**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 March 31, 2007.




**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, including zip code)




Registrant’s
      Telephone Number: +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 if the registrant is a large accelerated filer, an accelerated
      filer or a non-accelerated filer. See definition of “accelerated filer and
      larger accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):




**Large
      Accelerated Filer o          
Accelerated Filer o            
      Non-Accelerated Filer x**




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




There
      were 71,333,586 shares of the Company’s common stock outstanding on May 11,
      2007.







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


**INDEX
      TO FORM 10-Q**





PAGE**PART
                I - FINANCIAL INFORMATION**
            
            3ITEM
                1. FINANCIAL STATEMENTS (UNAUDITED)
            
            3Consolidated
                Balance Sheets as of March 31, 2007 and December 31, 2006
            
            3Consolidated
                Statements of Income and Other Comprehensive Income for the three
                months
                ended March 31, 2007 and 2006
            
            4Consolidated
                Statements of Shareholders’ Equity
            
            5Consolidated
                Statements of Cash Flows for the three months ended March 31, 2007
                and
                2006
            
            6Notes
                to Consolidated Financial Statements
            
            7ITEM
                2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                Of OPERATIONS
            
            28ITEM
                3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                RISK
            
            37ITEM
                4. CONTROLS AND PROCEDURES
            
            38**PART
                II - OTHER INFORMATION**
            
            38ITEM
                1A. RISK FACTORS
            
            38ITEM
                2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS
            
            39ITEM
                3. DEFAULTS UPON SENIOR SECURITIES
            
            39ITEM
                4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            39ITEM
                5. OTHER INFORMATION
            
            39ITEM
                6. EXHIBITS
            
            40


2


PART
      I -
      FINANCIAL INFORMATION




**ITEM
      1.** **FINANCIAL
      STATEMENTS (UNAUDITED)**


TIENS
        BIOTECH GROUP (USA), INC. AND SUBSIDIARIES


CONSOLIDATED
        BALANCE SHEETS


AS
        OF
        MARCH 31, 2007 AND DECEMBER 31, 2006
  March
                  31,
              
              December
                  31,2007
              
              2006(Unaudited)ASSETSCURRENT
                  ASSETS:Cash
              
              $
              50,926,651
              
              $
              54,270,065Accounts
                  receivable, trade - related parties, net ofallowance
                  for doubtful accounts of $83,958 and $86,776as
                  of March 31, 2007 and December 31, 2006,
                  respectively
              
              
              16,707,575
              
              
              12,926,670Accounts
                  receivable, trade - third parties
              
              
              18,319
              
              
              18,135Inventories
              
              
              6,258,266
              
              
              6,845,108Other
                  receivables
              
              
              304,927
              
              
              349,905Other
                  receivables - related parties
              
              
              7,855,811
              
              
              8,397,227Employee
                  advances
              
              
              103,929
              
              
              111,121Prepaid
                  expense
              
              
              2,265,153
              
              
              2,135,917Total
                  current assets
              
              
              84,440,631
              
              
              85,054,148PLANT
                  AND EQUIPMENT, net
              
              
              32,351,061
              
              
              30,511,319OTHER
                  ASSETS:Intangible
                  assets, net
              
              
              3,021,408
              
              
              510,183Long-term
                  prepaid expenses
              
              
              4,747,661
              
              
              7,031,348Loans
                  receivable - related party
              
              
              26,256,356
              
              
              25,640,000Total
                  other assets
              
              
              34,025,425
              
              
              33,181,531Total
                  assets
              
              $
              150,817,117
              
              $
              148,746,998LIABILITIES
                  AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              $
              3,258,547
              
              $
              4,123,105Advances
                  from customers - related parties
              
              
              1,542,768
              
              
              1,570,120Wages
                  and benefits payable
              
              
              989,889
              
              
              992,068Other
                  taxes payable
              
              
              1,379,199
              
              
              969,760Other
                  payables
              
              
              352,170
              
              
              500,213Other
                  payables - related parties
              
              
              202,027
              
              
              522,105Dividend
                  payable to minority interest
              
              
              240,728
              
              
              238,311Current
                  portion of long-term debt, related party
              
              
              2,130,000
              
              
              2,130,000Total
                  current liabilities
              
              
              10,095,328
              
              
              11,045,682LONG-TERM
                  DEBT, net of current portion, related party
              
              
              6,397,742
              
              
              6,397,742Total
                  liabilities
              
              
              16,493,070
              
              
              17,443,424MINORITY
                  INTEREST
              
              
              7,066,916
              
              
              11,883,323SHAREHOLDERS'
                  EQUITY:Common
                  stock, $0.001 par value, 260,000,000 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
              
              
              101,932,956
              
              
              95,371,137Accumulated
                  other comprehensive income
              
              
              6,990,049
              
              
              5,714,988Total
                  shareholders' equity
              
              
              127,257,131
              
              
              119,420,251Total
                  liabilities and shareholders' equity
              
              $
              150,817,117
              
              $
              148,746,998


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




3


TIENS
                  BIOTECH GROUP (USA), INC. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOMEFOR
                  THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006(UNAUDITED)




2007
              
              2006REVENUE
                  - RELATED PARTIES
              
              $
              16,236,789
              
              $
              16,722,560COST
                  OF SALES
              
              
              4,435,599
              
              
              4,806,296GROSS
                  PROFIT
              
              
              11,801,190
              
              
              11,916,264SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              3,222,756
              
              
              2,566,422INCOME
                  FROM OPERATIONS
              
              
              8,578,434
              
              
              9,349,842OTHER
                  INCOME (EXPENSE), net
              
              
              447,613
              
              
              (37,721
              )INCOME
                  BEFORE PROVISION FOR INCOME TAXESAND
                  MINORITY INTEREST
              
              
              9,026,047
              
              
              9,312,121PROVISION
                  FOR INCOME TAXES
              
              
              711,010
              
              
              733,531INCOME
                  BEFORE MINORITY INTEREST
              
              
              8,315,037
              
              
              8,578,590MINORITY
                  INTEREST
              
              
              1,753,218
              
              
              1,808,881NET
                  INCOME
              
              
              6,561,819
              
              
              6,769,709OTHER
                  COMPREHENSIVE INCOME:Foreign
                  currency translation adjustment
              
              
              1,275,061
              
              
              717,827COMPREHENSIVE
                  INCOME
              
              $
              7,836,880
              
              $
              7,487,536EARNINGS
                  PER SHARE, BASIC AND DILUTED
              
              $
              0.09
              
              $
              0.09WEIGHTED
                  AVERAGE NUMBER OF SHARES
              
              
              71,333,586
              
              
              71,333,586


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


4




TIENS
                  BIOTECH GROUP (USA), INC. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF SHAREHOLDERS'
                  EQUITY


AccumulatedotherNumber
              
              Common
              
              Paid-in
              
              Statutory
              
              Retained
              
              comprehensiveof
                  shares
              
              stock
              
              capital
              
              reserves
              
              earnings
              
              income
                  (loss)
              
              TotalBALANCE,
                  December 31, 2005,
              
              
              71,333,586
              
              $
              71,334
              
              $
              8,842,009
              
              $
              9,420,783
              
              $
              69,079,060
              
              $
              2,234,213
              
              $
              89,647,399Net
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,769,709
              
              
              
              
              
              6,769,709Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              717,827
              
              
              717,827BALANCE,
                  March 31, 2006, unaudited
              
              
              71,333,586
              
              
              71,334
              
              
              8,842,009
              
              
              9,420,783
              
              
              75,848,769
              
              
              2,952,040
              
              
              97,134,935Net
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              19,522,368
              
              
              
              
              
              19,522,368Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,762,948
              
              
              2,762,948BALANCE,
                  December 31, 2006,
              
              
              71,333,586
              
              
              71,334
              
              
              8,842,009
              
              
              9,420,783
              
              
              95,371,137
              
              
              5,714,988
              
              
              119,420,251Net
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,561,819
              
              
              
              
              
              6,561,819Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,275,061
              
              
              1,275,061BALANCE,
                  March 31, 2007, unaudited
              
              
              71,333,586
              
              $
              71,334
              
              $
              8,842,009
              
              $
              9,420,783
              
              $
              101,932,956
              
              $
              6,990,049
              
              $
              127,257,131


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




5


TIENS
                  BIOTECH GROUP (USA), INC. AND SUBSIDIARIESCONSOLIDATED
                  STATEMENTS OF CASH FLOWSFOR
                  THREE MONTHS ENDED MARCH 31, 2007 AND 2006(UNAUDITED)


2007
              
              2006CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              6,561,819
              
              $
              6,769,709Adjustments
                  to reconcile net income to cashprovided
                  by (used in) operating activities:Minority
                  interest
              
              
              1,753,218
              
              
              1,808,881Depreciation
              
              
              698,773
              
              
              558,017Amortization
              
              
              26,174
              
              
              20,111Loss
                  on sale of assets
              
              
              -
              
              
              3,644(Increase)
                  decrease in assets:Accounts
                  receivable, trade - related parties
              
              
              (3,636,012
              )
              
              (7,695,991
              )Inventories
              
              
              653,771
              
              
              1,766,918Other
                  receivables
              
              
              47,869
              
              
              (171,315
              )Other
                  receivables - related parties
              
              
              599,858
              
              
              (28,794,694
              )Employee
                  advances
              
              
              8,287
              
              
              (120,609
              )Prepaid
                  expense
              
              
              (107,382
              )
              
              144,834Accrued
                  interest on long term prepaid expense
              
              
              (48,855
              )
              
              -Accrued
                  interest on loan receivable
              
              
              (356,356
              )
              
              -Increase
                  (decrease) in liabilities:Accounts
                  payable
              
              
              (902,938
              )
              
              (388,043
              )Advances
                  from customers - related parties
              
              
              (43,110
              )
              
              54,866Wages
                  and benefits payable
              
              
              (11,718
              )
              
              (538,016
              )Other
                  taxes payable
              
              
              398,094
              
              
              (206,025
              )Other
                  payables
              
              
              (152,536
              )
              
              117,313Other
                  payables - related parties
              
              
              (297,067
              )
              
              39,368Net
                  cash provided by (used in) operating activities
              
              
              5,191,889
              
              
              (26,631,032
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Increase
                  in short-term investment
              
              
              -
              
              
              (13,638,900
              )Increase
                  in intangible assets
              
              
              (127,996
              )
              
              (25,059
              )Proceeds
                  from sales equipment and automobiles
              
              
              -
              
              
              34,891Purchase
                  of equipment and automobiles
              
              
              (2,223,331
              )
              
              (2,086,972
              )Net
                  cash used in investing activities
              
              
              (2,351,327
              )
              
              (15,716,040
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Payments
                  to minority interest shareholder
              
              
              (6,676,102
              )
              
              -Net
                  cash used in financing activities
              
              
              (6,676,102
              )
              
              -EFFECT
                  OF EXCHANGE RATE CHANGES ON CASH
              
              
              492,126
              
              
              271,593DECREASE
                  IN CASH
              
              
              (3,343,414
              )
              
              (42,075,479
              )CASH,
                  beginning of year
              
              
              54,270,065
              
              
              77,545,991CASH,
                  end of period
              
              $
              50,926,651
              
              $
              35,470,512SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:Cash
                  paid for income taxes
              
              $
              700,941
              
              $
              757,394Cash
                  paid for interest expense
              
              $
              -
              
              $
              -


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


6




TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




MARCH
      31, 2007


(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., in February 2002 to Strategika, Inc., and in August 2003 to the current
      name.





As
      of
      March 31, 2007, Tiens is owned 4.91% by public stockholders, 2.8% by officers
      and 92.29% by Mr. Jinyuan Li. Tiens owns 100% of Tianshi International Group
      Limited (“Tianshi International”). Tianshi International owns 80% of Tianjin
      Tianshi Biological Development Co., Ltd. (“Biological”).





Tianjin
      Tianshi Group Co., Ltd. (“Tianshi Group”) is owned 90% by Mr. Jinyuan Li and 10%
      by his daughter, Ms. Baolan Li. Tianshi Group owns 87.66% of Tianjin Tianshi
      Pharmaceuticals Co., Ltd. (“ Tianshi
      Pharmaceuticals”) and 51%
      of Tianjin Tianshi Biological Engineering Co., Ltd. (“Tianshi
      Engineering”). Tianshi Pharmaceuticals owns 20% of Biological. Ms. Baolan Li
      owns 49% of Tianshi Engineering and 7.29% of Tianshi Pharmaceuticals. Tianjin
      Feishi Transportation Co., Ltd. owns 5.05% of Tianshi
      Pharmaceuticals.





On
      April
      20, 2004, Tianshi International entered a joint venture contract (the "Joint
      Venture Project") with Tianshi Pharmaceuticals to establish Tiens Yihai Co.
      Ltd.
      ("Tiens Yihai"). Tiens Yihai is located in Shanghai, 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. Tiens Yihai is a foreign
      investment joint venture which is incorporated under the laws of PRC. Tiens
      Yihai is classified as a Foreign Investment Enterprise (“FIE”) in the PRC and is
      subject to the FIE laws of the PRC. Tiens Yihai is a Chinese registered limited
      liability company with a legal structure similar to a regular corporation and
      a
      limited liability company organized under state laws in the United States of
      America. The Articles of Association provide for a 50-year term beginning on
      May
      27, 2004 with registered capital of $200,000,000. Tianshi International
      contributes 99.4% of the registered capital and Tianshi Pharmaceuticals
      contributes the remained 0.6%.





The
      Company through its subsidiaries is primarily engaged in the manufacturing
      of
      nutritional supplement products, including wellness products and dietary
      supplement products, and personal care products. In the People’s Republic of
      China (“PRC”), the Company sells its products to Tianshi Engineering. Tianshi
      Engineering, in turn, sells the products to end-users through its chain stores
      and Chinese affiliated companies. Outside the PRC, the Company sells its
      products to an extensive direct sales force of overseas affiliates and
      independent distributors who use the products themselves and/or resell them
      to
      other distributors or consumers. The Company sells to affiliated companies
      located in 63 countries.





**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”).


7





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)


***The
      reporting entity***





The
      Company’s consolidated financial statements reflect the activities of the
      Company and the following Company subsidiaries:


Subsidiary
              
              Jurisdiction
                  of formation
              
              %
                  OwnershipTianshi
                  International Holdings Group, Ltd.
              
              
              British
                  Virgin Islands
              
              
              100.0
              %Tianjin
                  Tianshi Biological Development Co., Ltd.
              
              
              P.R.C.
              
              
              80.0
              %Tiens
                  Yihai Co., Ltd.
              
              
              P.R.C.
              
              
              99.4
              %




***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.





***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 combined financial statements and accompanying notes. Management believes
      that the estimates utilized in preparing its financial statements are reasonable
      and prudent. Actual results could differ from these estimates.




***Foreign
      currency translation***





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





Translation
      adjustments amounted to $6,990,049 and $5,714,988 as of March 31, 2007 and
      December 31, 2006, respectively. Asset and liability accounts at March 31,
      2007
      were translated at 7.72 RMB to $1.00 USD as compared to 7.80 RMB at December
      31,
      2006. Equity accounts were stated at their historical rate. The average
      translation rates applied to income statement accounts for the three months
      ended March 31, 2007 and 2006 were 7.75 RMB and 8.05 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.




8





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)





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





***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 March 31, 2007 and December 31, 2006, 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:




March
                  31, 2007
              
              December
                  31, 2006Balance
                  sheet amount
              
              Fair
                  value
              
              Balance
                  sheet amount
              
              Fair
                  valueLong-term
                  debt - related party
              
              $
              (8,527,742
              )
              $
              (8,466,980
              )
              $
              (8,527,742
              )
              $
              (8,527,742
              )




***Cash
      and cash equivalents***





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.





9





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)




***Allowances
        for doubtful accounts***
 
 The
        Company's trade accounts receivable are mainly due from related companies.
        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 March 31, 2007 and December 31, 2006 receivables
        outstanding more than 180 days totaled $125,151 and $31,586, respectively.
        The
        Company did not incur any losses on receivables for the periods reported.
        The
        following table represents the changes of allowance for doubtful
        accounts:
 Balance
                  at
                Beginning
                of
                  Period
              
              Charged
                  to
                Costs
                  and
                Expenses
              
              Recovery
              
              Balance
                  at End
                of
                  PeriodPeriod
                  ended March 31, 2007Reserves
                  and allowances deducted from asset accounts:Allowance
                  for doubtful accounts
              
              $
              86,776
              
              $
              -
              
              $
              2,818
              
              $
              83,958Year
                  ended December 31, 2006Reserves
                  and allowances deducted from asset accounts:Allowance
                  for doubtful accounts
              
              $
              206,916
              
              $
              86,776
              
              $
              206,916
              
              $
              86,776Year
                  ended December 31, 2005Reserves
                  and allowances deducted from asset accounts:Allowance
                  for doubtful accounts
              
              $
              30,442
              
              $
              176,474
              
              $
              -
              
              $
              206,916Year
                  ended December 31, 2004Reserves
                  and allowances deducted from asset accounts:Allowance
                  for doubtful accounts
              
              $
              -
              
              $
              30,442
              
              $
              -
              
              $
              30,442




***Inventories***





Inventories
      are stated at the lower of cost or market, using the first-in, first-out basis.
      The Company reviews its inventory annually for possible obsolete goods or to
      determine if any reserves are necessary for potential obsolescence.





***Prepaid
      expense***





Prepaid
      expense consists of advances to suppliers and short-term prepaid expenses.
      The
      Company reviews its advances to suppliers annually for determining whether
      provisions should be recorded.





***Loans
      receivable - related party***





The
      loans
      receivable - related party represents a $26,256,356 loan that has been made
      to Tianshi Engineering (see Note 4).





***Plant
      and equipment, net***





Plant
      and
      equipment are stated at cost less accumulated depreciation. Depreciation is
      computed using the straight-line method over the estimated useful lives of
      the
      assets. Estimated useful lives of the assets are as follows:


Estimated
                  Useful LifeBuildings
              
              20
                  yearsMachinery
                  and equipment
              
              10
                  yearsComputer,
                  office equipment and furniture
              
              5
                  yearsAutomobiles
              
              5
                  years


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




10





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (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. Maintenance, repairs and minor renewals
      are
      charged directly to expenses, as incurred. Major additions and betterment to
      buildings and equipment are capitalized.





Long-term
      assets of the Company are reviewed periodically as to whether their carrying
      values have 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 to determine whether
      subsequent events and circumstances warrant revised estimates of useful lives.
      As of March 31, 2007, the Company expects these assets to be fully recoverable.





***Other
      assets***





All
      the
      land located in the PRC is owned by the government and cannot be sold to any
      individual or company. However, the government grants "land use rights." The
      Company acquired two land use rights for fifty years from the PRC on December
      1,
      1999 and October 4, 2004 for $673,627 in total. The costs are being amortized
      over ten years, using the straight-line method. Other intangible assets include
      patents and trademarks and are amortized over the estimated useful life ranging
      from five to ten years.





A
      portion
      of long-term prepaid expense represents a deposit made in October 2004 with
      a
      local government agency in the amount of $3.59 million to acquire the land
      use
      right for 1600 mu (263 acres) of land located in Shanghai, China. The
      deposit is in connection with the Tiens Yihai Industrial Park Project (“Tiens
      Yihai Project”) described in Note 10. The land use right is for a term of 50
      years and as of March 31, 2007, the Company had obtained the land use rights
      for
      300 mu (50 acres).





On
      November 10, 2006, the Company signed a Supplemental Agreement for the
      Construction and Development of Tiens Yihai Project (the “Supplemental
      Agreement”) with the same local government agency, agreeing to provide a loan of
      $6,475,000 to the local government agency for the Tiens Yihai Project (see
      Note
      10). Half of the loan, $3,237,500 was funded on November 27, 2006. Since this
      loan was related to the acquisition of a land use right, it was also included
      in
      Long-term prepaid expenses.





***Minority
      interest***





Minority
      interest represents the outside shareholder’s 20% ownership of Biological and
      0.6% ownership of Tiens Yihai. Net income is net of minority
      interest.




11





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)


***Revenue
      recognition***





The
      Company recognizes revenue from sales in China (“domestic sales”), net of
      commissions and taxes, only after the distributor recognizes sales to
      unaffiliated third parties. The Company recognizes revenue from international
      sales (non-Chinese) to both affiliated and unaffiliated third parties, net
      of
      commissions and taxes, as goods are shipped and cleared by the international
      customs department.





The
      Company is generally not contractually obligated to accept returns. However,
      on
      a case-by-case negotiated basis, the Company permits customers to return their
      products. In accordance with Statement of Financial Accounting Standards
      (“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.





***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 cost of $145,495 and $317,468 for
      the
      three months ended March 31, 2007 and 2006, respectively. These costs are
      included in selling, general and administrative expenses in the accompanying
      statements.





***Income
      taxes***





The
      Company adopted SFAS No. 109, "Accounting for Income Taxes". SFAS No. 109
      requires the recognition of deferred income tax liabilities and assets for
      the
      expected future tax consequences of temporary differences between the income
      tax
      basis and financial reporting basis of assets and liabilities. Provision for
      income taxes consists of taxes currently due plus deferred taxes. There are
      no
      deferred tax amounts at March 31, 2007 and December 31, 2006.





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





Deferred
      tax is accounted for using the balance sheet liability method in respect of
      temporary differences arising from differences between the carrying amount
      of
      assets and liabilities in the financial statements and the corresponding tax
      basis used in computing assessable tax profit. In principle, deferred tax
      liabilities are recognized for all taxable temporary differences, and deferred
      tax assets are recognized to the extent that management believes
      it probable that taxable profit will be available against which deductible
      temporary differences can be used.




12





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)





Deferred
      tax is calculated at the tax rates that are expected to apply to the period
      when
      the asset is realized or the liability is settled. Deferred tax is charged
      or
      credited in the income statement, except when related items are credited or
      charged directly to equity, in which case the deferred tax is also recorded
      in equity. Deferred tax assets and liabilities are offset when they relate
      to
      income taxes levied by the same taxation authority and the Company intends
      to
      settle its current tax assets and liabilities on a net basis.





The
      Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
      Taxes - an Interpretation of FASB Statement No. 109” (“FIN 48”), as of January
      1, 2007. A tax position is recognized as a benefit only if management considers
      it is “more likely than not” that the tax position would be sustained in a tax
      examination, with a tax examination being presumed to occur. The amount
      recognized is the largest amount of tax benefit that is believed greater than
      50% likely of being realized on examination. For tax positions not meeting
      the
“more likely than not” test, no tax benefit is recorded. The adoption had no
      effect on the Company’s financial statements.





***Earnings
      per share***





The
      Company adopted SFAS No. 128, "Earnings per Share" (“SFAS 128”). SFAS 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 the three months ended March 31, 2007 and 2006.





***Other
      comprehensive income***





Other
      comprehensive income represents foreign currency translation adjustment for
      the
      year. The amounts shown in the Consolidated Statements of Income and Other
      Comprehensive Income and Consolidated Statements of Shareholders’ Equity do not
      include other comprehensive income attributed to minority interest.





***Recently
      issued accounting pronouncements***





In
      June
      2006, the Emerging Issues Task Force (EITF) reached a consensus on EITF No.
      06-3, “How Taxes Collected from Customers and Remitted to Governmental
      Authorities Should Be Presented in the Income Statement” (“EITF No. 06-3”). EITF
      No. 06-3 permits such taxes to be presented on either a gross basis or a net
      basis, as long as that presentation is used consistently. The adoption of EITF
      No. 06-3 on January 1, 2007 did not impact the Company’s consolidated financial
      statements. The Company presents the taxes within the scope of EITF No.
      06-3 on a net basis .





In
      July
      2006, the FASB issued FIN 48, which the Company adopted on January 1, 2007.
      (See
      Income Taxes in this Note 2.)





In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No.
      157, “Fair Value Measurement” ("SFAS 157"), which provides enhanced guidance for
      using fair value to measure assets and liabilities. This standard also responds
      to investors' requests for expanded information about the extent to which
      companies measure assets and liabilities at fair value, the information used
      to
      measure fair value, and the effect of fair value measurements on earnings.
      The
      standard applies whenever other standards require (or permit) assets or
      liabilities to be measured at fair value.




13





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)


The
      standard does not expand the use of fair value in any new circumstances. SFAS
      157 is effective for financial statements issued for fiscal years beginning
      after November 12, 2007 and interim periods within those fiscal years. Early
      adoption is permitted. The Company is currently evaluating whether the adoption
      of SFAS 157 will have a material effect on its consolidated results of
      operations and financial condition.





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.





***Reclassifications***





Certain
      prior year amounts have been reclassified to conform to the current year
      presentation. These reclassifications have no effect on net income or cash
      flows.





**Note
      3 - Supplemental disclosure of cash flow information**





Income
      taxes paid for the three months ended March 31, 2007 and 2006 amounted to
      $700,941 and $754,360, respectively.





No
      Interest was paid during the three months ended March 31, 2007 and
      2006.





In
      February 2006, the Company received part of the land use right that the
      Company prepaid in 2004; accordingly, a total of $2,396,419 was
      reclassified from long-term prepaid expenses to intangible assets.





**Note
      4 - Loans receivable - related parties**





During
      the last quarter of 2005, Tianshi Engineering borrowed RMB 200,000,000
      ($25,900,000) from Biological. The purpose of the loan is to help Tianshi
      Engineering strengthen its sales network in China. This amount was repaid to
      Biological by December 31, 2005. Then this amount was loaned to Tianshi
      Engineering again on January 1, 2006 with a due date of December 31, 2006.
      The
      loan was originally interest free. On December 22, 2006, the loan was extended
      to June 30, 2007 and was converted to an interest-bearing loan at a rate of
      5.58%. The stated interest rate is the current interest rate for the same level
      of loan stipulated by the People’s Bank of China. The Company accrued $356,356
      of interest for this loan as of March 31, 2007.




14





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




MARCH
      31, 2007


(UNAUDITED)




**Note
      5 - Employee advances**





Employee
      advances represent cash advances to various employees of the Company. These
      cash
      advances represent monies advanced to certain employees to pay for various
      expenses and purchases related to the Company's daily operations. Employee
      advances amounted to $103,929 and $111,121 as of March 31, 2007 and December
      31,
      2006, respectively.





**Note
      6 - Inventories**





Inventories
      consist of the following:




March
                  31,
              
              December
                  31,2007
              
              2006(Unaudited)Raw
                  materials
              
              $
              1,824,563
              
              $
              2,106,929Packing
                  materials
              
              
              1,152,202
              
              
              1,113,360Miscellaneous
                  supplies
              
              
              232,909
              
              
              377,819Work
                  in process
              
              
              401,105
              
              
              688,007Processing
                  materials
              
              
              373,344
              
              
              369,618Finished
                  goods
              
              
              2,274,143
              
              
              2,189,375Total
              
              $
              6,258,266
              
              $
              6,845,108





The
      Company wrote off obsolete goods that amounted to $0 and $59,832 for the three
      months ended March 31, 2007 and the year ended December 31, 2006, respectively.




15





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)


**Note
      7 - Property, plant and equipment, net**





Plant
      and
      equipment consists of the following:




March
                  31,
              
              December
                  31,2007
              
              2006(Unaudited)Buildings
                  and improvements
              
              $
              14,980,128
              
              $
              14,829,748Office
                  facilities
              
              
              328,484
              
              
              323,753Computer
                  equipment and software
              
              
              1,669,575
              
              
              1,622,731Equipment
              
              
              9,689,937
              
              
              9,329,628Vehicles
              
              
              5,240,173
              
              
              5,187,572Construction
                  in progress
              
              
              9,641,225
              
              
              7,629,623Total
              
              
              41,549,522
              
              
              38,923,055Less:
                  accumulated depreciation
              
              
              (9,198,461
              )
              
              (8,411,736
              )Plant
                  and equipment, net
              
              $
              32,351,061
              
              $
              30,511,319





Depreciation
      expense for the three months ended March 31, 2007 and 2006 amounted to $698,773
      and $558,017, respectively.





**Note
      8 - 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:


March
                  31,
              
              December
                  31,2007
              
              2006(Unaudited)Tianjin
                  Tianshi Biological Engineering Co., Ltd
              
              $
              5,138,530
              
              $
              5,592,772Xongshi
                  Real Estate Development
              
              
              2,493
              
              
              1,039Tianjin
                  Tianshi Technical School
              
              
              16,770
              
              
              46,589JinMao
                  (Group) Holding
              
              
              105,526
              
              
              104,466Shanghai
                  Tianshi Jinquan Investment Co.
              
              
              2,426
              
              
              2,129Tianjin
                  Tianshi Group Co., Ltd
              
              
              2,590,066
              
              
              2,650,232Total
              
              $
              7,855,811
              
              $
              8,397,227




See
      Note
      17 for discussion of how these entities are related to Tiens.




16





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)


**Note
      9 -** **Intangible
      assets**





Intangible
      assets consists of the following:




March
                  31,
              
              December
                  31,2007
              
              2006(Unaudited)Land
                  use rights
              
              $
              3,077,471
              
              $
              673,627Other
                  intangible assets
              
              
              399,013
              
              
              267,815Less
                  accumulated amortization
              
              
              (455,076
              )
              
              (431,259
              )Intangible
                  assets, net
              
              $
              3,021,408
              
              $
              510,183





Amortization
      expense for the three months ended March 31, 2007 and 2006 amounted to $26,174
      and $20,111, respectively. Since Tiens Yihai did not conduct any operations,
      no
      amortization expense was incurred for the land use rights that were received
      in
      March 2007.





**Note
      10 - Investment in Tiens Yihai Co. Ltd.**





On
      April
      20, 2004, Tianshi International entered a Joint Venture Project with Tianshi
      Pharmaceuticals to establish Tiens Yihai. On September 15, 2004, the board
      of
      directors of Tianshi International ratified the Joint Venture Project. The
      total
      amount to be invested in Tiens Yihai was to be $400 million, of which $200
      million was to be registered capital. Tianshi International was to contribute
      $198.8 million, representing approximately 99.4% of the registered capital
      of
      Tiens Yihai, and Tianshi Pharmaceuticals was to contribute $1.2 million,
      representing 0.6% of the registered capital.





In
      October 2004, the Company paid a 10% deposit totaling of $3.59 million to Zhu
      Jia Jiao Industrial Park Economic Development Ltd. (representative of the local
      government, “Local Government”) to acquire 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 readjusted and re-allocated
      projects, including investment, construction and reconstruction of state-owned
      resources. As a result, projects and enterprises that had been affected,
      including Tiens Yihai, were required to wait for decisions by state and local
      government before proceeding with development.





On
      November 10, 2006, Tiens International and the Local Government entered into
      the
      Supplemental Agreement pursuant
      to which the parties agreed to the acquisition of land use right by Tiens Yihai
      of a reduced 80 acre parcel of land .
      In
      order to proceed with the purchase of the property by Tiens Yihai, Tianshi
      International was required to provide a loan of RMB50,000,000 (approximately
      $6,475,000) to the Local Government for relocation costs for people living
      on
      the property. The loan was to be funded in two installments:





·
            The
                first installment of RMB25,000,000 (approximately $3,237,500) was
                paid on
                November 27, 2006.


17





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS




MARCH
      31, 2007


(UNAUDITED)







·
            The
                second installment of RMB25,000,000 (approximately $3,237,500) was
                to be
                paid after Tiens Yihai obtains a construction engineering license
                to
                develop the property.





In
      return
      for the loan, Tiens Yihai will receive a tax credit equal to the amount of
      the
      loan, plust interest. The loan accrues interest at a fixed rate of 6.12%,
      which was the interest rate stipulated by the People’s Bank of China for a loan
      of the same level on November 27, 2006.





For
      the
      three months ended March 31, 2007, the Company accrued $48,855 of interest
      receivable which was added to the loan and included in long-term prepaid
      expenses. In addition, Tianshi Group, a related party, has agreed to provide
      a
      guarantee on behalf of the Local Government for an additional loan from a
      commercial bank of RMB50,000,000 (approximately $6,475,000).





As
      of
      March 31, 2007, Tiens Yihai had obtained the land use right for 300 mu (50
      acres). Therefore, the Company reclassified $2,403,744 to intangible assets
      from
      long-term prepaid expenses. Due to the decrease in the size of the property
      for
      which the Company has received land use rights and continued uncertainty
      relating to the Tiens Yihai project, the Company has decided to suspend the
      development of the property as an industrial park and is currently considering
      alternative commercial uses.





A
      total
      of 15%, or approximately $30,000,000, of the registered capital was required
      to
      be contributed by the joint venture partners, within three months of when the
      business license was issued. Tianshi International made its required capital
      contribution in the amount of $29,861,853. The remaining registered capital
      was
      required to be contributed by each joint venture partner by May 27, 2007.
      Because of the significant reduction by the Local Government in the number
      of
      acres approved for the Tiens Yihai project, the Company does not intend to
      make
      the additional capital contribution of $170 million to Tiens Yihai by May 27,
      2007. The Company is currently negotiating with the Local Government to
      eliminate or reduce the requirement in the Tiens Yihai joint venture contract
      for any additional capital contribution and delay the payment of any such
      additional capital contribution.




Long-term
      prepaid expenses consists of:




March
                  31,
              
              December
                  31,2007
              
              2006(Unaudited)Prepaid
                  land use right
              
              $
              1,442,307
              
              $
              3,807,540Loan
                  to Chinese government
              
              
              3,305,354
              
              
              3,223,808Total
                  long-term prepayment
              
              $
              4,747,661
              
              $
              7,031,348




**Note
      11 - Long term debt**





On
      September 10, 2004, Tianshi International signed a loan agreement with Tianyuan
      Capital Development Corp. Ltd. ("Tianyuan Capital") to borrow $10.65 million
      to
      fund Tianshi International's contribution due to Tiens Yihai. Mr. Jinyuan Li,
      the president and major shareholder of the Company owns 100% of Tianyuan
      Capital, and is a director of Tiens Yihai. The loan bears 5% interest and
      matures June 30, 2011.


18





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)





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.
      Interest of $105,137 was accrued for the three months ended March 31, 2007.
      Total principal payments for the next five years on all long-term debt are
      as
      follows:




March
                  31,
              
              December
                  31,2007
              
              2006(Unaudited)Note
                  payable to Tianyuan CapitalDevelopment
                  Corp. Ltd., related party
              
              $
              8,527,742
              
              $
              8,527,742Less
                  current portion of long term debt
              
              
              (2,130,000
              )
              
              (2,130,000
              )Total
              
              $
              6,397,742
              
              $
              6,397,742




12
                  Months EndingMarch
                  31,
              
              Amount2008
              
              $
              2,130,0002009
              
              
              2,130,0002010
              
              
              2,130,0002011
              
              
              2,130,0002012
              
              
              7,742Total
              
              $
              8,527,742


19





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)


**Note
      12 - Minority interest and distribution**





The
      rollforward of Minority Interest in the Balance Sheet is shown
      below:




Biological
                USD
              
              Biological
                Minority
                Owners
                (20%)
              
              Tiens
                  Yihai (USD)
              
              Tiens
                  Yihai
                Minority
                Owners
                (0.60%)
              
              Total
                Minority
                InterestDecember
                  31, 2005
              
              $
              58,769,254
              
              $
              11,753,851
              
              $
              29,198,163
              
              $
              175,189
              
              $
              11,929,040Comprehensive
                  income
              
              
              37,464,431
              
              
              7,492,886
              
              
              1,356,883
              
              
              8,141
              
              
              7,501,027Dividend
                  distribution
              
              
              (37,733,723
              )
              
              (7,546,745
              )
              
              -
              
              
              -
              
              
              (7,546,745
              )December
                  31, 2006
              
              $
              58,499,962
              
              $
              11,699,992
              
              $
              30,555,046
              
              $
              183,330
              
              $
              11,883,322Comprehensive
                  income
              
              
              9,292,225
              
              
              1,858,445
              
              
              208,260
              
              
              1,251
              
              
              1,859,696Dividend
                  distribution
              
              
              (33,380,512
              )
              
              (6,676,102
              )
              
              -
              
              
              -
              
              
              (6,676,102
              )March
                  31, 2007
              
              $
              34,411,675
              
              $
              6,882,335
              
              $
              30,763,306
              
              $
              184,581
              
              $
              7,066,916




Dividends
      declared 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. As of March 31, 2007, minority
      shareholders owned approximately 20% of the Company’s subsidiaries. The table
      below shows dividends outstanding, as well as the allocation of dividends
      between Tianshi International and the minority shareholder.




TIANSHI
              
              MINORITYDate
              
              INTERNATIONAL
              
              SHAREHOLDER
              
              TotalDividends
                  outstanding, December 31, 2005 Balance
              
              $
              15,885,843
              
              $
              -
              
              $
              15,885,843Dividends
                  declared
              
              
              30,186,978
              
              
              7,546,745
              
              
              37,733,723Dividends
                  paid
              
              
              (1,557,742
              )
              
              (7,308,434
              )
              
              (8,866,176
              )Accumulated
                  Other Comprehensive Income
              
              
              1,463,775
              
              
              -
              
              
              1,463,775Dividends
                  outstanding, December 31, 2006 Balance
              
              $
              45,978,854
              
              $
              238,311
              
              $
              46,217,165Dividends
                  declared
              
              
              26,704,410
              
              
              6,676,102
              
              
              33,380,512Dividends
                  paid
              
              
              -
              
              
              (6,676,102
              )
              
              (6,676,102
              )Accumulated
                  Other Comprehensive Income
              
              
              548,984
              
              
              2,417
              
              
              551,401Dividends
                  outstanding, March 31, 2007 Balance
              
              $
              73,232,248
              
              $
              240,728
              
              $
              73,472,976




20





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)


**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 International, was incorporated in the British
      Virgin Islands and is not liable for income taxes.





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





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





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





Tiens
      Yihai is located in a Special Industry Zone and is subject to the special
      reduced income tax rate of 15%. Pursuant to the approval of the relevant local
      Chinese tax authorities, Tiens Yihai is fully exempt from PRC income taxes
      for
      two years starting from the first year profits are made, followed by a 7.5%
      reduced tax rate for the next three years. In addition, in order to encourage
      Tiens Yihai doing business in the Special Industry Zone, the local Chinese
      tax
      authorities agreed to refund 50% of the total income tax after the five-year
      tax
      break. As of December 31, 2006, Tiens Yihai is in the developmental stage of
      its
      organization and did not have any operating income.





Beginning
      January 1, 2008, the new Enterprise Income Tax (“EIT”) law will replace 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. The two years tax exemption, three years 50%
      tax reduction tax holiday for production-oriented FIEs will be eliminated.
      The
      Company is currently evaluating the effect of the new EIT law will have on
      its
      financial position.




Provision
      for income taxes for the three months ended March 31, 2007 and 2006 were
      $711,010, and $733,531, respectively.


21





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)


The
      following table reconciles the U.S. statutory rates to the Company's effective
      tax rate at March 31, 2007 and 2006, respectively:


2007
              
              2006U.S.
                  Statutory rate
              
              
              34.0
              %
              
              34.0
              %Foreign
                  income not recognized in USA
              
              
              (34.0
              )
              
              (34.0
              )China
                  income taxes
              
              
              33.0
              
              
              33.0China
                  income taxes savings
              
              
              (25.5
              )
              
              (25.5
              )Total
                  provision for income taxes
              
              
              7.5
              %
              
              7.5
              %





The
      estimated tax savings due to the reduced tax rate for the three months ended
      March 31, 2007 and 2006 amounted to $2,417,435 and $2,494,005, respectively.
      Earnings per share for the three months ended March 31, 2007 and 2006 would
      decrease by $0.03 and $0.03, respectively, if the income tax had been applied.





Value
      Added Tax





Enterprises
      or individuals who sell products, engage in repair and maintenance or import
      and
      export goods in the PRC are subject to a value added tax in accordance with
      Chinese laws. The value added tax standard rate is 17% of the gross sales price.
      A credit is available whereby VAT paid on the purchases of semi-finished
      products or raw materials used in the production of the Company's finished
      products can be used to offset the VAT due on sales of the finished
      goods.





VAT
      on
      sales and VAT on purchases amounted to $1,617,952 and $535,489, respectively,
      for the three months ended March 31, 2007 and $1,460,101 and $437,966,
      respectively, for the three months ended March 31, 2006. Sales and purchases
      are
      recorded net of VAT collected and paid, as the Company acts as an agent for
      the
      government. VAT taxes are not impacted by the income tax holiday.





**Note
      14 - Accumulated other comprehensive income**




Tiens
              
              TianshiBiological
              
              Yihai
              
              International
              
              TotalBalance
                  as of December 31, 2005
              
              $
              1,088,433
              
              $
              732,331
              
              $
              413,449
              
              $
              2,234,213Increase
                  during the year
              
              
              1,020,641
              
              
              995,361
              
              
              1,464,773
              
              
              3,480,775Balance
                  as of December 31, 2006
              
              $
              2,109,074
              
              $
              1,727,692
              
              $
              1,878,222
              
              $
              5,714,988Increase
                  during the year
              
              
              418,477
              
              
              307,599
              
              
              548,985
              
              
              1,275,061Balance
                  as of March 31, 2007
              
              $
              2,527,551
              
              $
              2,035,291
              
              $
              2,427,207
              
              $
              6,990,049




Accumulated
      Other Comprehensive Income incurred in Biological and Tiens Yihai is due to
      exchange rate differences. Results of operations 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. Accumulated Other Comprehensive Income incurred in
      Tianshi International is due to the effect of foreign exchange rates on
      dividends receivable from Biological. Since this income is not realized,
      it is included in Accumulated Other Comprehensive Income.




22





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)


**Note
      15 - 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 salary and length of service
      at
      date of retirement 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 equal to 20%
      of the employees' monthly salary. Employees are required to contribute 8% of
      their salaries to the plan. Total pension expense incurred by the Company
      amounted to $144,864 and $115,194 for the three months ended March 31, 2007
      and
      2006, respectively.





The
      Company also has an unemployment insurance plan for its employees. The plan
      requires each employee to contribute 1% of salary to the plan. The Company
      matches the contributions in an amount equal to two times the contribution
      of
      each participant. The Company made contributions to the unemployment insurance
      plan of $14,387 and $11,278 for the three months ended March 31, 2007 and 2006,
      respectively. All contributions are paid to a PRC insurance company, which
      in
      turn, is responsible for the liability. On January 1, 2002, the Company
      introduced a basic medical insurance plan for its employees. Pursuant to the
      medical insurance plan, the Company is required to pay an amount equal to 10%
      of
      its employees’ salaries to a PRC insurance company, which amounted to $78,809
      and $65,027 for the three months ended March 31, 2007 and 2006,
      respectively.





**Note
      16 - Statutory reserves**





The
      laws
      and regulations of the People’s Republic of China require that before a
      Sino-foreign cooperative joint venture enterprise distributes profits to its
      partners, it must first satisfy all tax liabilities, provide for losses in
      previous years, and make allocations, in proportions determined at the
      discretion of the board of directors, after the statutory reserve. The statutory
      reserves represent restricted retained earnings and include the surplus reserve
      fund, the common welfare fund, and the enterprise fund.





Statutory
      reserve fund





The
      Company is required to transfer 10% of its net income, as determined in
      accordance with the PRC accounting rules and regulations, to a statutory surplus
      reserve fund until such reserve balance reaches 50% of the Company’s registered
      capital. During 2005, the Company's statutory reserve fund had reached 50%
      of
      the Company's registered capital, therefore, no statutory reserve is required
      thereafter.





The
      surplus reserve fund is non-distributable other than during liquidation and
      can
      be used to fund previous years’ losses, if any, and may be utilized for business
      expansion or converted into share capital by issuing new shares to existing
      shareholders in proportion to their shareholdings, or by increasing the par
      value of the shares currently held by them, provided that the remaining reserve
      balance after such issue is not less than 25% of the registered
      capital.




23





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)


Common
      welfare fund





The
      Company is required to transfer 5% to 10% of its net income, as determined
      in
      accordance with the PRC accounting rules and regulations, to the statutory
      common welfare fund. This fund can only be utilized on capital items for the
      collective benefit of the Company’s employees, such as construction of
      dormitories, cafeteria facilities, and other staff welfare facilities. This
      fund
      is non-distributable other than upon liquidation. The transfer to this fund
      must
      be made before distribution of any dividend to shareholders. For the three
      months ended March 31, 2007 and 2006, no transfer was made to this
      fund.





Enterprise
      fund





The
      enterprise fund may be used to acquire fixed assets or to increase working
      capital for production and operation of the business. No minimum contribution
      is
      required. For the three months ended March 31, 2007 and 2006, no transfer was
      made to this fund.





The
      Chinese government restricts distributions of registered capital and the
      additional investment amounts required by the Chinese joint ventures. Approval
      by the Chinese government must be obtained before these amounts can be returned
      to the shareholders.




**Note
      17 - Related party transactions**





Transactions
      with Tianshi Engineering





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





Total sales to
      the related party amounted to $7,151,918 and $8,566,617 for the three months
      ended March 31, 2007 and 2006, respectively. This represents 100% of total
      sales
      in China for the years then ended. 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 has agreed to allow Tianshi Engineering
      to
      retain those collections. Balances not remitted to the Company within 90 days
      are transfered to other receivables - related parties. Beginning on January
      1,
      2007, this part of other receivables - related parties become interest bearing.
      The stated interest rate is the interest rate for the same level of loan
      stipulated by the People's Bank of China. As of March 31, 2007, the fixed
      interest rate for the first quarter of 2007 was 5.58%, and $66,329 of interest
      was accrued.





On
      October 1, 2005, Biological loaned Tianshi Engineering RMB 200,000,000
      ($25,900,000). The loan was non-interest bearing, matured on December 31, 2005
      and was repaid upon maturity. The purpose of the loan was to enable Tianshi
      Engineering to strengthen its sales network in China. On January 1, 2006, this
      amount was loaned to Tianshi Engineering again, with a maturity date of December
      31, 2006. In order to continue support of Tianshi Engineering's efforts in
      China, on
      December 22, 2006, the loan was extended to June 30, 2007 and was converted
      to
      an interest-bearing loan. The interest rate for the loan is the current interest
      rate stipulated by the People’s Bank of China for a loan of the same amount or
      5.58% at March 31, 2007. All receivables from Tianshi Engineering will be
      settled by cash payment. As of March 31, 2007, $356,356 of interest receivable
      had been accrued and is included in loans receivable - related
      party.




24





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)


Amounts
      due from Tianshi Engineering were as follows:




March
                  31,
              
              December
                  31,2007
              
              2006(Unaudited)Accounts
                  receivable - related parties
              
              $
              9,032,145
              
              $
              7,827,372Other
                  receivables - related parties
              
              
              5,138,530
              
              
              5,592,772Loans
                  receivable - related parties
              
              
              26,256,356
              
              
              25,640,000Total
                  receivables from Tianshi Engineering
              
              $
              40,427,031
              
              $
              39,060,144


Transactions
      with Tianshi Group





On
      June
      30, 2003, the Company entered into an office and facilities lease agreement
      with
      Tianshi Group, a company owned 90% by Jinyuan Li and 10% by Baolan Li. 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. Rent expense totaled
      $166,332 and $163,119 for the three months ended March 31, 2007 and 2006,
      respectively.





On
      November 10, 2006, Tiens International signed an agreement with Shanghai Zhu
      Jia
      Jiao Industrial Park Economic Development Ltd (see note 10). Tianshi Group
      has
      also agreed to provide a guarantee on behalf of the local government for a
      loan
      from a commercial bank of RMB50,000,000.





At
      March
      31, 2007 and December 31, 2006, amounts due from Tianshi Group were $2,590,066
      and $2,650,232, respectively and were included in other receivables - related
      parties.




25




TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
        31, 2007
 (UNAUDITED)





Transaction
      with international related party distributors





The
      Company sells products to international distributors. The Company’s CEO Jinyuan
      Li, is one of the owners of these distributors. The distributors market and
      sell
      the Company's products to independent distributors or end users of the products.
      Total sales to these related parties international distributors were $9,026,488
      and $8,155,943 for the three months ended March 31, 2007 and 2006. Total
      accounts receivable as of March 31, 2007 and December 31, 2006 were $7,675,430
      and $5,099,298, respectively.





Transaction
      with other related parties





Xiongshi
      Real Estate Development is owned by the Company’s CEO Jinyuan Li. Total other
      receivables from Xiongshi Real Estate Development as of March 31, 2007 and
      December 31, 2006 amounted to $2,493 and $1,039.





Tianjin
      Tianshi Technical School is owned by Jinyuan Li. Total other receivables from
      Tianjin Tianshi Technical School as of March 31, 2007 and December 31, 2006
      amounted to $16,770 and $46,589, respectively.





JinMao
      (Group) Holding is owned by Jinyuan Li. Total other receivables from JinMao
      (Group) Holding as of March 31, 2007 and December 31, 2006 were $105,526 and
      $104,466





Shanghai
      Tianshi Jinquan Investment Co., is owned by Jinyuan Li. Total balances due
      from
      the related party amounted to $2,426 and $2,129 as of March 31, 2007 and
      December 31, 2006, respectively.




**Note
      18 - Additional product sales information**





The
      Company has a single operating segment. 100% of the Company's revenues were
      generated from related parties for the three months ended March 31, 2007 and
      2006. 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:


Three
                  months ended March 31,2007
              
              2006(Unaudited)
              
              (Unaudited)China
              
              $
              7,210,301
              
              $
              8,566,617International
              
              
              9,026,488
              
              
              8,155,943Total
              
              $
              16,236,789
              
              $
              16,722,560


26





TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





NOTES
      TO
      CONSOLIDATED FINANCIAL STATEMENTS


MARCH
          31, 2007
 (UNAUDITED)


Revenue
      by Product Group:


Three
                  months ended March 31,2007
              
              2006(Unaudited)
              
              (Unaudited)Wellness
                  products
              
              $
              14,727,047
              
              $
              15,435,652Dietry
                  supplement products
              
              
              1,350,882
              
              
              685,690Personal
                  care products
              
              
              158,860
              
              
              601,218Total
              
              $
              16,236,789
              
              $
              16,722,560




27





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”; (e) whether Tianshi
      Engineering, our affiliate that sells our products in China, obtains a
      direct selling license in China; and (f) whether we are able to find an
      alternative site to develop a new research and development and manufacturing
      facility. 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
      is
      a Delaware corporation. We own 100% of Tianshi International Holdings Group
      Ltd., a British Virgin Islands company (“Tianshi International”). Tianshi
      International owns 80% of Biological.




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




28




Tiens
      Yihai




In
      April
      2004, Tianshi International entered a joint venture contract with Tianshi
      Pharmaceuticals to establish Tiens Yihai Co., Ltd., a Chinese-Foreign Equity
      Joint Venture (“Tiens Yihai”). Tiens Yihai is 99.4% owned by Tianshi
      International and 0.6% owned by Tianshi Pharmaceuticals. Tiens Yihai is located
      in Shanghai, China, and was established to build a new research and development
      facility which would also produce our nutrition supplement, home care, and
      personal care products. The total amount to be invested in Tiens Yihai was
      to be
      $400 million, of which $200 million was to be registered capital. Tianshi
      International was to contribute $198.8 million, representing approximately
      99.4%
      of the registered capital of Tiens Yihai, and Tianshi Pharmaceuticals was to
      contribute $1.2 million, representing 0.6% of the registered capital of Tiens
      Yihai. Tianshi International was to secure additional financing for the
      remaining $200 million.




A
      total
      of 15%, or approximately $30 million, of the registered capital was required
      to
      be contributed by the joint venture partners, within three months after the
      business license has been issued. Tianshi International has made its required
      capital contribution in the amount of $29,861,853. The remaining registered
      capital amounts were required to be contributed by each joint venture partner
      by
      May 27, 2007. For reasons discussed below, we are currently negotiating with
      the
      local government in Shanghai to reduce or eliminate the requirement for the
      contribution of any additional registered capital in excess of $30
      million.




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”) to acquire the land use right of 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 required to wait for further decisions by state and local government
      before proceeding with development.




On
      November 10, 2006, Tiens and the Local Government entered into a supplemental
      agreement pursuant to which the parties agreed to the acquisition by Tiens
      Yihai
      of a reduced 80 acre parcel of land. At that time, it was not clear whether
      the
      remaining 183 acres would be available for purchase in the future. Therefore,
      the Local Government has agreed to refund to Tiens $1.6 million of the original
      $3.6 million deposit when it receives a construction license for the
      development.




In
      order
      to proceed with the approval process for development of the property by Tiens
      Yihai, Tiens was required to provide a loan of $6.5 million to the Local
      Government for relocation costs for people living on the property. The $6.5
      million loan was to be funded in two installments:




·
            The
                first installment of $3.2 million was paid on November 27,
                2006.




·
            The
                second installment of $3.2 million is to be paid after Tiens Yihai
                obtains
                a construction license to develop the property. The parties have
                agreed to
                allow Tiens to reduce this second installment by the amount of the
                $1.6
                million refund due to it.




In
      return
      for the loan, Tiens Yihai will receive a tax credit in the amount of the
      loan.




In
      March
      2007, we received notice that the Local Government had approved the land use
      rights for 50 acres of the Tiens Yihai property. 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 has 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. If Tiens Yihai
      does
      not proceed with construction on the Tiens Yihai site or is not able to sell
      the
      land use rights to a third party, it is not clear whether the Local Government
      will return the $1.6 million it previously agreed to refund or the initial
      loan
      of $3.2 million made in November 2006.




29




We
      are
      currently considering the possible acquisition of an alternative 80 acres site
      located in the Wuqing economic development area of Tianjin, China. The property,
      which is owned by Tianshi Group, is located approximately seven kilometers
      from
      our current corporate headquarters and manufacturing facility.


30




**RESULTS
      OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007 COMPARED TO THE THREE
      MONTHS ENDED MARCH 31, 2006**





Three
                months
              ended
                March 31,2007
            
            2006
            
            Change**Income
                Statement Data**Revenue-related
                party
            
            $
            16,236,789
            
            $
            16,722,560
            
            
            -2.9
            %Cost
                of sales
            
            
            4,435,599
            
            
            4,806,296
            
            
            -7.7
            %Gross
                profit
            
            
            11,801,190
            
            
            11,916,264
            
            
            -1.0
            %Selling,
                general and administrative expense
            
            
            3,222,756
            
            
            2,566,422
            
            
            25.6
            %Income
                from operations
            
            
            8,578,434
            
            
            9,349,842
            
            
            -8.3
            %Other
                income (expense), net
            
            
            447,613
            
            
            (37,721
            )
            
            -Income
                before provision for income taxesand
                minority interest
            
            
            9,026,047
            
            
            9,312,121
            
            
            -3.1
            %Provision
                for income taxes
            
            
            711,010
            
            
            733,531
            
            
            -3.1
            %Income
                before minority interest
            
            
            8,315,037
            
            
            8,578,590
            
            
            -3.1
            %Minority
                interest
            
            
            1,753,218
            
            
            1,808,881
            
            
            -3.1
            %Net
                income
            
            $
            6,561,819
            
            $
            6,769,709
            
            
            -3.1
            %Other
                comprehensive income foreign currencytranslation
                adjustment
            
            $
            1,275,061
            
            $
            717,827
            
            
            77.6
            %Comprehensive
                income
            
            $
            7,836,880
            
            $
            7,487,536
            
            
            4.7
            %Weighted
                average number of shares outstanding
            
            
            71,333,586
            
            
            71,333,586
            
            
            -Earnings
                per share, basic and diluted
            
            $
            0.09
            
            $
            0.09
            
            
            -




31




Revenue .
      For the
      first quarter of 2007, revenue was $16.2 million, a decrease of 2.9%, compared
      to $16.7 million for the same period in 2006. The breakdown of revenue between
      Chinese and international sales is as follows.


Three
                monthsended
                March 31,2007
            
            2006
            
            ChangeChina
            
            $
            7,210,301
            
            $
            8,566,617
            
            
            -15.8
            %International
            
            $
            9,026,488
            
            $
            8,155,943
            
            
            10.7
            %Total
            
            $
            16,236,789
            
            $
            16,722,560
            
            
            -2.9
            %




For
      the
      first quarter of 2007, revenues in China were $7.2 million, a decrease of 15.8%
      compared to the same period in 2006. At the beginning of 2006, we began selling
      semi-finished products to Tianshi Engineering. In order to qualify for a direct
      selling license in China, Tianshi Engineering, our related party customer in
      China, is required to produce a part of the products that it sells in China.
      As
      a result, in 2006, we began to sell semi-finished products to Tianshi
      Engineering, which jointly shares with us licenses to produce, manufacture
      and
      sell the products. During the first quarter of 2006, we still had significant
      amounts of finished products in inventory. The semi-finished products, which
      we
      are now exclusively selling in China, have lower sales prices than the
      finished products we had previously sold to Tianshi Engineering.




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




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




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




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




For
      the
      first quarter of 2007, international revenues were $9.0 million, an increase
      of
      10.7% compared to the same period in 2006. The increase was mainly due to a
      significant increase in Russia, as well as strong revenue growth in South
      Africa, Congo, Colombia, Hungary, Kazakhstan, Malaysia, Ecuador, Kenya and
      Moldova.




Cost
      of Sales .
      Cost of
      sales for the first quarter of 2007 decreased to $4.4 million, or by 7.7%,
      compared to $4.8 million for the same period in 2006. This decrease was
      primarily due to economies of scale related to the increase in international
      sales.




Gross
      Profit .
      Gross
      profit for the first quarter of 2007 was $11.8 million compared to $11.9 million
      for the same period in 2006. The gross profit margin for the first quarter
      of
      2007 was 72.7%, compared to 71.3% for the same period in 2006.




Selling,
      general and administrative expenses .
      Selling, general and administrative expenses was $3.2 million for the first
      quarter of 2007 compared to $2.6 million for the same period in 2006, an
      increase of 25.6%. The increase was primarily due to an increase in the number
      of employees and in the level of salaries, which were increased during the
      second quarter of 2006. These increases have also been made in anticipation
      of
      Tianshi Engineering receiving a direct selling license in China and the related
      increase in our sales and marketing efforts which management believes will
      follow. The selling and administrative expenses as a percentage of sales was
      19.8% for the first quarter of 2007 compared to 15.3% for the same period in
      2006.




Other
      income (expense) net .
      Other
      income (expense), net was $0.4 million of income for the first quarter of 2007,
      compared to $37,721 of expense for the same period in 2006. The income was
      primarily due to interest of $355,007 on our $25.9 million loan to Tianshi
      Engineering and interest from other receivables-related party. Beginning on
      January 1, 2007 we implemented a new accounting policy where accounts
      receivable-related parties older than 90 days would be transferred to other
      receivables-related party and accrue interest.




32




Provision
      for income taxes .
      Provision for income taxes was $0.7 million for both the first quarter of 2007
      and 2006. From January 1, 2005 through December 31, 2007, Biological is subject
      to income tax at a reduced rate of 7.5%. From January 1, 2008 forward,
      Biological will be subject to a 15% income tax rate.




Net
      income .
      As a
      result of the foregoing factors, net income for the first quarter of 2007 was
      $6.6 million, a decrease of 3.1% compared to $6.8 million for the same period
      in
      2006.




**Liquidity
      and Capital Resources**




Net
      cash
      provided by operating activities was $5.2 million for the first quarter of
      2007,
      compared to $26.6 million used in operating activities for the same period
      in
      2006. This difference was primarily due to the $25.9 million loan we made to
      Tianshi Engineering in the first quarter of 2006. Net cash used in investing
      activities decreased by $13.4 million compared to the same period in 2006.
      This
      was mainly due to a short-term financial product we invested in during the
      first
      two quarters of 2006.




Net
      cash
      used in financing activities was $6.7 million for the first quarter of 2007,
      which represented a dividend of $6.7 million to the minority shareholder of
      Biological.




As
      of
      March 31, 2007 and December 31, 2006, we had cash of $50,926,651 and
      $54,270,065, respectively. The decrease was mainly due to dividend to minority
      shareholders, raw and packaging materials, taxes, and salaries. Approximately
      62% of the cash was held in the bank account of Biological, 29% in the bank
      account of Tiens Yihai, and 9% in the bank account of Tianshi
      International.




Inventories
      as of March 31, 2007 and December 31, 2006 were $6.3 million and $6.8 million.
      The decrease was mainly due to a decrease in raw materials and work-in-process.
      The long Chinese New Year holiday occurred in February, and the Company held
      more inventories at the end of 2006, to make sure that there would be enough
      materials for production in the first quarter of 2007.




Accounts
      payable was $3.3 million and $4.1 million as of March 31, 2007 and December
      31,
      2006, respectively. The decrease was primarily the result of a decrease in
      the
      amount of materials purchased.




Going
      forward, our primary requirements for cash consist of:




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




·
            continued
                promotion of networking sales
                activities;




·
            the
                development costs of new products;
                and




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




We
      anticipate that our current operating activities will enable us to meet our
      anticipated cash requirements for the next 12 months. While we have suspended
      the construction of our Tiens Yihai research, development and manufacturing
      facility, we are considering the possibility of using an alternate development
      site. If we proceed with the acquisition and construction of an alternative
      site, we still may require additional financing to fund that
      project.




**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.




33




Revenue
      recognition .




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




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




Bad
      debts .




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




Inventories .




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




**New
      Accounting Pronouncements**




The
      Company adopted FASB Interpretation 48, “Accounting for Uncertainty in Income
      Taxes - an Interpretation of FASB Statement No. 109” (“FIN 48”), as of January
      1, 2007. Under FIN 48, a tax position is recognized as a benefit only
      if management believes it is “more likely than not” that the tax position would
      be sustained in a tax examination, with a tax examination being presumed to
      occur. The amount recognized is the largest amount of tax benefit that is
      believed greater than 50% likely of being realized on examination. For tax
      positions not meeting the “more likely than not” test, no tax benefit is
      recorded. The adoption had no affect on the Company’s financial
      statements.




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.




34




**CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**




We
      market
      all of our products through various domestic and international business entities
      that are related to our company through common ownership. Related party sales
      amounted to 100% of our total consolidated revenue, which was $16.2 million
      for
      the three months ended March 31, 2007.




In
      China,
      we sell our products to Tianshi Engineering, an affiliated Chinese company.
      Tianshi Engineering, in turn, sells the products to end-users through its chain
      stores and Chinese affiliated companies. Our strategy in China is to expand
      our
      market share as Engineering and its Chinese affiliated companies
      open additional branches and chain stores. Tianshi Engineering established
      five new branches in China during 2006, for a total of 111 branches. Prior
      to
      2006, Biological sold all of its products to Tianshi Engineering as finished
      products at a price equal to 25% of the Chinese market price for the products.
      This 25% figure was negotiated between the parties in 2003, before we acquired
      Tianshi International, and we believe that it is a reasonable sales price for
      us
      to receive. Tianshi Engineering then sells the products to purchasers through
      individual distributors in its representative offices or through its affiliates.
      Through this process, the commission to those individual distributors is 52%
      of
      the Chinese market price; while the representative offices or affiliates incur
      3-6% of the Chinese market price as their operation expenses and Tianshi
      Engineering retains 17-20% as expenses and profits. This is summarized as
      follows:




Biological
                (Costs, expenses and profit)
            
            
            25
            %Tianshi
                Engineering (expenses and profit)
            
            
            17-20
            %Tianshi
                Engineering’s Representative Offices or Affiliates
            
            
            3-6
            %Individual
                Distributors’ Commissions
            
            
            52
            %Chinese
                Market Price
            
            
            100
            %




During
      2006, we applied the same pricing formula to our finished products which were
      sold to Tianshi Engineering from our inventory. At the beginning of 2006, we
      also began selling semi-finished products to Tianshi Engineering. In order
      to
      qualify for a direct selling license in China, Tianshi Engineering is required
      to produce a part of the products that it sells in China. As a result, we began
      to sell semi-finished products to Tianshi Engineering, which jointly shares
      with
      us licenses to produce, manufacture and sell the products. 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, this
      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 is to try to maintain the Company’s gross margins on semi-finished goods
      at a similar level to historical gross margins for finished goods.




Internationally,
      our strategy is to develop a strong direct sales force through our international
      affiliated companies. Currently the United States is not a significant part
      of
      our business. We sell our products to an extensive direct sales force of
      overseas affiliates and independent distributors who use the products themselves
      and/or resell them to other distributors or consumers. We sell to affiliated
      companies located in 63 countries, including Indonesia, Russia, Ukraine,
      Nigeria, South Africa, Kazakhstan, Peru, Greece, Kenya and Vietnam.




As
      operation costs vary from country to country, international market prices vary
      accordingly. We sell our products to overseas affiliates at the FOB (destination
      port) price, which consists of 25% of the Chinese retail price, plus
      customs duty, value-added tax and other miscellaneous transportation cost.
      The
      individual distributors of overseas affiliates sell the products to end-users
      for commissions equal to 52.5% of the respective Chinese retail prices. The
      overseas affiliates mark up the products to cover their expenses and realize
      profits of approximately 10%.




35




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 table
      is
      provided to facilitate your understanding of the relationships between related
      parties and us and their transactions with us in 2006 and the three months
      ended
      March 31, 2007.




As
                ofMarch
                31, 2007
            
            December
                31, 2006Accounts
                receivable, trade - related parties,net
                of allowance for doubtful accounts of$83,958
                and $86,776 as of March 31, 2007and
                December 31, 2006, respectively
            
            $
            16,707,575
            
            $
            12,926,670Other
                receivables - related parties
            
            $
            7,855,811
            
            $
            8,397,227Loans
                receivable - related parties
            
            $
            26,256,356
            
            $
            25,640,000Advances
                from customers - related parties
            
            $
            1,542,768
            
            $
            1,570,120Other
                payables - related parties
            
            $
            202,027
            
            $
            522,105Current
                portion of long-term debt-related party
            
            $
            2,130,000
            
            $
            2,130,000Long-term
                debt - related party
            
            $
            6,397,742
            
            $
            6,397,742




**Accounts
      receivable, trade - related parties** .
      Accounts receivable, trade - related parties increased by $3.8 million for
      the
      three months ended March 31, 2007. 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 retain
      those collections. Balances not remitted to us within 90 days are converted
      to
      other receivables - related parties. On March 28, 2007, we entered into a Term
      Loan Agreement with Tianshi Engineering. Pursuant to that agreement, beginning
      on January 1, 2007, $4,226,998 of other receivables - related parties, which
      originated from Tianshi Engineering as accounts receivable, became interest
      bearing. The loan was due March 31, 2007 and the stated interest rate was 6.3%,
      the interest rate for the same level of loan stipulated by the People’s Bank of
      China. The loan was paid off on March 28, 2007.




**Other
      receivables - related parties** .
      We were
      owed $7.9 million as of March 31, 2007 and $8.4 million as of December 31,
      2006,
      classified as other receivables from related parties. During the first quarter
      of 2007, Tianshi Engineering paid $7.1 million of other receivables - related
      parties to us.




**Loans
      receivable - related parties** .
      Loans
      receivable to related parties were $26,256,356 and $25,640,000 as of March
      31,
      2007 and December 31, 2006, respectively. On October 1, 2005, Biological loaned
      Tianshi Engineering RMB200 million ($25.9 million). The loan was non-interest
      bearing, matured on December 31, 2005 and was repaid upon maturity. The purpose
      of the loans was to enable Tianshi Engineering to strengthen its sales network
      in China. On January 1, 2006, this amount was loaned to Tianshi Engineering
      again, with a maturity date of December 31, 2006. On December 22, 2006, the
      loan
      was extended to June 30, 2007 and was converted to an interest-bearing loan.
      The
      interest rate for the loan is the current interest rate for the same level
      of
      loan stipulated by the People’s Bank of China. The $0.6 million of increase was
      due to change in foreign currency exchange rate and a $356,356 of interest
      accrued on the loan.




**Long-term
      debt - related party.** Long-term
      dept-related party was $6.4 million as of March 31, 2007 and December 31, 2006.
      In 2004, Tianshi International entered a term loan agreement with Tianyuan
      Capital Development Corp. Ltd. (“Tianyuan Capital”), pursuant to which Tianyuan
      Capital agreed to lend $10.65 million in the aggregate to Tianshi International,
      at an interest rate of 5% per year, with interest payable on June 30 and
      December 31, commencing December 31, 2004. Tianshi International must repay
      the
      loan in ten consecutive semi-annual installments of $1,065,000 commencing June
      30, 2006 and ending June 30, 2011. Tianshi International used the loan proceeds
      in Tiens Yihai. Mr. Jinyuan Li owns 100% of Tianyuan Capital. Interest of
      $105,137 was accrued for the three months ended March 31, 2007.




36




**Advances
      from customers - related parties** .
      Advances from related party customers were $1.5 million as of March 31, 2007
      compared to $1.6 million as of December 31, 2006. Advances from customers
      reflect the prepayment by certain of our customers to insure that they can
      continue to obtain enough of our products to meet their demand.




**Other
      payables - related party** .
      Other
      payables due to related parties as of March 31, 2007 and December 31, 2006,
      were
      $0.2 million and $0.5 million, respectively. These amounts arose from various
      operational transactions incurred with related parties.




**Transactions
      with Tianshi Group**




Since
      2003, Biological has leased office space and manufacturing facilities from
      Tianshi Group. The lease expires at the end of 2007 and requires annual rent
      at
      1% of our total gross revenues. The rent was negotiated by the parties prior
      to
      entering into the agreement, before we acquired Tianshi International, and
      we
      believe that it is a reasonable rent for the facilities. The term of this
      agreement is for five years commencing on January 1, 2003. In addition, we
      are
      obligated to pay insurance, maintenance and other expenses related to the
      premises. The total amount paid on this lease amounted to $166,332 for the
      three
      months ended March 31, 2007.




**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 Chinese Renminbi
      (“RMB”) as the functional currency. Based on Chinese government regulations, all
      foreign currencies under the category of current accounts are allowed to be
      freely exchanged with hard currencies. On July 21, 2005, the Chinese government
      approved the increase in the valuation of RMB against the US dollar by
      2%.




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




37




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




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




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




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




**PART
      II - OTHER INFORMATION**




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




Our
      2006
      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.




**WE
      MAY NOT BE REFUNDED MONIES WE HAVE PAID FOR THE TIENS YIHAI PROPERTY AND WE
      MAY
      BE REQUIRED TO MAKE ADDITIONAL CAPITAL CONTRIBUTIONS TO TIENS
      YIHAI**




In
      April
      2004, Tianshi International entered a joint venture contract with Tianshi
      Pharmaceuticals to establish Tiens Yihai. The total amount to be invested in
      Tiens Yihai was to be $400 million, of which $200 million was to be registered
      capital. Tianshi International was to contribute $198.8 million, representing
      approximately 99.4% of the registered capital of Tiens Yihai, and Tianshi
      Pharmaceuticals was to contribute $1.2 million, representing 0.6% of the
      registered capital of Tiens Yihai. Tianshi International was to secure
      additional financing for the remaining $200 million.




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




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”) to acquire the land use right of 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 required to wait for further decisions by state and local government
      before proceeding with development.




38




On
      November 10, 2006, Tiens and the Local Government entered into a supplemental
      agreement pursuant to which the parties agreed to the acquisition by Tiens
      Yihai
      of a reduced 80 acres parcel of land. At that time, it was not clear whether
      the
      remaining 183 acres would be available for purchase in the future. Therefore,
      the Local Government has agreed to refund to Tiens $1.6 million of the original
      $3.6 million deposit when it receives a construction license for the
      development.




In
      order
      to proceed with the approval process for development of the property by Tiens
      Yihai, Tiens was required to provide a loan of $6.5 million to the Local
      Government for relocation costs for people living on the property. The $6.5
      million loan was to be funded in two installments:




·
            The
                first installment of $3.2 million was paid on November 27,
                2006.




·
            The
                second installment of $3.2 million is to be paid after Tiens Yihai
                obtains
                a construction license to develop the property. The parties have
                agreed to
                allow Tiens to reduce this second installment by the amount of the
                $1.6
                million refund due to it.




In
      return
      for the loan, Tiens Yihai will receive a tax credit in the amount of $6.4
      million.




In
      March
      2007, we received notice that the Local Government had approved the land use
      rights for 50 acres of the Tiens Yihai property. As a result of the reduction
      in
      the number of acres for which we have received land use right and continued
      uncertainty relating to the Tiens Yihai project, management has 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. If Tiens Yihai
      does
      not proceed with construction on the Tiens Yihai site or is not able to sell
      the
      land use rights to a third party, it is not clear whether the Local Government
      will return the $1.6 million it previously agreed to refund or the initial
      loan
      of $3.2 million made in November 2006.




Because
      of the significant reduction by the Local Government in the number of acres
      approved for the Tiens Yihai project, we do not intend to make the additional
      capital contribution of $170 million to Tiens Yihai by May 27, 2007. We are
      currently negotiating with the local government in Shanghai to eliminate or
      reduce the requirement in the Tiens Yihai joint venture contract for additional
      capital contribution and to delay the payment of such additional capital
      contribution, if any.  Management is currently unable to provide an
      estimate as to what the amount, if any, of additional capital contribution
      will
      be required for the Tiens Yihai joint venture. However, management believes
      that
      it will be able to successfully negotiate a reduction in the required capital
      contribution because of the Local Government’s decision to significantly reduce
      the number of acres from 263 to 50.




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




None.




**ITEM
      3.** **DEFAULTS
      UPON SENIOR SECURITIES**




None.




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




None.




**ITEM
      5.** **OTHER
      INFORMATION**




None.




39




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





Exhibit
                No.
            
            Description10.1
            
            Term
                Loan Agreement, dated March 28, 2007 between Tianjin Tianshi Biological
                Development Co., Ltd. and Tianjin Tianshi Biological Engineering
                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 Executive Officer and Chief Financial Officer pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of
                2002


40




**SIGNATURES**




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




**TIENS
                BIOTECH GROUP (USA), INC.**Date:
                May 14, 2007/s/
              Jinyuan LiJinyuan
                LiChief
                Executive Officer and President
              (Principal
                  Executive Officer)




Date:
                May 14, 2007/s/
              Wenjun JiaoWenjun
                  JiaoChief
                  Financial Officer
                (Principal
                  Accounting Officer)




41