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

                     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 June 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 August
11, 2006.

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

<PAGE>

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

                                                                            PAGE
                                                                            ----
Part I. Financial Information                                                  3

Item 1. Financial Statements (unaudited)                                       3

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

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

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

Consolidated Statements of Cash Flows for the six months ended
 June 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            32

Item 4. Controls and Procedures                                               32

Part II. Other Information                                                    32

Item 1. Legal Proceedings                                                     32

Item 1A. Risk Factors                                                         33

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds           34

Item 3. Defaults Upon Senior Securities                                       34

Item 4. Submission of Matters to a Vote of Security Holders                   34

Item 5. Other Information                                                     34

Item 6. Exhibits                                                              34

                                        2
<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                    June 30,       December 31,
                                                                      2006             2005
                                                                 --------------   --------------
                                                                  (Unaudited)
<S>                                                              <C>              <C>
                            ASSETS
                            ------
CURRENT ASSETS:
    Cash                                                         $   32,693,709   $   77,545,991
    Short-term investment                                            13,772,000                -
    Accounts receivable, trade - related parties, net of
      allowance for doubtful accounts of $208,919 and $206,916
      as of June 30, 2006 and December 31, 2005, respectively         6,792,469        2,165,958
    Other receivables                                                   446,563          234,486
    Other receivables - related parties                               5,769,960        3,281,081
    Loans receivable - related parties                               29,440,000                -
    Inventories                                                       6,319,334        7,516,352
                                                                 --------------   --------------
      Total current assets                                           95,234,035       90,743,868
                                                                 --------------   --------------

PLANT AND EQUIPMENT, net                                             27,435,670       24,877,688
                                                                 --------------   --------------
OTHER ASSETS:
    Intangible assets, net                                              476,482          476,637
    Employee advances                                                   431,550          145,071
    Deposits                                                          4,988,501        5,380,890
                                                                 --------------   --------------
      Total other assets                                              5,896,533        6,002,598
                                                                 --------------   --------------

        Total assets                                             $  128,566,238   $  121,624,154
                                                                 ==============   ==============
             LIABILITIES AND SHAREHOLDERS' EQUITY
             ------------------------------------

CURRENT LIABILITIES:
    Accounts payable                                             $    3,649,734   $    2,698,813
    Advances from customers - related parties                         1,552,574        2,077,130
    Wages and benefits payable                                          561,734        1,045,052
    Other taxes payable                                                 920,549        1,413,054
    Other payables                                                      377,963          339,390
    Other payables - related parties                                  1,479,717        1,816,534
    Dividend payable to minority interest                               232,735                -
    Current portion of long term debt, related party                  2,130,000        2,130,000
                                                                 --------------   --------------
      Total current liabilities                                      10,905,006       11,519,973

LONG TERM DEBT, net of current portion, related party                 7,462,742        8,527,742
                                                                 --------------   --------------

      Total liabilities                                              18,367,748       20,047,715
                                                                 --------------   --------------

MINORITY INTEREST                                                     7,611,117       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                                                81,033,247       69,079,060
    Accumulated other comprehensive income                            3,220,000        2,234,213
                                                                 --------------   --------------
      Total shareholders' equity                                    102,587,373       89,647,399
                                                                 --------------   --------------
        Total liabilities and shareholders' equity               $  128,566,238   $  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 SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (Unaudited)

<TABLE>
<CAPTION>
                                                 Three months ended June 30,        Six months ended June 30,
                                                -----------------------------    ------------------------------
                                                    2006            2005             2006             2005
                                                -------------   -------------    -------------    -------------
<S>                                             <C>             <C>              <C>              <C>
REVENUE - RELATED PARTIES                       $  14,292,998   $  17,307,659    $  31,015,558    $  31,603,658

COST OF SALES                                       3,842,392       4,197,812        8,648,688        7,655,230
                                                -------------   -------------    -------------    -------------
GROSS PROFIT                                       10,450,606      13,109,847       22,366,870       23,948,428

SELLING, GENERAL AND  ADMINISTRATIVE EXPENSES       3,271,232       2,465,676        5,837,653        5,099,551
                                                -------------   -------------    -------------    -------------
INCOME FROM OPERATIONS                              7,179,374      10,644,171       16,529,217       18,848,877

OTHER INCOME (EXPENSE), NET                             1,075        (224,103)         (36,646)        (687,164)
                                                -------------   -------------    -------------    -------------
INCOME BEFORE PROVISION FOR INCOME TAXES
 AND MINORITY INTEREST                              7,180,449      10,420,068       16,492,571       18,161,713

PROVISION FOR INCOME TAXES                            576,029         829,185        1,309,560        1,445,445
                                                -------------   -------------    -------------    -------------
INCOME BEFORE MINORITY INTEREST                     6,604,420       9,590,883       15,183,011       16,716,268

MINORITY INTEREST                                   1,419,943       1,995,963        3,228,824        3,516,069
                                                -------------   -------------    -------------    -------------
NET INCOME                                          5,184,477       7,594,920       11,954,187       13,200,199

OTHER COMPREHENSIVE INCOME
     Foreign currency translation adjustment          267,960             999          985,787              999
                                                -------------   -------------    -------------    -------------
COMPREHENSIVE INCOME                            $   5,452,437   $   7,595,919    $  12,939,974       13,201,198
                                                =============   =============    =============    =============
EARNINGS PER SHARE, BASIC AND DILUTED           $        0.07   $        0.11    $        0.17    $        0.19
                                                =============   =============    =============    =============
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 SIX MONTHS ENDED JUNE 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                                                                              13,200,199                     13,200,199
  Foreign currency translation gain                                                                             999             999
                                      ------------  --------  -----------  -----------  ------------  -------------   -------------
BALANCE, June 30, 2005                  71,333,586    71,334    8,842,009    9,420,783    55,401,139        (11,168)     73,724,097

  Net Income                                                                              13,677,921                     13,677,921
  Foreign currency translation gain                                                                       2,245,381       2,245,381
                                      ------------  --------  ------------ -----------  ------------  -------------   -------------
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                                                                              11,954,187                     11,954,187
  Foreign currency translation gain                                                                         985,787         985,787
                                      ------------  --------  -----------  -----------  ------------  -------------   -------------
BALANCE, June 30, 2006                  71,333,586  $ 71,334  $ 8,842,009  $ 9,420,783  $ 81,033,247  $   3,220,000   $ 102,587,373
                                      ============  ========  ===========  ===========  ============  =============   =============
</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 SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (Unaudited)

<TABLE>
<CAPTION>
                                                                   2006              2005
                                                               --------------   --------------
<S>                                                            <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                 $   11,954,187   $   13,200,199
    Adjustments to reconcile net income to cash
     provided by (used in) operating activities:
       Minority interest                                            3,228,824        3,516,069
       Depreciation                                                 1,128,662          795,972
       Amortization                                                    40,593           43,104
       Loss on sale of assets                                           2,869           75,863
     (Increase) decrease in assets:
       Accounts receivable, trade - related parties                (4,584,214)         355,888
       Other receivables                                             (208,836)         201,073
       Inventories                                                  1,263,874       (4,298,872)
       Employee advances                                             (283,754)        (120,509)
       Deposits                                                       427,445         (929,115)
       Other receivables - related parties                         (2,017,722)         937,234
     Increase (decrease) in liabilities:
       Accounts payable                                               920,495        3,186,147
       Accounts payable - related parties                                   -            8,253
       Advances from customers - related parties                     (542,135)         729,501
       Wages and benefits payable                                    (491,145)         204,069
       Other taxes payable                                           (503,834)         445,912
       Other payables                                                  35,163                -
       Other payables - related parties                              (351,803)        (169,633)
                                                               --------------   --------------
         Net cash provided by operating activities                 10,018,669       18,181,155
                                                               --------------   --------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Increase in short-term investment                             (13,638,900)               -
    Increase in loans receivable - related parties                (29,166,000)               -
    Increase in intangible assets                                     (40,956)         (85,087)
    Proceeds from sales of equipment and automobiles                   34,891           49,466
    Purchase of equipment and automobiles                          (3,881,033)      (3,365,592)
                                                               --------------   --------------
         Net cash used in investing activities                    (46,691,998)      (3,401,213)
                                                               --------------   --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Payments, net of borrowings on short term notes payable        (1,065,000)        (127,715)
    Dividend payments to minority interest shareholders            (7,307,666)      (2,906,338)
                                                               --------------   --------------
         Net cash used in financing activities                     (8,372,666)      (3,034,053)
                                                               --------------   --------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                               193,713              999
                                                               --------------   --------------
(DECREASE) INCREASE IN CASH                                       (44,852,282)      11,746,888

CASH, beginning of period                                          77,545,991       39,243,872
                                                               --------------   --------------

CASH, end of period                                            $   32,693,709   $   50,990,760
                                                               ==============   ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Cash paid for income taxes                                     $    1,339,095   $      577,708
                                                               ==============   ==============

Cash paid for interest expense                                 $      264,254   $        3,722
                                                               ==============   ==============
</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 has 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.

                                        7
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

                                                        Percentage
                     Subsidiary                        Of Ownership
----------------------------------------------------   ------------
Tianshi International
 Holdings Group, Ltd          British Virgin Islands          100.0%
Tianjin Tianshi Biological
 Development Co., Ltd         P.R.C.                           80.0%
Tiens Yihai Co., Ltd.         P.R.C.                           99.4%

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 PRC. 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 the People's Republic of China (the "PRC," or "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 59 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 $3,220,000 and $2,234,213 as of June 30, 2006 and December 31,
2005, respectively. The balance sheet amounts with the exception of equity at
June 30, 2006 were translated at 7.99 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 8.02 RMB to 1.00 USD for the six months
ended June 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
June 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.

                                       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 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.

The Company's subsidiaries, Biological and Tiens Yihai, are Sino-Foreign Joint
Ventures incorporated in the People's Republic of China. 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 June 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 six months ending June 30, 2006 and 2005 were
$1,309,560 and $1,445,445, 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 taxes 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 six months ending
June 30, 2006 and 2005 amounted to $3,142,943 and $3,406,132, respectively. The
net effect on earnings per share if the income tax had been applied would
decrease earnings per share for June 30, 2006 and 2005 by $0.04, and $0.05,
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 six months ended June
30, 2006 and 2005 amounted to $1,128,662, and $795,972, 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 June 30, 2006, the Company expects these assets to be
fully recoverable.

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

                                       June 30, 2006     December 31, 2005
                                      ----------------   -----------------
Buildings and improvements            $     14,277,905   $      13,907,626
Office facilities                              331,335             283,503
Computer equipment and software              1,493,893           1,441,159
Equipment                                    8,266,127           7,352,056
Vehicles                                     4,151,092           3,619,837
Construction in progress                     5,795,767           3,991,285
                                      ----------------   -----------------
      Total                                 34,316,119          30,595,466
Less: Accumulated depreciation               6,880,449           5,717,778
                                      ----------------   -----------------
      Plant and equipment, net        $     27,435,670   $      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 receivable,
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.

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.

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.

                                       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)
------------------------------------------------------

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.

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

Cash includes cash on hand and demand deposits in accounts maintained with
state-owned banks within the PRC. Total cash in state-owned banks at June 30,
2006 and December 31, 2005 amounted to $30,713,423 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 state-owned banks and cash in bank on balance sheet is due to the cash
deposited in non-state-owned banks, such as HSBC, Standard Chartered Bank.

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," ("FAS 115"). The Company purchased an investment product of
RMB 110,000,000 from China Agriculture Bank on January 25, 2006. The investment
guarantees the return of principal with return on investment to be determined at
the end of the investment term or July 25, 2006. The Company determines the
investment to be held-to-maturity according to FAS 115 and recorded it at the
unamortized amount. The total amount invested has been fully collected on the
due date 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.

                                       15
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

                          June 30, 2006     December 31, 2005
                         ----------------   -----------------
Raw materials            $      3,887,039   $       4,654,596
Work-in-progress                  120,980             129,144
Finished goods                  2,311,315           2,732,612
                         ----------------   -----------------
Total                    $      6,319,334   $       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 six
months ended June 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 $657,864 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.

Amortization expense for the six months ended June 30, 2006 and 2005 amounted to
$40,591 and $43,104, respectively, and intangible assets consists of the
following:

                           June 30, 2006    December 31, 2005
                         ----------------   -----------------
Land use rights          $        657,864   $         635,795
Other intangible assets           191,511             150,965
less amortization                (372,893)           (310,123)
                         ----------------   -----------------
Intangible assets, net   $        476,482   $         476,637
                         ================   =================

                                       16
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

The Company as of June 30, 2006 and December 31, 2005 had outstanding deposits
of $4,988,501 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 it is non refundable. The land use right is for a term of 50 years and as
of June 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 six months ended June 30, 2006 and 2005 amounted to
$1,339,095 and $577,708, respectively. Interest paid amounted to $264,254 and
$3,722 for the six months ended June 30, 2006 and 2005, respectively.

In April 2006, the board of Biological declared $7,540,401 of dividend payable
to its Minority shareholder (Tianshi Pharmaceuticals), and it paid $7,307,666 of
dividend to Tianshi Pharmaceuticals on June 22, 2006. The remaining balance of
$232,735 is disclosed under Dividend Payable to Minority Interest in Balance
Sheet.

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 June 30, 2006 and 2005.

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

                                       17
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 semiannual
installments of $1,065,000 on the last day of each June and December commencing
June 2006, and ending December 31, 2011. The first interest payment was to be
paid 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.

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

<TABLE>
<CAPTION>
                                                   June 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
     June 30,                    Amount
-------------------           ------------
       2007                   $  2,130,000
       2008                      2,130,000
       2009                      2,130,000
       2010                      2,130,000
       2011                      1,072,742

NOTE 6 - MINORITY INTEREST

Minority interest represents the outside shareholders' 20% ownership of
Biological and 0.6% ownership of Tiens Yihai.

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.

                                       18
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - RELATED PARTY TRANSACTIONS, (continued)

Tianshi International Holdings Group Limited - British Virgin Island Company
owned 100% by Tiens Biotech Group (USA), Inc.

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

Baolan Li - individual - daughter of Jinyuan Li

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

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

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

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

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

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 $31,015,558 and $31,603,658 for the six months
ended June 30, 2006 and 2005 which represent 100% of total sales for the years
then ended. Related party accounts receivable related to these sales amounted to
$6,792,469 and $2,165,958 as at June 30, 2006 and December 31, 2005,
respectively, net of an allowance for doubtful accounts of $208,919 and
$206,916, respectively.

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 $5,769,960
and $3,281,081 as of June 30, 2006 and December 31, 2005, respectively. Further,
loans receivable from related parties amounted to $29,440,000 and $0 as of June
30, 2006 and December 31, 2005, respectively. The other receivables and loans
receivable consisted of the following:

                                       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, (continued)
---------------------------------------------------

<TABLE>
<CAPTION>
                                                         June 30,     December 31,
                                                           2006           2005
                                                       ------------   ------------
<S>                                                    <C>            <C>
Other receivables - related parties
-----------------------------------
Tianjin Juchao Commercial and Trading Co., Ltd         $          -   $  2,411,657
Tianjin Tianshi Biological Engineering Co., Ltd           3,296,494              -
Xongshi Real Estate Development                                   -        620,000
JinMao (Group) Holding                                            -        101,044
Tianjin Tianshi Group Co., Ltd                            2,472,825        148,380
Tianyuan Development Corp. Ltd                                  641              -
                                                       ------------   ------------
          Total                                        $  5,769,960   $  3,281,081
                                                       ============   ============
Loans receivable - related parties
----------------------------------
Tianjin Tianshi Biological Engineering Co., Ltd        $ 25,040,000   $          -
Tianyuan Development Corp. Ltd                            4,400,000              -
                                                       ------------   ------------
          Total                                        $ 29,440,000   $          -
                                                       ============   ============
</TABLE>

During the last quarter of 2005, Tianshi Engineering borrowed RMB 200,000,000
($25,040,000) 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 6, 2006. The new loan was due on June 30, 2006,
and it was extended for another six months and due on December 31, 2006. The
purpose of the loan is to help Tiens Engineering to strengthen its sales network
in China.

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 is 7 days, and is extended automatically
for another 7-day term until the Company calls it back. The short-term finance
bears an interest rate of London Inter bank Offer Rate minus five basic point
(LIBOR-5BP), which will be calculated at the end of each 7-day term. Both the
principal and interest shall be paid back on the termination of the agreement.

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 $1,479,716 and $1,816,534 as of June 30, 2006 and December 31,
2005, respectively. These amounts arose from various operational transactions
incurred with related parties.

                                       20
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - RELATED PARTY TRANSACTIONS, (continued)

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

On June 30, 2003, the Company entered into 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 $307,606 and $316,037 for the six months ended June 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, P.R.C., 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.

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
March 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 June 30, 2006, Tiens Yihai was a developmental stage
company and had not yet conducted any operations.

                                       21
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 $431,550 and $145,071 at June 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 salary at
their date of retirement and their length of service in accordance with a
government managed pension plan. The PRC government is responsible for the
pension liability to the retired staff.

Biological is required to make contributions to the state retirement plan at 20%
of the employees' monthly salary. Employees are required to contribute 7% of
their salary to the plan. Total pension expense incurred by the Company amounted
to $240,248 and $122,227 for the six months ended June 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 $23,110 and $19,745 for the six months ended June 30, 2006 and 2005,
respectively. All contributions are paid to a PRC insurance company, which in
turn, is responsible for the liability.

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' salary to a PRC
insurance company, which amounted to $131,654 and $62,412 for the six months
ended June 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.

                                       22
<PAGE>

                TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - MINORITY INTEREST DISTRIBUTIONS, (continued)

<TABLE>
<CAPTION>
                                              TIANSHI              MINORITY
              Date                         INTERNATIONAL         SHAREHOLDER              Totals
---------------------------------          -------------         ------------         --------------
<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)
                                           -------------         ------------         --------------
June 30, 2006 Balance                RMB     358,649,407   RMB      1,858,905   RMB      360,508,312
                                           =============         ============         ==============
June 30, 2006 Balance                USD      44,902,906   USD        232,735   USD       45,135,641
                                           =============         ============         ==============
</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 for $4,400,000 in
January 2006. 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 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 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;

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

(e) 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 June 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 June 30, 2006, Tianshi Engineering, an
affiliated company, continued to own all of the related party distributors which
sell our products in China.

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.

                                       25
<PAGE>

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.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2006 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 2005 AND FOR THE SIX MONTHS ENDED JUNE 30, 2006
COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2005

<TABLE>
<CAPTION>
                                               Three months                                Six months
                                              ended June 30,                             ended June 30,
                                      -------------------------------            -------------------------------
                                           2006             2005        Change        2006             2005        Change
                                      --------------   --------------   ------   --------------   --------------   ------
<S>                                   <C>              <C>               <C>     <C>              <C>                <C>
Revenue-related party                 $   14,292,998   $   17,307,659    -17.4%  $   31,015,558   $   31,603,658     -1.9%
Cost of sales                         $    3,842,392   $    4,197,812     -8.5%  $    8,648,688   $    7,655,230     13.0%
Gross profit                          $   10,450,606   $   13,109,847    -20.3%  $   22,366,870   $   23,948,428     -6.6%
Selling, general and administrative
 expense                              $    3,271,232   $    2,465,676     32.7%  $    5,837,653   $    5,099,551     14.5%
Other income (expense), net           $        1,075   $     (224,103)   100.5%  $      (36,646)  $     (687,164)    94.7%
Provision for income taxes            $      576,029   $      829,185    -30.5%  $    1,309,560   $    1,445,445     -9.4%
Minority interest                     $    1,419,943   $    1,995,963    -28.9%  $    3,228,824   $    3,516,069     -8.2%
Net income                            $    5,184,477   $    7,594,920    -31.7%  $   11,954,187   $   13,200,199     -9.4%
Gross profit margin                             73.1%            75.7%    -2.6%            72.1%            75.8%    -3.7%
Selling, general and administrative
 expense as a percentage of sales               22.9%            14.2%     8.7%            18.8%            16.1%     2.7%
Net profit margin                               36.3%            43.9%    -7.6%            38.5%            41.8%    -3.2%
</TABLE>

REVENUE. For the three months ended June 30, 2006, revenue was $14.3 million
compared to $17.3 million for the same period in 2005, a decrease of 17.4%. For
the six months ended June 30, 2006, revenue was $31.0 million compared to $31.6
million for the same period in 2005, a decrease of 1.9%.

                                       26
<PAGE>

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

<TABLE>
<CAPTION>
                                               Three months                                Six months
                                               ended June 30,                            ended June 30,
                                      -------------------------------            -------------------------------
                                           2006             2005        Change        2006             2005        Change
                                      --------------   --------------   ------   --------------   --------------   ------
<S>                                   <C>              <C>               <C>     <C>              <C>               <C>
China                                 $    4,474,408   $   10,272,604    -56.4%  $   13,041,025   $   18,313,400    -28.8%
International                         $    9,818,590   $    7,035,055     39.6%  $   17,974,533   $   13,290,258     35.3%
</TABLE>

For the three months ended June 30, 2006, revenues in China were $4.5 million, a
decrease of 56.4% compared to the same period in 2005. For the six months ended
June 30, 2006, revenues in China were $13.0 million, a decrease of 28.8%
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 six months ended June 30, 2006, international revenues were $18.0
million, an increase of 35.3% compared to the same period in 2005. The increase
in international sales for the six months ended June 30, 2006 was mainly due to
a significant sales increase in Indonesia, as well as strong revenue growth in
Nigeria, South Africa, Kazakstan, Kenya, Hungary and Uganda.

COST OF SALES. Cost of sales for the three months ended June 30, 2006 decreased
to $3.8 million, or 8.5%, compared to $4.2 million for the same period in 2005.
This primarily reflects the decrease in revenues for the period. For the six
months ended June 30, 2006, cost of sales was $8.6 million compared to $7.7
million for the same period in 2005, an increase of 13.0%. 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.

                                       27
<PAGE>

GROSS PROFIT. Gross profit decreased to $10.5 million for the three months ended
June 30, 2006, or 20.3%, compared to $13.1 million for the same period in 2005.
For the six months ended June 30, 2006, gross profit was $22.4 million compared
to $23.9 million for the same period in 2005, a decrease of 6.6%. The gross
profit margins for the three months ended June 30, 2006 was 73.1% compared to
75.7% for the same period in 2005 and 72.1% for the six months ended June 30,
2006 compared to 75.8% 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.

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 increased to $3.3 million for the three months ended
June 30, 2006, or 32.7%, compared to $2.5 million for the same period in 2005.
For the six months ended June 30, 2006, selling, general and administrative
expense was $5.8 million compared to $5.1 million for the same period in 2005,
an increase of 14.5%. 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 increased to 22.9% for the three months ended June 30, 2006,
from 14.2% for the same period in 2005 and to 18.8% for the six months ended
June 30, 2006, from 16.1% for the same period in 2005.

OTHER INCOME (EXPENSE), NET. Other income (expense), net was $1,075 of income
for the three months ended June 30, 2006, compared to $0.2 million of expense
for the same period in 2005. For the six months ended June 30, 2006, other
income (expense), net was $36,646 of expense compared to $0.7 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 our testing of other company's products.

PROVISION FOR INCOME TAXES. Provision for income taxes was $0.6 million for the
three months ended June 30, 2006, compared to $0.8 million for the same period
in 2005, a decrease of 30.5%. For the six months ended June 30, 2006, provision
for income taxes was $1.3 million compared to $1.4 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 June 30, 2006 was $5.2 million, a decrease of 31.7% compared to
$7.6 million for the same period in 2005. Net income for the six months ended
June 30, 2006 was $12.0 million compared to $13.2 million for the same period in
2005, a decrease of 9.4%.

                                       28
<PAGE>

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.

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>
                                                       June 30, 2006    December 31, 2005
                                                       --------------   -----------------
<S>                                                    <C>              <C>
Accounts receivable, trade - related parties, net
 of allowance for doubtful accounts of $208,919 and
 $206,916 as of June 30, 2006 and December 31,
 2005, respectively                                    $    6,792,469   $       2,165,958
Other receivables - related parties                    $    5,769,960   $       3,281,081
Loans receivable - related parties                     $   29,440,000   $               0
Advances from customers - related parties              $    1,552,574   $       2,077,130
Other payables - related parties                       $    1,479,717   $       1,816,534
</TABLE>

Accounts receivable - related party increased by $4.6 million for the six months
ended June 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 second quarter of 2006.

Other receivables - related party
---------------------------------

We were owed $5.8 million and $3.3 million as of June 30, 2006 and December 31,
2005, respectively, 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.

                                       29
<PAGE>

Loans receivable - related party
--------------------------------

Loans receivable were $29.4 million and $0 as of June 30, 2006 and December 31,
2005, respectively. The increase is due to the loan to Tianshi Engineering
amounting to RMB 200,000,000 ($25,040,000) and a $4,400,000 loan to Tianyuan
Capital Development Corp. Ltd. ("Tianyuan Capital"). Mr. Jinyuan Li owns 100% of
Tianyuan Capital.

On January 1, 2006, Biological loaned $25,040,000 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.

On January 23, 2006, we made a $4,400,000 seven-day finance agreement with
Tianyuan Capital. The short-term financing rolls over automatically every seven
days until we call the loan. The agreement bears an interest at the rate of
LIBOR minus five basis points. The purpose of the short-term financing was to
improve cash management, and increase the earnings from short-term idle capital.
We anticipate that this finance agreement will remain in effect until the end of
the year.

Advances from customers - related party
---------------------------------------

Advances from related party customers were $1.6 million as of June 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 party
-----------------------------

Other payables due to related parties as of June 30, 2006 and December 31, 2005,
were $1.5 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 $10.0 million for the six months
ended June 30, 2006, compared to net cash provided by operating activities of
$18.2 million for the same period in 2005. The difference primarily reflects a
$4.6 million increase in accounts receivable-related party and a $2.0 million
increase in other receivable-related party. These transactions are further
described in "Certain Relationships and Related Party Transactions" above.

Net cash used in investing activities as of June 30, 2006 increased to $46.7
million compared to $3.4 million for the same period in 2005. This was mainly
due to the loans of $25.0 million to Tianshi Engineering and $4.4 million to
Tianyuan Capital and the purchase of a short-term, interest bearing financial
instrument by Biological from Agricultural Bank of China.

Net cash used in financing activities was $8.4 million for the six months ended
June 30, 2006, compared to net cash used in financing activities of $3.0 million
in the same period for 2005. For the six months ended June 30, 2006, we paid a
dividend of $7.3 million to the minority shareholder of Biological.

                                       30
<PAGE>

As of June 30, 2006 and December 31, 2005, we had cash of $32.7 million and
$77.5 million, respectively, a decrease of $44.9 million. This decrease is
primarily due to the loans of $25.0 million to Tiens Engineering and $4.4
million to Tiens Tianyuan, the purchase of $13.6 million of short-term financial
instruments from the Agricultural Bank of China and the payment of a $7.3
million dividend to a minority shareholder. Approximately 47% of the cash was
held in the bank account of Biological, 47% in the bank account of Tiens Yihai,
and 6% in the bank account of Tianshi International.

Inventories were $6.3 million and $7.5 million as of June 30, 2006 and December
31, 2005, respectively. The amount of raw materials, work-in-progress and
finished goods decreased by $1,197,018. 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.

Accounts payable was $3.6 million and $2.7 million as of June 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.

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.

                                       31
<PAGE>

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%. Because we report our revenues in US
dollars, changes in the valuation of RMB may impact our net income. 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 1. LEGAL PROCEEDINGS

We are not presently involved in litigation that we expect individually or in
the aggregate to have a material adverse effect on our financial condition,
results of operation or liquidity.

                                       32
<PAGE>

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.

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
activities, 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 who
sells our products in China, to apply for approval to conduct a direct selling
enterprise in China. Some of our competitors in China have recently been granted
a direct selling license. 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 OVER NUTRITIONAL SUPPLEMENT PRODUCTS AND
OTHER RISKS IN MARKETS OUTSIDE OF CHINA

Nutrition supplement products are subject to regulatory requirements 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 addition, our product sales in other countries are subject to
product regulatory regimes of various degrees 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 the current operations of our company and our affiliates and distributors
will not be adversely affected by compliance issues and changes in applicable
laws and regulations in relevant jurisdictions. Complying with these widely
varying and sometimes inconsistent rules and 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.
Countries where we currently sell to affiliated customers do could change their
laws or regulations to negatively affect or prohibit completely direct sales
efforts.

                                       33
<PAGE>

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

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 Financial 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.

                                       34
<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:  August 14, 2006

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

Date:  August 14, 2006

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

                                       35