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

----

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

----

|                                                                                                                                                   |   | PAGE   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| PART      I - FINANCIAL INFORMATION                                                                                                                    |   | 3      |
|                                                                                                                                                   |   |   |
| ITEM      1. FINANCIAL STATEMENTS                                                                                                                      |   | 3      |
|                                                                                                                                                   |   |   |
| Consolidated      Balance Sheets as of September 30, 2009 (Unaudited) and December 31,      2008                                                       |   | 3      |
|                                                                                                                                                   |   |   |
| Consolidated      Statements of Income and Other Comprehensive Income for the Three and Nine      Months Ended September 30, 2009 and 2008 (Unaudited) |   | 4      |
|                                                                                                                                                   |   |   |
| Consolidated      Statements of Cash Flows for the Nine Months Ended September 30, 2009 and      2008 (Unaudited)                                      |   | 5      |
|                                                                                                                                                   |   |   |
| Notes      to Consolidated Financial Statements (Unaudited)                                                                                            |   | 6      |
|                                                                                                                                                   |   |   |
| ITEM      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS      OF OPERATIONS                                          |   | 25     |
|                                                                                                                                                   |   |   |
| ITEM      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET    RISK                                                                             |   | 37     |
|                                                                                                                                                   |   |   |
| ITEM      4T. CONTROLS AND PROCEDURES                                                                                                                  |   | 37     |
|                                                                                                                                                   |   |   |
| PART      II - OTHER INFORMATION                                                                                                                       |   | 38     |
|                                                                                                                                                   |   |   |
| ITEM      6. EXHIBITS                                                                                                                                  |   | 38     |

----

|                                                                                                                                                                                         |   | September      30, |        |   | December      31, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------|-------------|--------|-------------------|--------|
|                                                                                                                                                                                         |   | 2009               |        |   | 2008              |   |
|                                                                                                                                                                                         |   | (Unaudited)        |        |   |              |   |
| ASSETS                                                                                                                                                                                       |   |
|                                                                                                                                                                                         |   |               |        |   |              |   |
| CURRENT      ASSETS:                                                                                                                                                                         |   |               |        |   |              |   |
| Cash                                                                                                                                                                                         |   | $                  | 9,518,495   |   |              | $      | 20,992,573 |   |
| Cash      related to assets held for sale                                                                                                                                                    |   |               | 23,984,135  |   |              |   | 23,861,938 |   |
| Total      cash                                                                                                                                                                              |   |               | 33,502,630  |   |              |   | 44,854,511 |   |
| Accounts      receivable, trade - related parties, net of allowance for doubtful      accounts of $208,535 and $1,108,789 as of September 30, 2009 and December      31, 2008 , respectively |   |               | 14,215,995  |   |              |   | 23,941,431 |   |
| Inventories                                                                                                                                                                                  |   |               | 5,595,637   |   |              |   | 8,365,607 |   |
| Other      receivables                                                                                                                                                                       |   |               | 932,781     |   |              |   | 813,591 |   |
| Other      receivables - related parties                                                                                                                                                     |   |               | 13,833,872  |   |              |   | 15,729,076 |   |
| Employee      advances                                                                                                                                                                       |   |               | 193,525     |   |              |   | 112,591 |   |
| Prepaid      expenses                                                                                                                                                                        |   |               | 639,435     |   |              |   | 301,898 |   |
| Prepaid      taxes                                                                                                                                                                           |   |               | 1,489,956   |   |              |   | 1,531,207 |   |
| Other      assets held for sale                                                                                                                                                              |   |               | 10,839,419  |   |              |   | 10,904,842 |   |
| Total      current assets                                                                                                                                                                    |   |               | 81,243,250  |   |              |   | 106,554,754 |   |
|                                                                                                                                                                                         |   |               |        |   |              |   |   |   |
| PROPERTY,      PLANT AND EQUIPMENT, net                                                                                                                                                      |   |               | 10,445,464  |   |              |   | 10,274,643 |   |
|                                                                                                                                                                                         |   |               |        |   |              |   |   |   |
| OTHER      ASSETS:                                                                                                                                                                           |   |               |        |   |              |   |   |   |
| Construction      in progress                                                                                                                                                                |   |               | 108,687,141 |   |              |   | 72,300,104 |   |
| Construction      deposits                                                                                                                                                                   |   |               | 2,980,428   |   |              |   | 2,586,302 |   |
| Intangible      assets, net                                                                                                                                                                  |   |               | 12,939,643  |   |              |   | 13,137,195 |   |
| Other      assets                                                                                                                                                                            |   |               | 8,772,637   |   |              |   | 87,541 |   |
| Total      other assets                                                                                                                                                                      |   |               | 133,379,849 |   |              |   | 88,111,142 |   |
|                                                                                                                                                                                         |   |               |        |   |              |   |   |   |
| Total      assets                                                                                                                                                                            |   | $                  | 225,068,563 |   |              | $      | 204,940,539 |   |
|                                                                                                                                                                                         |   |               |        |   |              |   |   |   |
| LIABILITIES AND SHAREHOLDERS'      EQUITY                                                                                                                                                    |   |
|                                                                                                                                                                                         |   |               |        |   |              |   |   |   |
| CURRENT      LIABILITIES:                                                                                                                                                                    |   |               |        |   |              |   |   |   |
| Accounts      payable                                                                                                                                                                        |   | $                  | 4,690,894   |   |              | $      | 6,283,849 |   |
| Advances      from customers - related parties                                                                                                                                               |   |               | 4,056,804   |   |              |   | 3,239,650 |   |
| Wages      and benefits payable                                                                                                                                                              |   |               | 724,125     |   |              |   | 1,449,146 |   |
| Other      taxes payable                                                                                                                                                                     |   |               | -           |   |              |   | 117,818 |   |
| Contractor      deposits                                                                                                                                                                     |   |               | 249,195     |   |              |   | 163,248 |   |
| Contractor      payables                                                                                                                                                                     |   |               | 18,214,994  |   |              |   | 11,871,456 |   |
| Other      payables                                                                                                                                                                          |   |               | 1,632,208   |   |              |   | 1,933,743 |   |
| Other      payables - related parties                                                                                                                                                        |   |               | 216,941     |   |              |   | 6,373,900 |   |
| Current      portion of long term debt, related party                                                                                                                                        |   |               | 2,130,000   |   |              |   | 2,130,000 |   |
| Liabilities      directly associated with assets classified as held forsale                                                                                                                  |   |               | 114,910     |   |              |   | 122,047 |   |
| Total      current liabilities                                                                                                                                                               |   |               | 32,030,071  |   |              |   | 33,684,857 |   |
|                                                                                                                                                                                         |   |               |        |   |              |   |   |   |
| NON-CURRENT      LIABILITIES                                                                                                                                                                 |   |               |        |   |              |   |   |   |
| Long      term debt, net of current portion, related party                                                                                                                                   |   |               | 1,072,742   |   |              |   | 2,137,742 |   |
| Deferred      income                                                                                                                                                                         |   |               | 11,235,733  |   |              |   | 11,208,844 |   |
| Total      non current liabilities                                                                                                                                                           |   |               | 12,308,475  |   |              |   | 13,346,586 |   |
|                                                                                                                                                                                         |   |               |        |   |              |   |   |   |
| Total      liabilities                                                                                                                                                                       |   |               | 44,338,546  |   |              |   | 47,031,443 |   |
|                                                                                                                                                                                         |   |               |        |   |              |   |   |   |
| EQUITY:                                                                                                                                                                                      |   |               |        |   |              |   |   |   |
| Shareholders'      equity of the Company:                                                                                                                                                    |   |               |        |   |              |   |   |   |
| Common      stock, $0.001 par value, 250,000,000 shares authorized, 71,333,586 issued      and outstanding                                                                                   |   |               | 71,334      |   |              |   | 71,334 |   |
| Paid-in-capital                                                                                                                                                                              |   |               | 9,461,369   |   |              |   | 9,234,123 |   |
| Statutory      reserves                                                                                                                                                                      |   |               | 13,217,217  |   |              |   | 9,420,783 |   |
| Retained      earnings                                                                                                                                                                       |   |               | 123,534,272 |   |              |   | 106,325,356 |   |
| Accumulated      other comprehensive income                                                                                                                                                  |   |               | 24,232,692  |   |              |   | 23,851,062 |   |
| Total      shareholders' equity of the Company                                                                                                                                               |   |               | 170,516,884 |   |              |   | 148,902,658 |   |
| Noncontrolling      interest                                                                                                                                                                 |   |               | 10,213,133  |   |              |   | 9,006,438 |   |
| Total      equity                                                                                                                                                                            |   |               | 180,730,017 |   |              |   | 157,909,096 |   |
| Total      liabilities and equity                                                                                                                                                            |   | $                  | 225,068,563 |   |              | $      | 204,940,539 |   |

----

|                                                                       |   | Three      months ended September 30, |       |   | Nine      months ended September 30, |   |
|----------------------------------------------------------------------------|--------|---------------------------------------|------------|--------|--------------------------------------|--------|
|                                                                       |   | 2009                                  |       |   | 2008                                 |   |   | 2009 |   |   | 2008 |   |
| REVENUE      - RELATED PARTIES                                             |   | $                                     | 9,439,739  |   |                                 | $      | 26,195,853 |   |   | $ | 48,228,320 |   |   | $ | 58,671,121 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| COST      OF SALES - RELATED PARTIES                                       |   |                                  | 3,144,650  |   |                                 |   | 6,606,502 |   |   |   | 14,997,118 |   |   |   | 16,850,267 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| GROSS      PROFIT                                                          |   |                                  | 6,295,089  |   |                                 |   | 19,589,351 |   |   |   | 33,231,202 |   |   |   | 41,820,854 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| SELLING,      GENERAL AND  ADMINISTRATIVE EXPENSES               |   |                                  | 2,916,202  |   |                                 |   | 4,562,946 |   |   |   | 10,061,729 |   |   |   | 12,898,742 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| INCOME      FROM OPERATIONS                                                |   |                                  | 3,378,887  |   |                                 |   | 15,026,405 |   |   |   | 23,169,473 |   |   |   | 28,922,112 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Interest      expense                                                      |   |                                  | (40,363    | )      |                                 |   | (67,207 | ) |   |   | (146,180 | ) |   |   | (199,869 | ) |
| Interest      income                                                       |   |                                  | 76,154     |   |                                 |   | 227,326 |   |   |   | 262,701 |   |   |   | 733,175 |   |
| Other      expense                                                         |   |                                  | (16,122    | )      |                                 |   | (412,620 | ) |   |   | (89,554 | ) |   |   | (1,399,484 | ) |
| OTHER      (EXPENSE) INCOME, NET                                           |   |                                  | 19,669     |   |                                 |   | (252,501 | ) |   |   | 26,967 |   |   |   | (866,178 | ) |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| INCOME      BEFORE INCOME TAXES                                            |   |                                  | 3,398,556  |   |                                 |   | 14,773,904 |   |   |   | 23,196,440 |   |   |   | 28,055,934 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| INCOME      TAXES                                                          |   |                                  | 544,688    |   |                                 |   | 152,990 |   |   |   | 1,027,404 |   |   |   | 3,297,438 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| NET      INCOME                                                            |   |                                  | 2,853,868  |   |                                 |   | 14,620,914 |   |   |   | 22,169,036 |   |   |   | 24,758,496 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| LESS:      Net income attributable to the noncontrolling interest          |   |                                  | (617,638   | )      |                                 |   | (92,326 | ) |   |   | (1,163,683 | ) |   |   | (1,979,405 | ) |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| NET      INCOME ATTRIBUTABLE TO THE COMPANY                                |   |                                  | 2,236,230  |   |                                 |   | 14,528,588 |   |   |   | 21,005,353 |   |   |   | 22,779,091 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| OTHER      COMPREHENSIVE INCOME:                                           |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| Foreign      currency translation adjustment                               |   |                                  | 170,638    |   |                                 |   | 807,035 |   |   |   | 381,630 |   |   |   | 7,906,663 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| COMPREHENSIVE      INCOME ATTRIBUTABLE TO      THE COMPANY                 |   |                                  | 2,406,868  |   |                                 |   | 15,335,623 |   |   |   | 21,386,983 |   |   |   | 30,685,754 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| COMPREHENSIVE      INCOME ATTRIBUTABLE TO      THE NONCONTROLLING INTEREST |   |                                  | 629,028    |   |                                 |   | 94,943 |   |   |   | 1,188,923 |   |   |   | 2,432,607 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| COMPREHENSIVE      INCOME                                                  |   | $                                     | 3,035,896  |   |                                 | $      | 15,430,566 |   |   | $ | 22,575,906 |   |   | $ | 33,118,361 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| EARNINGS      PER SHARE, BASIC      AND DILUTED                            |   | $                                     | 0.03       |   |                                 | $      | 0.20 |   |   | $ | 0.29 |   |   | $ | 0.32 |   |
|                                                                       |   |                                  |       |   |                                 |   |   |   |   |   |   |   |   |   |   |   |
| WEIGHTED      AVERAGE NUMBER OF SHARES, BASIC      AND DILUTED             |   |                                  | 71,333,586 |   |                                 |   | 71,333,586 |   |   |   | 71,333,586 |   |   |   | 71,333,586 |   |

----

|                                                                                              |   | Nine      months ended September 30, |        |
|---------------------------------------------------------------------------------------------------|--------|--------------------------------------|-------------|
|                                                                                              |   | 2009                                 |        |   | 2008 |   |
| CASH      FLOWS FROM OPERATING ACTIVITIES:                                                        |   |                                 |        |   |   |   |
| Net      income                                                                                   |   | $                                    | 22,169,036  |   |   | $ | 24,758,496 |   |
| Adjustments      to reconcile net income to cash provided by (used in) operating      activities: |   |                                 |        |   |   |   |   |   |
| Provision      for doubtful accounts                                                              |   |                                 | (902,297    | ) |   |   | 89,913 |   |
| Depreciation                                                                                      |   |                                 | 1,662,206   |   |   |   | 2,063,597 |   |
| Amortization                                                                                      |   |                                 | 291,418     |   |   |   | 226,559 |   |
| Interest      income                                                                              |   |                                 | (9,357      | ) |   |   | (138,328 | ) |
| Gain      on sale of assets                                                                       |   |                                 | (14,846     | ) |   |   | (8,644 | ) |
| (Increase)      decrease in assets:                                                               |   |                                 |        |   |   |   |   |   |
| Accounts      receivable, trade - related parties                                                 |   |                                 | 10,678,476  |   |   |   | (25,058,774 | ) |
| Accounts      receivable, trade - third parties                                                   |   |                                 | -           |   |   |   | 109,101 |   |
| Other      receivables                                                                            |   |                                 | (121,058    | ) |   |   | 639,999 |   |
| Other      receivables - related parties                                                          |   |                                 | (1,306,527  | ) |   |   | 452,044 |   |
| Inventories                                                                                       |   |                                 | 2,801,809   |   |   |   | (1,090,429 | ) |
| Employee      advances                                                                            |   |                                 | (80,873     | ) |   |   | (345,666 | ) |
| Prepaid      expense                                                                              |   |                                 | (336,620    | ) |   |   | 347,689 |   |
| Increase      (decrease) in liabilities:                                                          |   |                                 |        |   |   |   |   |   |
| Accounts      payable                                                                             |   |                                 | (1,687,613  | ) |   |   | 3,098,509 |   |
| Advances      from customers - related parties                                                    |   |                                 | 808,830     |   |   |   | 1,233,804 |   |
| Wages      and benefits payable                                                                   |   |                                 | (768,334    | ) |   |   | (381,633 | ) |
| Other      taxes payable                                                                          |   |                                 | (31,337     | ) |   |   | (1,834,741 | ) |
| Other      payables                                                                               |   |                                 | (176,274    | ) |   |   | (86,004 | ) |
| Other      payables - related parties                                                             |   |                                 | (76,484     | ) |   |   | 282,945 |   |
| Net      cash provided by operating activities                                                    |   |                                 | 32,900,155  |   |   |   | 4,358,437 |   |
|                                                                                              |   |                                 |        |   |   |   |   |   |
| CASH      FLOWS FROM INVESTING ACTIVITIES:                                                        |   |                                 |        |   |   |   |   |   |
| Collections      from loans to local government                                                   |   |                                 | 105,208     |   |   |   | 454,941 |   |
| Repayment      of loan from related parties                                                       |   |                                 | -           |   |   |   | 2,155,702 |   |
| Acquisition      of intangible assets                                                             |   |                                 | -           |   |   |   | (6,037,069 | ) |
| Construction      deposits                                                                        |   |                                 | (3,465,755  | ) |   |   | (3,363,647 | ) |
| Contractor      deposits                                                                          |   |                                 | 85,498      |   |   |   | (390,634 | ) |
| Addition      to construction in progress                                                         |   |                                 | (26,936,754 | ) |   |   | (18,573,180 | ) |
| Equipment      deposits                                                                           |   |                                 | (8,700,872  | ) |   |   | - |   |
| Proceeds      from sales  of properties                                                 |   |                                 | 17,041      |   |   |   | 61,797 |   |
| Purchase      of equipment and automobiles                                                        |   |                                 | (1,755,815  | ) |   |   | (574,822 | ) |
| Net      cash used in investing activities                                                        |   |                                 | (40,651,449 | ) |   |   | (26,266,912 | ) |
|                                                                                              |   |                                 |        |   |   |   |   |   |
| CASH      FLOWS FROM FINANCING ACTIVITIES:                                                        |   |                                 |        |   |   |   |   |   |
| Loan      from (repayment to) related parties                                                     |   |                                 | (3,946,050  | ) |   |   | 6,578,584 |   |
| Payments      on long term debt, related party                                                    |   |                                 | -           |   |   |   | (1,065,000 | ) |
| Payments      to minority interest shareholder                                                    |   |                                 | -           |   |   |   | (5,123,520 | ) |
| Increase      in paid in capital                                                                  |   |                                 | 245,030     |   |   |   | - |   |
| Increase      in deferred income                                                                  |   |                                 | -           |   |   |   | 5,861,232 |   |
| Net      cash provided by (used in) financing activities                                          |   |                                 | (3,701,020  | ) |   |   | 6,251,296 |   |
|                                                                                              |   |                                 |        |   |   |   |   |   |
| EFFECT      OF EXCHANGE RATE CHANGES ON CASH                                                      |   |                                 | 100,433     |   |   |   | 3,242,494 |   |
|                                                                                              |   |                                 |        |   |   |   |   |   |
| DECREASE      IN CASH                                                                             |   |                                 | (11,351,881 | ) |   |   | (12,414,685 | ) |
|                                                                                              |   |                                 |        |   |   |   |   |   |
| CASH,      beginning of period                                                                    |   |                                 | 44,854,511  |   |   |   | 54,081,848 |   |
|                                                                                              |   |                                 |        |   |   |   |   |   |
|                                                                                              |   |                                 |        |   |   |   |   |   |
| CASH,      end of period                                                                          |   | $                                    | 33,502,630  |   |   | $ | 41,667,163 |   |
|                                                                                              |   |                                 |        |   |   |   |   |   |
| Supplemental      disclosure of cash flow information                                             |   |                                 |        |   |   |   |   |   |
| Cash      paid during the period for:                                                             |   |                                 |        |   |   |   |   |   |
| Interest                                                                                          |   | $                                    | 105,817     |   |   | $ | 132,662 |   |
| Income      taxes                                                                                 |   | $                                    | 871,764     |   |   | $ | 3,857,173 |   |

----

----

| Subsidiary            |   | Jurisdiction      of Formation |   | %      Ownership |   |
|-----------------------|--------|--------------------------------|--------|------------------|--------|
| Tianshi      Holdings |   | British      Virgin Islands    |   |             | 100.0% |   |
| Biological            |   | P.R.C.                         |   |             | 80.0%  |   |
| Life      Resources   |   | P.R.C.                         |   |             | 100.0% |   |

----

|                                |   | September      30, 2009  |      |   | December      31, 2008 |   |
|-------------------------------------|--------|--------------------------|-----------|--------|------------------------|--------|
|                                |   | Balance sheetamount |      |   | Fair      value        |   |   | Balance sheetamount |   |   | Fair      value |   |
| Long-term      debt - related party |   | $                        | 3,202,742 |   |                   | $      | 3,234,897 |   |   | $ | 4,267,742 |   |   | $ | 4,244,098 |   |

----

|                                                             |   | Balance atBeginning ofPeriod |      |   | Increase (Decrease)of Provision forDoubtful Accounts |   |     | Balance atEnd of Period |   |
|------------------------------------------------------------------|--------|----------------------------------------|-----------|--------|--------------------------------------------------------------------------|--------|----------|----------------------------------------|--------|
| Nine      month period ended September 30, 2009                  |   |                                   |      |   |                                                                     |   |     |                                   |   |
| Reserves      and allowances deducted      from assets accounts: |   |                                   |      |   |                                                                     |   |     |                                   |   |
| Allowance      for doubtful accounts:                            |   | $                                      | 1,108,789 |   |                                                                     | $      | (900,254 | )                                      |   | $ | 208,535 |   |
|                                                             |   |                                   |      |   |                                                                     |   |     |                                   |   |   |   |   |
| Nine      month period ended September 30, 2008                  |   |                                   |      |   |                                                                     |   |     |                                   |   |   |   |   |
| Reserves      and allowances deducted      from assets accounts: |   |                                   |      |   |                                                                     |   |     |                                   |   |   |   |   |
| Allowance      for doubtful accounts:                            |   | $                                      | 71,700    |   |                                                                     | $      | 96,605   |                                   |   | $ | 168,305 |   |

|                                                             |   | Balance atBeginning ofPeriod |    |   | Increase of Provisionfor DoubtfulAccounts |   |   | Balance atEnd of Period |   |
|------------------------------------------------------------------|--------|----------------------------------------|---------|--------|----------------------------------------------------------|--------|--------|----------------------------------------|--------|
| Nine      month period ended September 30, 2009                  |   |                                   |    |   |                                                     |   |   |                                   |   |
| Reserves      and provisions deducted      from assets accounts: |   |                                   |    |   |                                                     |   |   |                                   |   |
| Provision      for prepaid expenses:                             |   | $                                      | 952,071 |   |                                                     | $      | 2,284  |                                   |   | $ | 954,355 |   |
|                                                             |   |                                   |    |   |                                                     |   |   |                                   |   |   |   |   |
| Nine      month period ended September 30, 2008                  |   |                                   |    |   |                                                     |   |   |                                   |   |   |   |   |
| Reserves      and provisions deducted      from assets accounts: |   |                                   |    |   |                                                     |   |   |                                   |   |   |   |   |
| Provision      for prepaid expenses:                             |   | $                                      | 872,053 |   |                                                     | $      | 58,426 |                                   |   | $ | 930,479 |   |

----

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

----

----

----

----

|                        |   | September 30, |      |   | December 31, |   |
|-----------------------------|--------|--------------------|-----------|--------|-------------------|--------|
|                        |   | 2009               |      |   | 2008              |   |
|                        |   |               |      |   |              |   |
| Raw      materials          |   | $                  | 2,058,074 |   |              | $      | 2,507,073 |   |
| Packing      materials      |   |               | 813,661   |   |              |   | 1,131,252 |   |
| Miscellaneous      supplies |   |               | 311,883   |   |              |   | 402,630 |   |
| Work      in process        |   |               | 396,400   |   |              |   | 699,205 |   |
| Finished      goods         |   |               | 2,015,619 |   |              |   | 3,625,447 |   |
| Total                       |   | $                  | 5,595,637 |   |              | $      | 8,365,607 |   |

|   | 1. | The      Company had a determinable outstanding loan due to Tianshi      Investment; |
|--------|----|--------------------------------------------------------------------------------------|

|   | 2. | Tianshi      Investment agreed to lend a determinable amount to Tianshi      Group; |
|--------|----|-------------------------------------------------------------------------------------|

|   | 3. | The      Company funded the amount that Tianshi Investment agreed to lend to      Tianshi Group; |
|--------|----|--------------------------------------------------------------------------------------------------|

|   | 4. | The      Company had the right to offset the amount of the outstanding loan due to      Tianshi Investment with the amount that the Company funded to Tianshi      Group; |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5. | The      Company, Tianshi Investment and Tianshi Group agreed to offset the two      amounts; and |
|--------|----|---------------------------------------------------------------------------------------------------|

|   | 6. | The      agreement to offset is enforceable under Chinese contract    law. |
|--------|----|----------------------------------------------------------------------------|

|   | 1. | Tianshi      Engineering had a determinable outstanding debt payable to the      Company; |
|--------|----|-------------------------------------------------------------------------------------------|

|   | 2. | The      Company had a determinable outstanding debt payable to Tianshi      Investment; |
|--------|----|------------------------------------------------------------------------------------------|

|   | 3. | The      Company had the right to offset the twoamounts; |
|--------|----|----------------------------------------------------------|

----

|   | 4. | The      Company, Tianshi Investment and Tianshi Engineering agreed to offset the      two  amounts; and |
|--------|----|---------------------------------------------------------------------------------------------------------------|

|   | 5. | The      agreement to offset is enforceable under Chinese contract    law. |
|--------|----|----------------------------------------------------------------------------|

|   | 1. | Tianshi      Engineering had a determinable outstanding debt payable to the      Company; |
|--------|----|-------------------------------------------------------------------------------------------|

|   | 2. | The      Company had a determinable outstanding debt payable to Tianyuan      Capital; |
|--------|----|----------------------------------------------------------------------------------------|

|   | 3. | The      Company had the right to offset the twoamounts; |
|--------|----|----------------------------------------------------------|

|   | 4. | The      Company, Tianyuan Capital and Tianshi Engineering agreed to offset the two       amounts; and |
|--------|----|-------------------------------------------------------------------------------------------------------------|

|   | 5. | The      agreement to offset is enforceable under Chinese contract    law. |
|--------|----|----------------------------------------------------------------------------|

|                             |   | September 30, |    |   | December 31, |   |
|----------------------------------|--------|--------------------|---------|--------|-------------------|--------|
|                             |   | 2009               |    |   | 2008              |   |
| Advance      to suppliers        |   | $                  | 638,756 |   |              | $      | 297,576 |   |
| Short-term      prepaid expenses |   |               | 679     |   |              |   | 4,322 |   |
| Total                            |   | $                  | 639,435 |   |              | $      | 301,898 |   |

|                                    |   | September 30, |        |   | December 31, |   |
|-----------------------------------------|--------|--------------------|-------------|--------|-------------------|--------|
|                                    |   | 2009               |        |   | 2008              |   |
| Buildings      and improvements         |   | $                  | 1,558,827   |   |              | $      | 1,558,524 |   |
| Office      equipment                   |   |               | 385,818     |   |              |   | 383,678 |   |
| Computer      equipment and software    |   |               | 2,877,761   |   |              |   | 2,900,333 |   |
| Machinery      and equipment            |   |               | 14,051,902  |   |              |   | 12,835,301 |   |
| Automobiles                             |   |               | 4,470,962   |   |              |   | 4,145,367 |   |
| Total                                   |   |               | 23,345,270  |   |              |   | 21,823,203 |   |
| Less:      accumulated depreciation     |   |               | (12,899,806 | )      |              |   | (11,548,560 | ) |
| Property,      plant and equipment, net |   | $                  | 10,445,464  |   |              | $      | 10,274,643 |   |

----

|                               |   | September 30, |       |   | December 31, |   |
|------------------------------------|--------|--------------------|------------|--------|-------------------|--------|
|                               |   | 2009               |       |   | 2008              |   |
| Land      use rights               |   | $                  | 13,530,529 |   |              | $      | 13,498,149 |   |
| Other      intangible assets       |   |               | 344,250    |   |              |   | 343,426 |   |
| Less      accumulated amortization |   |               | (935,136   | )      |              |   | (704,380 | ) |
| Intangible      assets, net        |   | $                  | 12,939,643 |   |              | $      | 13,137,195 |   |

| Estimated amortization expense for   |   |   |    |
|---------------------------------------------------------------|--------|--------|---------|
| the year ending December 31,              |   | Amount |    |
| 2009                                                          |   | $      | 305,292 |   |
| 2010                                                          |   | $      | 304,907 |   |
| 2011                                                          |   | $      | 298,396 |   |
| 2012                                                          |   | $      | 298,396 |   |
| 2013                                                          |   | $      | 287,302 |   |

|                                                                             |   | September 30, 2009 |       |   | December 31, 2008 |   |
|----------------------------------------------------------------------------------|--------|------------------------------|------------|--------|-----------------------------|--------|
| Cash                                                                             |   | $                            | 23,984,135 |   |                        | $      | 23,861,938 |   |
| Other      receivables-third parties                                             |   |                         | 10,044     |   |                        |   | 6,126 |   |
| Employee      advances                                                           |   |                         | 1,609      |   |                        |   | 1,341 |   |
| Property,      plant, and equipment,net                                          |   |                         | 342,586    |   |                        |   | 548,717 |   |
| Construction      In progress                                                    |   |                         | 2,569,960  |   |                        |   | 2,462,108 |   |
| Intangible      assets, net                                                      |   |                         | 2,561,644  |   |                        |   | 2,596,029 |   |
| Long-term      prepaid expense                                                   |   |                         | 5,353,576  |   |                        |   | 5,290,521 |   |
| Assets      held for sale                                                        |   | $                            | 34,823,554 |   |                        | $      | 34,766,780 |   |
|                                                                             |   |                         |       |   |                        |   |   |   |
| Accounts      payable                                                            |   |                         | 3,320      |   |                        |   | 3,312 |   |
| Wages      and benefits payable                                                  |   |                         | 81,432     |   |                        |   | 88,648 |   |
| Other      taxes payable                                                         |   |                         | -          |   |                        |   | 2 |   |
| Other      payables                                                              |   |                         | 29,970     |   |                        |   | 29,898 |   |
| Other      payables - related parties                                            |   |                         | 188        |   |                        |   | 187 |   |
| Liabilities      directly associted with assets      classified as held for sale |   | $                            | 114,910    |   |                        | $      | 122,047 |   |

----

----

|                         |   | Three months ended September 30, |      |   | Nine months ended September 30, |   |
|------------------------------|--------|------------------------------------------------------|-----------|--------|-----------------------------------------------------|--------|
|                         |   | 2009                                                 |      |   | 2008                                                |   |   | 2009 |   |   | 2008 |   |
| Revenue-related      parties |   | $                                                    | 9,439,739 |   |                                                | $      | 26,195,853 |   |   | $ | 48,228,320 |   |   | $ | 58,671,121 |   |

|                                                                                                                                                                                            |   | September 30, 2009 |       |   | December 31, 2008 |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|------------|--------|-----------------------------|--------|
| Accounts      receivable, trade – related parties, net of allowancefor      doubtful accounts of $208,535 and $1,108,789 as ofSeptember      30, 2009 and December 31, 2008, respectively |   | $                            | 14,215,995 |   |                        | $      | 23,941,431 |   |
| Other      receivables – related parties                                                                                                                                                  |   | $                            | 13,833,872 |   |                        | $      | 15,729,076 |   |
| Advances      from customers – related parties                                                                                                                                            |   | $                            | 4,056,804  |   |                        | $      | 3,239,650 |   |
| Other      payables – related parties                                                                                                                                                     |   | $                            | 216,941    |   |                        | $      | 6,373,900 |   |
| Current      portion of long-term debt - related party                                                                                                                                          |   | $                            | 2,130,000  |   |                        | $      | 2,130,000 |   |
| Long      term debt – related party                                                                                                                                                       |   | $                            | 1,072,742  |   |                        | $      | 2,137,742 |   |

|                            |   | Three months ended September      30, |      |   | Nine months ended September    30, |   |
|---------------------------------|--------|---------------------------------------|-----------|--------|------------------------------------|--------|
|                            |   | 2009                                  |      |   | 2008                               |   |   | 2009 |   |   | 2008 |   |
| Tianshi      Engineering        |   | $                                     | 4,663,939 |   |                               | $      | 14,576,060 |   |   | $ | 17,076,162 |   |   | $ | 29,191,771 |   |
| Overseas      Related Companies |   |                                  | 4,775,800 |   |                               |   | 11,619,793 |   |   |   | 31,152,158 |   |   |   | 29,497,350 |   |
| Total                           |   | $                                     | 9,439,739 |   |                               | $      | 26,195,853 |   |   | $ | 48,228,320 |   |   | $ | 58,689,121 |   |

----

|                                 |   | September 30, 2009 |       |   | December 31, 2008 |   |
|--------------------------------------|--------|------------------------------|------------|--------|-----------------------------|--------|
| Tianshi      Engineering             |   | $                            | 657,209    |   |                        | $      | 4,362,355 |   |
| Overseas      Related Companies      |   |                         | 13,767,321 |   |                        |   | 20,687,865 |   |
| Allowance      for Doubtful Accounts |   |                         | (208,535   | )      |                        |   | (1,108,789 | ) |
| Total                                |   | $                            | 14,215,995 |   |                        | $      | 23,941,431 |   |

----

|                                               |   | September 30, 2009 |       |   | December 31, 2008 |   |
|----------------------------------------------------|--------|------------------------------|------------|--------|-----------------------------|--------|
| Tianshi      Engineering                           |   | $                            | 10,543,328 |   |                        | $      | 11,636,208 |   |
| Tianshi      Group                                 |   |                         | 3,086,906  |   |                        |   | 4,018,078 |   |
| Tianshi      Xiangda Logistic Co.,Ltd.             |   |                         | 57,115     |   |                        |   | - |   |
| Tianshi      Yinshi Hotel                          |   |                         | 36,563     |   |                        |   | 36,475 |   |
| Sego      Property service(Tianjin) Co.,Ltd.       |   |                         | 31,972     |   |                        |   | - |   |
| Tianjin      Xingda Travel Co., Ltd.               |   |                         | 20,951     |   |                        |   | 12,932 |   |
| Tianshi      Vietnam Co.,Ltd.                      |   |                         | 17,540     |   |                        |   | - |   |
| Timeshadow      Beauty Club                        |   |                         | 11,187     |   |                        |   | - |   |
| Tianshi      Indonesia Logistic&Trade Co.,Ltd. |   |                         | 9,874      |   |                        |   | - |   |
| Tianjin      Tianshi Life Science Co., Ltd.        |   |                         | 8,199      |   |                        |   | - |   |
| Sego      Hotel management Co.,Ltd.                |   |                         | 2,730      |   |                        |   | - |   |
| Tianshi      Pharmaceuticals                       |   |                         | 2,622      |   |                        |   | 5,922 |   |
| Shengshi      Real Estate Development              |   |                         | 2,158      |   |                        |   | 1,657 |   |
| Beijing      Xingda Travel Co., Ltd.               |   |                         | 1,411      |   |                        |   | 1,195 |   |
| Shanghai      Xiesheng Trade Co.,Ltd.              |   |                         | 1,316      |   |                        |   | - |   |
| Shanghai      Tianshi Jinquan Investment Co.       |   |                         | -          |   |                        |   | 1,846 |   |
| Others                                             |   |                         | -          |   |                        |   | 14,763 |   |
| Total                                              |   | $                            | 13,833,872 |   |                        | $      | 15,729,076 |   |

----

|                                                            |   | September 30, 2009 |    |   | December 31, 2008 |   |
|-----------------------------------------------------------------|--------|------------------------------|---------|--------|-----------------------------|--------|
| Tianshi      Germany Co., Ltd.                                  |   | $                            | 109,168 |   |                        | $      | 105,553 |   |
| Tianyuan      Capital Development Co. Ltd. ("Tianyuan Capital") |   |                         | 84,359  |   |                        |   | 84,359 |   |
| Tianjin      Tianshi Globlal International Trade Co., Ltd.      |   |                         | 23,400  |   |                        |   | 23,344 |   |
| Tianshi      Administrative Committee of Industrial Park        |   |                         | 14      |   |                        |   | 14 |   |
| Tianshi      Investment                                         |   |                         | -       |   |                        |   | 6,080,385 |   |
| Beijing      Xingda Travel Co., Ltd.                            |   |                         | -       |   |                        |   | 80,245 |   |
| Total                                                           |   | $                            | 216,941 |   |                        | $      | 6,373,900 |   |

|                                        |   | September      30,2009 |       |   | December      31, 2008 |   |
|---------------------------------------------|--------|------------------------|------------|--------|------------------------|--------|
| Note      payable to Tianyuan Capital       |   |                   |       |   |                   |   |
| Development      Corp. Ltd., related party  |   | $                      | 3,202,742  |   |                   | $      | 4,267,742 |   |
| Less      current portion of long term debt |   |                   | (2,130,000 | )      |                   |   | (2,130,000 | ) |
| Total                                       |   | $                      | 1,072,742  |   |                   | $      | 2,137,742 |   |

----

| Year Ending               |   |   |      |
|--------------------------------|--------|--------|-----------|
| December 31,              |   | Amount |      |
| 2009      (3 months remaining) |   | $      | 1,065,000 |   |
| 2010                           |   | $      | 2,130,000 |   |
| 2011                           |   | $      | 7,742     |   |

----

|         |   | Three months ended September 30, |      |   | Nine months ended September 30, |   |
|--------------|--------|------------------------------------------------------|-----------|--------|-----------------------------------------------------|--------|
|         |   | 2009                                                 |      |   | 2008                                                |   |   | 2009 |   |   | 2008 |   |
| China        |   | $                                                    | 4,663,939 |   |                                                | $      | 14,576,060 |   |   | $ | 17,076,162 |   |   | $ | 29,191,771 |   |
| Africa       |   |                                                 | 1,823,598 |   |                                                |   | 1,606,877 |   |   |   | 6,259,852 |   |   |   | 3,980,853 |   |
| America      |   |                                                 | 1,700,157 |   |                                                |   | 216,836 |   |   |   | 4,759,820 |   |   |   | 1,067,097 |   |
| Europe-Asia  |   |                                                 | 846,444   |   |                                                |   | 3,352,727 |   |   |   | 7,769,951 |   |   |   | 12,498,302 |   |
| Asia-Pacific |   |                                                 | 372,097   |   |                                                |   | 6,443,353 |   |   |   | 11,069,191 |   |   |   | 11,933,098 |   |
| Europe       |   |                                                 | 33,504    |   |                                                |   | - |   |   |   | 1,293,344 |   |   |   | - |   |
| Total        |   | $                                                    | 9,439,739 |   |                                                | $      | 26,195,853 |   |   | $ | 48,228,320 |   |   | $ | 58,671,121 |   |

|                             |   | Three months ended September 30, |      |   | Nine months ended September 30, |   |
|----------------------------------|--------|------------------------------------------------------|-----------|--------|-----------------------------------------------------|--------|
|                             |   | 2009                                                 |      |   | 2008                                                |   |   | 2009 |   |   | 2008 |   |
| Wellness      products           |   | $                                                    | 8,575,183 |   |                                                | $      | 24,015,547 |   |   | $ | 44,777,793 |   |   | $ | 53,753,513 |   |
| Dietary      supplement products |   |                                                 | 864,556   |   |                                                |   | 2,180,013 |   |   |   | 3,432,422 |   |   |   | 4,879,724 |   |
| Personal      care products      |   |                                                 | -         |   |                                                |   | 293 |   |   |   | 18,105 |   |   |   | 37,884 |   |
| Total                            |   | $                                                    | 9,439,739 |   |                                                | $      | 26,195,853 |   |   | $ | 48,228,320 |   |   | $ | 58,671,121 |   |

----

|   |   | Three months ended September 30,  Nine months ended September 30,         2009  2008  2009  2008 U.S.      Statutory rate          34.0%           34.0%           34.0%            34.0% Foreign      income not recognized  (34.0)   (34.0)   (34.0)   (34.0) China      income taxes  25.0   25.0   25.0   25.0 Effect      of reduced tax rate   (9.0)   -   (20.6)   - Total      provision for income taxes         16.0%           25.0%            4.4%           25.0% Theestimated tax savings due to the reduced tax rate for the nine months endedSeptember 30, 2009 and 2008 amounted to $3,715,841 and $4,983,792, respectively.The net effect on earnings per share if the income tax had been applied woulddecrease earnings per share for the nine months ended September 30, 2009and 2008 by $0.05 and $0.07, respectively. Note 13 – Retirement planRegulationsin the PRC require the Company to contribute to a defined contributionretirement plan for all employees. All Company employees are entitled to aretirement pension amount calculated based upon their salary at their date ofretirement and their length of service in accordance with a government managedpension plan. The PRC government is responsible for the pension liability to theretired staff.TheCompany is required to make contributions to the state retirement plan at 20% ofthe employees’ monthly salaries. Employees are required to contribute 8% oftheir salaries to the plan. Total pension expense incurred by the Companyamounted to $699,755 and $587,156 for the nine months ended September 30, 2009and 2008, respectively, and $248,394 and $207,901 for the three months endedSeptember 30, 2009 and 2008, respectively. TheCompany also has an unemployment insurance plan for its employees. The planrequires each employee to contribute 1% of his or her salary to the plan. TheCompany matches the contributions in an amount equal to two times thecontribution of each participant. The Company made contributions to theunemployment insurance plan of $70,280 and $58,747 for the nine months endedSeptember 30, 2009 and 2008, respectively, and $24,293 and $20,879 for the threemonths ended September 30, 2009 and 2008, respectively. All contributions arepaid to a PRC insurance company, which in turn, is responsible for theunemployment liability. On January 1, 2002, the Company introduced a basicmedical insurance plan for its employees. Pursuant to that medical insuranceplan, the Company is required to pay an amount equal to 10% of its employees’salaries to a PRC insurance company, which amounted to $357,105 and $306,543 forthe nine months ended September 30, 2009 and 2008, respectively, and $125,346and $113,710 for the three months ended September 30, 2009 and 2008,respectively. 24 ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS Of OPERATIONSIn thisQuarterly Report on Form 10-Q, references to “dollars” and “$” are to UnitedStates Dollars and references to “renminbi” or “RMB” are to the People’sRepublic of China Renminbi. References to “we”, “us”, “our”, the “Company” or“Tiens” include Tiens Biotech Group (USA), Inc. and its subsidiaries, exceptwhere the context requires otherwise.FORWARD-LOOKINGSTATEMENTSThefollowing discussion of the financial condition and results of operations shouldbe read in conjunction with the consolidated financial statements and relatednotes thereto. The words or phrases “would be,” “will allow,” “expect to”,“intends to,” “will likely result,” “are expected to,” “will continue,” “isanticipated,” “estimate,” “project,” or similar expressions are intended toidentify “forward-looking statements”. Such statements include those concerningour expected financial performance, our corporate strategy and operationalplans. Actual results could differ materially from those projected in theforward-looking statements as a result of a number of risks and uncertainties,including: (a) those risks and uncertainties related to general economicconditions in China, including regulatory factors that may affect such economicconditions; (b) whether we are able to manage our planned growth efficiently andoperate profitable operations, including whether our management will be able toidentify, hire, train, retain, motivate and manage required personnel or thatmanagement will be able to successfully manage and exploit existing andpotential market opportunities; (c) whether we are able to generate sufficientrevenues or obtain financing to sustain and grow our operations; (d) whether weare able to successfully fulfill our primary requirements for cash which areexplained below under “Liquidity and Capital Resources”; and (e) whether TianshiEngineering, our affiliate who sells our products in China, obtains a directselling license in China. Statements made herein are as of the date of thefiling of this Form 10-Q with the Securities and Exchange Commission and shouldnot be relied upon as of any subsequent date.Unlessotherwise required by applicable law, we do not undertake, and we specificallydisclaim any obligation, to update any forward-looking statements to reflectoccurrences, developments, unanticipated events or circumstances after the dateof such statement.Thefollowing discussion and analysis should be read in conjunction with ourconsolidated financial statements and the related notes thereto and otherfinancial information contained elsewhere in this Form 10-Q.OVERVIEWTiensresearches, develops, manufactures, and markets nutrition supplement products,including wellness products and dietary supplement products. Our operations areconducted from our headquarters in Tianjin, People’s Republic of China (“China”or the “PRC”) through our 80% owned subsidiary, Tianjin Tianshi BiologicalDevelopment Co. Ltd. (“Biological”), and our wholly-owned subsidiary, TianjinTiens Life Resources Co., Ltd. (“Life Resources”). We sell our products toaffiliated companies in China and internationally.Tiens isa Delaware corporation. We own 100% of Tianshi International Holdings GroupLtd., a British Virgin Islands company (“Tianshi  Holdings”). TianshiHoldings owns 80% of Biological and 100% of Life Resources.TianjinTianshi Biological Engineering Co. Ltd. (“Tianshi Engineering”), a Chinesecompany and the entity to which we sell all of our products for consumption inChina, owns the remaining 20% of Biological. Tianshi Engineering is 100% ownedby Tianjin Tianshi Group Co., Ltd. (“Tianshi Group”).  Tianshi Groupis 90% owned by Jinyuan Li, our Chairman, President and CEO, and 10% owned byBaolan Li, Jinyuan Li’s daughter. LifeResources is currently constructing research and development, manufacturing andlogistic facilities, as well as administrative offices in Tianjin, Chinatotaling approximately 420,000 square meters.  We intend to move ourheadquarters to these new facilities once they are completed. 25 RESULTSOF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30 2009 COMPARED TOTHE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008        Three months ended September 30,     Nine months ended September 30,            2009  2008     2009  2008            (Unaudited)  (Unaudited)  Change  (Unaudited)  (Unaudited)  Change REVENUE      - RELATED PARTIES $9,439,739  $26,195,853   -64.0% $48,228,320  $58,671,121   -17.8%                               COST      OF SALES  3,144,650   6,606,502   -52.4%  14,997,118   16,850,267   -11.0%                               GROSS      PROFIT  6,295,089   19,589,351   -67.9%  33,231,202   41,820,854   -20.5%                               SELLING,      GENERAL AND  ADMINISTRATIVE EXPENSES  2,916,202   4,562,946   -36.1%  10,061,729   12,898,742   -22.0%                               INCOME      FROM OPERATIONS  3,378,887   15,026,405   -77.5%  23,169,473   28,922,112   -19.9%                               OTHER      (EXPENSE) INCOME, NET  19,669   (252,501)  -107.8%  26,967   (866,178)  -103.1%                               INCOME      BEFORE PROVISION FOR INCOME TAXES  3,398,556   14,773,904   -77.0%  23,196,440   28,055,934   -17.3%                               PROVISION      FOR INCOME TAXES  544,688   152,990   256.0%  1,027,404   3,297,438   -68.8%                               NET      INCOME  2,853,868   14,620,914   -80.5%  22,169,036   24,758,496   -10.5%                               LESS:      Net income attributable to the noncontrolling interest  (617,638)  (92,326)  569.0%  (1,163,683)  (1,979,405)  -41.2%                               NET      INCOME ATTRIBUTABLE TO TIENS BIOTECH GROUP $2,236,230  $14,528,588   -84.6% $21,005,353  $22,779,091   -7.8%                               WEIGHTED      AVERAGE NUMBER OF SHARES, BASIC AND DILUTED  71,333,586   71,333,586       71,333,586   71,333,586                                    EARNINGS      PER SHARE, BASIC AND DILUTED $0.03  $0.20      $0.29  $0.32     Revenue. For thethird quarter of 2009, revenue was $9.4 million, a decrease of 64.0%compared to $26.2 million for the same period in 2008.  For the ninemonths ended September 30, 2009, revenue was $48.2 million, a decrease of17.8% compared to $58.7 million for the same period in 2008. The decreasein revenue for the first nine months of 2009 was primarily due to adecrease of 41.5% in China sales. The breakdown of revenue between Chinese andinternational sales is as follows:        Three months ended September 30,     Nine months ended September 30,            2009  2008  Change  2009  2008  Change China $4,663,939  $14,576,060   -68.0% $17,076,162  $29,191,771   -41.5%International $4,775,800  $11,619,793   -58.9% $31,152,158  $29,479,350   5.7%Total $9,439,739  $26,195,853   -64.0% $48,228,320  $58,671,121   -17.8%For thethird quarter of 2009, revenue in China was $4.7 million, a decrease of 68.0%compared to $14.6 million for the same period in 2008. During the second quarterof 2009, management believes that domestic distributors stocked up on ourproducts due to our increased marketing efforts. Therefore, their demand for ourproducts decreased in the third quarter of 2009. The revenue in the thirdquarter of 2008 was unseasonably higher due to a future price increaseannouncement by Tianshi Engineering beginning in the fourth quarter of 2008. Forthe nine months ended September 30, 2009, revenue in China was $17.1 million, a41.5% decrease compared to $29.2 million for the same period in 2008. Thedecrease in revenue for the nine months of 2009 was primarily due to the 55.1%decrease in revenue during the first quarter, which management believes was dueto declining customer demand in the first quarter of 2009 after they stocked upon certain products during the third quarter of 2008, and the 68.0% decrease inrevenue during the third quarter of 2009. 26 For thethird quarter of 2009, international revenue was $4.8 million, a decrease of58.9% compared to $11.6 million for the same period in 2008. This decrease ininternational revenue was mainly due to a decrease in sales in the Asia-Pacificregion by $6.1 million and the Europe-Asia region by $2.5 million in the thirdquarter of 2009, as compared to the same period of 2008. Management believes thedecrease in international revenue was primarily due to declining customer demandfor our products as a result of  the global economic crisis, andcustomers having stocked up on certain products during the first two quarters of2009 as a result of anxiety about possible export restrictions in the thirdquarter of 2008. For the nine months ended September 30, 2009, internationalrevenue was $31.2 million, an increase of 5.7% compared to $29.5 million for thesame period in 2008.  This increase in international revenue for thenine months of 2009 was mainly due to the increased international revenue forthe first quarter of 2009. In the first quarter of 2009, our sales ininternational countries improved after China’s Administration of QualitySupervision, Inspection and Quarantine (“AQSIQ”) ceased its export restrictions.. From August 2007 to the end of 2008, the AQSIQ implemented an ongoing nationalcampaign in China against unsafe food and substandard products, which broughton  a general slow-down and backlog of export clearances for Chinesefood products.Cost of sales. Cost of salesfor the third quarter of 2009 decreased to $3.1 million, or by 52.4%, comparedto $6.6 million for the same period in 2008. This decrease was mainly dueto the decrease in revenue for the third quarter of 2009. For the ninemonths ended September 30, 2009, cost of sales was $15.0 million, a decrease of11.0% compared to $16.9 million for the same period in 2008.  Cost ofsales for the period decreased at a slightly lower rate than revenue,primarily due to fixed costs, which do not increase or decrease in line withrevenue changes.Gross profit. Gross profitfor the third quarter of 2009 was $6.3 million, a decrease of 67.9%compared to $19.6 million for the same period in 2008. The gross profit marginfor the third quarter of 2009 was 66.7%, compared to 74.8% for the sameperiod in 2008. For the nine months ended September 30, 2009, gross profitwas $33.2 million, a decrease of 20.5% compared to the same period in 2008, andthe gross profit margin was 68.9% compared to 71.3% for the same period in 2008.These decreases were mainly due to the decrease of revenue and the increase offixed cost as a percentage of revenue.Selling, general andadministrative expenses. Selling, general and administrative expenseswere $2.9 million for the third quarter of 2009, a decrease of 36.1%compared to $4.6 million for the same period in 2008. This decrease wasprimarily due to the decrease in bad debt, transportation expenses, and researchand development expenses. The selling, general and administrative expenses as apercentage of sales was 30.9% for the third quarter of 2009 compared to17.4% for the same period in 2008. This increase was primarily due to thedecrease of 64.0% in revenue for the third quarter of 2009 compared to the sameperiod of 2008. For the nine months ended September 30, 2009, selling,general and administrative expenses were $10.1 million, a decrease of 22.0%compared to $12.9  million in the same period in 2008. For the ninemonths ended September 30, 2009, selling, general and administrative expenses asa percentage of sales was 20.9%, compared to 22.0% for the same period in 2008.This decrease was primarily due to the decrease in selling, general andadministrative expenses for the third quarter of 2009.Other income (expense),net.  Other income was $0.02 million for the third quarterof 2009, compared to $0.25 million of expense for the same period in 2008. Thedifference was primarily due to a $0.14 million donation we made in July2008 towards building a road for a village of Cangzhou City, in theHebei Province of China and the large loss on currency translationfrom the fluctuation of foreign currency translation rate. For the ninemonths ended September 30, 2009, other income was $0.03 million compared to$0.87 million of expense for the same period in 2008. The difference wasprimarily due to the $1.2 million donation we made towards the Sichuanearthquake relief efforts and the $0.14 million donation we made forthe road building for a village of Cangzhou City, in the HebeiProvince of China during the nine months ended September30, 2008.Provision for incometaxes.  Provision for income taxes was $0.54 million for thethird quarter of 2009 compared to $0.15 million for the same period in2008. This increase was mainly due to Biological purchasing semi-finishedproduct from Life Resources for sale to related party customers. Life Resources’income tax rate is 0%, while Biological’s  is15%, Biological recognized a higher income tax on these sales than LifeResources would have, had the products been sold by Life Resources. For thenine months ended September 30, 2009, provision for income taxes was $1.0million compared to $3.3 million for the same period in 2008. Beginning onJanuary 1, 2008, new Enterprise Income Tax (“EIT”) laws became effective andreplaced the previous laws for Foreign Invested Enterprises (“FIEs”). A newstandard EIT rate of 25% will apply to FIEs.  According to the newEIT, high-tech companies could be subject to a special reduced tax rate of 15%.The qualification of a high-tech company is to be reviewedannually.  In November 2008, Biological was qualified as a high-techcompany.  Previously, Biological paid income tax at the rate of25%.  However, Biological was required by the local tax authority toprepay income tax at tax rate of 25% every year, and the prepaid income taxcould be refunded in the next year. In addition, beginning in June 2008, wetransferred production and sale of semi-finished products from Biological toLife Resources. Life Resources is located in Tianjin Wuqing Development Area, anational new technology development zone. Pursuant to the approval of therelevant PRC tax authorities, Life Resources is fully exempt from PRC incometaxes for two years starting from the year profits are first made, followed by a7.5% reduced tax rate for the next three years. 27 Netincome.  As a result of the foregoing factors, net income forthe third quarter of 2009 was $2.9 million, a decrease of 80.5% compared to$14.6 million for the same period in 2008. For the nine months ended September30, 2009, net income was $22.2 million, a decrease of 10.5% compared to $24.8million for the same period in 2008.FinancialCondition, Liquidity and Capital ResourcesGoingforward, our primary requirements for cash consist of:       oconstruction      by Life Resources of new research and development, manufacturing and      logistic facilities, and administrativeoffices;       othe      continued production of existing products and general overhead and      personnel related expenses to support these  activities;       othe      development costs of new products;and       oexpansion      of production scale to meet the demands of our  markets.Weestimate that the completion of the Life Resources project will requireapproximately $220 million, including the $64 million already spent to acquireall of the registered share capital of Life Resources and $68.1 million spent onthe project from January 1, 2008 to September 30, 2009. We intend to constructthe facilities in phases over several years, based on available cash andcapacity needs. Depending on the rate of construction and our cash flow, it islikely that we will require additional financing in the future to complete thelong-term funding requirements of that project. However, we anticipate that ourcurrent operating activities will enable us to meet our anticipated cashrequirements, including the Life Resources project, for the next twelvemonths.We havehistorically met our working capital and capital expenditure requirements,including funding for expansion of operations, through net cash flow provided byoperating activities. Our principal source of liquidity is our operating cashflow.Net cashprovided by operating activities was $32.9 million for the nine monthsended September 30, 2009, compared to net cash provided by operatingactivities of $4.4 million for the same period of 2008. The difference reflectsthe increase in collected account receivable-related parties of $35.7million.As ofSeptember 30, 2009, we had positive working capital of $57.9 million. Cash was$33.5 million as of September 30, 2009, compared to $44.9 million as of December31, 2008.Net cashused in investing activities increased by $14.4 million for the nine monthsended September 30, 2009 compared to the same period of 2008. During the firstthree months of 2008, we received payment on a loan to a related party in theamount of $2.1 million. In addition, we spent $26.9 million on the LifeResources construction project for the nine months ended September 30,2009, an increase of $8.4 million compared to the same period of 2008. Netcash used in financing activities was $3.7 million for the nine monthsended September 30, 2009, compared to net cash provided by financing activitiesof $6.3 million for the same period of 2008. During the second quarterof 2009, we repaid a loan in cash to Tianshi International Investment Group Co.,Ltd. (“Tianshi Investment”), a company wholly-owned by Jinyuan Li, in the amountof $3.9 million. 28 Assetsheld for saleIn April2004, Tianshi Holdings entered into a joint venture contract with TianshiPharmaceuticals to establish Tiens Yihai Co. Ltd., a Chinese-Foreign EquityJoint Venture. Tiens Yihai was 99.4% owned by Tianshi Holdings and 0.6% owned byTianshi Pharmaceuticals. Tiens Yihai is located in Shanghai, China, and wasestablished to build a new research and development facility in Shanghai, China.In March 2007, the Company decided to suspend the proposed development by TiensYihai.  The Company plans to sell all of its equity interest in Tiens Yihaiin 2009.Inanticipation of this sale, the registered capital requirement of Tiens Yihai wasdecreased from $200 million to $29,989,361, equal to its then-current paid inregistered capital. This reduction was approved by the local government onOctober 14, 2008. Pursuant to the change of the registered capital requirementand the capital contributions from both investors, the equity interest held byTianshi Holding was decreased from 99.4% to 96% and the equity interest held byTianshi Pharmaceuticals was increased from 0.6% to 4%. Tianshi Holdings, TianshiPharmaceuticals and Tianjin Tianshi Group Co., Ltd. (“Tianshi Group”) enteredinto a letter of intent on December 31, 2008, pursuant to which TianshiPharmaceuticals agreed to purchase the 96% equity interest in TiensYihai held by Tianshi Holdings with Tianshi Group guaranteeing payment, but thetransaction was abandoned.TheCompany intends to enter a Sale and Purchase Agreement to sell theTiens Yihai interest to Tianshi International, which sale is expected to closein 2009.Since theCompany plans to sell its 96% equity interest in Tiens Yihai, orcauses the assets of Tiens Yihai to be sold, in 2009, the assets andliabilities of Tiens Yihai have been classified as assets held for sale andliabilities directly associated with assets classified as held for sale,respectively. The assets and liabilities of Tiens Yihai as ofSeptember 30, 2009 and December 31, 2008 were as follows:        September 30, 2009  December 31, 2008 Cash $23,984,135  $23,861,938 Other      receivables-third parties  10,044   6,126 Employee      advances  1,609   1,341 Property,      plant, and equipment,net  342,586   548,717 Construction      In progress  2,569,960   2,462,108 Intangible      assets, net  2,561,644   2,596,029 Long-term      prepaid expense  5,353,576   5,290,521 Assets      held for sale $34,823,554  $34,766,780                Accounts      payable  3,320   3,312 Wages      and benefits payable  81,432   88,648 Other      taxes payable  -   2 Other      payables  29,970   29,898 Other      payables - related parties  188   187 Liabilities      directly associted with assets classified as held for sale $ 114,910  $ 122,047 CriticalAccounting PoliciesManagement’sdiscussion and analysis of its financial condition and results of operations arebased upon our consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United States.Our financial statements reflect the selection and application of accountingpolicies, which require management to make significant estimates and judgments.See Note 2 to our consolidated financial statements, “Summary of SignificantAccounting Policies.” Management bases its estimates on historical experienceand on various other assumptions that are believed to be reasonable under thecircumstances. Actual results may differ from these estimates under differentassumptions or conditions. We believe that the following reflect the morecritical accounting policies that currently affect our financial condition andresults of operations. 29 Revenuerecognition.We sellboth semi-finished products and finished products to Tianshi Engineeringdomestically. LifeResources mainly sells semi-finished products, and Biological mainly sellsfinished products. Revenue from the sale of  semi-finished products isrecognized at FOB Tianjin shipping point, when the semi-finished products aresold to Tianshi Engineering.  Revenue from the sale of finishedproducts is recognized only when the related party Chinese distributorrecognizes sales of our products to unaffiliated third parties. Revenues in bothcases are net of value added taxes.Foroverseas sales, we sell mostly finished products. We recognize revenue frominternational sales (outside of China) to affiliated parties, net of value addedtaxes, as goods are shipped and clear review by the customs department of theChinese government.We aregenerally not contractually obligated to accept returns. However, on acase-by-case negotiated basis, we permit customers to return their products. Inaccordance with a pronouncement on what is now codified as FASB ASC Topic605, Revenue Recognition, revenue is recorded net of an allowance for estimatedreturns. Such reserves are based upon management’s evaluation of historicalexperience and estimated costs. The amount of the reserves ultimately requiredcould differ materially in the near term from amounts included in theaccompanying consolidated financial statements.  As we did not receiveany returns of products during the past three years, and management does notanticipate allowing any returns in 2009 related to previous revenues, noallowance for estimated returns has been recorded as of September 30,2009.Baddebts.Our tradeaccounts receivables are mainly due from related companies. We have made fullprovision for accounts receivable-related parties aging over one year based uponthe related parties ability to collect their receivables and a generalallowance for doubtful debts of 0.5% of the remaining accountsreceivable-related parties.  Management reviews its accountsreceivable on a regular basis to determine if the bad debt allowance is adequateat each year-end, paying particular attention to the age of receivableoutstanding.Inventories.Inventoriesare stated at the lower of cost or market, using the moving average basis. Wereview our inventory annually for possible obsolete goods or to determine if anyreserves are necessary for potential obsolescence.RecentAccounting PronouncementsEffectiveJuly 1, 2009, the FASB ASC became the single official source of authoritative,nongovernmental U.S. GAAP. The historical U.S. GAAP hierarchy waseliminated and the ASC became the only level of authoritative U.S. GAAP, otherthan guidance issued by the SEC. The Company’s accounting policies were notaffected by the conversion to ASC. However, references to specificaccounting standards in the notes to our consolidated financial statements havebeen changed to refer to the appropriate section of the ASC.InDecember 2007, the FASB issued a pronouncement on what is now codified as FASBASC Topic 805, Business Combinations. This pronouncement establishes principlesand requirements for how the acquirer recognizes and measures in its financialstatements the identifiable assets, the liabilities and any non-controllinginterest in the acquiree, and the goodwill acquired in a business combination ora gain from a bargain purchase. It also determines what information to disclose.The objective of the pronouncement is to improve the relevance, representationalfaithfulness, and comparability of the information that a reporting entityprovides in its financial reports about a business combination and its effects.This pronouncement became effective in the first quarter of 2009. The Companyadopted it beginning January 1, 2009.InDecember 2007, the FASB issued a pronouncement on what is now codified as FASBASC Topic 805, Business Combinations, and 810, Consolidation. This pronouncementprovides guidance on how to report a non-controlling interest in consolidatedfinancial statements. The objective of the pronouncement is to improve therelevance, comparability, and transparency of the financial information that areporting entity provides in its consolidated financial statements. Thispronouncement became effective in the first quarter of 2009. As a result of theadoption of the pronouncement from January 1, 2009, the Company reclassifiedminority interest of $10.2 million to noncontrolling interest as acomponent of equity on the Company’s Consolidated Balance Sheet for the ninemonths ended September 30, 2009. 30 In March2008, the FASB issued a pronouncement on what is now codified as FASB ASC Topic815, Derivatives and Hedging. This pronouncement requires enhanceddisclosure about an entity’s derivative and hedging activities and therebyimproves the transparency of financial reporting. The objective of thepronouncement is to provide adequate information about how derivative andhedging activities affect an entity’s financial position, financial performance,and cash flows. This pronouncement became effective in the first quarter of2009, and its adoption from January 1, 2009 had no effect on the Company’sconsolidated financial statements.In April2008, the FASB issued a pronouncement on what is now codified as FASB ASC Topic350, Intangibles – Goodwill and Other.  This pronouncement amends thefactors to be considered in determining the useful life of intangible assetsaccounted for pursuant to previous topic guidance. Its intent is to improve theconsistency between the useful life of an intangible asset and the period ofexpected cash flows used to measure its fair value. This prouncement iseffective for financial statements issued for fiscal years beginning afterDecember 15, 2008 and interim periods within those fiscal years, and itsadoption had no effect on the Company’s consolidated financialstatements.In May2008, the FASB issued a pronouncement on what is now codified as FASB ASC Topic460, Guarantee. This pronouncement requires that an insurance enterpriserecognize a claim liability prior to an event of default (insured event) whenthere is evidence that credit deteriorations have occurred in an insuredfinancial obligation. This pronouncement is effective for financial statementsissued for fiscal years beginning after December 15, 2008, and itsadoption had no effect on the Company’s consolidated financialstatements.InOctober 2008, the FASB issued a pronouncement on what is now codified as FASBASC Topic 820,  Fair value when the markets are not active. Thispronouncement amends previous topic guidance to clarify the application of fairvalue in inactive markets and allows for the use of management’s internalassumptions about future cash flows with appropriately risk-adjusted discountrates when relevant observable market data does not exist. The objective of thepronouncement has not changed and continues to be the determination of the pricethat would be received in an orderly transaction that is not a forcedliquidation or distressed sale at the measurement date. The adoption of thepronouncement did not have an effect on the Company’s consolidated financialstatements.In May2009, the FASB issued a pronouncement on what is now codified as FASB ASC Topic855, Subsequent Events. This pronouncement is to establish general standards ofaccounting for and disclosure of events that occur after the balance sheet datebut before financial statements are issued or are available to be issued. Thispronouncement is effective for financial statements issued for interim or annualfinancial periods ending after June 15, 2009. The Company evaluatedsubsequent events  after the balance sheet date of September 30,2009 through the filing of this report with the SEC on November 16,2009. The adoption of the pronouncement had no effect on the Company’sconsolidated financial statements.In June2009, the FASB issued a pronouncement on what is now codified as FASB ASC Topic860-20, Sale of Financial Assets. This pronouncement is to improve therelevance, representational faithfulness, and comparability of the informationthat a reporting entity provides in its financial statements about a transfer offinancial assets; the effects of a transfer on its financial position, financialperformance, and cash flows; and a transferor’s continuing involvement, if any,in transferred financial assets. This pronouncement is effective for financialstatements issued for fiscal years beginning after December 15, 2009 and interimperiods within those fiscal years. The Company is evaluating the impactthat this Statement will have on the Company’s consolidated financialstatements.In June2009, the FASB issued a pronouncement on what is now codified as FASB ASC Topic810, Consolidation of Variable Interest Entities. This pronouncement amendsprevious topic guidance, and changes how a company determines when an entitythat is insufficiently capitalized or is not controlled through voting (orsimilar rights) should be consolidated. The determination whether a company isrequired to consolidate an entity is based on, among other things, an entity’spurpose and design and a company’s ability to direct the activities of theentity that most significantly impact the entity’s economic performance. Thispronouncement is effective for financial statements issued for fiscal yearsbeginning after December 15, 2009 and interim periods within those fiscal years.The Company is evaluating the impact that this pronouncement will have onthe Company’s consolidated financial statements. 31 CERTAINRELATIONSHIPS AND RELATED TRANSACTIONSWe marketall of our products through various domestic and international business entitiesthat are related to us through common ownership. As a result, all of ourconsolidated sales are to related parties.In China,we sell our products to Tianshi Engineering, an affiliated company. TianshiEngineering, in turn, markets and sells the products to customers throughits branches and affiliated companies and at chain stores owned by individualdistributors.We have asales contract with Tianshi Engineering which requires Tianshi Engineering topurchase all of our products to be sold in China. We sell our finished productsto Tianshi Engineering at a price equal to 25% of the Chinese market price forthe products.Internationally,we sell our products directly to overseas affiliates located in 46countries, who in turn re-package the products to meet the needs of the localmarkets and sell to independent distributors or end users of ourproducts. Our CEO, Jinyuan Li, owns or controls these overseas relatedcompanies. Due to the common ownership, there are no formal sales oradministrative agreements among us and those overseas related parties. Thebusiness operations among these related entities are regulated through internalpolicies.Ourrelated party transactions are required to be reviewed and approved or ratifiedby a majority of our non-interested Board of Directors. The following tables areprovided to facilitate your understanding of the transactions and outstandingbalances between those related parties and our company.        Three months ended September 30,  Nine months ended September 30,         2009  2008  2009  2008 Revenue-related      parties $9,439,739  $26,195,853  $48,228,320  $58,671,121         September 30, 2009  December 31, 2008 Accounts      receivable, trade – related parties, net of allowance for doubtful      accounts of $208,535 and $1,108,789 as of September 30, 2009 and December      31, 2008, respectively $14,215,995  $23,941,431 Other      receivables – related parties $13,833,872  $15,729,076 Advances      from customers – related parties $4,056,804  $3,239,650 Other      payables – related parties $216,941  $6,373,900 Current      portion of long-term debt - related party $2,130,000  $2,130,000 Long      term debt – related party $1,072,742  $2,137,742 Revenue- Related PartiesThedetails of revenue-related parties are as follows:        Three months ended September 30,  Nine months ended September 30,         2009  2008  2009  2008 Tianshi      Engineering $4,663,939  $14,576,060  $17,076,162  $29,191,771 Overseas      Related Companies  4,775,800   11,619,793   31,152,158   29,497,350 Total $9,439,739  $26,195,853  $48,228,320  $58,689,121  32 AccountsReceivable, Trade - Related Parties        September 30, 2009  December 31, 2008 Tianshi      Engineering $657,209  $4,362,355 Overseas      Related Companies  13,767,321   20,687,865 Allowance      for Doubtful Accounts  (208,535)  (1,108,789)Total $14,215,995  $23,941,431 Accountsreceivables-related parties decreased from December 31, 2008 as a result of thereceived payment from related parties. OtherReceivables - Related PartiesOtherreceivables - related parties are generated by our making various cash advancesand short term loans, the allocation of various expenses to related parties, andamounts transferred from accounts receivable. The details of otherreceivables-related parties are as follows:        September 30, 2009  December 31, 2008 Tianshi      Engineering $10,543,328  $11,636,208 Tianshi      Group  3,086,906   4,018,078 Tianshi      Xiangda Logistic Co.,Ltd.  57,115   - Tianshi      Yinshi Hotel  36,563   36,475 Sego      Property service(Tianjin) Co.,Ltd.  31,972   - Tianjin      Xingda Travel Co., Ltd.  20,951   12,932 Tianshi      Vietnam Co.,Ltd.  17,540   - Timeshadow      Beauty Club  11,187   - Tianshi      Indonesia Logistic&Trade Co.,Ltd.  9,874   - Tianjin      Tianshi Life Science Co., Ltd.  8,199   - Sego      Hotel management Co.,Ltd.  2,730   - Tianshi      Pharmaceuticals  2,622   5,922 Shengshi      Real Estate Development  2,158   1,657 Beijing      Xingda Travel Co., Ltd.  1,411   1,195 Shanghai      Xiesheng Trade Co.,Ltd.  1,316   - Shanghai      Tianshi Jinquan Investment Co.  -   1,846 Others  -   14,763 Total $13,833,872  $15,729,076 Historically,Tianshi Engineering remitted payment to us upon sales to third party customers.However, to support Tianshi Engineering’s marketing efforts in anticipation ofreceiving a direct selling license in China, we agreed to allow TianshiEngineering to defer payment. Balances not remitted to us within 90 days areconverted to other receivables - related parties. Beginning January 1, 2007, theother receivables - related parties became interest bearing. The stated interestrate is the interest rate for the same level of loan stipulated by the People’sBank of China.On April21, 2009, we entered into a loan agreement with Tianshi Engineering. Pursuant tothat agreement, effective as of April 1, 2009, $2,562,017 of otherreceivables-related parties, which originated from Tianshi Engineering asaccounts receivable, became interest bearing. The loan was due on June 30, 2009and the stated interest rate was 4.86%. Both the principal of $2,562,017 andinterest on the loan of $12,624 were paid off on May 7, 2009.TianshiGroup and our company use common meters at our headquarters for electricity andwater, and also use the same employee insurance account. When making payments tothese outside parties, we usually pay the fees first and then are reimbursed byTianshi Group. These pro-rated amounts relating to Tianshi Group are categorizedas other receivables - related parties. 33 OnDecember 25, 2008, Biological entered into a Real Property Transfer Agreement(the “2008 Transfer Agreement”) with Tianshi Group, pursuant to which Biologicaltransferred four buildings at the price of RMB 32,800,000 (or US $4,797,000).Pursuant to the 2008 Transfer Agreement, Tianshi Group will pay Biological overseveral installments during 2009. For the first quarter of 2009, Tianshi Grouppaid RMB 5,000,000 (or US $731,250).Advancesfrom Customers - Related PartiesAdvancesfrom related party customers were $4.1 million and $3.2 million as of September30, 2009 and December 31, 2008, respectively. These advances representedprepayments made to us to insure that overseas customers could obtain enough ofour products to meet their market demands. OtherPayables - Related PartiesTheseamounts arose primarily from previous cash advances from related parties such asmanagement fees due to related parties and various non-operational transactionsincurred with related parties. The details of other payable-related parties areas follows:        September 30, 2009  December 31, 2008 Tianshi      Germany Co., Ltd. $109,168  $105,553 Tianyuan      Capital Development Co. Ltd. ("Tianyuan Capital")  84,359   84,359 Tianjin      Tianshi Globlal International Trade Co., Ltd.  23,400   23,344 Tianshi      Administrative Committee of Industrial Park  14   14 Tianshi      Investment  -   6,080,385 Beijing      Xingda Travel Co., Ltd.  -   80,245 Total $216,941  $6,373,900 Theseamounts arose primarily from previous cash advances from related parties such asmanagement fees due to related parties and various non-operational transactionsincurred with related parties.OnJanuary 21, 2008, Life Resources and Tianshi Investment entered into a loanagreement, pursuant to which Tianshi Investment agreed to provide a loan to LifeResources of $6.5 million without interest. The loan was originally due on June30, 2008, but subsequently extended, most recently to June 30, 2009 by theparties on December 31, 2008. On June 30, 2009, the loan was paid in full byus.On June5, 2009, Biological, Tianshi Holdings, Tianshi Investment and Tianshi Groupentered into an agreement pursuant to which Biological agreed to pay RMB27,000,000 (or $3.9 million) to Tianshi Group on behalf of TianshiInvestment, Tianshi Investment agreed to cancel a RMB 27,000,000 loan owedby Tianshi Holdings, and Tianshi Holdings agreed to cancel a RMB 27,000,000dividend owed by Biological.LongTerm Debt - Related PartyOnSeptember 10, 2004, Tianshi Holdings entered into a term loan agreement withTianyuan Capital Development Co. Ltd. (“Tianyuan Capital”), pursuant to whichTianyuan Capital agreed to lend $10.65 million (in aggregate principal amount)to Tianshi Holdings, at an interest rate of 5% per year, with interest payableon June 30 and December 31, commencing June 30, 2006. Tianshi Holdings mustrepay the loan in ten consecutive semi-annual installments of $1,065,000 endingJune 30, 2011. Tianshi Holdings used the loan proceeds to fund its capitalcontribution to Tiens Yihai. Mr. Jinyuan Li owns 100% of Tianyuan Capital.Interest of $146,180 and $226,713 accrued for the nine months endedSeptember 30, 2009 and 2008, respectively, andseven installment payments had been made by the end of September 30,2009. 34 OtherTransactions with Tianshi EngineeringOnDecember 31, 2005, Biological entered into four lease agreements with TianshiEngineering, which enabled Tianshi Engineering to share the use of certain ofBiological’s production workshops and equipment to manufacture products whichTianshi Engineering owns, or jointly owns, with Biological, for one yearbeginning January 1, 2006. These four lease agreements were renewed in December2006 for 2007 and on October 31, 2007 for 2008 and 2009. OnDecember 31, 2007, Biological entered into two supplemental agreements, whichadded fourteen pieces of personal care products production equipment to, andremoved two health products production workshops from, two of the leaseagreements Biological entered into on October 31, 2007. Following is a summaryof the monthly rent payable to Biological under the four leases Biologicalentered into on October 31, 2007 (as amended by the two supplemental agreementsentered into on December 31, 2007):Lease Agreement Monthly rent           Lease      Agreement for Health Products Production Equipment $12,252 Lease      Agreement for Health Products Production Workshops $6,326 Lease      Agreement for Personal Care Product Production Equipment $6,014 Lease      Agreement for Personal Care Products Production Workshops $3,086 OnDecember 25, 2008, Biological entered into the 2008 Transfer Agreement withTianshi Group, pursuant to which Biological transferred to Tianshi Group fourbuildings subject to the above described lease agreements. Accordingly, the twoproduction workshop leases expired at the end of 2008.Rentrevenue accrued from these leases amounted to $164,670 and $243,937 for the ninemonths ended September 30, 2009 and 2008, respectively, and $54,905 and $83,008for the three months ended September 30, 2009 and 2008,respectively. InOctober 2005, Biological entered into two agreements with Tianshi Engineeringregarding the joint ownership of certain certificates issued by the PRCgovernment to enable Tianshi Engineering to distribute Biological’s products inChina. Biological and Tianshi Engineering continue to have joint ownership ofthese certificates. OnOctober 26, 2005, Biological entered into an agreement with Tianshi Engineering(the “Wellness Products Agreement”) relating to the joint ownership of theCertificates of Domestic Wellness Product issued by the State Food and DrugAdministration of the PRC (the “SFDA”) covering 18 of Biological’s wellnessproducts (the “Wellness Certificates”) and the relevant production technology.Pursuant to the Wellness Products Agreement, Biological will jointly share theownership of the Wellness Certificates and relevant production technology withTianshi Engineering. Under the agreement, Biological and Tianshi Engineeringboth have the right to use the Wellness Certificates and all technology toproduce, manufacture and sell wellness products pursuant to locallaw. OnOctober 26, 2005, Biological entered into an agreement with Tianshi Engineering(the “Dietary Supplement Products Agreement”) relating to the joint ownership ofthe Certificates of Domestic Dietary Supplement Product covering ten ofBiological’s dietary supplement products (the “Dietary Supplement Certificates”)and the relevant production technology. Pursuant to the Dietary SupplementProducts Agreement, Biological will jointly share the ownership of the DietarySupplement Certificates and relevant production technology with TianshiEngineering. Tianshi Engineering shares ownership of the Dietary SupplementCertificates and relevant production technology with Biological. Under theagreement, Biological and Tianshi Engineering both have the right to use theDietary Supplement Certificates and all technology to produce, manufacture andsell the dietary supplement products pursuant to local law. TianshiEngineering paid Biological the full purchase price for the rights to thecertificates in 2005. The Nutrition Supplements Market Committee of the ChinaHealth Care Association (“CHCA”) assessed the value of the certificates subjectto the agreements. The CHCA is an independent, non-profit organization composedof manufacturing enterprises, research and development institutions in themedical and health industry and entrepreneurs and professionals from relatedfields. 35  On June30, 2009, Tianshi Holdings entered into an agreement with Tianyuan Capital andTianshi Engineering, pursuant to which Tianshi Engineering paid $1,170,817 toTianyuan Capital on behalf of Tianshi Holdings, representing one installment ofa loan that Tianyuan Capital lent to Tianshi Holdings, plus interest on thatloan for the six months ended June 30, 2009. In return, $1,170,817 of the loanthat Tianshi Holdings made to Tianshi Engineering was offset against suchpayment.OtherTransactions with Tianshi GroupOn June30, 2002, we entered into an office and facilities lease agreement with TianshiGroup. Under the terms of the five year agreement, our annual rent is equal to1% of our gross revenues. In addition, we are obligated to pay insurance,maintenance and other expenses related to the premises. This agreement expiredon December 31, 2007 and was renewed, effective as of January 1, 2008, for2008 and again, effective as of January 1, 2009, for 2009. For the nine monthsended September 30, 2009 and 2008, we paid this rent in amounts of $375,931 and$460,895, respectively, and $73,243 and $61,263, for the three months endedSeptember 30, 2009 and 2008, respectively. OnDecember 14, 2007, Biological entered into a Real Property Transfer Agreement(the “2007 Transfer Agreement”) with Tianshi Group. Under the 2007 TransferAgreement, Biological transferred to Tianshi Group title to buildings consistingof approximately 34,000 square meters total of office, workshop, conference andexhibition space, located at our headquarters in Tianjin China for$15,316,496.  Land use rights on the underlying land, which is ownedby the government of China and which rights continue through December 30, 2054with respect to the conference center property and May 31, 2043 with respect theother properties were also transferred.  Biological also assignedcertain contracts with third parties related to the servicing and upkeep of thebuildings transferred (collectively, the “Third Party Contracts”).  Inconsideration for the transfer of the buildings and land-use rights, TianshiGroup paid Biological $15,334,037, plus $3,190,773 to cover pre-paymentspreviously made by Biological under the Third Party Contracts. OnDecember 14, 2007, Biological and Tianshi Group also entered into a LeaseAgreement  (the “2007 Lease Agreement”) pursuant to which Biologicalhas the right to use and occupy the office and workshop spaces transferred underthe 2007 Transfer Agreement. The lease is rent-free, but Biological is requiredto pay Tianshi Group for utility charges and maintenance costs on the buildings.The lease continues until the earlier of the date that we move to the newadministrative facilities being constructed by Life Resources or the land userights on the underlying property expire. OnJanuary 1, 2009, the 2007 Lease Agreement was terminated and each of Biologicaland Life Resources entered into a new Lease Agreement Tianshi Group pursuant towhich Biological and Life Resources have the right to use and occupy theworkshop spaces transferred under the 2007 Transfer Agreement and the 2008Transfer Agreement. The leases are rent-free, except that Biological and LifeResources are required to pay Tianshi Group for utility charges and maintenancecosts on the buildings. The leases continue until the earlier of the date thatBiological and Life Resources acquire use of alternate facilities or the landuse rights on the underlying property expire. Transactionswith Tianshi Investment OnDecember 20, 2007, Tianshi Holding entered into a Sale and Purchase Agreementwith Tianshi Investment, Biological and Tianshi Engineering. Pursuant to theSale and Purchase Agreement, Tianshi Holdings agreed to buy all of theregistered share capital of Life Resources from Tianshi Investment for RMB474,674,415, or $64,247,182. The closing of the transaction was subject togovernment approval of the transfer of Life Resources to TianshiHoldings.  On March 13, 2008, the government approved thetransfer. Pursuantto the Sale and Purchase Agreement, we advanced a deposit of $64,247,182 toTianshi Investment on December 20, 2007. This acquisition deposit was settled asfollows:        ·$28,592,743      was paid by canceling a loan in the principal amount of RMB 200,000,000 to      Tianshi Engineering owned by Biological together with interest      accrued; 36         ·$16,557,914      was paid by canceling of other receivable owned by Tianshi Engineering to      Biological; and        ·$19,096,525      was paid in cash. OnDecember 21, 2007, Tianshi Holdings and Tianshi Investment entered into aCapital Contribution Agreement, pursuant to which Tianshi Investment agreed tofund a capital increase of Life Resources in the amount of $7.5 million. TianshiHoldings agreed to pay back the $7.5 million to Tianshi Investment within fivedays of the date of the government approval of the transfer of the shares ofLife Resources to Tianshi Holdings.   The approval was receivedon March 13, 2008, and the $7.5 million was paid back on March 18, 2008, bycanceling $7.5 million of accounts receivable owed to us by TianshiEngineering. OnJanuary 14, 2008, Tianshi Holdings and Tianshi Investment entered into a LoanAgreement pursuant to which Tianshi Holdings loaned Tianshi Investment $4.1million without interest.  The loan was required to be used by TianshiInvestment to increase the registered share capital of LifeResources.  The loan was due on March 31, 2008, provided however, thatif the government approved the transfer of the shares of Life Resources toTianshi Holdings prior to that date, the loan would be cancelled, as LifeResources would then be a wholly-owned subsidiary of TianshiHoldings.  The approval was received on March 13, 2008, and therefore,the loan was cancelled on the same date. Transactionswith Life Science On August25, 2008, Life Resources and Tianjin Tiens Life Science Co., Ltd (“LifeScience”) entered into a definitive agreement with the Wuqing Branch Bureau ofTianjin Municipal Land and Resources and Administrative Bureau (the “TianjinGovernment”) pursuant to which Life Resources and Life Science will pay theTianjin Government in connection with changes to the zoning on several parcelsof land on which they respectively have land use rights from “industrial” to“educational.” Life Resources had paid a total of RMB 41,022,061 (orapproximately US$6.0 million) in connection with the zoning changes to itsparcels.  Life Science is wholly-owned by Tianshi Group.MANAGEMENTASSUMPTIONSManagementanticipates, based on internal forecasts and assumptions relating to our currentoperations, that existing cash and funds generated from operations will besufficient to meet working capital needs for at least the next 12 months. In theevent that plans change, our assumptions change or prove inaccurate or if othercapital resources and projected cash flow otherwise prove to be insufficient tofund operations (due to unanticipated expense, technical difficulties, orotherwise), we could be required to seek additional financing. There can be noassurance that we will be able to obtain additional financing on termsacceptable to us, or at all.OFF-BALANCESHEET ARRANGEMENTSWe haveno off-balance sheet arrangements.ITEM 3. QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKETRISK Thisinformation has been omitted based on our status as a smaller reportingcompany.ITEM 4T. CONTROLSAND PROCEDURESDisclosureControls and ProceduresUnder thesupervision and with the participation of our management, including ourprincipal executive officer and principal financial officer, we conducted anevaluation of the effectiveness, as of the end of the period covered by thisreport, of the design and operation of our disclosure controls and procedures,as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of1934, as amended (“Exchange Act”).  Based on this evaluation, ourprincipal executive officer and principal financial officer have concluded that,as of such date, our disclosure controls and procedures are effective to ensurethat information required to be disclosed by us in our Exchange Act reports isrecorded, processed, summarized and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms, and that suchinformation is accumulated and communicated to our management, including ourprincipal executive officer and principal financial officer, as appropriate, toallow timely decisions regarding required disclosure. 37 Changesin Internal Control Over Financial ReportingThere hasbeen no change in our internal control over financial reporting during theperiod covered by this report that has materially affected, or is reasonablylikely to materially affect, our internal control over financialreporting.PARTII - OTHER INFORMATIONITEM 6. EXHIBITSExhibit No.       Description                     31.1       Certification      of the Chief Executive Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002.                     31.2       Certification      of the Chief Financial Officer 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 of2002SIGNATURESPursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.Date:      November 13, 2009                            /s/ Jinyuan Li                     Jinyuan      Li       Chief      Executive Officer and President       (Principal      Executive Officer)              Date:      November 13, 2009                            /s/ Manbo He                     Manbo He       Chief      Financial Officer       (Principal      Accounting and FinancialOfficer) 38 EXHIBITINDEXExhibit No.       Description                     31.1       Certification      of the Chief Executive Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002.                     31.2       Certification      of the Chief Financial Officer 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 of2002 39  |
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