHER INFORMATION

ITEM 1A. RISK FACTORS

Our 2005 Annual Report on Form 10-K includes a detailed discussion of our risk
factors. The information presented below updates those risk factors and should
be read in conjunction with the risk factors and information disclosed in that
Form 10-K.

                                       34
<PAGE>

UNCERTAINTY IN THE DEVELOPMENT OF DIRECT SELLING REGULATIONS MAY ADVERSELY
AFFECT SALES OF OUR PRODUCTS IN CHINA.

Because of the Chinese government's significant concerns about direct selling
practices, government regulators in China scrutinize very closely activities of
direct selling companies or activities that resemble direct selling. This
scrutiny has increased following adoption of the new direct selling regulations
in 2005. The regulatory environment in China with regards to direct selling is
evolving, and officials in the Chinese government often exercise significant
discretion in deciding how to interpret and apply applicable regulations. In the
past, the government has taken significant actions against companies that the
government found were engaging in direct selling activities in violation of
applicable law, including shutting down their businesses and imposing
substantial fines.

The direct selling regulations require Tianshi Engineering, our affiliate that
sells our products in China, to apply for approval to conduct direct selling in
China. Some of our competitors in China have recently been granted direct
selling licenses. There can be no assurance that Tianshi Engineering will be
able to obtain such license. Additionally, although certain regulations have
been published, others are pending, and there is uncertainty regarding the
interpretation and enforcement of such regulations.

OUR PRODUCTS ARE SUBJECT TO REGULATION AS NUTRITIONAL SUPPLEMENT PRODUCTS AND
OTHER RISKS IN MARKETS OUTSIDE CHINA

Nutrition supplement products are subject to regulations that vary by country.
Obtaining approval to sell nutrition supplement products internationally
involves complexities of dealing with a variety of governmental regulations. We
have limited experience in dealing with the specific regulations that may be
required to sell our products in certain international markets, which could
delay our ability to obtain relevant regulatory approval for our products in
these markets. In addition, our product sales in other countries are subject in
varying degrees to product regulatory regimes and direct marketing or
distribution regulations. Although currently these aspects are handled by our
affiliated distributors in the relevant jurisdictions, there can be no assurance
that our company and our affiliates and distributors will not be adversely
affected by compliance issues or changes in applicable laws and regulations in
relevant jurisdictions. Complying with these widely varying and sometimes
inconsistent regulations can be difficult and require the devotion of
significant resources. If our affiliated customers are unable to continue
business in existing markets or commence operations in new markets because of
these laws, our revenue and profitability will decline.

DUE TO CHINESE CENTRAL GOVERNMENT POLICIES, WE MAY NOT BE ABLE TO COMPLETE
DEVELOPMENT OF OUR YIHAI DEVELOPMENT FACILITY

During 2005 the Chinese central government was implementing its "Adjustment of
Macro-Economic Policy" which creates a new scheme of investment and use of
state-owned assets, including land. Pursuant to this policy, local government
organizations have been adjusting and re-allotting projects, including
investment, construction and reconstruction of state-owned resources. As a
result, projects and enterprises that have been affected, including Tiens Yihai,
which project is being constructed on state-owned property, are currently
awaiting further decisions by state and local government. Presently, we are
unable to forecast the direction, outcome and/or completion date of the Tiens
Yihai project.

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<PAGE>

ITEM 6. EXHIBITS

Exhibit No.    Description
-----------    -----------------------------------------------------------------
   31.1        Certification of the Chief Executive Officer pursuant to Section
               302 of the Sarbanes-Oxley Act of 2002.

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

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

                                       36
<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                           TIENS BIOTECH GROUP (USA), INC.

     Date: November 14, 2006

                                           /s/ Jinyuan LI
                                           -------------------------------------
                                           Jinyuan Li
                                           Chief Executive Officer and President
                                           (Principal Executive Officer)

     Date: November 14, 2006

                                           /s/ Wenjun Jiao
                                           -------------------------------------
                                           Wenjun Jiao
                                           Chief Financial Officer
                                           (Principal Accounting Officer)

                                       37