**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, 2008.




**o** **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: 1-32477*




**TIENS
      BIOTECH GROUP (USA), INC.**


(Exact
      name of registrant as specified in its charter)


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


No.
      6,
      Yuanquan Rd.


Wuqing
      New Tech Industrial Park


Tianjin,
      China 301700


(Address
      of principal executive offices) (Zip code)




Registrant’s
      Telephone Number, including area code: +86-22-8213-7915




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
o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one): o




Large
                Accelerated Filer o
            Accelerated
                Filer oNon-Accelerated Filer x (Do not check if a smaller reporting company)
            Smaller Reporting Company o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


Yes
o No
x




There
      were 71,333,586 shares of the Company’s common stock outstanding on August 13,
      2008.







**TIENS
      BIOTECH GROUP (USA), INC.**


**INDEX
      TO FORM 10-Q**





PAGE**PART
                I - FINANCIAL INFORMATION**
            
            3ITEM
                1. FINANCIAL STATEMENTS
            
            3Consolidated
                Balance Sheets as of June 30, 2008 (Unaudited) and December 31,
                2007
            
            3Consolidated
                Statements of Income and Other Comprehensive Income for the three
                and six
                months ended June 30, 2008 and 2007 (Unaudited)
            
            4Consolidated
                Statements of Shareholders’ Equity (Unaudited)
            
            5Consolidated
                Statements of Cash Flows for the six months ended June 30, 2008 and
                2007
                (Unaudited)
            
            6Notes
                to Consolidated Financial Statements (Unaudited)
            
            7ITEM
                2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                OF OPERATIONS
            
            37ITEM
                3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK
            
            48ITEM
                4. CONTROLS AND PROCEDURES
            
            48**PART
                II - OTHER INFORMATION**
            
            49ITEM
                1A. RISK FACTORS
            
            49ITEM
                6. EXHIBITS
            
            50







PART
      I -
      FINANCIAL INFORMATION





**ITEM
      1.**  **FINANCIAL
      STATEMENTS**





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS


AS
      OF
      JUNE 30, 2008 AND DECEMBER 31, 2007





June 30,
            
            December 31,2008
            
            2007(Unaudited)
            
            As Adjusted (Note 3)ASSETSCURRENT
                ASSETS:Cash
            
            $
            47,741,333
            
            $
            54,081,848Accounts
                receivable, trade - related parties, net of allowance for doubtful
                accounts of $109,415 and $71,700 as of June 30, 2008 and December
                31,
                2007, respectively
            
            
            23,176,490
            
            
            14,268,229Accounts
                receivable, trade - third parties
            
            
            -
            
            
            104,398Inventories
            
            
            6,222,266
            
            
            5,949,963Other
                receivables
            
            
            609,326
            
            
            1,068,343Other
                receivables - related parties
            
            
            11,844,719
            
            
            13,887,138Employee
                advances
            
            
            260,974
            
            
            65,901Prepaid
                expenses
            
            
            285,677
            
            
            623,638Prepaid
                income taxes
            
            
            734,772
            
            
            -Total
                current assets
            
            
            90,875,557
            
            
            90,049,458PROPERTY,
                PLANT AND EQUIPMENT, net
            
            
            16,053,138
            
            
            16,071,900OTHER
                ASSETS:Construction
                in progress
            
            
            55,279,413
            
            
            39,792,774Construction
                deposits
            
            
            1,615,659
            
            
            1,089,216Intangible
                assets, net
            
            
            9,711,580
            
            
            9,246,879Other
                assets
            
            
            5,274,200
            
            
            5,301,847Total
                other assets
            
            
            71,880,852
            
            
            55,430,716Total
                assets
            
            $
            178,809,547
            
            $
            161,552,074LIABILITIES
                AND SHARE HOLDERS' EQUITYCURRENT
                LIABILITIES:Accounts
                payable
            
            $
            5,592,022
            
            $
            4,070,906Advances
                from customers - related parties
            
            
            2,493,135
            
            
            1,700,838Wages
                and benefits payable
            
            
            892,276
            
            
            1,250,685Other
                taxes payable
            
            
            451,829
            
            
            536,819Income
                taxes payable
            
            
            2,803,788
            
            
            665,726Contractor
                deposits
            
            
            738,208
            
            
            595,128Contractor
                payables
            
            
            9,350,693
            
            
            7,820,285Other
                payables
            
            
            1,137,420
            
            
            1,133,539Other
                payables - related parties
            
            
            7,437,449
            
            
            7,938,205Dividend
                payable to minority interest
            
            
            -
            
            
            4,902,629Current
                portion of long term debt, related party
            
            
            2,130,000
            
            
            2,130,000Total
                current liabilities
            
            
            33,026,820
            
            
            32,744,760NON-CURRENT
                LIABILITIESLong
                term debt, net of current portion, related party
            
            
            3,202,742
            
            
            4,267,742Other
                payables-non current
            
            
            572,767
            
            
            538,130Deferred
                income
            
            
            5,210,120
            
            
            4,895,049Total
                non current liabilities
            
            
            8,985,629
            
            
            9,700,921Total
                liabilities
            
            
            42,012,449
            
            
            42,445,681MINORITY
                INTEREST
            
            
            8,484,637
            
            
            6,144,063SHAREHOLDERS'
                EQUITY:Common
                stock, $0.001 par value, 250,000,000 shares authorized, 71,333,586
                issued
                and outstanding, respectively
            
            
            71,334
            
            
            71,334Paid-in-capital
            
            
            8,842,009
            
            
            8,842,009Statutory
                reserves
            
            
            9,420,783
            
            
            9,420,783Retained
                earnings
            
            
            86,918,663
            
            
            78,668,160Accumulated
                other comprehensive income
            
            
            23,059,672
            
            
            15,960,044Total
                shareholders' equity
            
            
            128,312,461
            
            
            112,962,330Total
                liabilities and shareholders' equity
            
            $
            178,809,547
            
            $
            161,552,074





The
      acompanying notes are an integral part of these consolidated financial
      statements.


-
          3
          -





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, 2008 AND 2007
      (UNAUDITED)





Three months ended June 30,
            
            Six months ended June 30,2007
            
            
            
            20072008
            
            As Adjusted (Note 3)
            
            2008
            
            As Adjusted (Note 3)REVENUE - RELATED
                PARTIES
            
            $
            19,654,447
            
            $
            14,320,482
            
            $
            32,475,268
            
            $
            30,557,271COST
                OF SALES - RELATED PARTIES
            
            
            6,203,705
            
            
            4,454,594
            
            
            10,243,765
            
            
            8,890,193GROSS
                PROFIT
            
            
            13,450,742
            
            
            9,865,888
            
            
            22,231,503
            
            
            21,667,078SELLING,
                GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            5,088,597
            
            
            3,388,675
            
            
            8,335,796
            
            
            6,653,582INCOME
                FROM OPERATIONS
            
            
            8,362,145
            
            
            6,477,213
            
            
            13,895,707
            
            
            15,013,496(Interest
                expense)
            
            
            (80,078
            )
            
            (106,351
            )
            
            (132,662
            )
            
            (211,573
            )Interest
                income
            
            
            268,517
            
            
            587,270
            
            
            505,849
            
            
            1,217,183Other
                (expense) income, net
            
            
            (1,246,287
            )
            
            (42,984
            )
            
            (986,864
            )
            
            (117,463
            )OTHER
                (EXPENSE) INCOME, NET
            
            
            (1,057,848
            )
            
            437,935
            
            
            (613,677
            )
            
            888,147INCOME
                BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST
            
            
            7,304,297
            
            
            6,915,148
            
            
            13,282,030
            
            
            15,901,643PROVISION
                FOR INCOME TAXES
            
            
            1,664,054
            
            
            555,395
            
            
            3,144,448
            
            
            1,266,405INCOME
                BEFORE MINORITY INTEREST
            
            
            5,640,243
            
            
            6,359,753
            
            
            10,137,582
            
            
            14,635,238MINORITY
                INTEREST
            
            
            998,642
            
            
            1,369,361
            
            
            1,887,079
            
            
            3,122,579NET
                INCOME
            
            
            4,641,601
            
            
            4,990,392
            
            
            8,250,503
            
            
            11,512,659OTHER
                COMPREHENSIVE INCOME:Foreign
                currency translation adjustment
            
            
            2,675,768
            
            
            2,383,905
            
            
            7,099,628
            
            
            3,773,257COMPREHENSIVE
                INCOME
            
            $
            7,317,369
            
            $
            7,374,297
            
            $
            15,350,131
            
            $
            15,285,916EARNINGS
                PER SHARE, BASIC AND DILUTED
            
            $
            0.07
            
            $
            0.07
            
            $
            0.12
            
            $
            0.16WEIGHTED
                AVERAGE NUMBER OF SHARES, BASIC AND DILUTED
            
            
            71,333,586
            
            
            71,333,586
            
            
            71,333,586
            
            
            71,333,586





The
      acompanying notes are an integral part of these consolidated financial
      statements.


-
          4
          -





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITY




AccumulatedotherNumber
            
            Common
            
            Paid-in
            
            Additional
            
            Statutory
            
            Retained
            
            comprehensiveof shares
            
            stock
            
            capital
            
            paid-in-capital
            
            reserves
            
            earnings
            
            income (loss)
            
            TotalsBALANCE, December 31, 2006
            
            
            71,333,586
            
            $
            71,334
            
            $
            8,842,009
            
            $
            -
            
            $
            9,420,783
            
            $
            95,371,137
            
            $
            5,714,988
            
            
            119,420,251Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            11,621,218
            
            
            
            
            
            11,621,218Foreign
                currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,337,343
            
            
            3,337,343BALANCE,
                June 30, 2007, unaudited
            
            
            71,333,586
            
            $
            71,334
            
            $
            8,842,009
            
            $
            -
            
            $
            9,420,783
            
            $
            106,992,355
            
            $
            9,052,331
            
            $
            134,378,812Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,972,423
            
            
            
            
            
            6,972,423Foreign
                currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,928,015
            
            
            4,928,015Additional
                paid-in-capital
            
            
            
            
            
            
            
            
            
            
            
            69,105
            
            
            
            
            
            
            
            
            
            
            
            69,105BALANCE,
                December 31, 2007, as previously reported
            
            
            71,333,586
            
            $
            71,334
            
            $
            8,842,009
            
            $
            69,105
            
            $
            9,420,783
            
            $
            113,964,778
            
            $
            13,980,346
            
            $
            146,348,355Add
                adjustment for the acquisition of Life Resource
            
            
            
            
            
            
            
            
            
            
            
            (69,105
            )
            
            
            
            
            (35,296,618
            )
            
            1,979,698
            
            
            (33,386,025
            )BALANCE,
                December 31, 2007, as adjusted (Note 3)
            
            
            71,333,586
            
            $
            71,334
            
            $
            8,842,009
            
            $
            -
            
            $
            9,420,783
            
            $
            78,668,160
            
            $
            15,960,044
            
            $
            112,962,330Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            8,250,503
            
            
            
            
            
            8,250,503Foreign
                currency translation gain
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            7,099,628
            
            
            7,099,628BALANCE,
                June 30, 2008, unaudited
            
            
            71,333,586
            
            $
            71,334
            
            $
            8,842,009
            
            $
            -
            
            $
            9,420,783
            
            $
            86,918,663
            
            $
            23,059,672
            
            $
            128,312,461





The
      acompanying notes are an integral part of these consolidated financial
      statements.


-
          5
          -





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF CASH FLOWS


FOR
      THE
      SIX MONTHS ENDED JUNE 30, 2008 AND 2007 (UNAUDITED)





Six months ended June 3020072008
            
            As Adjusted (Note 3)CASH FLOWS FROM OPERATING ACTIVITIES:Net
                income
            
            $
            8,250,503
            
            $
            11,512,659Adjustments
                to reconcile net income to cash provided by (used in) operating
                activities:Provision
                for doubtful accounts
            
            
            37,715
            
            
            547Minority
                interest
            
            
            1,887,079
            
            
            3,122,579Depreciation
            
            
            1,373,096
            
            
            1,426,271Amortization
            
            
            140,911
            
            
            117,830Interest
                income
            
            
            (92,523
            )
            
            (935,932
            )(Gain)
                on sale of assets
            
            
            (8,554
            )
            
            -(Increase)
                decrease in assets:Accounts
                receivable, trade - related parties
            
            
            (15,693,689
            )
            
            (4,062,388
            )Accounts
                receivable, trade - third parties
            
            
            22,722
            
            
            -Other
                receivables
            
            
            498,556
            
            
            2,239,427Other
                receivables - related parties
            
            
            (526,327
            )
            
            (4,120,698
            )Inventories
            
            
            190,894
            
            
            1,628,894Employee
                advances
            
            
            (185,415
            )
            
            (49,889
            )Prepaid
                expense
            
            
            365,778
            
            
            406,509Increase
                (decrease) in liabilities:Accounts
                payable
            
            
            1,223,358
            
            
            (648,583
            )Advances
                from customers - related parties
            
            
            663,444
            
            
            (67,035
            )Wages
                and benefits payable
            
            
            (422,254
            )
            
            (289,033
            )Other
                taxes payable
            
            
            1,205,680
            
            
            (40,345
            )Other
                payables
            
            
            (67,118
            )
            
            (83,390
            )Other
                payables - related parties
            
            
            16,388
            
            
            (299,389
            )Net
                cash provided by (used in) operating activities
            
            
            (1,119,756
            )
            
            9,858,034CASH
                FLOWS FROM INVESTING ACTIVITIES:Repayment
                from (loans to) related parties
            
            
            2,133,222
            
            
            (4,689,017
            )Collections
                from loans to local government
            
            
            450,197
            
            
            -Acquisition
                of intangible assets
            
            
            -
            
            
            (129,527
            )Construction
                deposits
            
            
            (2,206,145
            )
            
            -Contractor
                deposits
            
            
            101,801
            
            
            412,802Addition
                to construction in progress
            
            
            (9,722,463
            )
            
            (12,961,091
            )Proceeds
                from sale of equipment
            
            
            61,152
            
            
            -Purchase
                of equipment and automobiles
            
            
            (360,192
            )
            
            (1,158,813
            )Net
                cash used in investing activies
            
            
            (9,542,428
            )
            
            (18,525,646
            )CASH
                FLOWS FROM FINANCING ACTIVITIES:Loan
                from (repayment to) related parties
            
            
            7,400,000
            
            
            (843,115
            )Payments
                on long term debt, related party
            
            
            (1,065,000
            )
            
            -Proceeds
                from share subscription in subsidiary
            
            
            -
            
            
            18,000,130Proceeds
                from joint venture investor in Dongfeng
            
            
            2,828
            
            
            -Payments
                to minority interest shareholder
            
            
            (5,070,091
            )
            
            (6,676,102
            )Net
                cash provided by (used in) financing activities
            
            
            1,267,737
            
            
            10,480,913EFFECT
                OF EXCHANGE RATE CHANGES ON CASH
            
            
            3,053,932
            
            
            1,272,215INCREASE
                (DECREASE) IN CASH
            
            
            (6,340,515
            )
            
            3,085,516CASH,
                beginning of period
            
            
            54,081,848
            
            
            55,214,540CASH,
                end of period
            
            $
            47,741,333
            
            $
            58,300,056**Supplemental
                disclosures of cash flow information**Cash
                paid during the year for:Interest
                (net of amount capitalized)
            
            $
            132,662
            
            $
            -Income
                taxes
            
            $
            1,822,619
            
            $
            1,370,002





The
      acompanying notes are an integral part of these consolidated financial
      statements.


-
          6
          -


TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 **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. On December
        31,
        2003, the Company changed its name from Strategika, Inc. to Tiens Biotech
        Group
        (USA), Inc.
 
 The
        Company is currently owned 4.91% by public stockholders, 2.8% by officers
        and
        92.29% by Jinyuan Li, the Company’s current Chairman, CEO and President. The
        Company owns 100% of Tianshi
        International Holdings Group Limited ("Tianshi Holdings") .
        Tianshi
        Holdings owns 80% of Tianjin
        Tianshi Biological Development Co. , Ltd.
        ("Biological"), 99.4% of
        Tiens Yihai Co.,
        Ltd.
        ("Tiens Yihai") and 100%
        of Tianjin
        Tiens Life Resources Co., Ltd. (“Life Resources”). Biological owns 99% of
        Dongfeng Tianshi Biological Development Co., Ltd. (“Dongfeng Biological”).
 
 On
        September 9, 2003, the Company received all of the issued and outstanding
        common
        stock of Tianshi Holdings in exchange for the issuance by the Company of
        68,495,000 shares of its common stock to the original stockholders of Tianshi
        Holdings, representing 95% of the issued and outstanding common stock of
        the
        Company at such time, after giving effect to the issuance.
 
 On
        June
        18, 2003, Tianshi Holdings acquired 80% of Biological from Tianshi Hong Kong
        International Development Co., Ltd. ("Tianshi Hong Kong") ,
        which
        was 100% owned by the Company's current Chairman, Chief Executive Officer
        and
        President, Jinyuan Li. Tianjin Tianshi Biological Engineering Co., Ltd.
        (“Tianshi Engineering”) owned
        the remaining 20% of Biological.
 
 Tianshi
        Engineering is 49% owned by Baolan Li, the daughter of Jinyuan Li and 51%
        by Tianjin
        Tianshi Group Co., Ltd. ("Tianshi Group") .
        In June
        2003, Tianshi Engineering transferred its 20% interest in Biological for
        no
        consideration to Tianjin Tianshi Pharmaceuticals Co., Ltd. (”Tianshi Pharmaceutical s”)
        and
        Tianshi Holdings acquired 80% of Biological from Tianshi Hong Kong for no
        consideration. On February 25, 2008, Tianshi Pharmaceuticals transferred
        its 20%
        interest in Biological to Tianshi Engineering.
 
 On
        April
        20, 2004, Tianshi Holdings entered a joint venture contract (the "Joint Venture
        Project") with Tianshi Pharmaceuticals to establish Tiens Yihai. Tiens Yihai
        is
        located in Shanghai, the People’s Republic of China (“PRC”), and was established
        to build a new research facility which would also produce the Company’s
        nutrition supplement, home care, and personal care products. Tianshi Holdings
        contributed 99.4% of the registered capital and Tianshi Pharmaceuticals
        contributed the remaining 0.6%.
 
 On
        December 20, 2007, Tianshi Holdings entered a Sale and Purchase Agreement
        with
        Tianshi International Investment Group Co., Ltd. (“Tianshi Investment”). Jinyuan
        Li owns 100% of Tianshi Investment. Pursuant to the Sale and Purchase Agreement,
        Tianshi Holdings agreed to buy all of the registered share capital of Life
        Resources for $64.2 million. The closing of the transaction was subject to
        government approval of transfer of all of the share capital of Life Resources
        to
        Tianshi Holdings. On March 13, 2008, the Chinese government approved the
        transfer and the Company became the 100% shareholder of Life
        Resources.
  -
            7
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 Life
        Resources was incorporated on April 29, 2005 as a Foreign Investment Enterprise
        (“FIE”) in Wuqing, Tianjin, PRC, with a registered share capital of $30,000,000.
        The Company is currently constructing research and development and manufacturing
        and logistic facilities, as well as administrative offices. Construction
        on the
        project began in July 2006. On March 13, 2008, the Chinese government approved
        the increase of registered capital of Life Resources from $30,000,000 to
        $50,000,000.
 
 On
        May
        22, 2008, Biological entered a joint venture contract with Mr. Fulin Zhu
        to
        establish Dongfeng Biological. Dongfeng Biological is incorporated in Jilin
        Province, PRC, and was established to manufacture and export the Company’s
        products overseas. Biological invested RMB 1,980,000 (or US $288,130) in
        Dongfeng Biological and owns 99% of Dongfeng Biological, and Mr. Fulin Zhu
        owns
        the remaining 1%. As of June 30, 2008, Dongfeng Biological had not conducted
        any
        operations.
 
 ***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. The Company discontinued its personal care products
        during
        2007. In the PRC, the Company sells its products to Tianshi Engineering.
        Tianshi
        Engineering, in turn, sells the products to customers through its branches
        and
        affiliated companies and at chain stores which are owned by individual
        distributors. Outside the PRC, the Company sells its products to overseas
        affiliated companies located in 52 countries who in turn sell them to
        independent direct sales distributors.
 
 **Note
        2 – Summary of significant accounting policies**
 
 ***Basis
        of presentation***
 
 The
        financial statements of the Company and its subsidiaries are prepared in
        accordance with accounting principles generally accepted in the United States
        of
        America (“U.S. GAAP”). These Consolidated Financial Statements for interim
        periods are unaudited. In the opinion of management, the consolidated financial
        statements include all adjustments, consisting of normal, recurring adjustments,
        necessary for their fair presentation *.* The
        results reported in these Consolidated Financial Statements are not necessarily
        indicative of the results that may be reported for the entire year. The
        accompanying consolidated financial statements have been prepared in accordance
        with the rules and regulations of the Securities and Exchange Commission
        and do
        not include all information and footnotes necessary for a complete presentation
        of financial statements in conformity with generally accepted accounting
        principles in the United States. These Consolidated Financial Statements
        should
        be read in conjunction with the Company’s Annual Report on Form 10-K for the
        fiscal year ended December 31, 2007, filed with the Securities and Exchange
        Commission on March 31, 2008.
 
 ***The
        reporting entity***
 
 The
        Company’s consolidated financial statements reflect the activities of the
        following Company subsidiaries:
  -
            8
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Subsidiary
              
              Jurisdiction
                  of Formation
              
              
              % OwnershipTianshi
                  Holdings
              
              
              
              British Virgin Islands
              
              
              100.0%Biological
              
              
              
              P.R.C.
              
              
              80.0%Tiens
                  Yihai
              
              
              
              P.R.C.
              
              
              99.4%Life
                  Resources
              
              
              
              P.R.C.
              
              
              100.0%Dongfeng
                  Biological
              
              
              
              P.R.C.
              
              
              79.20%
 
 ***Principles
        of consolidation***
 
 The
        consolidated financial statements include the financial statements of the
        Company and its subsidiaries. All significant inter-company transactions
        and
        balances are eliminated in consolidation.
 
 As
        Tianshi Holdings and Life Resources were under common control before the
        combination was consummated, the combination of Life Resources was treated
        for
        accounting purposes as a pooling of interests. The balance sheet of the Company
        at December 31, 2007 and comparative interim financial statements for the
        corresponding periods of the preceding fiscal year were adjusted as if Life
        Resources had been combined with the Company before January 1,
        2007.
 
 ***Use
        of estimates***
 
 The
        preparation of financial statements in conformity with U.S. GAAP requires
        management to make estimates and assumptions that affect the amounts reported
        in
        the consolidated 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.
  ***Foreign
        currency translation***
 
 The
        reporting currency of the Company is the US dollar. Biological, Tiens Yihai,
        Life Resources and Dongfeng Biological'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 flows
        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. Translation
        adjustments resulting from this process are included in other comprehensive
        income in the statement of income and other comprehensive income.
 
 Translation
        adjustments amounted to $7,099,628 and $3,773,257 for the six months ended June
        30,
        2008 and
        2007, respectively, and $2,675,768 and $2,383,905 for the three months ended June
        30,
        2008 and
        2007, respectively. Asset and liability accounts at June
        30,
        2008 were
        translated at 6.87 RMB to $1.00 USD as compared to 7.31 RMB at December 31,
        2007. Equity accounts were stated at their historical rate. The average
        translation rates applied to income statement accounts for the six months
        ended June
        30,
        2008 and 2007
        were 7.07 RMB and 7.71 RMB, respectively. Cash flows are also translated
        at
        average translation rates for the period. Therefore, amounts reported on
        the
        statement of cash flows will not necessarily agree with changes in the
        corresponding balances on the balance sheet.
  -
            9
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 ***Fair
        value of financial instruments***
 
 The
        Company's financial instruments consist primarily of cash, trade accounts
        receivable, trade payables, advances, other receivables, and debt instruments.
        The carrying amounts of the Company's financial instruments generally
        approximate their fair values at June
        30,
        2008 and
        December 31, 2007, except for long-term debt, which has a fixed interest
        rate.
        The fair value of the long-term debt is estimated based on the borrowing
        rates
        currently available to the Company for bank loans with similar terms and
        average
        maturities. The carrying value and fair value of long-term debt is as
        follows:
  June
                  30, 2008
              
              December
                  31, 2007Balance sheet
                amount
              
              Fair value
              
              Balancesheet
                amount
              
              Fair valueLong-term
                  debt - related party
              
              $
              (5,332,742
              )
              $
              (5,367,618
              )
              $
              (6,397,742
              )
              $
              (6,443,795
              )
 
 ***Cash***
 
 Cash
        includes cash on hand and demand deposits in accounts maintained with banks
        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.
 
 ***Accounts
        receivable***
 
 The
        Company's trade accounts receivable are mainly due from related companies.
        The
        Company has a general allowance for doubtful debt of 0.5% of the year end
        balance of accounts receivable-related parties. Management reviews its accounts
        receivable on a regular basis to determine if the bad debt allowance is
        adequate, paying particular attention to the age of receivables outstanding.
        At June
        30,
        2008 and
        December 31, 2007, receivables outstanding more than 180 days totaled $1,829,524
        and $2,937,718, respectively. The Company believes that the 0.5% general
        allowance for doubtful accounts is adequate. The following table represents
        the
        changes in the allowance for doubtful accounts:
 
 -
            10
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Balance at
                Beginning of
                Period
              
              Provision for
                Doubtful
                Accounts
              
              Recovery
              
              Balance at
                End of PeriodPeriod
                  ended June 30, 2008Reserves
                  and allowances deducted
                  from assets accounts:Allowance
                  for doubtful accounts:
              
              $
              71,700
              
              $
              109,415
              
              $
              71,700
              
              $
              109,415Period
                  ended December 31, 2007Reserves
                  and allowances deducted
                  from assets accounts:Allowance
                  for doubtful accounts:
              
              $
              86,776
              
              $
              71,700
              
              $
              86,776
              
              $
              71,700
 
 ***Inventories***
 
 Inventories
        are stated at the lower of cost or market using the moving average basis.
        The
        Company reviews its inventory annually for possible obsolete goods or to
        determine if any reserves are necessary for potential obsolescence.
 
 ***Employee
        advances***
 
 Employee
        advances represent 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.
 
 ***Prepaid
        expenses***
 
 Prepaid
        expenses consist of advances to suppliers and short-term prepaid expenses.
        The
        Company reviews its advances to suppliers annually for determining whether
        provisions should be provided. The amount included in prepaid expense is
        net of
        any provisions. Provisions for prepaid expenses amounted to $928,183 and
        $872,053 at June 30, 2008 and December 31, 2007, respectively.
 
 ***Property,
        plant and equipment, net***
 
 Property,
        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. Estimated useful lives of the assets are as follows:
 
 Estimated Useful LifeBuildings
                  and improvements
              
              
              20
                  yearsMachinery
                  and equipment
              
              
              10
                  yearsComputer,
                  office equipment and furniture
              
              
              5
                  yearsAutomobiles
              
              
              5
                  years
  -
            11
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  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 income
        and other comprehensive income. Maintenance, repairs and minor renewals are
        charged directly to expenses as incurred. Major additions and betterment
        to
        buildings and equipment are capitalized.
 
 ***Construction
        in progress***
 
 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.
 
 ***Construction
        deposits***
 
 Construction
        deposits represent advances paid by the Company to contractors for the
        constructions in progress.
 
 ***Intangible
        assets***
 
 Intangible
        assets mainly consist of land use rights. All land located in the PRC is
        owned
        by the government and cannot be sold to any individual or company. However,
        the
        government grants "land use rights" for a specified period of time. The Company
        amortizes its land use rights according to the actual useful life of 50 years.
        Other intangible assets include patents and trademarks and are amortized
        over
        their estimated useful life ranging from five to ten years.
 
 ***Other
        assets***
 
 Other
        assets mainly consist of a deposit and a related loan made to a local government
        agency for the acquisition of land use rights in Shanghai. Originally, the
        deposit related to the proposed acquisition of land use rights for 263 acres
        of
        land by Tiens Yihai. However, on November 10, 2006, Tiens International and
        the
        local government entered a supplemental agreement pursuant to which the parties
        agreed to the acquisition of land use rights by Tiens Yihai of a reduced
        80
        acres parcel of land. As of June 30, 2008, land use rights for only 50 of
        the 80
        acres had been received.
 
 ***Impairment
        of long-lived assets***
 
 Long-lived
        assets, including intangible 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
        depreciation and amortization to determine whether subsequent events and
        circumstances warrant revised estimates of useful lives.
 
 -
            12
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 ***Deferred
        income***
 
 Deferred
        income consists of two government grants. On August 2, 2005 and November
        20,
        2006, the Company received two government grants related to land use rights
        at
        an amount of RMB 35,803,461 (or US $4,895,049). The grants are treated as
        deferred income and will be amortized over the life of the buildings on the
        land.
 
 ***Minority
        interest***
 
 Minority
        interest represents the outside shareholder’s 20% ownership of Biological, 20.8%
        ownership of Dongfeng Biological and 0.6% ownership of Tiens Yihai. The net
        income shown in Consolidated Statements of Cash Flows and Consolidated
        Statements of Income and Other Comprehensive Income is net of minority
        interest.
 
 ***Revenue
        recognition***
 
 The
        Company sells both semi-finished products and finished products to Tianshi
        Engineering domestically. Revenue from semi-finished products is recognized
        at
        FOB Tianjin shipping point. Revenue from finished products is recognized
        only
        when the related party Chinese distributors recognize sales of the Company's
        products to unaffiliated third parties. Revenues in both cases are net of
        taxes.
 
 For
        overseas sales, the Company only sells finished products. The Company recognizes
        revenue from international sales (non-Chinese) to both affiliated and
        unaffiliated third parties, net of taxes as goods are shipped and clear review
        by the customs department of the Chinese government.
 
 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. As the Company did not receive any returns
        of
        products during the past three years, no allowance for estimated returns
        has
        been recorded as of June 30, 2008 and December 31, 2007.
 
 ***Advertising
        Costs***
 
 The
        Company sells all of its products to related parties and these related parties
        are primarily responsible for marketing. Advertising costs of the Company
        for
        the six months ended June 30, 2008 and 2007 amounted to $213,468 and $548,
        respectively, and for the three months ended June 30, 2008 and 2007 amounted
        to
        $86,828 and $548, respectively, and were expensed as incurred.
 
 ***Shipping
        and Handling***
 
 Shipping
        and handling costs totaled $222,637 and $168,355 for the six months ended
        June
        30, 2008 and 2007, respectively, and $171,922 and $941 for the three months
        ended June 30, 2008 and 2007, respectively. The Company sells products on
        FOB
        condition, however, it usually prepays shipping and handling expenses to
        transportation companies on behalf of customers and collects these shipping
        and
        handling expenses when it receives payments from customers. The payments
        received from customers were included in revenue and the related shipping
        and
        handling costs were included in selling, general and administrative
        expenses.
 
 -
            13
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 ***Research
        and Development***
 
 Research
        and development expenses include salaries, supplies, and overhead such as
        depreciation, utilities and other costs. These costs are expensed as incurred
        in
        accordance with SFAS No. 2, "Accounting for Research and Development Costs."
        The
        Company expensed research and development costs of $613,662 and $351,613
        for the
        six months ended June
        30,
        2008 and
        2007, respectively, and $  383,052
        and $  204,082
        for the three months ended June 30, 2008 and 2007, respectively. These costs
        are
        included in selling, general and administrative expenses in the accompanying
        statements.
 
 ***Income
        taxes***
 
 The
        Company has adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes” (“FIN No.48”). FIN No.48 clarifies the accounting for uncertainty
        in income taxes recognized in an enterprise’s financial statements in accordance
        with FASB Statement No. 109, “Accounting for Income Taxes.” FIN No.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.
 
 According
        to FIN No.48, the evaluation of a tax position is a two-step process. The
        first
        step is recognition: the enterprise determines whether it is more likely
        than
        not that a tax position will be sustained upon examination, including resolution
        of any related appeals or litigation process, based on the technical merits
        of
        the position. The second step is measurement: a tax position that meets the
        more-likely than not recognition threshold is measured to determine the amount
        of benefit to recognize in the financial statement. The tax position is measured
        at the largest amount of benefit that is greater than 50 percent likely of
        being
        realized upon ultimate settlement.
 
 The
        Company has not been subjected to income tax examinations by taxing authorities
        for the six months ended June 30, 2008 and the year ended December 31, 2007.
        During the six months ended June 30, 2008 and the year ended December 31,
        2007,
        the Company did not recognize any amount in interest and penalties. The Company
        did not accrue any amount for the payment of interest and penalties at June
        30,
        2008 and December 31, 2007, respectively.
 
 ***Earnings
        per share***
 
 The
        Company has adopted SFAS No. 128, "Earnings per Share". SFAS No. 128 requires
        the presentation of earnings per share (“EPS”) as Basic EPS and Diluted EPS.
        Basic EPS excludes dilution and is computed by dividing net income (loss)
        attributable to common stockholders by the weighted average number of common
        shares outstanding for the period. There are no differences between Basic
        and
        Diluted EPS for each of the three months and six months ended June 30, 2008
        and
        2007.
 
 -
            14
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
  NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  ***Other
        comprehensive income***
 
 Other
        comprehensive income represents foreign currency translation adjustments
        for the
        period. The amounts shown in the Consolidated Statements of Income and Other
        Comprehensive Income and Consolidated Statements of Shareholders’ Equity are net
        of minority interests.
 
 ***Recently
        issued accounting pronouncements***
 
 In
        February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
        Financial Assets and Financial Liabilities - Including an amendment of FASB
        Statement No. 115" (“SFAS 159”). SFAS 159 permits companies to choose to measure
        many financial instruments and certain other items at fair value
        that  are
        not
        currently required to be measured at fair value. The objective of SFAS 159
        is to
        provide opportunities to mitigate volatility in reported earnings caused
        by  measuring
        related assets and liabilities differently, without having to apply hedge
        accounting provisions. SFAS 159 also establishes presentation and
        disclosure  requirements
        designed to facilitate comparisons between companies that choose different
        measurement attributes for similar types of assets and liabilities.
        SFAS  159
        will
        be effective in the first quarter of fiscal 2009. The Company is evaluating
        the
        impact that this statement will have on its consolidated financial  statements.
 
 In
        December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
        Combination" (“SFAS 141R”). SFAS 141R establishes principles and requirements
        for how the acquirer recognizes and measures in its financial statements
        the
        identifiable assets, the liabilities and any non-controlling interest in
        the
        acquiree, and the goodwill acquired in business combination or a gain from
        a
        bargain purchase. It also determines what information to disclose. The objective
        of SFAS 141R is to improve the relevance, representational faithfulness,
        and
        comparability of the information that a reporting entity provides in its
        financial reports about a business combination and its effects. SFAS  141R
        will
        be effective in the first quarter of fiscal 2009. The Company is evaluating
        the
        impact that this statement will have on its consolidated financial  statements.
 
 In
        December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in
        Consolidated Financial Statements- An amendment of ARB No. 51" (“SFAS 160”).
        SFAS 160 provides a guide on how to report a non-controlling interest in
        consolidated financial statements. The objective of SFAS 160 is to improve
        the
        relevance, comparability, and transparency of the financial information that
        a
        reporting entity provides in its consolidated financial statements.
        SFAS  160
        will
        be effective in the first quarter of fiscal 2009. The Company is evaluating
        the
        impact that this statement will have on its consolidated financial  statements.
 
 In
        March
        2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
        and Hedging Activities” (“SFAS 161”). SFAS 161 requires an enhanced disclosure
        about an entity’s derivative and hedging activities and thereby improves the
        transparency of financial reporting. The objective of SFAS 161 is to provide
        adequate information about how derivative and hedging activities affect an
        entity’s financial position, financial performance, and cash flows. SFAS 161
        will be effective in the first quarter of fiscal 2009. The Company is evaluating
        the impact that this statement will have on its consolidated financial
        statements.
 
 -
            15
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 In
        May
        2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
        Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of
        accounting principles and the framework for selecting the principles to be
        used
        in the preparation of financial statements of nongovernmental entities that
        are
        presented in conformity with U.S. GAAP. SFAS 162 shall be effective 60 days
        following the SEC’s approval of the Public Company Accounting Oversight Board
        (“PCAOB”) amendments to AU Section 411, The Meaning of Present Fairly in
        Conformity With Generally Accepted Accounting Principles. The Company is
        evaluating the impact that this statement will have on its consolidated
        financial statements.
 
 In
        May
        2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
        Insurance Contracts” (“SFAS 163”). SFAS 163 requires that an insurance
        enterprise recognize a claim liability prior to an event of default (insured
        event) when there is evidence that credit deteriorations have occurred in
        an
        insured financial obligation. SFAS 163 is effective for financial statements
        issued for fiscal years beginning after December 15, 2008. The adoption of
        SFAS
        163 will not have a material impact on the Company’s consolidated financial
        statements.
 
 **Note
        3 – Change in reporting entity**
 
 On
        December 20, 2007, Tianshi Holdings entered a Sale and Purchase Agreement
        with
        Tianshi Investment. Pursuant to the Sale and Purchase Agreement, Tianshi
        Holdings agreed to buy all of the registered share capital of Life Resources
        for
        $64.2 million. The closing of the transaction was subject to government approval
        of transfer of all of the share capital of Life Resources to Tianshi Holdings.
        On March 13, 2008, the Chinese government approved the transfer. As Tianshi
        Holdings and Life Resources were under common control by Jinyuan Li before
        the
        combination, the combination was treated for accounting purposes as a pooling
        of
        interests. The balance sheet of the Company at December 31, 2007 and comparative
        interim financial statements for the corresponding periods of the preceding
        fiscal year were adjusted as if Life Resources had been combined before January
        1, 2007. The following are unaudited statements of income and other
        comprehensive income of Life Resources for each of the three months and six
        months ended June 30, 2008 and 2007. Since most of the sales in Life Resources
        were to the Company, the amounts in the statements of income of Life Resource
        are not the same as amounts shown as the “Effect of Change” presented in the
        following comparative interim financial statements.
  -
            16
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Three months ended June 30,
                
                Six months ended June 30,2008
                
                2007
                
                2008
                
                2007(Unaudited)
                
                (Unaudited)
                
                (Unaudited)
                
                (Unaudited)REVENUE
                    - RELATED PARTIES
                
                $
                5,630,685
                
                $
                -
                
                $
                5,630,685
                
                $
                -COST
                    OF SALES - RELATED PARTIES
                
                
                1,304,868
                
                
                -
                
                
                1,304,868
                
                
                -GROSS
                    PROFIT
                
                
                4,325,817
                
                
                -
                
                
                4,325,817
                
                
                -SELLING,
                    GENERAL AND ADMINISTRATIVE EXPENSES
                
                
                666,697
                
                
                59,948
                
                
                738,761
                
                
                102,099INCOME
                    (LOSS) FROM OPERATIONS
                
                
                3,659,120
                
                
                (59,948
                )
                
                3,587,056
                
                
                (102,099
                )Interest
                    income
                
                
                39,740
                
                
                6,537
                
                
                50,558
                
                
                9,230Other
                    (expense), net
                
                
                (50,541
                )
                
                (15,596
                )
                
                (71,773
                )
                
                (15,690
                )OTHER
                    (EXPENSE), NET
                
                
                (10,801
                )
                
                (9,059
                )
                
                (21,215
                )
                
                (6,460
                )INCOME
                    (LOSS) BEFORE PROVISION FOR INCOME TAXES AND MINORITY
                    INTEREST
                
                
                3,648,319
                
                
                (69,007
                )
                
                3,565,841
                
                
                (108,559
                )PROVISION
                    FOR INCOME TAXES
                
                
                -
                
                
                -
                
                
                -
                
                
                -NET
                    INCOME (LOSS)
                
                
                3,648,319
                
                
                (69,007
                )
                
                3,565,841
                
                
                (108,559
                )OTHER
                    COMPREHENSIVE INCOME:Foreign
                    currency translation adjustment
                
                
                3,071,526
                
                
                321,623
                
                
                4,752,467
                
                
                435,914COMPREHENSIVE
                    INCOME
                
                $
                6,719,845
                
                $
                252,616
                
                $
                8,318,308
                
                $
                327,355
  The
          following financial statement line items for each of the three months and
          six
          months ended June 30, 2008 and 2007 were affected by the combination of
          Life
          Resources:
  -
            17
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 ***Income
        statement*** ***(*** ***Unaudited)***
 For three months ended
                  June 30,
                    2008
                
                For three months ended
                  June 30,
                    2007As computed,
                  without Life
                  Resources
                
                As reported,
                  combined with
                  Life Resources
                
                Effect of
                  Change
                
                As reported,
                  without Life
                  Resources
                
                As adjusted,
                  combined with
                  Life Resources
                
                Effect of
                  ChangeREVENUE
                    - RELATED PARTIES
                
                
                17,852,755
                
                
                19,654,447
                
                
                1,801,692
                
                
                14,320,482
                
                
                14,320,482
                
                
                -COST
                    OF SALES - RELATED PARTIES
                
                
                5,762,288
                
                
                6,203,705
                
                
                441,417
                
                
                4,454,594
                
                
                4,454,594
                
                
                -GROSS
                    PROFIT
                
                
                12,090,467
                
                
                13,450,742
                
                
                1,360,275
                
                
                9,865,888
                
                
                9,865,888
                
                
                -SELLING,
                    GENERAL AND ADMINISTRATIVE EXPENSES
                
                
                4,449,986
                
                
                5,088,597
                
                
                638,611
                
                
                3,328,727
                
                
                3,388,675
                
                
                59,948INCOME
                    FROM OPERATIONS
                
                
                7,640,481
                
                
                8,362,145
                
                
                721,664
                
                
                6,537,161
                
                
                6,477,213
                
                
                (59,948
                )OTHER
                    (EXPENSE) INCOME, NET
                
                
                (1,047,047
                )
                
                (1,057,848
                )
                
                (10,801
                )
                
                446,994
                
                
                437,935
                
                
                (9,059
                )INCOME
                    BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST
                
                
                6,593,434
                
                
                7,304,297
                
                
                710,863
                
                
                6,984,155
                
                
                6,915,148
                
                
                (69,007
                )PROVISION
                    FOR INCOME TAXES
                
                
                1,664,054
                
                
                1,664,054
                
                
                -
                
                
                555,395
                
                
                555,395
                
                
                -INCOME
                    BEFORE MINORITY INTEREST
                
                
                4,929,380
                
                
                5,640,243
                
                
                710,863
                
                
                6,428,760
                
                
                6,359,753
                
                
                (69,007
                )MINORITY
                    INTEREST
                
                
                998,642
                
                
                998,642
                
                
                -
                
                
                1,369,361
                
                
                1,369,361
                
                
                -NET
                    INCOME
                
                
                3,930,738
                
                
                4,641,601
                
                
                710,863
                
                
                5,059,399
                
                
                4,990,392
                
                
                (69,007
                )OTHER
                    COMPREHENSIVE INCOME:Foreign
                    currency translation adjustment
                
                
                1,583,660
                
                
                2,675,768
                
                
                1,092,108
                
                
                2,062,282
                
                
                2,383,905
                
                
                321,623COMPREHENSIVE
                    INCOME
                
                
                5,514,398
                
                
                7,317,369
                
                
                1,802,971
                
                
                7,121,681
                
                
                7,374,297
                
                
                252,616EARNINGS
                    PER SHARE, BASIC AND DILUTED
                
                
                0.06
                
                
                0.07
                
                
                0.01
                
                
                0.07
                
                
                0.07
                
                
                -WEIGHTED
                    AVERAGE NUMBER OF SHARES
                
                
                71,333,586
                
                
                71,333,586
                
                
                
                
                
                71,333,586
                
                
                71,333,586
  -
              18
              -
 
 TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 For six months ended
                June 30,
                  2008
              
              For six months ended
                June 30,
                  2007As computed,
                without Life
                Resources
              
              As reported,
                combined with
                Life Resources
              
              Effect of
                Change
              
              As reported,
                without Life
                Resources
              
              As adjusted,
                combined with
                Life Resources
              
              Effect of
                ChangeREVENUE
                  - RELATED PARTIES
              
              
              30,673,576
              
              
              32,475,268
              
              
              1,801,692
              
              
              30,557,271
              
              
              30,557,271
              
              
              -COST
                  OF SALES - RELATED PARTIES
              
              
              9,802,348
              
              
              10,243,765
              
              
              441,417
              
              
              8,890,193
              
              
              8,890,193
              
              
              -GROSS
                  PROFIT
              
              
              20,871,228
              
              
              22,231,503
              
              
              1,360,275
              
              
              21,667,078
              
              
              21,667,078
              
              
              -SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              7,625,121
              
              
              8,335,796
              
              
              710,675
              
              
              6,551,483
              
              
              6,653,582
              
              
              102,099INCOME
                  FROM OPERATIONS
              
              
              13,246,107
              
              
              13,895,707
              
              
              649,600
              
              
              15,115,595
              
              
              15,013,496
              
              
              (102,099
              )OTHER
                  (EXPENSE) INCOME, NET
              
              
              (592,462
              )
              
              (613,677
              )
              
              (21,215
              )
              
              894,607
              
              
              888,147
              
              
              (6,460
              )INCOME
                  BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST
              
              
              12,653,645
              
              
              13,282,030
              
              
              628,385
              
              
              16,010,202
              
              
              15,901,643
              
              
              (108,559
              )PROVISION
                  FOR INCOME TAXES
              
              
              3,144,448
              
              
              3,144,448
              
              
              -
              
              
              1,266,405
              
              
              1,266,405
              
              
              -INCOME
                  BEFORE MINORITY INTEREST
              
              
              9,509,197
              
              
              10,137,582
              
              
              628,385
              
              
              14,743,797
              
              
              14,635,238
              
              
              (108,559
              )MINORITY
                  INTEREST
              
              
              1,887,079
              
              
              1,887,079
              
              
              -
              
              
              3,122,579
              
              
              3,122,579
              
              
              -NET
                  INCOME
              
              
              7,622,118
              
              
              8,250,503
              
              
              628,385
              
              
              11,621,218
              
              
              11,512,659
              
              
              (108,559
              )OTHER
                  COMPREHENSIVE INCOME:Foreign
                  currency translation adjustment
              
              
              4,326,579
              
              
              7,099,628
              
              
              2,773,049
              
              
              3,337,343
              
              
              3,773,257
              
              
              435,914COMPREHENSIVE
                  INCOME
              
              
              11,948,697
              
              
              15,350,131
              
              
              3,401,434
              
              
              14,958,561
              
              
              15,285,916
              
              
              327,355EARNINGS
                  PER SHARE, BASIC AND DILUTED
              
              
              0.11
              
              
              0.12
              
              
              0.01
              
              
              0.16
              
              
              0.16
              
              
              -WEIGHTED
                  AVERAGE  NUMBER OF SHARES
              
              
              71,333,586
              
              
              71,333,586
              
              
              
              
              
              71,333,586
              
              
              71,333,586
  -
            19
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 ***Balance
        sheet (Unaudited)***
 June
        30,
        2008
 June
                    30, 2008As computed,
                  without Life
                  Resources
                
                As reported,
                  combined with
                  Life Resources
                
                Effect of ChangeASSETSCURRENT
                    ASSETS:Cash
                
                
                40,862,267
                
                
                47,741,333
                
                
                6,879,066Accounts
                    receivable, trade - related parties, net
                
                
                24,226,745
                
                
                23,176,490
                
                
                (1,050,255
                )Inventories
                
                
                6,841,510
                
                
                6,222,266
                
                
                (619,244
                )Other
                    receivables
                
                
                380,902
                
                
                609,326
                
                
                228,424Other
                    receivables - related parties
                
                
                12,188,461
                
                
                11,844,719
                
                
                (343,742
                )Employee
                    advances
                
                
                259,034
                
                
                260,974
                
                
                1,940Prepaid
                    expenses
                
                
                285,677
                
                
                285,677
                
                
                -Prepaid
                    income taxes
                
                
                -
                
                
                734,772
                
                
                734,772Total
                    current assets
                
                
                85,044,596
                
                
                90,875,557
                
                
                5,830,961PROPERTY,
                    PLANT AND EQUIPMENT, net
                
                
                15,674,368
                
                
                16,053,138
                
                
                378,770OTHER
                    ASSETS:Construction
                    in progress
                
                
                2,630,150
                
                
                55,279,413
                
                
                52,649,263Construction
                    deposits
                
                
                -
                
                
                1,615,659
                
                
                1,615,659Intangible
                    assets, net
                
                
                2,731,157
                
                
                9,711,580
                
                
                6,980,423Other
                    assets
                
                
                5,274,200
                
                
                5,274,200
                
                
                -Acquisition
                    deposit
                
                
                84,247,182
                
                
                -
                
                
                (84,247,182
                )Total
                    other assets
                
                
                94,882,689
                
                
                71,880,852
                
                
                (23,001,837
                )Total
                    assets
                
                
                195,601,653
                
                
                178,809,547
                
                
                (16,792,106
                )LIABILITIES
                    AND SHAREHOLDERS' EQUITYCURRENT
                    LIABILITIES:Accounts
                    payable
                
                
                4,399,779
                
                
                5,592,022
                
                
                1,192,243Accounts
                    payable-related parties
                
                
                4,810,304
                
                
                -
                
                
                (4,810,304
                )Advances
                    from customers - related parties
                
                
                2,493,135
                
                
                2,493,135
                
                
                -Wages
                    and benefits payable
                
                
                865,817
                
                
                892,276
                
                
                26,459Other
                    taxes payable
                
                
                (33,107
                )
                
                451,829
                
                
                484,936Income
                    taxes payable
                
                
                2,064,916
                
                
                2,803,788
                
                
                738,872Contractor
                    deposits
                
                
                -
                
                
                738,208
                
                
                738,208Contractor
                    payables
                
                
                -
                
                
                9,350,693
                
                
                9,350,693Other
                    payables
                
                
                1,137,420
                
                
                1,137,420
                
                
                -Other
                    payables - related parties
                
                
                7,188,212
                
                
                7,437,449
                
                
                249,237Dividend
                    payable to minority interest
                
                
                -
                
                
                -
                
                
                -Current
                    portion of long term debt, related party
                
                
                2,130,000
                
                
                2,130,000
                
                
                -Total
                    current liabilities
                
                
                25,056,476
                
                
                33,026,820
                
                
                7,970,344NON-CURRENT
                    LIABILITIESLong
                    term debt, net of current portion, related party
                
                
                3,202,742
                
                
                3,202,742
                
                
                -Other
                    payables-non current
                
                
                572,767
                
                
                572,767
                
                
                -Deferred
                    income
                
                
                -
                
                
                5,210,120
                
                
                5,210,120Total
                    non current liabilities
                
                
                3,775,509
                
                
                8,985,629
                
                
                5,210,120Total
                    liabilities
                
                
                28,831,985
                
                
                42,012,449
                
                
                13,180,464MINORITY
                    INTEREST
                
                
                8,482,178
                
                
                8,484,637
                
                
                2,459SHAREHOLDERS'
                    EQUITY:Common
                    stock
                
                
                71,334
                
                
                71,334
                
                
                -Paid-in-capital
                
                
                8,842,009
                
                
                8,842,009
                
                
                -Additional
                    paid-in-capital
                
                
                69,105
                
                
                -
                
                
                (69,105
                )Statutory
                    reserves
                
                
                9,420,783
                
                
                9,420,783
                
                
                -Retained
                    earnings
                
                
                121,577,334
                
                
                86,918,663
                
                
                (34,658,671
                )Accumulated
                    other comprehensive income
                
                
                18,306,925
                
                
                23,059,672
                
                
                4,752,747Total
                    shareholders' equity
                
                
                158,287,490
                
                
                128,312,461
                
                
                (29,975,029
                )Total
                    liabilities and shareholders' equity
                
                
                195,601,653
                
                
                178,809,547
                
                
                (16,792,106
                )
  -
            20
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 December
        31, 2007
 December
                    31, 2007As reported,
                  without Life
                  Resources
                
                As adjusted,
                  combined with Life
                  Resources
                
                Effect of ChangeASSETSCURRENT
                    ASSETS:Cash
                
                
                48,678,945
                
                
                54,081,848
                
                
                5,402,903Accounts
                    receivable, trade - related parties, net
                
                
                14,268,229
                
                
                14,268,229
                
                
                -Accounts
                    receivable, trade - third parties
                
                
                104,398
                
                
                104,398
                
                
                -Inventories
                
                
                5,949,963
                
                
                5,949,963
                
                
                -Other
                    receivables
                
                
                892,489
                
                
                1,068,343
                
                
                175,854Other
                    receivables - related parties
                
                
                13,070,907
                
                
                13,887,138
                
                
                816,231Employee
                    advances
                
                
                64,336
                
                
                65,901
                
                
                1,565Prepaid
                    expenses
                
                
                623,638
                
                
                623,638
                
                
                -Total
                    current assets
                
                
                83,652,905
                
                
                90,049,458
                
                
                6,396,553PROPERTY,
                    PLANT AND EQUIPMENT, net
                
                
                16,034,812
                
                
                16,071,900
                
                
                37,088OTHER
                    ASSETS:Construction
                    in progress
                
                
                2,287,807
                
                
                39,792,774
                
                
                37,504,967Construction
                    deposits
                
                
                -
                
                
                1,089,216
                
                
                1,089,216Intangible
                    assets, net
                
                
                2,603,084
                
                
                9,246,879
                
                
                6,643,795Long-term
                    prepaid expenses
                
                
                5,301,847
                
                
                5,301,847
                
                
                -Acquisition
                    deposit
                
                
                71,747,182
                
                
                -
                
                
                (71,747,182
                )Total
                    other assets
                
                
                81,939,920
                
                
                55,430,716
                
                
                (26,509,204
                )Total
                    assets
                
                
                181,627,637
                
                
                161,552,074
                
                
                (20,075,563
                )LIABILITIES
                    AND SHAREHOLDERS' EQUITYCURRENT
                    LIABILITIES:Accounts
                    payable
                
                
                4,070,906
                
                
                4,070,906
                
                
                -Advances
                    from customers - related parties
                
                
                1,700,838
                
                
                1,700,838
                
                
                -Wages
                    and benefits payable
                
                
                1,250,685
                
                
                1,250,685
                
                
                -Other
                    taxes payable
                
                
                536,819
                
                
                536,819
                
                
                -Income
                    taxes payable
                
                
                665,726
                
                
                665,726
                
                
                -Contractor
                    deposits
                
                
                -
                
                
                595,128
                
                
                595,128Contractor
                    payable
                
                
                -
                
                
                7,820,285
                
                
                7,820,285Other
                    payables
                
                
                1,133,539
                
                
                1,133,539
                
                
                -Other
                    payables - related parties
                
                
                7,938,205
                
                
                7,938,205
                
                
                -Dividend
                    payable to minority interest
                
                
                4,902,629
                
                
                4,902,629
                
                
                -Current
                    portion of long term debt, related party
                
                
                2,130,000
                
                
                2,130,000
                
                
                -Total
                    current liabilities
                
                
                24,329,347
                
                
                32,744,760
                
                
                8,415,413NON-CURRENT
                    LIABILITIESLong
                    term debt, net of current portion, related party
                
                
                4,267,742
                
                
                4,267,742
                
                
                -Other
                    payables-non current
                
                
                538,130
                
                
                538,130
                
                
                -Deferred
                    income
                
                
                -
                
                
                4,895,049
                
                
                4,895,049Total
                    non current liabilities
                
                
                4,805,872
                
                
                9,700,921
                
                
                4,895,049Total
                    liabilities
                
                
                29,135,219
                
                
                42,445,681
                
                
                13,310,462MINORITY
                    INTEREST
                
                
                6,144,063
                
                
                6,144,063
                
                
                -SHAREHOLDERS'
                    EQUITY:Common
                    stock
                
                
                71,334
                
                
                71,334
                
                
                -Paid-in-capital
                
                
                8,842,009
                
                
                8,842,009
                
                
                -Additional
                    paid-in-capital
                
                
                69,105
                
                
                -
                
                
                (69,105
                )Statutory
                    reserves
                
                
                9,420,783
                
                
                9,420,783
                
                
                -Retained
                    earnings
                
                
                113,964,778
                
                
                78,668,160
                
                
                (35,296,618
                )Accumulated
                    other comprehensive income
                
                
                13,980,346
                
                
                15,960,044
                
                
                1,979,698Total
                    shareholders' equity
                
                
                146,348,355
                
                
                112,962,330
                
                
                (33,386,025
                )Total
                    liabilities and shareholders' equity
                
                
                181,627,637
                
                
                161,552,074
                
                
                (20,075,563
                )
  -
            21
            -
 
 TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 ***Statements
        of cash flows (Unaudited)***
 Six
        months ended June 30, 2008
 For six months ended
                  June 30,
                    2008As computed,
                  without Life
                  Resources
                
                As reported,
                  combined with
                  Life Resources
                
                Effect of ChangeCASH
                    FLOWS FROM OPERATING ACTIVITIES:Net
                    income
                
                
                7,622,118
                
                
                8,250,503
                
                
                628,385Adjustments
                    to reconcile net income to cash provided by (used in) operating
                    activities:
                
                
                (6,824,299
                )
                
                (9,370,259
                )
                
                (2,545,960
                )Net
                    cash provided by (used in) operating activities
                
                
                797,819
                
                
                (1,119,756
                )
                
                (1,917,575
                )CASH
                    FLOWS FROM INVESTING ACTIVITIES:Payment
                    of deposit on acquisition of Life Resource
                
                
                (12,500,000
                )
                
                -
                
                
                12,500,000Repayment
                    from related parties
                
                
                -
                
                
                2,133,222
                
                
                2,133,222Collections
                    from loans to local government
                
                
                450,197
                
                
                450,197
                
                
                -Construction
                    deposits
                
                
                -
                
                
                (2,206,145
                )
                
                (2,206,145
                )Contractor
                    deposits
                
                
                -
                
                
                101,801
                
                
                101,801Addition
                    to construction in progress
                
                
                (136,765
                )
                
                (9,722,463
                )
                
                (9,585,698
                )Proceeds
                    from sale of equipment
                
                
                47,712
                
                
                61,152
                
                
                13,440Purchase
                    of equipment and automobiles
                
                
                (358,915
                )
                
                (360,192
                )
                
                (1,277
                )Net
                    cash provided by (used in) investing activities
                
                
                (12,497,771
                )
                
                (9,542,428
                )
                
                2,955,343CASH
                    FLOWS FROM FINANCING ACTIVITIES:Loan
                    from related parties
                
                
                7,400,000
                
                
                7,400,000
                
                
                -Payments
                    on long term debt, related party
                
                
                (1,065,000
                )
                
                (1,065,000
                )
                
                -Proceeds
                    from issuing stock of minority investor in Dongfeng
                    Biological
                
                
                2,828
                
                
                2,828
                
                
                -Payments
                    to minority interest shareholder
                
                
                (5,070,091
                )
                
                (5,070,091
                )
                
                -Net
                    cash provided by financing activities
                
                
                1,267,737
                
                
                1,267,737
                
                
                -EFFECT
                    OF EXCHANGE RATE CHANGES ON CASH
                
                
                2,615,537
                
                
                3,053,932
                
                
                438,395INCREASE
                    (DECREASE) IN CASH
                
                
                (7,816,678
                )
                
                (6,340,515
                )
                
                1,476,163CASH,
                    beginning of period
                
                
                48,678,945
                
                
                54,081,848
                
                
                5,402,903CASH,
                    end of period
                
                
                40,862,267
                
                
                47,741,333
                
                
                6,879,066
  -
            22
            -
 TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 Six
        months ended June 30, 2007
 
 For
                  six months ended
                June
                  30, 2007As reported,
                without Life
                Resources
              
              As adjusted,
                combined with
                Life Resources
              
              Effect of ChangeCASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              
              11,621,218
              
              
              11,512,659
              
              
              (108,559
              )Adjustments
                  to reconcile net income to cash provided by (used in) operating
                  activities:
              
              
              (4,063,645
              )
              
              (1,654,625
              )
              
              2,409,020Net
                  cash provided by operating activities
              
              
              7,557,573
              
              
              9,858,034
              
              
              2,300,461CASH
                  FLOWS FROM INVESTING ACTIVITIES:Loan
                  to related parties
              
              
              -
              
              
              (4,689,017
              )
              
              (4,689,017
              )Acquisition
                  of intangible assets
              
              
              (129,527
              )
              
              (129,527
              )
              
              -Contractor
                  deposits
              
              
              -
              
              
              412,802
              
              
              412,802Addition
                  to construction in progress
              
              
              -
              
              
              (12,961,091
              )
              
              (12,961,091
              )Purchase
                  of equipment and automobiles
              
              
              (3,103,320
              )
              
              (1,158,813
              )
              
              1,944,507Net
                  cash used in investing activities
              
              
              (3,232,847
              )
              
              (18,525,646
              )
              
              (15,292,799
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Repayment
                  of loan to related parties
              
              
              -
              
              
              (843,115
              )
              
              (843,115
              )Increase
                  in registered share capital
              
              
              -
              
              
              18,000,130
              
              
              18,000,130Payments
                  to minority interest shareholder
              
              
              (6,676,102
              )
              
              (6,676,102
              )
              
              -Net
                  cash provided by (used in) financing activities
              
              
              (6,676,102
              )
              
              10,480,913
              
              
              17,157,015EFFECT
                  OF EXCHANGE RATE CHANGES ON CASH
              
              
              1,229,691
              
              
              1,272,215
              
              
              42,524INCREASE
                  (DECREASE) IN CASH
              
              
              (1,121,685
              )
              
              3,085,516
              
              
              4,207,201CASH,
                  beginning of period
              
              
              54,270,065
              
              
              55,214,540
              
              
              944,475CASH,
                  end of period
              
              
              53,148,380
              
              
              58,300,056
              
              
              5,151,676
  **Note
        4 – Supplemental disclosure of cash flow information**
 
 Income
        taxes paid for the six months ended June 30, 2008 and 2007 amounted to
        $1,822,619 and $1,370,002, respectively.
 
 Interest
        paid for the six months ended June 30, 2008 and 2007 amounted to $132,662
        and
        $0, respectively.
 
 On
        December 21, 2007 the Company, Tianshi Investment and Life Resources entered
        a
        Loan Agreement, pursuant to which Tianshi Investment loaned $7.5 million
        to Life
        Resources without interest. The Company agreed to pay back the $7.5 million
        to
        Tianshi Investment within five days of the date of the government approval
        of
        the transfer of the shares of Life Resources to Tianshi Holdings. On March
        13,
        2008, the Chinese government approved the transfer and the Company repaid
        $7.5
        million to Tianshi Investment on March 18, 2008 by netting off part of the
        accounts receivable due from Tianshi Engineering.
  -
            23
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 The
        right
        to offset existed because:
 
 1.
              Tianshi
                  Engineering had a determinable outstanding debt payable to the
                  Company;
 2.
              The
                  Company had a determinable outstanding amount of a loan to repay
                  to
                  Tianshi Investment;
 3.
              The
                  Company had the right to offset the two
                  amounts;
 4.
              The
                  Company, Tianshi Investment and Tianshi Engineering agreed to offset
                  the
                  two amounts; and
 5.
              The
                  agreement to offset is enforceable under Chinese contract
                  law.
 
 On
        April
        9, 2008, liabilities in the form of accounts receivable due to Biological
        from
        Tianshi Engineering in the amount of $900,000 were offset against a cash
        payment
        of $900,000 from Tianshi Investment to Tianshi Holdings. Tianshi Holdings
        used
        such monies to increase the capital contribution of Life Resources.
 
 The
        right
        to offset existed because:
 
 1.
              Tianshi
                  Engineering had a determinable outstanding debt payable to the
                  Company;
 2.
              The
                  Company received a determinable amount in cash from Tianshi
                  Investment;
 3.
              The
                  Company had the right to offset the two
                  amounts;
 4.
              The
                  Company, Tianshi Investment and Tianshi Engineering agreed to offset
                  the
                  two amounts; and
 5.
              The
                  agreement to offset is enforceable under Chinese contract
                  law.
 
 **Note
        5 – Inventories**
 
 Inventories
        consist of the following at June 30, 2008 and December 31, 2007:
 
 June 30,
                2008
              
              December 31,
                2007Raw
                  materials
              
              $
              2,317,470
              
              $
              1,842,760Packing
                  materials
              
              
              888,955
              
              
              810,319Miscellaneous
                  supplies
              
              
              286,537
              
              
              217,370Work
                  in process
              
              
              439,865
              
              
              571,173Processing
                  materials
              
              
              0
              
              
              137,188Finished
                  goods
              
              
              2,289,439
              
              
              2,371,153Total
              
              $
              6,222,266
              
              $
              5,949,963
  The
        Company has written off obsolete goods in the amount of $99,415
        and $0 for the six months ended June 30, 2008 and 2007, respectively.
  -
            24
            -
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 **Note
          6 – Prepaid expenses**
 
 Prepaid
          expenses consist of advances to suppliers and short-term prepaid expenses.
          The
          details of prepaid expenses at June 30, 2008 and December 31, 2007 are
          as
          follows:
 
 June 30,
                
                December 31,2008
                
                2007Advance
                    to suppliers
                
                $
                217,217
                
                $
                622,275Short-term
                    prepaid expenses
                
                
                68,460
                
                
                1,363Total
                
                $
                285,677
                
                $
                623,638
 
 **Note
          7 – Property, plant and equipment, net**
 
 Property,
          plant and equipment consist of the following at June 30, 2008 and December
          31,
          2007:
 
 June 30,
                
                December 31,2008
                
                2007Buildings
                    and improvements
                
                $
                7,404,962
                
                $
                6,923,475Office
                    equipment
                
                
                440,724
                
                
                405,277Computer
                    equipment and software
                
                
                2,930,789
                
                
                2,678,312Machinery
                    and equipment
                
                
                12,323,180
                
                
                11,333,473Automobiles
                
                
                5,528,147
                
                
                5,188,650Total
                
                
                28,627,802
                
                
                26,529,187Less:
                    accumulated depreciation
                
                
                (12,574,664
                )
                
                (10,457,287
                )Property,
                    plant and equipment, net
                
                $
                16,053,138
                
                $
                16,071,900
 
 Depreciation
          expense for the six months ended June 30, 2008 and 2007 amounted to $1,373,096
          and $1,426,271, respectively.
 
 **Note
          8 - Intangible assets**
 
 Intangible
          assets consist of the following at June 30, 2008 and December 31,
          2007:
 
 June 30,
                
                December 31,2008
                
                2007Land
                    use rights
                
                $
                10,007,906
                
                $
                9,402,699Other
                    intangible assets
                
                
                350,041
                
                
                328,873Less
                    accumulated amortization
                
                
                (646,367
                )
                
                (484,693
                )Intangible
                    assets, net
                
                $
                9,711,580
                
                $
                9,246,879
 
 -
              25
              -
 
 TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 Amortization
          expense for the six months ended June 30, 2008 and 2007 amounted to $140,911
          and
          $117,830 respectively. The estimated amortization expense for the next
          five
          years is as follows:
 
 Estimated amortization expense forthe year ending December 31,
                
                Amount2008
                
                $
                225,2382009
                
                $
                224,8542010
                
                $
                224,4712011
                
                $
                217,9922012
                
                $
                217,992
 
 **Note
          9 – Related party transactions and balances**
 
 The
          Company mainly conducted related party transactions with Tianshi Group,
          Tianshi
          Engineering, Tianshi Investment and overseas related companies of Tianshi
          Group.
          Tianshi Group is owned 90% by Jinyuan Li and 10% by his daughter, Baolan
          Li.
          Tianshi Engineering is owned 51% by Tianshi Group and 49% by Baolan Li.
          Tianshi
          Investment is 100% owned by Jinyuan Li. Jinyuan Li owns or controls the
          overseas
          related companies of Tianshi Group.
  The
          Company’s related party transactions are required to be reviewed and approved or
          ratified by the Board of Directors. No director that is a related person
          in a
          related party transaction may participate in any discussion, approval or
          ratification of the related party transaction except to provide information
          concerning it. The following tables are provided to facilitate understanding
          of
          the transactions and outstanding balances between those related parties.
 Six months ended June 30,
                  
                  Three months ended June 30,2008
                  
                  2007
                  
                  2008
                  
                  2007Revenue-related
                      parties
                  
                  $
                  32,475,268
                  
                  $
                  30,557,271
                  
                  $
                  19,654,447
                  
                  $
                  14,320,482
 
 June 30, 2008
                
                December 31, 2007Accounts
                    receivable, trade – related parties, net of allowance for doubtful
                    accounts of $109,415
                  and
                    $71,700 as of June 30, 2008 and December 31, 2007,
                    respectively
                
                $
                23,176,490
                
                $
                14,268,229Other
                    receivables – related parties
                
                $
                11,844,719
                
                $
                13,887,138Advances
                    from customers – related parties
                
                $
                2,493,135
                
                $
                1,700,838Other
                    payables – related parties
                
                $
                7,437,449
                
                $
                7,938,205Current
                    portion of long-term debt - related party
                
                $
                2,130,000
                
                $
                2,130,000Long
                    term debt – related party
                
                $
                3,202,742
                
                $
                4,267,742
  -
              26
              -
 
 TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  ***Revenue
          -related parties***
  The
          details of revenue-related parties are as follows:
 
 Six months ended June 30,
                
                Three months ended June 30,2008
                
                2007
                
                2008
                
                2007Tianshi
                    Engineering
                
                $
                14,615,711
                
                $
                12,347,614
                
                $
                8,509,932
                
                $
                5,137,313Overseas
                    Related Companies
                
                
                17,859,557
                
                
                18,209,657
                
                
                11,144,515
                
                
                9,183,169Total
                
                $
                32,475,268
                
                $
                30,557,271
                
                $
                19,654,447
                
                $
                14,320,482
  The
          Company markets all of its products through various domestic and international
          business entities that are related to the Company through common ownership.
          As a
          result, almost all of the Company’s total consolidated sales were to related
          parties.
 
 The
          Company sells products to Tianshi Engineering, a related party through
          common
          ownership. Tianshi Engineering, in turn, markets and sells the
          products to customers through its branches and affiliated companies and
          at chain
          stores which are owned by individual distributors .
          Tianshi
          Engineering is solely responsible for all marketing and payments of sales
          commissions to independent distributors.
  Internationally,
          the Company sells its products directly to overseas affiliates. These overseas
          related companies market and sell the Company’s products to overseas independent
          distributors or end users of the products. Due to the common ownership,
          there
          are no formal sales or administrative agreements among Biological and those
          overseas related companies. The business operations among these related
          entities
          are regulated through internal ordinances.
  ***Accounts
          receivable, trade - related parties***
  The
          details of accounts receivable, trade - related parties are as
          follows:
 
 June 30, 2008
                
                December 31, 2007Tianshi
                    Engineering
                
                $
                4,945,115
                
                $
                2,062,333Overseas
                    Related Companies
                
                
                18,340,790
                
                
                12,277,596Allowance
                    for Doubtful Accounts
                
                
                (109,415
                )
                
                (71,700
                )Total
                
                $
                23,176,490
                
                $
                14,268,229
  ***Other
          receivables - related parties***
 
 Other
          receivables - related parties are generated by the Company making various
          cash
          advances and short term loans, the allocation of various expenses to related
          parties, and amounts transferred from accounts receivable. The
          following table summarizes the other receivables - related parties
          balances:
  -
              27
              -
 
 TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 December 31,June 30,2008
                
                2007
                  As AdjustedTianshi
                    Engineering
                
                $
                10,973,059
                
                $
                9,460,811Tianshi
                    Group
                
                
                838,605
                
                
                2,347,489Tianjin
                    Xingda Travel Co., Ltd
                
                
                15,718
                
                
                1,939Beijin
                    Xingda Travel Co., Ltd
                
                
                7,925
                
                
                5,959Tianshi
                    Pharmaceuticals
                
                
                3,207
                
                
                5,065Shanghai
                    Tianshi Jinquan Investment Co.
                
                
                3,083
                
                
                874Shengshi
                    Real Estate Development
                
                
                2,047
                
                
                2,238Shanghai
                    Gujia
                
                
                1,075
                
                
                -Xiongshi
                    Construction
                
                
                -
                
                
                2,062,763Total
                
                $
                11,844,719
                
                $
                13,887,138
 
 Historically,
          Tianshi Engineering remitted payment to the Company upon sales to third
          party
          customers. However, to support Tianshi Engineering’s marketing efforts in
          anticipation of receiving a direct selling license in China, the Company
          agreed
          to allow Tianshi Engineering to
          defer
          payment to the Company.  The
          credit terms provide an interest-free credit term of three months.  Balances
          not remitted to the Company within 90 days are converted to other receivables
          -
          related parties. Beginning January 1, 2007, the other receivables - related
          parties became interest bearing. The stated interest rate is the interest
          rate
          for the same level of loan stipulated by the People’s Bank of
          China.
 
 The
          Company and Tianshi Group used common meters at the Company’s headquarters for
          electricity and water, and also used the same employee insurance account.
          When
          making payments to these outside parties, the Company usually pays the
          fees
          first and then is reimbursed by Tianshi Group. These pro-rated amounts
          relating
          to Tianshi Group are categorized as other receivables - related parties.
          In
          addition, during 2006 the Company was owed other receivables-related parties
          in
          the amount of RMB 7,560,000 ($1,033,603) from Tianjin Juchao Commercial
          and
          Trading Co., Ltd (“Juchao”), a related party owned by Jinyuan Li. On March 31,
          2006, Juchao declared termination of its operations, and all of its rights
          and
          liabilities were transferred to Tianshi Group. This amount was also included
          in
          other receivables – related parties as of December 31, 2007.
  ***Advances
          from customers - related parties***
  These
          advances represent prepayments made to the Company to insure that overseas
          related companies could obtain enough of the Company’s products to meet their
          market demands. As of June 30, 2008 and December 31, 2007, advances from
          related
          party customers amounted to $2.5 million and $1.7 million,
          respectively.
  -
              28
              -
 
 TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  ***Other
          payables - related parties***
  The
          details of other payable-related parties are as follows:
  June 30, 2008
                
                December 31, 2007
                  As AdjustedTianshi
                    Investment
                
                $
                6,708,852
                
                $
                7,490,136Tianshi
                    Group
                
                
                526,181
                
                
                -Tianshi
                    Germany Co., Ltd
                
                
                118,043
                
                
                109,233Tianyuan
                    Capital Development Co. Ltd. ("Tianyuan Capital")
                
                
                84,359
                
                
                84,359Tianshi
                    Administrative Committee of Industrial Park
                
                
                14
                
                
                13Tianshi
                    Pharmaceuticals
                
                
                -
                
                
                9,308Tianshi
                    Shanghai Co., Ltd
                
                
                -
                
                
                176Tianshi
                    Engineering
                
                
                -
                
                
                244,980Total
                
                $
                7,437,449
                
                $
                7,938,205
 
 These
          amounts arose primarily from previous cash advances from related parties
          such as
          management fees due to related parties and various non-operational transactions
          incurred with related parties.
 
 On
          December 21, 2007, Tianshi Holdings and Tianshi Investment entered a Capital
          Contribution Agreement, pursuant to which Tianshi Investment agreed to
          fund a
          capital increase of Life Resources in the amount of $7.5 million. Tianshi
          Holdings agreed to pay back the $7.5 million to Tianshi Investment within
          five
          days of the date of the government approval of the transfer of the shares
          of
          Life Resources to Tianshi Holdings. The approval was received on March
          13, 2008
          and the $7.5 million was paid back on March 18, 2008, by canceling $7.5
          million
          of accounts receivable owed to the Company by Tianshi Engineering (see
          Note 4).
 
 On
          January 21, 2008, Life Resources and Tianshi Investment entered a loan
          agreement, pursuant to which Tianshi Investment agreed to provide a loan
          to Life
          Resources for $6.5 million without interest. The loan was due on June 30,
          2008.
          On June 30, 2008, the parties extended the loan to December 31,
          2008.
  ***Long
          term debt - related party***
 
 On
          September 10, 2004, Tianshi Holdings entered a loan agreement with Tianyuan
          Capital to borrow $10.65 million to fund Tianshi Holdings' contribution
          due to
          Tiens Yihai. Jinyuan Li is a director of Tiens Yihai and a director of
          Tianyuan
          Capital. Jinyuan Li owns 100% of Tianyuan Capital.
 
 The
          principal of the loan will be paid in ten consecutive semi-annual installments
          of $1,065,000 on the last day of June and December, commencing June 2006
          and
          ending June 31, 2011. The interest on the loan
          is calculated at an annual interest rate of 5% based on the remaining balance
          of
          the principal. The interest accrued in each period is paid along with the
          installment payment on the principal. Five installment payments had been
          made by
          June 30, 2008.
  -
              29
              -
 
 TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 The
          loan
          balance at June 30,
          2008 and December 31, 2007 consisted of the following:
 
 June 30, 2008
                
                December 31, 2007Note
                    payable to Tianyuan CapitalDevelopment
                    Corp. Ltd., related party
                
                $
                5,332,742
                
                $
                6,397,742Less
                    current portion of long term debt
                
                
                (2,130,000
                )
                
                (2,130,000
                )Total
                
                $
                3,202,742
                
                $
                4,267,742
 
 
 Total
          principal payments for the next four years on all long-term debt are as
          follows:
 
 Year EndingDecember 31,
                
                Amount2008
                    (6 months remaining)
                
                $
                1,065,0002009
                
                $
                2,130,0002010
                
                $
                2,130,0002011
                
                $
                7,742
 
 ***Other
          Transactions with Tianshi Engineering***
 
 On
          December 31, 2005, Biological entered four lease agreements with Tianshi
          Engineering which enabled Tianshi Engineering to share the use of certain
          of
          Biological’s product production workshops and equipment to manufacture products
          which Tianshi Engineering owns, or jointly owns with Biological for one
          year
          beginning January 1, 2006. These four lease agreements were renewed in
          December
          2006 for the 2007 fiscal year and October 2007 for the 2008 fiscal year.
          Rent
          revenue accrued from these leases amounted to $160,929 and $187,275 for
          the six
          months ended June 30, 2008 and 2007, respectively, and $81,620 and $94,143
          for
          the three months ended June 30, 2008 and 2007, respectively.
 
 ***Other
          Transactions with Tianshi Group***
 
 On
          June
          30, 2002, the Company entered an office and facilities lease agreement
          with
          Tianshi Group. Under the terms of the five year agreement, the Company’s annual
          rent is equal to 1% of gross revenues. In addition, the Company is obligated
          to
          pay insurance, maintenance and other expenses related to the premises.
          This
          agreement expired on December 31, 2007.  The
          Company entered a new one-year lease agreement with Tianshi Group, effective
          January 1, 2008 covering the same facilities and having identical rent
          terms.
          For the six months ended June 30, 2008 and 2007, the Company paid this
          rent at
          an amount of $399,632 and $319,832, respectively, and $211,241 and $153,500 for
          the three months ended June 30, 2008 and 2007, respectively.
  -
              30
              -
 
 TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 ***Other
          Transactions with Tianshi Investments***
 
 On
          December 20, 2007, Tianshi Holdings entered a Sale and Purchase Agreement
          with
          Tianshi Investment, Biological and Tianshi Engineering. Pursuant to the
          Sale and
          Purchase Agreement, Tianshi Holdings agreed to buy all of the registered
          share
          capital of Life Resources from Tianshi Investment for RMB474,674,415
          ($64,247,182). The closing of the transaction was subject to government
          approval
          of the transfer of Life Resources to Tianshi Holdings. On March 13, 2008,
          the
          government approved the transfer.
  Pursuant
          to the Sale and Purchase Agreement, Tianshi Holdings advanced a deposit
          of
          $64,247,182 to Tianshi Investment on December 20, 2007. This acquisition
          deposit
          was settled as follows:
 
 •  $28,592,743
          was paid by canceling a loan in the principal amount of RMB200,000,000
          to
          Tianshi Engineering owned by Biological together with interest
          accrued;
 •  $16,557,914
          was paid by canceling of other receivable owned by Tianshi Engineering
          to
          Biological; and
 •  $19,096,525
          was paid in cash.
 
 On
          January 14, 2008, Tianshi Holdings and Tianshi Investment entered a loan
          agreement pursuant to which Tianshi Holdings loaned Tianshi Investment
          $4.1
          million without interest. The loan was required to be used by Tianshi Investment
          to increase the registered share capital of Life Resources. The loan was
          due on
          June 30, 2008, provided however, that if the government approved the transfer
          of
          the shares of Life Resources to Tianshi Holdings prior to that date, the
          loan
          would be cancelled, as Life Resources would then be a wholly-owned subsidiary
          of
          Tianshi Holdings. The approval was received on March 13, 2008, and therefore,
          the loan was cancelled on the same date.
  -
              31
              -
 TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 **Note
        10 – Minority interest and distribution**
 
 The
        roll
        forward of the Minority Interest balance in the balance sheet is shown
        below:
 
 DongfengBiological
              
              
              
              Biological
              
              
              
              Tiens
                  YihaiMinority
              
              Dongfeng
              
              Minority
              
              
              
              Minority
              
              TotalBiological
              
              Owners
              
              Biological
              
              Owners
              
              Tiens
                  Yihai
              
              Owners
              
              MinorityUSD
              
              (20%)
              
              USD
              
              (20.8%)
              
              USD
              
              (0.60%)
              
              InterestDecember
                  31, 2006
              
              $
              58,499,962
              
              $
              11,699,992
              
              $
              -
              
              $
              -
              
              $
              30,555,046
              
              $
              183,331
              
              $
              11,883,323Net
                  income (loss)
              
              
              24,840,180
              
              
              4,968,036
              
              
              -
              
              
              -
              
              
              (273,217
              )
              
              (1,639
              )
              
              4,966,397Other
                  comprehensive Income
              
              
              2,947,667
              
              
              589,533
              
              
              -
              
              
              -
              
              
              2,019,326
              
              
              12,116
              
              
              601,649Additional
                  paid-in-capital
              
              
              86,381
              
              
              17,276
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              17,276Dividend
                  distribution
              
              
              (56,622,912
              )
              
              (11,324,582
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (11,324,582
              )December
                  31, 2007
              
              $
              29,751,278
              
              $
              5,950,255
              
              $
              -
              
              $
              -
              
              $
              32,301,156
              
              $
              193,808
              
              $
              6,144,063Net
                  income (loss)
              
              
              9,433,346
              
              
              1,886,669
              
              
              -
              
              
              -
              
              
              68,254
              
              
              410
              
              
              1,887,079Other
                  comprehensive Income
              
              
              2,187,030
              
              
              437,406
              
              
              3,500
              
              
              728
              
              
              2,081,065
              
              
              12,486
              
              
              450,620Less:
                  cost of investment in Dongfeng Biological
              
              
              (284,665
              )
              
              (56,933
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (56,933
              )Share
                  capital
              
              
              -
              
              
              -
              
              
              287,540
              
              
              59,808
              
              
              -
              
              
              -
              
              
              59,808June
                  30, 2008
              
              $
              41,086,989
              
              $
              8,217,397
              
              $
              291,040
              
              $
              60,536
              
              $
              34,450,474
              
              $
              206,704
              
              $
              8,484,637
 
 Dividends
        declared by Biological are split pro rata between the shareholders according
        to
        their ownership interest. The payment of the dividends to the shareholders
        may
        occur at different times, resulting in distributions which do not appear
        to be
        reflective of the minority ownership percentages. The table below shows the
        outstanding dividends payable of Biological, as well as the allocation of
        dividends between Tianshi Holdings and the minority shareholder.
 
 -
            32
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 Tianshi
              
              MinorityDate
              
              Holdings
              
              Shareholder
              
              TotalsDividends
                  outstanding, December 31, 2006 Balance
              
              $
              45,978,854
              
              $
              238,311
              
              $
              46,217,165Dividends
                  declared
              
              
              45,298,330
              
              
              11,324,582
              
              
              56,622,912Dividends
                  paid
              
              
              (86,747,565
              )
              
              (6,676,102
              )
              
              (93,423,667
              )Accumulated
                  Other Comprehensive Income (loss)
              
              
              3,900,013
              
              
              15,838
              
              
              3,915,851Dividends
                  outstanding, December 31, 2007 Balance
              
              $
              8,429,632
              
              $
              4,902,629
              
              $
              13,332,261Dividends
                  declared
              
              
              -
              
              
              -
              
              
              -Dividends
                  paid
              
              
              -
              
              
              (5,070,091
              )
              
              (5,070,091
              )Accumulated
                  Other Comprehensive Income (loss)
              
              
              542,574
              
              
              167,462
              
              
              710,036Dividends
                  outstanding, June 30, 2008 Balance
              
              $
              8,972,206
              
              $
              -
              
              $
              8,972,206
 
 **Note
        11 – Accumulated other comprehensive income (loss)**
 
 Dongfeng
              
              
              
              Life
              
              TianshiBiological
              
              Biological
              
              Tiens
                  Yihai
              
              Resources
              
              Holdings
              
              TotalBalance
                  as of December 31, 2006
              
              $
              2,109,074
              
              $
              -
              
              $
              1,727,692
              
              $
              -
              
              $
              1,878,222
              
              $
              5,714,988Increase
                  during the year
              
              
              2,358,134
              
              
              -
              
              
              2,007,211
              
              
              -
              
              
              3,900,014
              
              
              8,265,359Balance
                  as of December 31, 2007, as previously reported
              
              $
              4,467,207
              
              $
              -
              
              $
              3,734,903
              
              $
              -
              
              $
              5,778,236
              
              $
              13,980,346Add
                  adjustment for the acquisition of Life Resources
              
              
              -
              
              
              -
              
              
              -
              
              
              1,979,698
              
              
              -
              
              
              1,979,698Balance
                  as of December 31, 2007, restated
              
              $
              4,467,207
              
              $
              -
              
              $
              3,734,903
              
              $
              1,979,698
              
              $
              5,778,236
              
              $
              15,960,044Increase
                  during the year
              
              
              1,749,624
              
              
              2,772
              
              
              2,068,579
              
              
              2,772,769
              
              
              505,884
              
              
              7,099,628Balance
                  as of June 30, 2008
              
              $
              6,216,831
              
              $
              2,772
              
              $
              5,803,482
              
              $
              4,752,467
              
              $
              6,284,120
              
              $
              23,059,672
  -
            33
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 Accumulated
        other comprehensive income recorded in Biological, Tiens Yihai and Life
        Resources are due to foreign currency translation adjustments. Accumulated
        other
        comprehensive income was recorded in Tianshi Holdings due to the effect of
        foreign exchange rate on dividend receivables from Biological.
 
 **Note
        12 – Additional product sales information**
 
 The
        Company has a single operating segment. All of the Company's revenues were
        generated from related parties. Summarized enterprise-wide financial information
        concerning the Company’s revenues based on geographic area and product groups is
        shown in the following tables:
 
 Revenue
        by Geographic Area:
 
 Six
                  months ended June 30,
              
              Three
                  months ended June 30,Revenue
              
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007China
              
              $
              14,615,711
              
              $
              12,347,614
              
              $
              8,509,932
              
              $
              5,137,313Russia
              
              
              6,283,257
              
              
              3,223,315
              
              
              4,337,017
              
              
              2,064,153Indonesia
              
              
              3,415,273
              
              
              2,228,138
              
              
              1,140,485
              
              
              479,721Ukraine
              
              
              1,660,951
              
              
              3,347,125
              
              
              813,522
              
              
              2,250,192Other
                  international countries
              
              
              6,500,076
              
              
              9,411,079
              
              
              4,853,491
              
              
              4,389,103Total
              
              $
              32,475,268
              
              $
              30,557,271
              
              $
              19,654,447
              
              $
              14,320,482
 
 Revenue
        by Product Group:
 
 Six
                  months ended June 30,
              
              Three
                  months ended June 30,2008
              
              2007
              
              2008
              
              2007Wellness
                  products
              
              $
              29,737,966
              
              $
              27,807,117
              
              $
              17,980,913
              
              $
              13,080,070Dietary
                  supplement products
              
              
              2,699,711
              
              
              2,444,582
              
              
              1,669,745
              
              
              1,093,700Personal
                  care products
              
              
              37,591
              
              
              305,572
              
              
              3,789
              
              
              146,712Total
              
              $
              32,475,268
              
              $
              30,557,271
              
              $
              19,654,447
              
              $
              14,320,482
 
 **Note
        13 - Income taxes**
 
 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 Holdings, was incorporated in the British Virgin
        Islands and is not liable for income taxes.
 
 The
        Company's subsidiaries, Biological, Tiens Yihai and Life Resources, are
        Sino-Foreign Joint Ventures incorporated in the PRC.
  -
            34
            -
 
 TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 Prior
        to
        2008, 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 were
        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 Tianjin Wuqing Development Area, a national new technology
        development zone and is subject to the special reduced income tax rate of
        15%.
        Pursuant to the approval of the relevant PRC tax authorities, Biological
        was
        fully exempt from PRC income taxes for two years starting from the year profits
        were first made, followed by a 7.5% reduced tax rate for the next three years.
 
 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%,
        which expired on January 1, 2008.
 
 Tiens
        Yihai is located in a Special Industry Zone and is subject to a special reduced
        income tax rate of 15%. Pursuant to the approval of the relevant local Chinese
        tax authorities, Tiens Yihai was 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 to do 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. As of June 30, 2008, Tiens Yihai was in the developmental stage of
        its
        organization and did not have any operating income.
 
 Life
        Resources is located in Tianjin Wuqing Development Area, a national new
        technology development zone. Pursuant to the approval of the relevant PRC
        tax
        authorities, Life Resources was 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.
 
 Beginning
        January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the existing
        laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”).
        The new standard EIT rate of 25% will replace the 33% rate currently applicable
        to both DES and FIEs. According to the new EIT, high-tech companies could
        be
        subject to a special reduced tax rate of 15%. The qualification of a high-tech
        company is to be reviewed annually. Biological currently qualifies as a
        high-tech company. However, as there is no detailed regulation regarding
        the
        implementation of the new EIT, in the first and second quarters of 2008
        Biological was required by the local tax authority to prepay income tax at
        a tax
        rate of 25%.
 
 According
        to the new EIT, Life Resources could still be fully exempt from PRC income
        taxes
        for two years starting from January 1, 2008, followed by a 12.5% reduced
        tax
        rate for the next three years. However, as there is no detailed regulation
        regarding the implementation of the new EIT, Life Resources was required
        by
        local tax authority to prepay income tax at a tax rate of 25% till its tax
        exemption qualification was approved by the tax authority. The approval is
        expected to be issued in August 2008 and the prepaid income tax in Life
        Resources could be refunded after the approval. The prepaid income tax in
        Life
        Resources of $734,772 is treated as deferred income taxes in the consolidated
        financial statements of the Company.
  -
            35
            -
  TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
        TO
        CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 Provisions
        for income taxes were
        all
        current income tax expenses and for the six months ended June 30, 2008 and
        2007,
        were $3,144,448 and $1,266,405, respectively, and for the three months ended
        June 30, 2008 and 2007 were $1,664,054 and $555,395, respectively.
 
 The
        following table reconciles the U.S. statutory rates to the Company's effective
        tax rate:
 
 2008
              
              2007U.S.
                  Statutory rate
              
              
              34.0%
              
              
              34.0%Foreign
                  income not recognized in USA
              
              
              (34.0)
              
              
              (34.0)China
                  income taxes
              
              
              25.0
              
              
              33.0Effect
                  of reduced tax rate
              
              
              -
              
              
              (25.5)Total
                  provision for income taxes
              
              
              25.0%
              
              
              7.5%
 
 The
        estimated tax savings due to the reduced tax rate for the six months ended
        June
        30, 2008 and 2007 amounted to $891,460 and $4,305,778 respectively. The net
        effect on earnings per share if the income tax had been applied would decrease
        earnings per share for the six months ended June 30, 2008 and 2007 by $0.01
        and
        $0.05, respectively
 
 **Note
        14 – 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 8% of their
        salary to the plan. Total pension expense incurred by the Company amounted
        to
        $379,255 and $298,244 for the six months ended June 30, 2008 and 2007,
        respectively, and $192,885 and $153,380 for the three months ended June 30,
        2008
        and 2007, respectively.
 
 The
        Company also has an unemployment insurance plan for its employees. The plan
        requires each employee to contribute 1% of his or her 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 $37,868 and $29,702 for the six months ended
        June
        30, 2008 and 2007, respectively, and $19,492 and $15,315 for the three months
        ended June 30, 2008 and 2007, respectively. All contributions are paid to
        a PRC
        insurance company, which in turn, is responsible for the unemployment liability.
        On January 1, 2002, the Company introduced a basic medical insurance plan
        for
        its employees. Pursuant to that 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 $192,833 and $162,360 for the six months ended
        June
        30, 2008 and 2007, respectively, and $97,723 and $83,551 for the three months
        ended June 30, 2008 and 2007, respectively.
  -
            36
            -





**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” 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, including 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; (c) whether we are able to generate sufficient
      revenues or obtain financing to sustain and grow our operations; (d) whether
      we
      are able to successfully fulfill our primary requirements for cash which are
      explained below under “Liquidity and Capital Resources”; and (e) whether Tianshi
      Engineering, our affiliate who sells our products in China, obtains a direct
      selling license in China. 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.




**OVERVIEW**




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




Tianjin
      Tianshi Biological Engineering Co. Ltd. (“Tianshi Engineering”), a Chinese
      company and the entity to which we sell all of our products for consumption
      in
      China, owns the remaining 20% of Biological. Tianjin Tianshi Group Co., Ltd.
      (“Tianshi Group”), a Chinese company, owns 51% of Tianshi Engineering. Baolan
      Li, the daughter of our Chairman, President and CEO, Jinyuan Li, owns the
      remaining 49% of Tianshi Engineering. Tianshi Group is 90% owned by Jinyuan
      Li
      and 10% owned by Baolan Li. Tianshi Engineering acquired its 20% interest in
      Biological from Tianjin Tianshi Pharmaceuticals Co., Ltd. (“Tianshi
      Pharmaceuticals”) on February 25, 2008. Tianshi Pharmaceuticals is 87.66% owned
      by Tianshi Group, and 7.29% owned by Baolan Li.


-
          37
          -





On
      April
      20, 2004, Tianshi Holdings entered a joint venture contract with Tianshi
      Pharmaceuticals to establish Tiens Yihai. Tiens Yihai is 99.4% owned by Tianshi
      Holdings 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 certain of our products. In October 2004,
      the
      Company paid a deposit of $3.6 million to Zhu Jia Jiao Industrial Park Economic
      Development Ltd (representative of the local government, “Local Government”) for
      acquiring the land use right of 1,600 mu (263 acres) located in Shanghai.
      However, in 2005, the Chinese central government issued its “Adjustment of
      Macro-Economic Policy”. This policy implemented a new system of investment and
      use of state-owned assets, including land. Pursuant to this policy, local
      government organizations adjusted and re-allotted projects, including
      investment, construction and reconstruction of state-owned resources. As a
      result, projects and enterprises that had been affected, including Tiens Yihai,
      were awaiting further decisions by state and local government.





On
      November 10, 2006, Tiens International and the Local Government entered into
      a
      supplemental agreement pursuant to which the parties have agreed to the
      acquisition of land use rights by Tiens Yihai of a reduced 486 mu (80 acres)
      parcel of land. As of June 30, 2008, land use rights for only 50 of the 80
      acres
      had been received. As a result of the reduction in the number of acres for
      which
      we have received land use rights and continued uncertainty relating to the
      Tiens
      Yihai project, management made a decision to suspend the development of the
      project. We are currently reviewing alternative commercial uses for the Tiens
      Yihai site, as well as the possibility of selling the land use rights to a
      third
      party.





On
      December 20, 2007, Tianshi Holdings entered into a Sale and Purchase Agreement
      with Tianshi International Investment Group Co., Ltd. (“Tianshi Investment”).
      Jinyuan Li owns 100% of Tianshi Investment. Pursuant to the Sale and Purchase
      Agreement, Tianshi Holdings agreed to buy all of the registered share capital
      of
      Life Resources for $64.2 million. The closing of the transaction was subject
      to
      government approval of transfer of all of the share capital of Life Resources
      to
      Tianshi Holdings. On March 13, 2008, the Chinese government approved the
      transfer and Tianshi Holdings became the 100% shareholder of Life
      Resources. Life
      Resources is currently constructing research and development, manufacturing
      and
      logistic facilities, as well as administrative offices totaling approximately
      420,000 square meters. We intend to move our headquarters to these new
      facilities once they are completed.





On
      May
      22, 2008, Biological entered a joint venture contract with Mr. Fulin Zhu to
      establish Dongfeng Tianshi Biological Development Co., Ltd. (“Dongfeng
      Biological”). Dongfeng Biological is incorporated in Jilin Province, PRC, and
      was established to export our products overseas in light of the slow-down and
      backlog of export clearances arising out of the AQSIQ campaign described in
      this
      Quarterly Report. Biological invested RMB 1,980,000 (or US $288,130) in Dongfeng
      Biological and owns 99% of Dongfeng Biological and Mr. Fulin Zhu owns the
      remaining 1%. Mr. Fulin Zhu, a resident of Jilin Province, is not a related
      party. As of June 30, 2008, Dongfeng Biological had not conducted any
      operations. The Company is evaluating whether to use Dongfeng Biological in
      the
      future to address the export restrictions.





We
      research, develop, and manufacture nutrition supplement products, including
      wellness products and dietary supplement products. Our operations are conducted
      from our headquarters in Tianjin, China through our subsidiary, Biological.
      We
      develop our products at our product research and development center, which
      employs highly qualified professionals in the fields of pharmacology, biology,
      chemistry and fine chemistry. We have developed and produce 33 nutrition
      supplement products, which include wellness products and dietary nutrition
      supplements.





In
      China,
      we sell our products to Tianshi Engineering, an affiliated company. Tianshi
      Engineering, in turn, sells the products to customers through its branches
      and affiliated companies and at chain stores which
      are owned by individual distributors. Outside of China, we sell our products
      to
      overseas affiliated companies located in 52 countries that in turn sell them
      to
      independent direct sales distributors.


-
          38
          -


**RESULTS
      OF OPERATIONS FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2008 COMPARED TO
      THE
      SIX AND THREE MONTHS ENDED JUNE 30, 2007**





On
      December 20, 2007, Tianshi Holdings entered into a Sale and Purchase Agreement
      with Tianshi Investment. Pursuant to the Sale and Purchase Agreement, Tianshi
      Holdings agreed to buy all of the registered share capital of Life Resources
      for
      $64.2 million. The closing of the transaction was subject to government approval
      of transfer of all of the share capital of Life Resources to Tianshi Holdings.
      On March 13, 2008, the Chinese government approved the transfer. As Tianshi
      Holdings and Life Resources were under common control by Jinyuan Li before
      the
      combination, the combination was treated for accounting purposes as a pooling
      of
      interests. The balance sheet of the Company at December 31, 2007 and comparative
      interim financial statements for the corresponding periods of the preceding
      fiscal year were adjusted as if Life Resources had been combined with the
      Company before January 1, 2007.





**Three months ended June 30,**
            
            
            
            **Six months ended June 30,****2008**
            
            **2007**
            
            
            
            **2008**
            
            **2007****(Unaudited)**
            
            **As Adjusted**
            
            **Change**
            
            **(Unaudited)**
            
            **As Adjusted**
            
            **Change****Income Statement Data**REVENUE
                - RELATED PARTIES
            
            $
            19,654,447
            
            $
            14,320,482
            
            
            37.2%
            
            $
            32,475,268
            
            $
            30,557,271
            
            
            6.3%COST
                OF SALES - RELATED PARTIES
            
            
            6,203,705
            
            
            4,454,594
            
            
            39.3%
            
            
            10,243,765
            
            
            8,890,193
            
            
            15.2%GROSS
                PROFIT
            
            
            13,450,742
            
            
            9,865,888
            
            
            36.3%
            
            
            22,231,503
            
            
            21,667,078
            
            
            2.6%SELLING,
                  GENERAL ANDADMINISTRATIVE
                  EXPENSES
            
            
            5,088,597
            
            
            3,388,675
            
            
            50.2%
            
            
            8,335,796
            
            
            6,653,582
            
            
            25.3%INCOME
                FROM OPERATIONS
            
            
            8,362,145
            
            
            6,477,213
            
            
            29.1%
            
            
            13,895,707
            
            
            15,013,496
            
            
            -7.4%OTHER
                (EXPENSE) INCOME, NET
            
            
            (1,057,848
            )
            
            437,935
            
            
            -
            
            
            (613,677
            )
            
            888,147
            
            
            -INCOME
                  BEFORE PROVISION FOR INCOME TAXES AND MINORITY
                  INTEREST
            
            
            7,304,297
            
            
            6,915,148
            
            
            5.6%
            
            
            13,282,030
            
            
            15,901,643
            
            
            -16.5%PROVISION
                FOR INCOME TAXES
            
            
            1,664,054
            
            
            555,395
            
            
            199.6%
            
            
            3,144,448
            
            
            1,266,405
            
            
            148.3%INCOME
                BEFORE MINORITY INTEREST
            
            
            5,640,243
            
            
            6,359,753
            
            
            -11.3%
            
            
            10,137,582
            
            
            14,635,238
            
            
            -30.7%MINORITY
                INTEREST
            
            
            998,642
            
            
            1,369,361
            
            
            -27.1%
            
            
            1,887,079
            
            
            3,122,579
            
            
            -39.6%NET
                INCOME
            
            
            4,641,601
            
            
            4,990,392
            
            
            -7.0%
            
            
            8,250,503
            
            
            11,512,659
            
            
            -28.3%OTHER
                COMPREHENSIVE INCOME:Foreign
                currency translation adjustment
            
            
            2,675,768
            
            
            2,383,905
            
            
            12.2%
            
            
            7,099,628
            
            
            3,773,257
            
            
            88.2%COMPREHENSIVE
                INCOME
            
            $
            7,317,369
            
            $
            7,374,297
            
            
            -0.8%
            
            $
            15,350,131
            
            $
            15,285,916
            
            
            0.4%WEIGHTED
                AVERAGE NUMBER OF SHARES
            
            
            71,333,586
            
            
            71,333,586
            
            
            
            
            
            71,333,586
            
            
            71,333,586EARNINGS
                PER SHARE, BASIC AND DILUTED
            
            $
            0.07
            
            $
            0.07
            
            
            
            
            $
            0.12
            
            $
            0.16




-
          39
          -


Revenue .
      For the
      second quarter of 2008, revenue was $19.7 million, an increase of 37.2% compared
      to $14.3 million for the same period in 2007. For the six months ended June
      30,
      2008, revenue was $32.5 million, an increase of 6.3% compared to $30.6 million
      for the same period in 2007. The breakdown of revenue between Chinese and
      international sales is as follows.





**Three months ended June 30,**
            
            
            
            **Six months ended June 30,****2008**
            
            **2007**
            
            **Change**
            
            **2008**
            
            **2007**
            
            **Change**China
            
            $
            8,509,932
            
            $
            5,137,313
            
            
            65.6%
            
            $
            14,615,711
            
            $
            12,347,614
            
            
            18.4%International
            
            $
            11,144,515
            
            $
            9,183,169
            
            
            21.4%
            
            $
            17,859,557
            
            $
            18,209,657
            
            
            -1.9%Total
            
            $
            19,654,447
            
            $
            14,320,482
            
            
            37.2%
            
            $
            32,475,268
            
            $
            30,557,271
            
            
            6.3%




For
      the
      second quarter of 2008, revenue in China was $8.5 million, an increase of 65.6%
      compared to $5.1 million for the same period in 2007. This increase was due
      to
      increased marketing efforts in China and to the increase in the value of the
      renminbi against the dollar. For the six months ended June 30, 2008, revenue
      in
      China was $14.6 million, an 18.4% increase compared to $12.3 million for the
      same period in 2007. The growth in revenue during the second quarter was offset
      by a 15% decrease in revenue in China during the first quarter of 2008. During
      the first quarter of 2008, we believe that sales in China were negatively
      impacted by continued uncertainty in China regarding the impact of direct
      selling regulations and uncertainty regarding the timing of the direct selling
      license application process and approval.




For
      the
      second quarter of 2008, international revenue was $11.1 million, an increase
      of
      21.4% compared to $9.2 million for the same period in 2007. In August 2007,
      China’s Administration of Quality Supervision, Inspection and Quarantine
      (“AQSIQ”) announced an ongoing national campaign in China against unsafe food
      and substandard products. The special campaign against poor product quality
      was
      launched in response to a series of safety scares involving Chinese products
      worldwide. The campaign set 20 detailed goals, including twelve "100 percents".
      For example, 100 percent of food producers should be licensed; 100 percent
      of
      agricultural wholesale markets in cities must be monitored; 100 percent of
      suppliers of raw materials for exported products should be inspected; and 100
      percent of agricultural products must be free of five types of strong
      pesticides. The campaign, which was originally scheduled to finish at the end
      of
      2007, is currently scheduled to continue throughout 2008.





As
      a
      result of this campaign by the AQSIQ, there has been a general slow-down and
      backlog of export clearances for Chinese food products, and, from August 2007
      through the first quarter of 2008, we experienced significant delays in
      obtaining export clearance for all of the products which we sell to our
      international affiliates. Beginning in the second quarter of 2008, these export
      restrictions were reduced for exports to countries in Africa and Asia, but
      remained in place for exports to countries in Europe and the Americas. To
      facilitate the export of our product in the future, in May 2008 we established
      a
      new subsidiary, Dongfeng Biological in Liaoyuan, Jilin Province. To date,
      Dongfeng Biological has not yet conducted any operations.





For
      the
      six months ended June 30, 2008, international revenue was $17.9 million, a
      decrease of 1.9% compared to $18.2 million for the same period in 2007. This
      decrease reflects the impact of the export restrictions, which were introduced
      in third quarter of 2007, on the first quarter of 2008, offset by the increase
      in international revenue in the second quarter of 2008 due to a reduction on
      the
      export restrictions in that period.





Cost
      of Sales .
      Cost of
      sales for the second quarter of 2008 increased to $6.2 million, or by 39.3%,
      compared to $4.5 million for the same period in 2007. This increase was in
      line
      with the increase in revenue for the period and was due to both the increase
      in
      sales and the increase in the value of the renminbi against the dollar. For
      the
      six months ended June 30, 2008, cost of sales was $10.2 million, an increase
      of
      15.2% compared to $8.9 million for the same period in 2007. Cost of sales for
      the period increased at a greater rate than revenue primarily due to increases
      in the costs of raw materials.




Gross
      Profit .
      Gross
      profit for the second quarter of 2008 was $13.5 million, an increase of 36.3%
      compared to $9.9 million for the same period in 2007. For the six months ended
      June 30, 2008, gross profit was $22.2 million, an increase of 2.6% compared
      to
      the same period in 2007. The gross profit margin for the second quarter of
      2008
      was 68.4%, compared to 68.9% for the same period in 2007. For the six months
      ended June 30, 2008, the gross profit margin was 68.5% compared to 70.9% for
      the
      same period in 2007. This decrease reflects the increase in the cost of our
      raw
      materials while the price at which we sell our products has remained constant.




-
          40
          -





Selling,
      general and administrative expenses .
      Selling, general and administrative expenses were $5.1 million for the second
      quarter of 2008, an increase of 50.2% compared to $3.4 million for the same
      period in 2007. The selling and administrative expenses as a percentage of
      sales
      was 25% for the second quarter of 2008 compared to 23.7% for the same period
      in
      2007. For the six months ended June 30, 2008, selling, general and
      administrative expenses were $8.3 million, an increase of 25.3% compared to
      $6.7
      million in the same period in 2007. For the six months ended June 30, 2008,
      selling, general and administrative expenses as a percentage of sales was 25.7%,
      compared to 21.8% for the same period in 2007. This increase was primarily
      due
      to an increase in salary and insurance expenses, advertising, research and
      development expenses, general administration expenses relating to the
      construction of the Life Resources project, and the appreciation of the
      renminbi.





Other
      income (expense), net .
      Other
      income (expense), net was $1.1 million of expense for the second quarter of
      2008, compared to $0.4 million of income for the same period in 2007. The
      difference was primarily due to a $1.2 million donation we made in June 2008
      towards the Sichuan earthquake relief efforts. For the six months ended June
      30,
      2008, other income (expense), net was $0.6 of expense compared to $0.9 million
      income for the same period in 2007. The difference was primarily due to interest
      earned on a RMB200 million (or approximately $29.4 million) loan which we made
      to Engineering and which was paid off in December 2007.





Provision
      for income taxes .
      Provision for income taxes was $1.7 million for the second quarter of 2008
      compared to $0.6 million for the same period in 2007. For the six months ended
      June 30, 2008, provision for income taxes was $3.1 million compared to $1.3
      million for the same period in 2007. From January 1, 2005 through December
      31,
      2007, Biological was subject to income tax at a reduced rate of 7.5%. Beginning
      on January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the
      previous laws for Foreign Invested Enterprises (“FIEs”). A new standard EIT rate
      of 25% will apply to FIEs. According to the new EIT, high-tech companies could
      be subject to a special reduced tax rate of 15%. The qualification of a
      high-tech company is to be reviewed annually. Biological currently qualifies
      as
      a high-tech company. However, as there are not yet any detailed regulations
      regarding the implementation of the new EIT and in the first and second quarters
      of 2008, Biological was required by the local tax authority to prepay income
      tax
      at a tax rate of 25%.





Net
      income .
      As a
      result of the foregoing factors, and primarily the increase in general
      administration expenses relating to the construction of the Life Resources
      project, the increase in income tax rate, and the donation we made towards
      the
      Sichuan earthquake relief efforts, net income for the second quarter of 2008
      was
      $4.6 million, a decrease of 7.0% compared to $5.0 million for the same period
      in
      2007. For the six months ended June 30, 2008, net income was $8.3 million,
      a
      decrease of 28.3% compared to the same period in 2007.





Other
      comprehensive income .
      Other
      comprehensive income increased to $2.7 million for the second quarter of 2008,
      compared to $2.4 million for the same period in 2007. Other comprehensive income
      represents foreign currency translation adjustments for the year. Accumulated
      other comprehensive income was recorded in Biological, Tiens Yihai and Life
      Resources due to balance sheet translations. Accumulated other comprehensive
      income was recorded in Tianshi Holdings due to the effect of foreign exchange
      rate on dividend receivables from Biological. The amounts shown in the Income
      Statement are net of minority interests. The sharp increase in other
      comprehensive income was due to the increase in the value of the renminbi
      against the dollar from RMB7.71 to $1 at June 30, 2007 to RMB6.87 to $1 at
      June
      30, 2008. For the six months ended June 30, 2008, other comprehensive income
      was
      $7.1 million, compared to $3.8 million for the same period in 2007.





**Financial
      Condition, Liquidity and Capital Resources**





We
      have
      historically met our working capital and capital expenditure requirements,
      including funding for expansion of operations, through net cash flow provided
      by
      operating activities. Our principal source of liquidity is our operating cash
      flow.


-
          41
          -





Net
      cash
      used in operating activities was $1.1 million for the six months ended June
      30,
      2008, compared to net cash provided by operating activities of $9.9 million
      for
      the same period of 2007. The decrease reflects a decrease in net income of
      $3.3
      million in the two comparable periods. In addition, accounts receivable-related
      parties increased by $8.9 million to $23.2 million as of June 30, 2008 from
      $14.3 million as of December 31, 2007. This increase was primarily due to the
      increase in revenue during the second quarter of 2008. Other receivable-related
      parties decreased to $11.8 million as of June 30, 2008 from $13.9 million as
      of
      December 31, 2007.





As
      of
      June 30, 2008, we had positive working capital of $57.8 million. Cash was $47.7
      million as of June 30, 2008, compared to $54.1 million as of December 31,
      2007.





Net
      cash
      used in investing activities decreased by $9.0 million for the six months ended
      June 30, 2008 compared to the same period of 2007. Net cash provided by
      financing activities was $1.3 million for the six months ended June 30, compared
      to $10.5 million for the same period of 2007. During the first six months of
      2008, we received a loan from Tianshi Investment in the amount of $6.9 million
      relating to Life Resources. During the same period in 2007, a capital
      contribution of $18.0 million was provided to Life Resources by Tianshi
      Investment, its parent company at that time.





Going
      forward, our primary requirements for cash consist of:





o
            construction
                by Life Resources of new research and development, manufacturing
                and
                logistic facilities, and administrative
                offices;





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





o
            the
                development costs of new products;
                and





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





We
      estimate that the completion of the Life Resources project will require
      approximately $220 million, including the $64 million already spent to acquire
      all of the registered share capital of Life Resources and $12 million spent
      on
      the project in the first six months of 2008. We intend to construct the
      facilities in phases over several years, based on available cash and capacity
      needs. Depending on the rate of construction and our cash flow, it is likely
      that we will require additional financing in the future to complete the
      long-term funding requirements of that project. However, we anticipate that
      our
      current operating activities will enable us to meet our anticipated cash
      requirements, including the Life Resources project, for the next twelve
      months.





**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 .




The
      Company sells both semi-finished products and finished products to Tianshi
      Engineering domestically. Revenue from semi-finished products was recognized
      at
      FOB Tianjin shipping point. Revenue from finished products was recognized only
      when the related party Chinese distributors recognize sales of the Company's
      products to unaffiliated third parties. Revenues in both cases are net of value
      added taxes.


-
          42
          -





For
      overseas sales, the Company only sells finished products. The Company recognizes
      revenue from international sales (non-Chinese) to both affiliated and
      unaffiliated third parties, net of value added taxes as goods are shipped and
      clear review by the customs department of the Chinese government.





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. As the Company did not receive any returns
      of
      products during the past three years, no allowance for estimated returns has
      been recorded as of June 30, 2008.




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 at 0.5% of our outstanding
      accounts receivable balance.




Inventories .




Inventories
      are stated at the lower of cost or market using the moving average basis. We
      review our inventory annually for possible obsolete goods or to determine if
      any
      reserves are necessary for potential obsolescence.




**Recent
      Accounting Pronouncements**





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
      Combination" (“SFAS 141R”). SFAS 141R establishes principles and requirements
      for how the acquirer recognizes and measures in its financial statements the
      identifiable assets, the liabilities and any non-controlling interest in the
      acquiree, and the goodwill acquired in business combination or a gain from
      a
      bargain purchase. It also determines what information to disclose. The objective
      of SFAS 141R is to improve the relevance, representational faithfulness, and
      comparability of the information that a reporting entity provides in its
      financial reports about a business combination and its effects. SFAS 141R will
      be effective in the first quarter of fiscal 2009. Management is evaluating
      the
      impact that this statement will have on our consolidated financial
      statements.





In
      December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in
      Consolidated Financial Statements, an amendment of ARB No. 51" (“SFAS 160”).
      SFAS 160 provides a guide on how to report non-controlling interest in
      consolidated financial statements. The objective of SFAS 160 is to improve
      the
      relevance, comparability, and transparency of the financial information that
      a
      reporting entity provides in its consolidated financial statements. SFAS 160
      will be effective in the first quarter of fiscal 2009. Management is evaluating
      the impact that this statement will have on our consolidated financial
      statements.





In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities” (“SFAS 161”). SFAS 161 requires enhanced disclosures
      about an entity’s derivative and hedging activities and thereby improves the
      transparency of financial reporting. The objective of SFAS 161 is to provide
      adequate information about how derivative and hedging activities affect an
      entity’s financial position, financial performance, and cash flows. SFAS 161
      will be effective in the first quarter of fiscal 2009. The Company is evaluating
      the impact that this statement will have on its consolidated financial
      statements.





In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles” (“SFAS 162”). SFAS 162 identifies the sources of
      accounting principles and the framework for selecting the principles to be
      used
      in the preparation of financial statements of nongovernmental entities that
      are
      presented in conformity with U.S. GAAP. SFAS 162 shall be effective 60 days
      following the SEC’s approval of the Public Company Accounting Oversight Board
      (“PCAOB”) amendments to AU Section 411, “The Meaning of Present Fairly in
      Conformity With Generally Accepted Accounting Principles”. The Company is
      evaluating the impact that this statement will have on its consolidated
      financial statements.


-
          43
          -





In
      May
      2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
      Insurance Contracts” (“SFAS 163”). SFAS 163 requires that an insurance
      enterprise recognize a claim liability prior to an event of default (insured
      event) when there is evidence that credit deteriorations has occurred in an
      insured financial obligation. SFAS 163 is effective for financial statements
      issued for fiscal years beginning after December 15, 2008. The adoption of
      SFAS
      163 will not have a material impact on the Company’s consolidated financial
      statements.





**CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**




We
      market
      all of our products through various domestic and international business entities
      that are related to us through common ownership. As a result, all of our
      consolidated sales are to related parties.





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 Holdings, and we believe that it is a reasonable sales
      price
      for us to receive. The price of semi-finished goods sold to Tianshi Engineering
      was originally set at the beginning of 2006 to provide us with a 75% gross
      profit margin. However, based on fluctuations in the cost of raw materials
      and
      quantities produced, the gross profit margin percentage varied during the year.
      This 75% figure was negotiated between the parties, and we believe that it
      is
      reasonable. The goal of this new pricing policy was to try to maintain the
      Company’s gross margins on semi-finished goods at a similar level to historical
      gross margins for finished goods. All of Tianshi Engineering’s Chinese
      affiliated companies are owned in whole or in part by Jinyuan Li’s immediate
      family members.





Internationally,
      we sell our products to overseas related companies located in 52 countries,
      which in turn sell them to independent direct sales distributors. Our CEO,
      Jinyuan Li, owns or controls these overseas related companies. Due to the common
      ownership, there are no formal sales or administrative agreements among us
      and
      those overseas related parties. The business operations among these related
      entities are regulated through internal policies.





Our
      related party transactions are required to be reviewed and approved or ratified
      by a majority of our non-interested Board of Directors. The following tables
      are
      provided to facilitate your understanding of the transactions and outstanding
      balances between those related parties and us.




**June 30, 2008**
            
            **December 31, 2007**Accounts receivable, trade - related
                parties, net of allowance for doubtful accounts of $109,415 and $71,700
                as
                of June 30, 2008 and December 31, 2007, respectively
            
            $
            23,176,490
            
            $
            14,268,229Other
                receivables - related parties
            
            $
            11,844,719
            
            $
            13,887,138Advances
                from customers - related parties
            
            $
            2,493,135
            
            $
            1,700,838Other
                payables - related parties
            
            $
            7,437,449
            
            $
            7,938,205Current
                portion of long-term debt - related party
            
            $
            2,130,000
            
            $
            2,130,000Long
                term debt - related party
            
            $
            3,202,742
            
            $
            4,267,742




-
          44
          -




**Revenue
      - Related Parties**





The
      details of revenue-related parties are as follows:





**Three months ended June 30,**
            
            **Six months ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Tianshi Engineering
            
            $
            8,509,932
            
            $
            5,137,313
            
            $
            14,615,711
            
            $
            12,347,614Overseas Related Companies
            
            
            11,144,515
            
            
            9,183,169
            
            
            17,859,557
            
            
            18,209,657Total
            
            $
            19,654,447
            
            $
            14,320,482
            
            $
            32,475,268
            
            $
            30,557,271





**Accounts
      Receivable, Trade - Related Parties**





The
      details of accounts receivables, trade-related parties are as
      follows:





**June 30, 2008**
            
            **December 31, 2007**Tianshi Engineering
            
            $
            4,945,115
            
            $
            2,062,333Overseas
                Related Companies
            
            
            18,340,790
            
            
            12,277,596Allowance
                for Doubtful Accounts
            
            
            (109,415
            )
            
            (71,700
            )Total
            
            $
            23,176,490
            
            $
            14,268,229





Accounts
      receivables-related parties increased from December 31, 2007 as a result of
      the
      increase in revenue, which was greatest in the second quarter of
      2008.




**Other
      Receivables - Related Parties**





Other
      receivables - related parties are generated by the Company making various cash
      advances and short term loans, the allocation of various expenses to related
      parties, and amounts transferred from accounts receivable. The details of other
      receivables-related parties are as follows:




**June 30, 2008**
            
            **December 31, 2007**Tianshi Engineering
            
            $
            10,973,059
            
            $
            9,460,811Tianshi
                Group
            
            
            838,605
            
            
            2,347,489Tianjin
                Xingda Travel Co., Ltd
            
            
            15,718
            
            
            1,939Beijing
                Xingda Travel Co., Ltd
            
            
            7,925
            
            
            5,959Tianshi
                Pharmaceuticals
            
            
            3,207
            
            
            5,065Shanghai
                Tianshi Jinquan Investment Co.
            
            
            3,083
            
            
            874Shengshi
                Real Estate Development
            
            
            2,047
            
            
            2,238Shanghai
                Gujia
            
            
            1,075
            
            
            -Xiongshi
                Construction
            
            
            -
            
            
            2,062,763Total
            
            $
            11,844,719
            
            $
            13,887,138





Historically,
      Tianshi Engineering remitted payment to us upon sales to third party customers.
      However, in order to support Tianshi Engineering’s marketing efforts in
      anticipation of receiving a direct selling license in China, we have agreed
      to
      allow Tianshi Engineering to defer payment to us. The credit terms provide
      an
      interest-free credit term of three months. Balances not remitted to us within
      90
      days are converted to other receivables - related parties. Beginning on January
      1, 2007, the other receivables - related parties became interest bearing. The
      stated interest rate is the interest rate for the same level of loan stipulated
      by the People’s Bank of China.




We
      and
      Tianshi Group used common meters at our headquarters for electricity and water,
      and also used the same employee insurance account. When making payments to
      these
      outside parties, we usually pay the fees first and then are reimbursed by
      Tianshi Group. These pro-rated amounts relating to Tianshi Group are categorized
      as other receivables - related parties. In addition, during 2006 we were owed
      other receivables-related parties in the amount of RMB 7,560,000 ($1,033,603)
      from Tianjin Juchao Commercial and Trading Co., Ltd (“Juchao”), a related party
      owned by Jinyuan Li. On March 31, 2006, Juchao declared termination of its
      operations, and all of its rights and liabilities were transferred to Tianshi
      Group. This amount was also included in other receivables - related parties
      as
      of December 31, 2007.




-
          45
          -


**Advances
      from Customers - Related Parties**





Advances
      from related party customers were $2.5 million and $1.7 million as of June
      30,
      2008 and December 31, 2007, respectively. These advances represented prepayments
      made to us to insure that overseas customers could obtain enough of our products
      to meet their market demands.




**Other
      Payables - Related Parties**





These
      amounts arose primarily from previous cash advances from related parties such
      as
      management fees due to related parties and various non-operational transactions
      incurred with related parties. The details of other payable-related parties
      are
      as follows:





**June 30, 2008**
            
            **December 31, 2007**Tianshi
                Investment
            
            $
            6,708,852
            
            $
            7,490,136Tianshi
                Group
            
            
            526,181
            
            
            -Tianshi
                Germany Co., Ltd
            
            
            118,043
            
            
            109,233Tianyuan
                Capital Development Co. Ltd.
            
            
            84,359
            
            
            84,359Tianshi
                Administrative Committee of Industrial Park
            
            
            14
            
            
            13Tianshi
                Pharmaceuticals
            
            
            -
            
            
            9,308Tianshi
                Shanghai Co., Ltd
            
            
            -
            
            
            176Tianshi
                Engineering
            
            
            -
            
            
            244,980Total
            
            $
            7,437,449
            
            $
            7,938,205




These
      amounts arose primarily from previous cash advances from related parties such
      as
      management fees due to related parties and various non-operational transactions
      incurred with related parties.





On
      December 21, 2007, the Company, Tianshi Investment and Life Resources entered
      a
      Loan Agreement, pursuant to which Tianshi Investment loaned $7.5 million to
      Life
      Resources without interest. The Company agreed to repay the $7.5 million to
      Tianshi Investment within five days of the date of the government approval
      of
      the transfer of the shares of Life Resources to Tianshi Holdings. On March
      13,
      2008, the Chinese government approved the transfer and the Company repaid $7.5
      million to Tianshi Investment on March 18, 2008 by canceling $7.5 million of
      accounts receivable owed to it by Tianshi Engineering.





On
      January 21, 2008, Life Resources and Tianshi Investment entered into a loan
      agreement pursuant to which Tianshi Investment provided a loan to Life Resources
      for $6.5 million without interest. The loan was due on June 30, 2008. On June
      30, 2008, the parties agreed to extend the loan until December 31, 2008. Life
      Resources used the loan to increase its registered share capital.





**Long
      Term Debt - Related Party**





On
      September 10, 2004, Tianshi Holdings entered a term loan agreement with Tianyuan
      Capital Development Co. Ltd. ("Tianyuan Capital"), pursuant to which Tianyuan
      Capital agreed to lend $10.65 million (in aggregate principal amount) to Tianshi
      Holdings, at an interest rate of 5% per year, with interest payable on June
      30
      and December 31, commencing December 31, 2004. Tianshi Holdings must repay
      the
      loan in ten consecutive semi-annual installments of $1,065,000 ending June
      30,
      2011. Tianshi Holdings used the loan proceeds to fund its capital contribution
      to Tiens Yihai. Mr. Jinyuan Li owns 100% of Tianyuan Capital.


-
          46
          -





**Other
      Transactions with Tianshi Engineering**





On
      December 31, 2005, Biological entered into four lease agreements with Tianshi
      Engineering which enabled Tianshi Engineering to share the use of certain of
      Biological’s product production workshops and equipment to manufacture products
      which Tianshi Engineering owns, or jointly owns, with Biological, for one year
      beginning January 1, 2006. These four lease agreements were renewed in December
      2006 for the 2007 fiscal year and on October 17, 2007 for the 2008 fiscal year.
      Rent revenue from these leases amounted to $160,929 and $187,275 for the six
      months ended June 30, 2008 and 2007, respectively.





**Other
      Transactions with Tianshi Group**





Since
      2003, Biological has leased office space and manufacturing facilities from
      Tianshi Group. The lease provides for an annual rent equal to 1% of our total
      gross revenues. The rent was negotiated by the parties before we acquired
      Tianshi Holdings, and we believe that it is a reasonable rent for the
      facilities. The term of the lease was for five years and expired on December
      31,
      2007. In addition, we are obligated to pay insurance, maintenance and other
      expenses related to the premises. We entered into a new one-year lease agreement
      with Tianshi Group, effective January 1, 2008 covering the same facilities
      and
      having identical rent terms. The total amount paid on this lease for six months
      ended June 30, 2008 and 2007 was $399,632 and $319,832,
      respectively.





**Transactions
      with Tianshi Investments**





On
      December 20, 2007, Tianshi Holding entered into a Sale and Purchase Agreement
      with Tianshi Investment, Biological and Tianshi Engineering. Pursuant to the
      Sale and Purchase Agreement, Tianshi Holdings agreed to buy all of the
      registered share capital of Life Resources from Tianshi Investment for
      RMB474,674,415 ($64,247,182). The closing of the transaction was subject to
      government approval of the transfer of Life Resources to Tianshi Holdings.
      On
      March 13, 2008, the government approved the transfer.





Pursuant
      to the Sale and Purchase Agreement, we advanced a deposit of $64,247,182 to
      Tianshi Investment on December 20, 2007. This acquisition deposit was settled
      as
      follows:





o
            $28,592,743
                was paid by canceling a loan in the principal amount of RMB200,000,000
                to
                Tianshi Engineering owned by Biological together with interest
                accrued;





o
            $16,557,914
                was paid by canceling of other receivable owned by Tianshi Engineering
                to
                Biological; and





o
            $19,096,525
                was paid in cash.





On
      December 21, 2007, Tianshi Holdings and Tianshi Investment entered into a
      Capital Contribution Agreement, pursuant to which Tianshi Investment agreed
      to
      fund a capital increase of Life Resources in the amount of $7.5 million. Tianshi
      Holdings agreed to pay back the $7.5 million to Tianshi Investment within five
      days of the date of the government approval of the transfer of the shares of
      Life Resources to Tianshi Holdings. The approval was received on March 13,
      2008
      and the $7.5 million was paid back on March 18, 2008, by canceling $7.5 million
      of accounts receivable owed to us by Tianshi Engineering.





On
      January 14, 2008, Tianshi Holdings and Tianshi Investment entered into a loan
      agreement pursuant to which Tianshi Holdings loaned Tianshi Investment $4.1
      million without interest. The loan was required to be used by Tianshi Investment
      to increase the registered share capital of Life Resources. The loan was due
      on
      March 31, 2008, provided however, that if the government approved the transfer
      of the shares of Life Resources to Tianshi Holdings prior to that date, the
      loan
      would be cancelled, as Life Resources would then be a wholly-owned subsidiary
      of
      Tianshi Holdings. The approval was received on March 13, 2008, and therefore,
      the loan was cancelled on the same date.


-
          47
          -





**MANAGEMENT
      ASSUMPTIONS**




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




**OFF-BALANCE
      SHEET ARRANGEMENTS**




We
      have
      no off-balance sheet arrangements.





**ITEM
      3.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**




**EFFECTS
      OF INFLATION**




We
      are
      subject to commodity price risks arising from price fluctuations in the market
      prices of the various raw materials that comprise our products. Price risks
      are
      managed by each business unit through productivity improvements and
      cost-containment measures. For the time being, 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 our products in China using the renminbi 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. As of June 30, 2008, the exchange rate was
      $1 =
      RMB 6.87 compared to $1 = RMB 7.31 as of December 31, 2007.





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





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





**ITEM
      4.**  **CONTROLS
      AND PROCEDURES**




**Disclosure
      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.


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          48
          -





**Changes
      in Internal Control Over Financial Reporting**





There
      has
      been no change in our internal control over financial reporting during the
      second quarter of 2008 that has materially affected, or is reasonably likely
      to
      materially affect, our internal control over financial reporting.





**PART
      II - OTHER INFORMATION**




**ITEM
      1A.**  **RISK
      FACTORS**




Our
      2007
      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.





**A
      RECENT CAMPAIGN IMPOSED BY THE CHINESE GOVERNMENT AGAINST THE EXPORT OF UNSAFE
      FOOD AND SUBSTANDARD PRODUCTS, IS HINDERING OUR ABILITY TO EXPORT OUR PRODUCTS
      INTERNATIONALLY.**





In
      August
      2007, China’s Administration of Quality Supervision, Inspection and Quarantine
      (“AQSIQ”) announced an ongoing national campaign in China against unsafe food
      and substandard products. The special campaign against poor product quality
      was
      launched in response to a series of safety scares involving Chinese products
      worldwide. The campaign set 20 detailed goals, including twelve "100 percents".
      For example, 100 percent of food producers should be licensed; 100 percent
      of
      agricultural wholesale markets in cities must be monitored; 100 percent of
      suppliers of raw materials for exported products should be inspected; and 100
      percent of agricultural products must be free of five types of strong
      pesticides. The campaign, which was originally scheduled to finish at the end
      of
      2007, is currently scheduled to continue throughout 2008.





As
      a
      result of this campaign by the AQSIQ, there has been a general slow-down and
      backlog of export clearances for Chinese food products, and from August 2007
      through the first quarter of 2008, we experienced significant delays in
      obtaining export clearance for all of the products which we sell to our
      international affiliates. Beginning in the second quarter of 2008, these export
      restrictions were reduced for exports to countries in Africa and Asia, but
      remained in place for exports to countries in Europe and the Americas. To
      facilitate the export of our products, in May 2008 we established a new
      subsidiary, Dongfeng Biological, in Liaoyuan, Jilin Province. To date, Dongfeng
      Biological has not conducted any operations. The Company is evaluating whether
      to use Dongfeng Biological in the future to address the export
      restrictions.





We
      believe that these restrictions have resulted in some of our international
      affiliates not being able to purchase sufficient quantities of our products
      to
      meet their demand, resulting in a loss of sales. Continued delays in the export
      clearance for our products may continue to result in us not being able to meet
      the demand for our products from our international affiliates and future loss
      of
      sales. Currently we are not able to provide an estimate as to the timing for
      the
      clearance of our products for export.





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





Substantially
      all of our assets are located in China, and approximately 56.0%, 40.5% and
      40.9%
      of our revenues in 2005, 2006 and 2007, respectively, were derived from our
      operations in China. Accordingly, our operations are subject, to a significant
      degree, to Chinese law. In China, we are aiming to expand our market share
      through the branches, chain stores, and affiliated companies of Tianshi
      Engineering, our affiliate who sells our products in China. Because direct
      selling was only recently authorized in China, the regulatory environment with
      respect to direct selling in this market remains fluid and the process for
      obtaining the necessary governmental approvals have been interpreted differently
      by different governmental authorities. The direct selling regulations require
      Tianshi Engineering to apply for approval to conduct a direct selling enterprise
      in China.


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          49
          -





Tianshi
      Engineering has applied for a direct selling license in a number of provinces
      and must obtain a series of approvals from the Departments of Commerce in such
      provinces, as well as the Departments of Commerce in each city and district
      in
      which we plan to operate. Tianshi Engineering is also required to obtain the
      approval of the State Ministry of Commerce, which is the national government
      authority overseeing direct selling.





Tianshi
      Engineering has found that it is taking more time than anticipated to work
      through the approval process with the Chinese authorities. These authorities
      have broad discretion in interpreting the regulations and granting necessary
      approvals. A delay in obtaining approvals at one level can delay our ability
      to
      obtain approvals at the next level. The complexity of the approval process
      as
      well as the government’s continued cautious approach as direct selling develops
      in China makes it difficult to predict a timeline for obtaining these approvals.
      If Tianshi Engineering does not receive a direct selling license in China,
      then
      its ability to compete against its competitors who have received such a license
      may be hurt. As a result, Tianshi Engineering may lose distributors who find
      a
      competitor’s direct selling business and compensation model more attractive.
      This could materially decrease the revenue that we receive from sales by Tianshi
      Engineering in China.





**ITEM
      6.**  **EXHIBITS**




Exhibit
                No.
            
            Description10.1
            
            Agreement
                dated April 9, 2008 by and between Tianshi International Holdings
                Group
                Limited, Tianshi International Investment Group Co., Ltd., Tianjin
                Tianshi
                Biological Development Co., Ltd, and Tianjin Tianshi Biological
                Engineering Co., Ltd.10.2
            
            Loan
                Agreement Amendment dated June 30, 2008 by and between Tianshi
                International Investment Group Co., Ltd. and Tianjin Tiens Life Resources
                Co., Ltd.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 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




-
          50
          -




**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.





Date:
                August 14, 2008/s/
                Jinyuan LiJinyuan
                LiChief
                Executive Officer and President(Principal
                Executive Officer)Date:
                August 14, 2008/s/
                Wenjun JiaoWenjun
                JiaoChief
                Financial Officer(Principal
                Accounting Officer)