**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-Q**




**x** **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES**


**EXCHANGE
      ACT OF 1934**




For
      the
      quarterly period ended March 31, 2008.




**o** **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES**


**EXCHANGE
      ACT OF 1934**




For
      the
      transition period from _____ to_____.




*Commission
      File Number: 1-32477*




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


(Exact
      name of registrant as specified in its charter)





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




No.
      6,
      Yuanquan Rd.


Wuqing
      New Tech Industrial Park


Tianjin,
      China 301700


(Address
      of principal executive offices) (Zip code)




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




Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes x No o





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




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





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


Yes o No x





There
      were 71,333,586 shares of the Company’s common stock outstanding on May 12,
      2008.





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


**INDEX
      TO FORM 10-Q**


PAGE**PART
                  I - FINANCIAL INFORMATION**
              3ITEM
                  1. FINANCIAL STATEMENTS
              3Consolidated
                  Balance Sheets as of March 31, 2008 (Unaudited) and December 31,
                  2007
              3Consolidated
                  Statements of Income and Other Comprehensive Income for the three
                  months
                  ended March 31, 2008 and 2007 (Unaudited)
              4Consolidated
                  Statements of Shareholders’ Equity (Unaudited)
              5Consolidated
                  Statements of Cash Flows for the three months ended March 31, 2008
                  and
                  2007 (Unaudited)
              6Notes
                  to Consolidated Financial Statements (Unaudited)
              7ITEM
                  2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                  Of OPERATIONS
              36ITEM
                  3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
                  RISK
              47ITEM
                  4. CONTROLS AND PROCEDURES
              47**PART
                  II - OTHER INFORMATION**
              47ITEM
                  1A. RISK FACTORS
              47ITEM
                  6. EXHIBITS
              49









PART
      I -
      FINANCIAL INFORMATION





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


TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





CONSOLIDATED
      BALANCE SHEETS


AS
      OF
      MARCH 31, 2008 AND DECEMBER 31, 2007


March
                    31,
                  2008
                  (Unaudited)
                
                December 31,
                  2007
                  As Adjusted (Note 3)ASSETSCURRENT
                    ASSETS:Cash
                
                $
                58,160,829
                
                $
                54,081,848Accounts
                    receivable, trade - related parties, net of allowance for doubtful
                    accounts of $59,412 and $71,700 as of March 31, 2008 and December
                    31,
                    2007, respectively
                
                
                11,822,927
                
                
                14,268,229Accounts
                    receivable, trade - third parties
                
                
                -
                
                
                104,398Inventories
                
                
                6,649,229
                
                
                5,949,963Other
                    receivables
                
                
                851,436
                
                
                1,068,343Other
                    receivables - related parties
                
                
                12,744,336
                
                
                13,887,138Employee
                    advances
                
                
                118,583
                
                
                65,901Prepaid
                    expenses
                
                
                533,330
                
                
                623,638Total
                    current assets
                
                
                90,880,670
                
                
                90,049,458PROPERTY,
                    PLANT AND EQUIPMENT, net
                
                
                16,135,968
                
                
                16,071,900OTHER
                    ASSETS:Construction
                    in progress
                
                
                46,332,756
                
                
                39,792,774Construction
                    deposits
                
                
                1,036,204
                
                
                1,089,216Intangible
                    assets, net
                
                
                9,576,608
                
                
                9,246,879Other
                    assets
                
                
                5,569,703
                
                
                5,301,847Total
                    other assets
                
                
                62,515,271
                
                
                55,430,716Total
                    assets
                
                $
                169,531,909
                
                $
                161,552,074LIABILITIES
                    AND SHAREHOLDERS’ EQUITYCURRENT
                    LIABILITIES:Accounts
                    payable
                
                $
                4,085,944
                
                $
                4,070,906Advances
                    from customers - related parties
                
                
                1,772,749
                
                
                1,700,838Wages
                    and benefits payable
                
                
                1,096,302
                
                
                1,250,685Other
                    taxes payable
                
                
                175,324
                
                
                536,819Income
                    taxes payable
                
                
                1,740,778
                
                
                665,726Contractor
                    deposits
                
                
                329,665
                
                
                595,128Contractor
                    payables
                
                
                8,666,740
                
                
                7,820,285Other
                    payables
                
                
                1,342,448
                
                
                1,133,539Other
                    payables - related parties
                
                
                4,855,515
                
                
                7,938,205Dividend
                    payable to minority interest
                
                
                5,106,666
                
                
                4,902,629Current
                    portion of long term debt, related party
                
                
                2,130,000
                
                
                2,130,000Total
                    current liabilities
                
                
                31,302,131
                
                
                32,744,760NON-CURRENT
                    LIABILITIESLong
                    term debt, net of current portion, related party
                
                
                4,267,742
                
                
                4,267,742Other
                    payables-non current
                
                
                560,526
                
                
                538,130Deferred
                    income
                
                
                5,098,771
                
                
                4,895,049Total
                    non current liabilities
                
                
                9,927,039
                
                
                9,700,921Total
                    liabilities
                
                
                41,229,170
                
                
                42,445,681MINORITY
                    INTEREST
                
                
                7,307,647
                
                
                6,144,063SHAREHOLDERS’
                    EQUITY:Common
                    stock, $0.001 par value, 250,000,000 shares authorized, 71,333,586
                    issued
                    and outstanding, respectively
                
                
                71,334
                
                
                71,334Paid-in-capital
                
                
                8,842,009
                
                
                8,842,009Statutory
                    reserves
                
                
                9,420,783
                
                
                9,420,783Retained
                    earnings
                
                
                82,277,062
                
                
                78,668,160Accumulated
                    other comprehensive income
                
                
                20,383,904
                
                
                15,960,044Total
                    shareholders’ equity
                
                
                120,995,092
                
                
                112,962,330Total
                    liabilities and shareholders’ equity
                
                $
                169,531,909
                
                $
                161,552,074




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


3




TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME


FOR
      THE
      THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (UNAUDITED)





Three
                months ended March 31,20072008
            
            As Adjusted (Note 3)REVENUE
                - RELATED PARTIES
            
            $
            12,820,821
            
            $
            16,236,789COST
                OF SALES - RELATED PARTIES
            
            
            4,040,060
            
            
            4,435,599GROSS
                PROFIT
            
            
            8,780,761
            
            
            11,801,190SELLING,
                GENERAL AND ADMINISTRATIVE EXPENSES
            
            
            3,247,199
            
            
            3,264,907INCOME
                FROM OPERATIONS
            
            
            5,533,562
            
            
            8,536,283(Interest
                expense)
            
            
            (52,584
            )
            
            (105,222
            )Interest
                income
            
            
            237,332
            
            
            629,913Other
                (expense) income, net
            
            
            259,423
            
            
            (74,479
            )OTHER
                (EXPENSE) INCOME, NET
            
            
            444,171
            
            
            450,212INCOME
                BEFORE PROVISION FOR INCOME TAXES AND MINORITY INTEREST
            
            
            5,977,733
            
            
            8,986,495PROVISION
                FOR INCOME TAXES
            
            
            1,480,394
            
            
            711,010INCOME
                BEFORE MINORITY INTEREST
            
            
            4,497,339
            
            
            8,275,485MINORITY
                INTEREST
            
            
            888,437
            
            
            1,753,218NET
                INCOME
            
            
            3,608,902
            
            
            6,522,267OTHER
                COMPREHENSIVE INCOME:Foreign
                currency translation adjustment
            
            
            4,423,860
            
            
            1,389,352COMPREHENSIVE
                INCOME
            
            $
            8,032,762
            
            $
            7,911,619EARNINGS
                PER SHARE, BASIC AND DILUTED
            
            $
            0.05
            
            $
            0.09WEIGHTED
                AVERAGE NUMBER OF SHARES, BASIC AND DILUTED
            
            
            71,333,586
            
            
            71,333,586




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


4




TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS’ EQUITY


Number
                of
                  shares
              
              Common
                stock
              
              Paid-in
                capital
              
              Additional
                paid-in-capital
              
              Statutory
                reserves
              
              Retained
                earnings
              
              Accumulated
                other
                  comprehensive income (loss)
              
              TotalsBALANCE,
                  December 31, 2006
              
              
              71,333,586
              
              $
              71,334
              
              $
              8,842,009
              
              $
              -
              
              $
              9,420,783
              
              $
              95,371,137
              
              $
              5,714,988
              
              
              119,420,251Net
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,561,819
              
              
              
              
              
              6,561,819Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,275,061
              
              
              1,275,061BALANCE,
                  March 31, 2007, unaudited
              
              
              71,333,586
              
              $
              71,334
              
              $
              8,842,009
              
              $
              -
              
              $
              9,420,783
              
              $
              101,932,956
              
              $
              6,990,049
              
              $
              127,257,131Net
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,031,822
              
              
              
              
              
              12,031,822Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              6,990,297
              
              
              6,990,297Additional
                  paid-in-capital
              
              
              
              
              
              
              
              
              
              
              
              69,105
              
              
              
              
              
              
              
              
              
              
              
              69,105BALANCE,
                  December 31, 2007, as previously reported
              
              
              71,333,586
              
              $
              71,334
              
              $
              8,842,009
              
              $
              69,105
              
              $
              9,420,783
              
              $
              113,964,778
              
              $
              13,980,346
              
              $
              146,348,355Add
                  adjustment for the acquisition of Life Resource
              
              
              
              
              
              
              
              
              
              
              
              (69,105
              )
              
              
              
              
              (35,296,618
              )
              
              1,979,698
              
              
              (33,386,025
              )BALANCE,
                  December 31, 2007, as adjusted (Note 3)
              
              
              71,333,586
              
              $
              71,334
              
              $
              8,842,009
              
              $
              -
              
              $
              9,420,783
              
              $
              78,668,160
              
              $
              15,960,044
              
              $
              112,962,330Net
                  Income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              3,608,902
              
              
              
              
              
              3,608,902Foreign
                  currency translation gain
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,423,860
              
              
              4,423,860BALANCE,
                  March 31, 2008, unaudited
              
              
              71,333,586
              
              $
              71,334
              
              $
              8,842,009
              
              $
              -
              
              $
              9,420,783
              
              $
              82,277,062
              
              $
              20,383,904
              
              $
              120,995,092




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


5




TIENS
      BIOTECH GROUP (USA), INC. AND SUBSIDIARIES





CONSOLIDATED
      STATEMENTS OF CASH FLOWS


FOR
      THE
      THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (UNAUDITED)


Three
                  months ended March 31,20072008
              
              As Adjusted (Note 3)CASH
                  FLOWS FROM OPERATING ACTIVITIES:Net
                  income
              
              $
              3,608,902
              
              $
              6,522,267Adjustments
                  to reconcile net income to cash provided by (used in) operating
                  activities:Provision
                  for doubtful accounts
              
              
              (12,288
              )
              
              (2,819
              )Minority
                  interest
              
              
              888,437
              
              
              1,753,218Depreciation
              
              
              683,155
              
              
              700,148Amortization
              
              
              60,894
              
              
              58,597Interest
                  income
              
              
              (53,159
              )
              
              (405,211
              )(Gain)
                  loss on sale of assets
              
              
              (8,431
              )
              
              -(Increase)
                  decrease in assets:Accounts
                  receivable, trade - related parties
              
              
              (3,914,933
              )
              
              (3,633,193
              )Accounts
                  receivable, trade - third parties
              
              
              106,413
              
              
              -Other
                  receivables
              
              
              255,386
              
              
              (16,831
              )Other
                  receivables - related parties
              
              
              (198,638
              )
              
              599,858Inventories
              
              
              (441,968
              )
              
              653,771Employee
                  advances
              
              
              (48,871
              )
              
              18,164Prepaid
                  expense
              
              
              112,341
              
              
              (107,382
              )Increase
                  (decrease) in liabilities:Accounts
                  payable
              
              
              (169,891
              )
              
              (902,938
              )Advances
                  from customers - related parties
              
              
              1,102
              
              
              (43,110
              )Wages
                  and benefits payable
              
              
              (200,580
              )
              
              (11,718
              )Other
                  taxes payable
              
              
              649,299
              
              
              398,094Other
                  payables
              
              
              158,270
              
              
              (152,536
              )Other
                  payables - related parties
              
              
              125,300
              
              
              (297,067
              )Net
                  cash provided by operating activities
              
              
              1,600,740
              
              
              5,131,312CASH
                  FLOWS FROM INVESTING ACTIVITIES:Loan
                  to (from) related parties
              
              
              1,403,831
              
              
              (1,032,080
              )Acquisition
                  of intangible assets
              
              
              -
              
              
              (127,996
              )Construction
                  deposits
              
              
              96,237
              
              
              207,822Contractor
                  deposits
              
              
              (284,016
              )
              
              -Addition
                  to construction in progress
              
              
              (4,257,203
              )
              
              (5,926,815
              )Purchase
                  of equipment and automobiles
              
              
              (123,344
              )
              
              (296,416
              )Net
                  cash used in investing activies
              
              
              (3,164,495
              )
              
              (7,175,485
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Loan
                  from related parties
              
              
              3,489,184
              
              
              374,129Increase
                  in registered share capital
              
              
              -
              
              
              5,500,010Payments
                  to minority interest shareholder
              
              
              -
              
              
              (6,676,102
              )Net
                  cash provided by (used in) financing activities
              
              
              3,489,184
              
              
              (801,963
              )EFFECT
                  OF EXCHANGE RATE CHANGES ON CASH
              
              
              2,153,552
              
              
              509,087INCREASE
                  IN CASH
              
              
              4,078,981
              
              
              (2,337,049
              )CASH,
                  beginning of period
              
              
              54,081,848
              
              
              55,214,540CASH,
                  end of period
              
              $
              58,160,829
              
              $
              52,877,491**Supplemental
                  disclosures of cash flow information**Cash
                  paid during the year for:Income
                  taxes
              
              $
              455,480
              
              $
              700,941




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


6




TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  **Note
        1 - Background**
 
 Tiens
        Biotech Group (USA), Inc. (the "Company" or "Tiens") was incorporated on
        July
        13, 1990 as Super Shops, Inc. in the State of Michigan. In October 2000,
        Super
        Shops, Inc. reincorporated in Delaware and changed its name to MIA Acquisition
        Corp., and subsequently to Strategika, Inc. in February 2002. On December
        31,
        2003, the Company changed its name from Strategika, Inc. to Tiens Biotech
        Group
        (USA), Inc.
 
 The
        Company is currently owned 4.91% by public stockholders, 2.8% by officers
        and
        92.29% by Jinyuan Li, the Company’s current Chairman, CEO and President. The
        Company owns 100% of Tianshi
        International Holdings Group Limited ("Tianshi Holdings") .
        Tianshi
        Holdings owns 80% of Tianjin
        Tianshi Biological Development Co., Ltd. ("Biological"), 99.4% of
        Tiens Yihai Co.
        Ltd.
        ("Tiens Yihai") and 100%
        of Tianjin
        Tiens Life Resources Co., Ltd. (“Life Resources”)
 
 On
        September 9, 2003, the Company received all of the issued and outstanding
        common
        stock of Tianshi Holdings in exchange for the issuance by the Company of
        68,495,000 shares of its common stock to the original stockholders of Tianshi
        Holdings, representing 95% of the issued and outstanding common stock of
        the
        Company at such time, after giving effect to the issuance.
 
 On
        June
        18, 2003, Tianshi Holdings acquired 80% of Biological from Tianshi Hong Kong
        International Development Co., Ltd. ("Tianshi Hong Kong") ,
        which
        was 100% owned by the Company's current Chairman, Chief Executive Officer
        and
        President, Jinyuan Li. At that time, Tianjin Tianshi Biological Engineering
        Co.,
        Ltd. (“Tianshi Engineering”) owned
        the remaining 20% of Biological. In June 2003, Tianshi Engineering transferred
        its 20% interest in Biological for no consideration to Tianjin Tianshi
        Pharmaceuticals Co., Ltd ø ”Tianshi Pharmaceutical s”).
        On
        February 25, 2008, Tianshi Pharmaceuticals transferred its 20% interest in
        Biological to Tianshi Engineering. Tianshi Engineering is 49% owned by Baolan
        Li, the daughter of Jinyuan Li and 51% by Tianjin
        Tianshi Group Co., Ltd. ("Tianshi Group") .
 
 On
        April
        20, 2004, Tianshi Holdings entered a joint venture contract (the "Joint Venture
        Project") with Tianshi Pharmaceuticals to establish Tiens Yihai. Tiens Yihai
        is
        located in Shanghai, the People’s Republic of China (the “PRC”), and was
        established to build a new research facility which would also produce the
        Company’s nutrition supplement, home care, and personal care products. Tianshi
        Holdings contributed 99.4% of the registered capital and owns 99.4% of Tiens
        Yihai, and Tianshi Pharmaceuticals contributed the remaining 0.6% of the
        registered capital and owns 0.6% of Tiens Yihai.
 
 On
        December 20, 2007, Tianshi Holdings entered into a Sale and Purchase Agreement
        with Tianshi International Investment Group Co., Ltd. (“Tianshi Investment”).
        Jinyuan Li owns 100% of Tianshi Investment. Pursuant to the Sale and Purchase
        Agreement, Tianshi Holdings agreed to buy all of the registered share capital
        of
        Life Resources for $64.2 million. The closing of the transaction was subject
        to
        government approval of transfer of all of the share capital of Life Resources
        to
        Tianshi Holdings. On March 13 2008, the Chinese government approved the transfer
        and the Company became the 100% shareholder of Life Resources.
 
 7
  TIENS
            BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Life
        Resources was incorporated on April 29, 2005 as a Foreign Investment Enterprise
        (“FIE”) in Wuqing, Tianjin, PRC, with a registered share capital of $30,000,000.
        The Company is currently constructing research and development and manufacturing
        and logistic facilities, as well as administrative offices. Construction
        on the
        project began in July 2006. On March 13, 2008, the Chinese government approved
        the increase of registered capital of Life Resources from $30,000,000 to
        $50,000,000.
 
 *Nature
        of Operations*
 
 The
        Company through its subsidiaries is primarily engaged in the manufacturing
        of
        nutritional supplement products, including wellness products and dietary
        supplement products. The Company discontinued its personal care products
        during
        2007. In the PRC, the Company sells its products to Tianshi Engineering.
        Tianshi
        Engineering, in turn, sells the products to customers through its branches
        and
        affiliated companies and at chain stores which are owned by individual
        distributors. Outside the PRC, the Company sells its products to overseas
        affiliated companies located in 52 countries, which in turn sell them to
        independent direct sales distributors.
 
 **Note
        2 – Summary of significant accounting policies**
 
 ***Basis
        of presentation***
 
 The
        financial statements of the Company and its subsidiaries are prepared in
        accordance with accounting principles generally accepted in the United States
        of
        America (“U.S. GAAP”). These Consolidated Financial Statements for interim
        periods are unaudited. In the opinion of management, all adjustments, consisting
        only of normal, recurring adjustments, and disclosures necessary for a fair
        presentation of these interim statements have been included. The results
        reported in these Consolidated Financial Statements are not necessarily
        indicative of the results that may be reported for the entire year. The
        accompanying consolidated financial statements have been prepared in accordance
        with the rules and regulations of the Securities and Exchange Commission
        and do
        not include all information and footnotes necessary for a complete presentation
        of financial statements in conformity with U.S. GAAP. These Consolidated
        Financial Statements should be read in conjunction with the Company’s Annual
        Report on Form 10-K for the fiscal year ended December 31, 2007, filed with
        the
        Securities and Exchange Commission on March 31, 2008.
 
 ***The
        reporting entity***
 
 The
        Company’s consolidated financial statements reflect the activities of the
        following Company subsidiaries:
 
 Jurisdiction
                  ofSubsidiary
              
              Formation
              
              %
                  OwnershipTianshi
                  Holding
              
              
              British
                  Virgin Islands
              
              
              100.0
              %Biological
              
              
              P.R.C.
              
              
              80.0
              %Tiens
                  Yihai
              
              
              P.R.C.
              
              
              99.4
              %Life
                  Resources
              
              
              P.R.C.
              
              
              100.0
              %
 
 8
  TIENS
            BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  ***Principles
        of consolidation***
 
 The
        consolidated financial statements include the financial statements of the
        Company and its subsidiaries. All significant inter-company transactions
        and
        balances are eliminated in consolidation.
 
 As
        Tianshi Holdings and Life Resources were under common control before the
        combination was consummated, the combination of Life Resources was treated
        for
        accounting purposes as a pooling of interests.
 
 ***Use
        of estimates***
 
 The
        preparation of financial statements in conformity with U.S. GAAP requires
        management to make estimates and assumptions that affect the amounts reported
        in
        the consolidated financial statements and accompanying notes. Management
        believes that the estimates utilized in preparing its financial statements
        are
        reasonable and prudent. Actual results could differ from these estimates.
  ***Foreign
        currency translation***
 
 The
        reporting currency of the Company is the US dollar. Biological's and Tiens
        Yihai's financial records are maintained and the statutory financial statements
        are stated in its local currency, Renminbi (RMB), as their functional currency.
        Results of operations and cash flows are translated at average exchange rates
        during the period, and assets and liabilities are translated at the unified
        exchange rate as quoted by the People's Bank of China at the end of each
        reporting period. Translation adjustments resulting from this process are
        included in other comprehensive income in the statement of income and other
        comprehensive income.
 
 Translation
        adjustments amounted to $4,423,860 and $1,389,352 for the three months ended March
        31 ,
        2008
        and 2007, respectively. Asset and liability accounts at March
        31 ,
        2008
        were translated at 7.02 RMB to $1.00 USD as compared to 7.31 RMB at December
        31,
        2007. Equity accounts were stated at their historical rate. The average
        translation rates applied to income statement accounts for the three months
        ended March
        31 ,
        2008
        and 2007 were 7.18 RMB and 7.62 RMB, respectively. Cash flows are also
        translated at average translation rates for the period. Therefore, amounts
        reported on the statement of cash flows will not necessarily agree with changes
        in the corresponding balances on the balance sheet.
 
 ***Fair
        value of financial instruments***
 
 The
        Company's financial instruments consist primarily of cash, trade accounts
        receivable, trade payables, advances, other receivables, and debt instruments.
        The carrying amounts of the Company's financial instruments generally
        approximate their fair values at March
        31 ,
        2008
        and December 31, 2007, except for long-term debt, which has a fixed interest
        rate. The fair value of the long-term debt is estimated based on the borrowing
        rates currently available to the Company for bank loans with similar terms
        and
        average maturities. The carrying value and fair value of long-term debt is
        as
        follows:
 
 9
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 March
                    31, 2008
              
              December
                    31, 2007Balance
                      sheet
                    amount
              
              Fair
                    value
              
              Balancesheetamount
              
              Fair
                    valueLong-term
                      debt - related party
              
              $
              (6,397,742
              )
              $
              (6,520,413
              )
              $
              (6,397,742
              )
              $
              (6,443795
              )
  ***Cash***
 
 Cash
        includes cash on hand and demand deposits in accounts maintained with banks
        of
        which no deposits are covered by insurance. The Company has not experienced
        any
        losses in such accounts and believes it is not exposed to any significant
        risks
        on its cash in bank accounts.
 
 ***Accounts
        receivable***
 
 The
        Company's trade accounts receivable are mainly due from related companies.
        The
        Company has a general allowance for doubtful debt of 0.5% of the year end
        balance of accounts receivable-related parties. Management reviews its accounts
        receivable on a regular basis to determine if the bad debt allowance is
        adequate, paying particular attention to the age of receivables outstanding.
        At March
        31 ,
        2008
        and December 31, 2007 receivables outstanding more than 180 days totaled
        $2,302,749 and $2,937,718, respectively. The Company did not incur any losses
        on
        receivables for the periods reported. The following table represents the
        changes
        in the allowance for doubtful accounts:
 
 Balance
                  atBeginning ofPeriod
              
              Provision
                  forDoubtfulAccounts
              
              Recovery
              
              Balance
                  atEnd of PeriodPeriod
                  ended March 31, 2008Reserves
                  and allowances deducted from assets accounts:Allowance
                  for doubtful accounts:
              
              $
              71,700
              
              $
              59,412
              
              $
              71,700
              
              $
              59,412Period
                  ended December 31, 2007Reserves
                  and allowances deducted from assets accounts:Allowance
                  for doubtful accounts:
              
              $
              86,776
              
              $
              71,700
              
              $
              86,776
              
              $
              71,700
 
 ***Inventories***
 
 Inventories
        are stated at the lower of cost or market using the moving average basis.
        The
        Company reviews its inventory annually for possible obsolete goods or to
        determine if any reserves are necessary for potential obsolescence.
 
 10
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  ***Prepaid
        expenses***
 
 Prepaid
        expenses consist of advances to suppliers and short-term prepaid expenses.
        The
        Company reviews its advances to suppliers annually for determining whether
        provisions should be provided. The amount included in prepaid expense is
        net of
        any provisions. Provisions for prepaid expenses amounted to $908,346 and
        $872,053 at March 31, 2007 and December 31, 2007, respectively.
 
 ***Property,
        plant and equipment, net***
 
 Property,
        plant and equipment are stated at cost less accumulated depreciation.
        Depreciation is computed using the straight-line method over the estimated
        useful lives of the assets. Estimated useful lives of the assets are as follows:
 
 Estimated Useful LifeBuildings
                  and improvements
              
              
              20
                  yearsMachinery
                  and equipment
              
              
              10
                  yearsComputer,
                  office equipment and furniture
              
              
              5
                  yearsAutomobiles
              
              
              5
                  years
 
 The
        cost
        and related accumulated depreciation of assets sold or otherwise retired
        are
        eliminated from the accounts and any gain or loss is included in the
        consolidated statements of income and other comprehensive income. Maintenance,
        repairs and minor renewals are charged directly to expenses as incurred.
        Major
        additions and betterment to buildings and equipment are capitalized.
 
 ***Construction
        in progress***
 
 Construction
        in progress represents the costs incurred in connection with the construction
        of
        buildings or new additions to the Company's plant facilities. No depreciation
        is
        provided for construction in progress until such time as the relevant assets
        are
        completed and are ready for their intended use.
 
 ***Construction
        deposits***
 
 Construction
        deposits represent advances paid by the Company to contractors for the
        constructions in progress.
 
 **Intangible
        assets**
  Intangible
        assets mainly consist of land use rights. All the land located in the PRC
        is
        owned by the government and cannot be sold to any individual or company.
        However, the government grants "land use rights" for a specified period of
        time.
        The company amortizes its land use rights according to the actual useful
        life of
        50 years. Other intangible assets include patents and trademarks and are
        amortized over their estimated useful life ranging from five to ten years.
 
 11
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  **Other
        assets**
  Other
        assets mainly consist of a deposit and a related loan made to a local government
        agency for the acquisition of land use rights in Shanghai. Originally, the
        deposit related to the proposed acquisition of land use rights for 80 acres
        of
        land by Tiens Yihai. However, as of March 31, 2008, land use rights for only
        50
        of the 80 acres had been received.
 
 ***Impairment
        of long-lived assets***
 
 Long-lived
        assets, including intangible assets, of the Company are reviewed annually
        as to
        whether their carrying value has become impaired. The Company considers assets
        to be impaired if the carrying value exceeds the future projected cash flows
        from related operations. The Company also re-evaluates the periods of
        depreciation and amortization to determine whether subsequent events and
        circumstances warrant revised estimates of useful lives.
 
 ***Deferred
        income***
 
 Deferred
        income consists of two government grants. On August 2, 2005 and November
        20,
        2006, the Company received two government grants related to land use rights
        at
        an amount of RMB 35,803,461 (or US $4,895,049). The grants are treated as
        deferred income and will be amortized over the life of the buildings on the
        land.
 
 ***Minority
        interest***
 
 Minority
        interest represents the outside shareholder’s 20% ownership of Biological and
        0.6% ownership of Tiens Yihai. The net income shown in Consolidated Statements
        of Cash Flows and Consolidated Statements of Income and Other Comprehensive
        Income is net of minority interest.
 
 ***Revenue
        recognition***
 
 The
        Company sells both semi-finished products and finished products to Tianshi
        Engineering domestically. Revenue from semi-finished products is recognized
        at
        FOB Tianjin shipping point. Revenue from finished products is recognized
        only
        when the related party Chinese distributors recognizes sales of the Company's
        products to unaffiliated third parties. Revenues in both cases are net of
        taxes.
 
 For
        overseas sales, the Company only sells finished products. The Company recognizes
        revenue from international sales (non-Chinese) to both affiliated and
        unaffiliated third parties, net of taxes as goods are shipped and clear review
        by the customs department of the Chinese government.
 
 The
        Company is generally not contractually obligated to accept returns. However,
        on
        a case by case negotiated basis, the Company permits customers to return
        their
        products. In accordance with SFAS No. 48, "Revenue Recognition when the Right
        of
        Return Exists", revenue is recorded net of an allowance for estimated returns.
        Such reserves are based upon management's evaluation of historical experience
        and estimated costs. The amount of the reserves ultimately required could
        differ
        materially in the near term from amounts included in the accompanying
        consolidated financial statements. As the Company did not receive any returns
        of
        products during the past three years, no allowance for estimated returns
        has
        been recorded for the three months ended March 31, 2008 and the year ended
        December 31, 2007.
 
 12
 TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 ***Advertising
        Costs***
 
 The
        Company sells all of its products to related parties, and these related parties
        are primarily responsible for marketing. Advertising costs of the Company
        for
        the three months ended March 31, 2008 and 2007 amounted to $126,640 and $0,
        respectively, and were expensed as incurred.
 
 ***Shipping
        and Handling***
 
 Shipping
        and handling totaled $50,715 and $167,414 for the three months ended March
        31,
        2008 and 2007, respectively. The Company sells products on FOB condition,
        however, it usually prepays shipping and handling expenses to transportation
        companies on behalf of customers and collects these shipping and handling
        expenses when it receives payments from customers. The payments received
        from
        customers were included in revenue and the related shipping and handling
        costs
        were included in selling, general and administrative expenses.
 
 ***Research
        and Development***
 
 Research
        and development expenses include salaries, supplies, and overhead such as
        depreciation, utilities and other costs. These costs are expensed as incurred
        in
        accordance with SFAS No. 2, "Accounting for Research and Development Costs."
        The
        Company expensed research and development costs of $230,610 and $147,531
        for the
        three months ended March
        31 ,
        2008
        and 2007, respectively. These costs are included in selling, general and
        administrative expenses in the accompanying statements.
 
 ***Income
        taxes***
 
 The
        Company has adopted FASB Interpretation No. 48, “Accounting for Uncertainty in
        Income Taxes” (“FIN No.48”). FIN No. 48 clarifies the accounting for uncertainty
        in income taxes recognized in an enterprise’s financial statements in accordance
        with FASB Statement No. 109, “Accounting for Income Taxes.” FIN No. 48
        prescribes a recognition threshold and measurement attribute for the financial
        statement recognition and measurement of a tax position taken or expected
        to be
        taken in a tax return.
 
 According
        to FIN No.48, the evaluation of a tax position is a two-step process. The
        first
        step is recognition: the enterprise determines whether it is more likely
        than
        not that a tax position will be sustained upon examination, including resolution
        of any related appeals or litigation process, based on the technical merits
        of
        the position. The second step is measurement: a tax position that meets the
        more-likely than not recognition threshold is measured to determine the amount
        of benefit to recognize in the financial statement. The tax position is measured
        at the largest amount of benefit that is greater than 50 percent likely of
        being
        realized upon ultimate settlement.
 
 The
        Company has not been subjected to income tax examinations by taxing authorities
        for the three months ended March 31, 2008 and the year ended December 31,
        2007.
        During the three months ended March 31, 2008 and the year ended December
        31,
        2007, the Company did not recognize any amount in interest and penalties.
        The
        Company did not accrue any amount for the payment of interest and penalties
        at
        March 31, 2008 and December 31, 2007, respectively.
 
 13
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  ***Earnings
        per share***
 
 The
        Company has adopted SFAS No. 128, "Earnings per Share". SFAS No. 128 requires
        the presentation of earnings per share (“EPS”) as Basic EPS and Diluted EPS.
        Basic EPS excludes dilution and is computed by dividing net income (loss)
        attributable to common stockholders by the weighted average number of common
        shares outstanding for the period. There are no differences between Basic
        and
        Diluted EPS for the three months ended March 31, 2008 and 2007.
 
 ***Other
        comprehensive income***
 
 Other
        comprehensive income represents foreign currency translation adjustments
        for the
        period. The amounts shown in the Consolidated Statements of Income and Other
        Comprehensive Income and Consolidated Statements of Shareholders’ Equity are net
        of minority interests.
 
 ***Recently
        issued accounting pronouncements***
 
 In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
        157”). SFAS 157 defines fair value, establishes a framework for measuring fair
        value and expands disclosure of fair value measurements. SFAS 157 applies
        under
        other accounting pronouncements that require or permit fair value measurements
        and accordingly, does not require any new fair value measurements. SFAS 157
        is
        effective for financial statements issued for fiscal years beginning after
        November 15, 2007. The adoption of this pronouncement has not had a material
        impact on the Company’s consolidated financial statements.
 
 In
        February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
        Financial Assets and Financial Liabilities - Including an amendment of FASB
        Statement No. 115" (“SFAS 159”). SFAS 159 permits companies to choose to measure
        many financial instruments and certain other items at fair value
        that  are
        not
        currently required to be measured at fair value. The objective of SFAS 159
        is to
        provide opportunities to mitigate volatility in reported earnings caused
        by  measuring
        related assets and liabilities differently, without having to apply hedge
        accounting provisions. SFAS 159 also establishes presentation and
        disclosure  requirements
        designed to facilitate comparisons between companies that choose different
        measurement attributes for similar types of assets and liabilities.
        SFAS  159
        will
        be effective in the first quarter of fiscal 2009. The Company is evaluating
        the
        impact that this statement will have on its consolidated financial  statements.
 
 In
        December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
        Combination" (“SFAS 141R”). SFAS 141R establishes principles and requirements
        for how the acquirer recognizes and measures in its financial statements
        the
        identifiable assets, the liabilities and any non-controlling interest in
        the
        acquiree, and the goodwill acquired in a business combination or a gain from
        a
        bargain purchase. It also determines what information to disclose. The objective
        of SFAS 141R is to improve the relevance, representational faithfulness,
        and
        comparability of the information that a reporting entity provides in its
        financial reports about a business combination and its effects. SFAS  141R
        will
        be effective in the first quarter of fiscal 2009. The Company is evaluating
        the
        impact that this statement will have on its consolidated financial  statements.
 
 14
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  In
        December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in
        Consolidated Financial Statements - An amendment of ARB No. 51" (“SFAS 160”).
        SFAS 160 provides guidance on reporting non-controlling interests in
        consolidated financial statements. The objective of SFAS 160 is to improve
        the
        relevance, comparability, and transparency of the financial information that
        a
        reporting entity provides in its consolidated financial statements.
        SFAS  160
        will
        be effective in the first quarter of fiscal 2009. The Company is evaluating
        the
        impact that this statement will have on its consolidated financial  statements.
 
 In
        March
        2008 the
        FASB
        issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging
        Activities” (“SFAS 161”). SFAS 161 requires an enhanced disclosure about an
        entity’s derivative and hedging activities and thereby improves the transparency
        of financial reporting. The objective of SFAS 161 is to provide adequate
        information about how derivative and hedging activities affect an entity’s
        financial position, financial performance, and cash flows. SFAS 161 will
        be
        effective in the first quarter of fiscal 2009. The Company is evaluating
        the
        impact that this statement will have on its consolidated financial
        statements.
 
 **Note
        3 – Change in reporting entity**
 
 Pursuant
        to a Sale and Purchase Agreement Tianshi Holdings entered with Tianshi
        Investment on December 20, 2007, Tianshi Holdings agreed to buy all of the
        registered share capital of Life Resources for $64.2 million. The closing
        of the
        transaction was subject to government approval of transfer of all of the
        share
        capital of Life Resources to Tianshi Holdings. On March 13, 2008, the Chinese
        government approved the transfer. As Tianshi Holdings and Life Resources
        were
        under common control by Jinyuan Li before the combination, the combination
        was
        treated for accounting purposes as a pooling of interests. The balance sheet
        of
        the Company at December 31, 2007 and comparative interim financial statements
        for the corresponding periods of the preceding fiscal year were adjusted
        as if
        Life Resources had been combined before January 1, 2007. The following are
        the
        unaudited statements of income and other comprehensive income of Life Resources
        for the three months ended March 31, 2008 and 2007, respectively.
  15
  Three months ended March 31,2008
                  
                  2007(Unaudited)
                  
                  (Unaudited)REVENUE
                      - RELATED PARTIES
                  
                  
                  
                  
                  $
                  -
                  
                  $
                  -COST
                      OF SALES
                  
                  
                  
                  
                  
                  -
                  
                  
                  -GROSS
                      PROFIT
                  
                  
                  
                  
                  
                  -
                  
                  
                  -SELLING,
                      GENERAL AND ADMINISTRATIVE EXPENSES
                  
                  
                  
                  
                  
                  72,064
                  
                  
                  42,151LOSS
                      FROM OPERATIONS
                  
                  
                  
                  
                  
                  (72,064
                  )
                  
                  (42,151
                  )Interest
                      income
                  
                  
                  
                  
                  
                  10,818
                  
                  
                  2,693Other
                      (expense )income, net
                  
                  
                  
                  
                  
                  (21,232
                  )
                  
                  (94
                  )OTHER
                      INCOME (EXPENSE), net
                  
                  
                  
                  
                  
                  (10,414
                  )
                  
                  2,599LOSS
                          BEFORE PROVISION FOR INCOME TAXES AND MINORITY
                          INTEREST
                  
                  
                  
                  
                  
                  (82,478
                  )
                  
                  (39,552
                  )PROVISION
                      FOR INCOME TAXES
                  
                  
                  
                  
                  
                  -
                  
                  
                  -NET
                      LOSS
                  
                  
                  
                  
                  
                  (82,478
                  )
                  
                  (39,552
                  )OTHER
                      COMPREHENSIVE INCOME:Foreign
                      currency translation adjustment
                  
                  
                  
                  
                  
                  1,680,941
                  
                  
                  114,291COMPREHENSIVE
                      INCOME
                  
                  
                  
                  
                  $
                  1,598,463
                  
                  $
                  74,739
 
 The
        following financial statement line items for the three months ended March
        31,
        2008 and 2007 were affected by the combination of Life Resources:
  16
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 ***Income
          statement (Unaudited)***
 For three months ended
                March 31, 2008
              
              For three months ended
                March 31, 2007As computed, without Life Resources
              
              As reported, combined with Life Resources
              
              Effect ofChange
              
              As reported, without Life Resources
              
              As adjusted, combined withLife Resources
              
              Effect of
                ChangeREVENUE
                  - RELATED PARTIES
              
              
              12,820,821
              
              
              12,820,821
              
              
              -
              
              
              16,236,789
              
              
              16,236,789
              
              
              -COST
                  OF SALES - RELATED PARTIES
              
              
              4,040,060
              
              
              4,040,060
              
              
              -
              
              
              4,435,599
              
              
              4,435,599
              
              
              -GROSS
                  PROFIT
              
              
              8,780,761
              
              
              8,780,761
              
              
              -
              
              
              11,801,190
              
              
              11,801,190
              
              
              -SELLING,
                  GENERAL AND ADMINISTRATIVE EXPENSES
              
              
              3,175,135
              
              
              3,247,199
              
              
              72,064
              
              
              3,222,756
              
              
              3,264,907
              
              
              42,151INCOME
                  FROM OPERATIONS
              
              
              5,605,626
              
              
              5,533,562
              
              
              (72,064
              )
              
              8,578,434
              
              
              8,536,283
              
              
              (42,151
              )OTHER
                  (EXPENSE) INCOME, NET
              
              
              454,585
              
              
              444,171
              
              
              (10,414
              )
              
              447,613
              
              
              450,212
              
              
              2,599INCOME
                    BEFORE PROVISION FOR INCOME TAXES AND MINORITY
                    INTEREST
              
              
              6,060,211
              
              
              5,977,733
              
              
              (82,478
              )
              
              9,026,047
              
              
              8,986,495
              
              
              (39,552
              )PROVISION
                  FOR INCOME TAXES
              
              
              1,480,394
              
              
              1,480,394
              
              
              -
              
              
              711,010
              
              
              711,010
              
              
              -INCOME
                  BEFORE MINORITY INTEREST
              
              
              4,579,817
              
              
              4,497,339
              
              
              (82,478
              )
              
              8,315,037
              
              
              8,275,485
              
              
              (39,552
              )MINORITY
                  INTEREST
              
              
              888,437
              
              
              888,437
              
              
              -
              
              
              1,753,218
              
              
              1,753,218
              
              
              -NET
                  INCOME
              
              
              3,691,380
              
              
              3,608,902
              
              
              (82,478
              )
              
              6,561,819
              
              
              6,522,267
              
              
              (39,552
              )OTHER
                  COMPREHENSIVE INCOME:Foreign
                  currency translation adjustment
              
              
              2,742,919
              
              
              4,423,860
              
              
              1,680,941
              
              
              1,275,061
              
              
              1,389,352
              
              
              114,291COMPREHENSIVE
                  INCOME
              
              
              6,434,299
              
              
              8,032,762
              
              
              1,598,463
              
              
              7,836,880
              
              
              7,911,619
              
              
              74,739EARNINGS
                  PER SHARE, BASIC AND DILUTED
              
              
              0.05
              
              
              0.05
              
              
              -
              
              
              0.09
              
              
              0.09
              
              
              -WEIGHTED
                  AVERAGE NUMBER OF SHARES
              
              
              71,333,586
              
              
              71,333,586
              
              
              
              
              
              71,333,586
              
              
              71,333,586
  17
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  ***Balance
        sheet (Unaudited)***
 March
        31,
        2008
 
 March
                  31,2008As computed, without LifeResources
              
              As reported,combined with LifeResources
              
              Effect of ChangeASSETSCURRENT
                  ASSETS:Cash
              
              
              
              
              
              47,635,457
              
              
              58,160,829
              
              
              10,525,372Accounts
                  receivable, trade - related parties, net
              
              
              
              
              
              11,822,927
              
              
              11,822,927
              
              
              -Inventories
              
              
              
              
              
              6,649,229
              
              
              6,649,229
              
              
              -Other
                  receivables
              
              
              
              
              
              668,263
              
              
              851,436
              
              
              183,173Other
                  receivables - related parties
              
              
              
              
              
              12,622,135
              
              
              12,744,336
              
              
              122,201Employee
                  advances
              
              
              
              
              
              85,392
              
              
              118,583
              
              
              33,191Prepaid
                  expenses
              
              
              
              
              
              533,330
              
              
              533,330
              
              
              -Total
                  current assets
              
              
              
              
              
              80,016,733
              
              
              90,880,670
              
              
              10,863,937PROPERTY,
                  PLANT AND EQUIPMENT, net
              
              16,099,649
              
              
              16,135,968
              
              
              36,319OTHER
                  ASSETS:Construction
                  in progress
              
              
              
              
              
              2,433,377
              
              
              46,332,756
              
              
              43,899,379Construction
                  deposits
              
              
              
              
              
              -
              
              
              1,036,204
              
              
              1,036,204Intangible
                  assets, net
              
              
              
              
              
              2,692,103
              
              
              9,576,608
              
              
              6,884,505Other
                  assets
              
              
              
              
              
              5,569,703
              
              
              5,569,703
              
              
              -Acquisition
                  deposit
              
              
              
              
              
              76,847,182
              
              
              -
              
              
              (76,847,182
              )Total
                  other assets
              
              
              
              
              
              87,542,365
              
              
              62,515,271
              
              
              (25,027,094
              )Total
                  assets
              
              
              
              
              
              183,658,747
              
              
              169,531,909
              
              
              (14,126,838
              )-LIABILITIES
                  AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              
              
              
              
              4,085,944
              
              
              4,085,944
              
              
              -Advances
                  from customers - related parties
              
              
              
              
              
              1,772,749
              
              
              1,772,749
              
              
              -Wages
                  and benefits payable
              
              
              
              
              
              1,096,302
              
              
              1,096,302
              
              
              -Other
                  taxes payable
              
              
              
              
              
              175,324
              
              
              175,324
              
              
              -Income
                  taxes payable
              
              
              
              
              
              1,740,778
              
              
              1,740,778
              
              
              -Contractor
                  deposits
              
              
              
              
              
              -
              
              
              329,665
              
              
              329,665Contractor
                  payable
              
              
              
              
              
              -
              
              
              8,666,740
              
              
              8,666,740Other
                  payables
              
              
              
              
              
              1,342,448
              
              
              1,342,448
              
              
              -Other
                  payables - related parties
              
              
              
              
              
              1,289,967
              
              
              4,855,515
              
              
              3,565,548Dividend
                  payable to minority interest
              
              
              
              
              
              5,106,666
              
              
              5,106,666
              
              
              -Current
                  portion of long term debt, related party
              
              
              
              
              
              2,130,000
              
              
              2,130,000
              
              
              -Total
                  current liabilities
              
              
              
              
              
              18,740,178
              
              
              31,302,131
              
              
              12,561,953NON-CURRENT
                  LIABILITIESLong
                  term debt, net of current portion, related party
              
              
              
              
              
              4,267,742
              
              
              4,267,742
              
              
              -Other
                  payables-non current
              
              
              
              
              
              560,526
              
              
              560,526
              
              
              -Deferred
                  income
              
              
              
              
              
              -
              
              
              5,098,771
              
              
              5,098,771Total
                  non current liabilities
              
              
              
              
              
              4,828,268
              
              
              9,927,039
              
              
              5,098,771Total
                  liabilities
              
              
              
              
              
              23,568,446
              
              
              41,229,170
              
              
              17,660,724MINORITY
                  INTEREST
              
              7,307,647
              
              
              7,307,647
              
              
              -SHAREHOLDERS'
                  EQUITY:Common
                  stock
              
              
              
              
              
              71,334
              
              
              71,334
              
              
              -Paid-in-capital
              
              
              
              
              
              8,842,009
              
              
              8,842,009
              
              
              -Additional
                  paid-in-capital
              
              
              
              
              
              69,105
              
              
              -
              
              
              (69,105
              )Statutory
                  reserves
              
              
              
              
              
              9,420,783
              
              
              9,420,783
              
              
              -Retained
                  earnings
              
              
              
              
              
              117,656,158
              
              
              82,277,062
              
              
              (35,379,096
              )Accumulated
                  other comprehensive income
              
              
              
              
              
              16,723,265
              
              
              20,383,904
              
              
              3,660,639Total
                  shareholders' equity
              
              
              
              
              
              152,782,654
              
              
              120,995,092
              
              
              (31,787,562
              )Total
                  liabilities and shareholders' equity
              
              
              
              
              
              183,658,747
              
              
              169,531,909
              
              
              (14,126,838
              )
 
 18
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  December
        31, 2007
 
 December 31,2007As reported, withoutLife Resources
              
              As adjusted, combinedwith Life Resources
              
              Effect of ChangeASSETSCURRENT
                  ASSETS:Cash
              
              
              48,678,945
              
              
              54,081,848
              
              
              5,402,903Accounts
                  receivable, trade - related parties, net
              
              
              14,268,229
              
              
              14,268,229
              
              
              -Accounts
                  receivable, trade - third parties
              
              
              104,398
              
              
              104,398
              
              
              -Inventories
              
              
              5,949,963
              
              
              5,949,963
              
              
              -Other
                  receivables
              
              
              892,489
              
              
              1,068,343
              
              
              175,854Other
                  receivables - related parties
              
              
              13,070,907
              
              
              13,887,138
              
              
              816,231Employee
                  advances
              
              
              64,336
              
              
              65,901
              
              
              1,565Prepaid
                  expenses
              
              
              623,638
              
              
              623,638
              
              
              -Total
                  current assets
              
              
              83,652,905
              
              
              90,049,458
              
              
              6,396,553PROPERTY,
                  PLANT AND EQUIPMENT, net
              
              
              16,034,812
              
              
              16,071,900
              
              
              37,088OTHER
                  ASSETS:Construction
                  in progress
              
              
              2,287,807
              
              
              39,792,774
              
              
              37,504,967Construction
                  deposits
              
              
              -
              
              
              1,089,216
              
              
              1,089,216Intangible
                  assets, net
              
              
              2,603,084
              
              
              9,246,879
              
              
              6,643,795Other
                  assets
              
              
              5,301,847
              
              
              5,301,847
              
              
              -Acquisition
                  deposit
              
              
              71,747,182
              
              
              -
              
              
              (71,747,182
              )Total
                  other assets
              
              
              81,939,920
              
              
              55,430,716
              
              
              (26,509,204
              )Total
                  assets
              
              
              181,627,637
              
              
              161,552,074
              
              
              (20,075,563
              )LIABIL
                  ITIES AND SHAREHOLDERS' EQUITYCURRENT
                  LIABILITIES:Accounts
                  payable
              
              
              4,070,906
              
              
              4,070,906
              
              
              -Advances
                  from customers - related parties
              
              
              1,700,838
              
              
              1,700,838
              
              
              -Wages
                  and benefits payable
              
              
              1,250,685
              
              
              1,250,685
              
              
              -Other
                  taxes payable
              
              
              536,819
              
              
              536,819
              
              
              -Income
                  taxes payable
              
              
              665,726
              
              
              665,726
              
              
              -Contractor
                  deposits
              
              
              -
              
              
              595,128
              
              
              595,128Contactor
                  payable
              
              
              -
              
              
              7,820,285
              
              
              7,820,285Other
                  payables
              
              
              1,133,539
              
              
              1,133,539
              
              
              -Other
                  payables - related parties
              
              
              7,938,205
              
              
              7,938,205
              
              
              -Dividend
                  payable to minority interest
              
              
              4,902,629
              
              
              4,902,629
              
              
              -Current
                  portion of long term debt, related party
              
              
              2,130,000
              
              
              2,130,000
              
              
              -Total
                  current liabilities
              
              
              24,329,347
              
              
              32,744,760
              
              
              8,415,413NON-CURRENT
                  LIABILITIESLong
                  term debt, net of current portion, related party
              
              
              4,267,742
              
              
              4,267,742
              
              
              -Other
                  payables-non current
              
              
              538,130
              
              
              538,130
              
              
              -Deferred
                  income
              
              
              -
              
              
              4,895,049
              
              
              4,895,049Total
                  non current liabilities
              
              
              4,805,872
              
              
              9,700,921
              
              
              4,895,049Total
                  liabilities
              
              
              29,135,219
              
              
              42,445,681
              
              
              13,310,462MINORITY
                  INTEREST
              
              
              6,144,063
              
              
              6,144,063
              
              
              -SHAREHOLDERS'
                  EQUITY:Common
                  stock
              
              
              71,334
              
              
              71,334
              
              
              -Paid-in-capital
              
              
              8,842,009
              
              
              8,842,009
              
              
              -Additional
                  paid-in-capital
              
              
              69,105
              
              
              -
              
              
              (69,105
              )Statutory
                  reserves
              
              
              9,420,783
              
              
              9,420,783
              
              
              -Retained
                  earnings
              
              
              113,964,778
              
              
              78,668,160
              
              
              (35,296,618
              )Accumulated
                  other comprehensive income
              
              
              13,980,346
              
              
              15,960,044
              
              
              1,979,698Total
                  shareholders' equity
              
              
              146,348,355
              
              
              112,962,330
              
              
              (33,386,025
              )Total
                  liabilities and shareholders' equity
              
              
              181,627,637
              
              
              161,552,074
              
              
              (20,075,563
              )
 
 19
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  ***Statements
        of cash flows (Unaudited)***
 Three
        months ended March 31, 2008
  For
                      three months ended
                    March 31,2008As computed withoutLife Resources
                  
                  As reportedcombined with LifeResources
                  
                  Effect of ChangeCASH FLOWS FROM OPERATING
                      ACTIVITIES:Net
                      income
                  
                  
                  3,691,380
                  
                  
                  3,608,902
                  
                  
                  (82,478
                  )Adjustments
                      to reconcile net income to cashprovided
                      by (used in) operating activities:
                  
                  
                  (1,323,584
                  )
                  
                  (2,008,162
                  )
                  
                  (684,578
                  )Net
                      cash provided by operating activities
                  
                  
                  2,367,796
                  
                  
                  1,600,740
                  
                  
                  (767,056
                  )CASH
                      FLOWS FROM INVESTING ACTIVITIES:Loan
                      to related parties
                  
                  
                  -
                  
                  
                  1,403,831
                  
                  
                  1,403,831Construction
                      deposits
                  
                  
                  -
                  
                  
                  96,237
                  
                  
                  96,237Contractor
                      deposits
                  
                  
                  -
                  
                  
                  (284,016
                  )
                  
                  (284,016
                  )Acquisition
                      of Life Resources
                  
                  
                  (5,100,000
                  )
                  
                  -
                  
                  
                  5,100,000Addition
                      to construction in progress
                  
                  
                  (37,022
                  )
                  
                  (4,257,203
                  )
                  
                  (4,220,181
                  )Purchase
                      of equipment and automobiles
                  
                  
                  (122,901
                  )
                  
                  (123,344
                  )
                  
                  (443
                  )Net
                      cash used in investing activities
                  
                  
                  (5,259,923
                  )
                  
                  (3,164,495
                  )
                  
                  2,095,428CASH
                      FLOWS FROM FINANCING ACTIVITIES:Loan
                      from related parties
                  
                  
                  -
                  
                  
                  3,489,184
                  
                  
                  3,489,184Net
                      cash used in financing activities
                  
                  
                  -
                  
                  
                  3,489,184
                  
                  
                  3,489,184EFFECT
                      OF EXCHANGE RATE CHANGES ON CASH
                  
                  
                  1,848,639
                  
                  
                  2,153,551
                  
                  
                  304,912INCREASE
                      IN CASH
                  
                  
                  (1,043,488
                  )
                  
                  4,078,980
                  
                  
                  5,122,468CASH,
                      beginning of period
                  
                  
                  48,678,945
                  
                  
                  54,081,848
                  
                  
                  5,402,903CASH,
                      end of period
                  
                  
                  47,635,457
                  
                  
                  58,160,829
                  
                  
                  10,525,372
 20
  TIENS
            BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
            TO
            CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Three
          months ended March 31, 2007
 For three months ended
                March 31,2007As reported,
                without Life
                Resources
              
              As adjusted,combined with LifeResources
              
              Effect of ChangeCASH FLOWS
                  FROM OPERATING ACTIVITIES:Net
                  income
              
              
              6,561,819
              
              
              6,522,267
              
              
              (39,552
              )Adjustments
                  to reconcile net income to cashprovided
                  by (used in) operating activities:
              
              
              (1,369,930
              )
              
              (1,390,955
              )
              
              (21,025
              )Net
                  cash provided by operating activities
              
              
              5,191,889
              
              
              5,131,312
              
              
              (60,577
              )CASH
                  FLOWS FROM INVESTING ACTIVITIES:Loan
                  to related parties
              
              
              -
              
              
              (1,032,080
              )
              
              (1,032,080
              )Acquisition
                  of intangible assets
              
              
              (127,996
              )
              
              (127,996
              )
              
              -Contractor
                  deposits
              
              
              -
              
              
              207,822
              
              
              207,822Addition
                  to construction in progress
              
              
              (1,926,915
              )
              
              (5,926,815
              )
              
              (3,999,900
              )Purchase
                  of equipment and automobiles
              
              
              (296,416
              )
              
              (296,416
              )
              
              -Net
                  cash (used in) investing activities
              
              
              (2,351,327
              )
              
              (7,175,485
              )
              
              (4,824,158
              )CASH
                  FLOWS FROM FINANCING ACTIVITIES:Loan
                  from related parties
              
              
              -
              
              
              374,129
              
              
              374,129Increase
                  in registered share capital
              
              
              -
              
              
              5,500,010
              
              
              5,500,010Payments
                  to minority interest shareholder
              
              
              (6,676,102
              )
              
              (6,676,102
              )
              
              -Net
                  cash used in financing activities
              
              
              (6,676,102
              )
              
              (801,963
              )
              
              5,874,139EFFECT
                  OF EXCHANGE RATE CHANGES ON CASH
              
              
              492,126
              
              
              509,087
              
              
              16,961INCREASE
                  IN CASH
              
              
              (3,343,414
              )
              
              (2,337,049
              )
              
              1,006,365CASH,
                  beginning of period
              
              
              54,270,065
              
              
              55,214,540
              
              
              944,475CASH,
                  end of period
              
              
              50,926,651
              
              
              52,877,491
              
              
              1,950,840
  **Note
        4 – Supplemental disclosure of cash flow information**
 
 Income
        taxes paid for the three months ended March 31, 2008 and 2007 amounted to
        $455,480 and $700,941, respectively.
 
 No
        interest was paid for the three months ended March 31, 2008 or
        2007.
 
 On
        December 21, 2007 the Company, Tianshi Investment and Life Resources entered
        a
        Loan Agreement, pursuant to which Tianshi Investment loaned $7.5 million
        to Life
        Resources, without interest. The Company agreed to repay the $7.5 million
        to
        Tianshi Investment within five days of the date of the government approval
        of
        the transfer of the shares of Life Resources to Tianshi Holdings. On March
        13,
        2008, the Chinese government approved the transfer and the Company repaid
        $7.5
        million to Tianshi Investment on March 18, 2008 by cancelling a corresponding
        part of the accounts receivable due from Tianshi Engineering.
 
 21
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  The
        right
        to offset existed because:
 
 1.
              Tianshi
                  Engineering had a determinable outstanding debt payable to the
                  Company;
 2.
              The
                  Company had a determinable outstanding dividend payable to Tianshi
                  Investment;
 3.
              The
                  Company had the right to offset the two
                  amounts;
 4.
              The
                  Company, Tianshi Investment and Tianshi Engineering agreed to offset
                  the
                  two amounts; and
 5.
              The
                  agreement to offset is enforceable under Chinese contract
                  law.
  **Note
        5 – Inventories**
 
 Inventories
        consist of the following at March 31, 2008 and December 31, 2007:
 
 March
                  31,
              
              December
                  31,2008
              
              2007Raw
                  materials
              
              $
              2,196,621
              
              $
              1,842,760Packing
                  materials
              
              
              1,009,819
              
              
              810,319Miscellaneous
                  supplies
              
              
              235,599
              
              
              217,370Work
                  in process
              
              
              470,509
              
              
              571,173Processing
                  materials
              
              
              0
              
              
              137,188Finished
                  goods
              
              
              2,736,681
              
              
              2,371,153Total
              
              $
              6,649,229
              
              $
              5,949,963
 
 The
        Company has written off obsolete goods in the amounts of $7,351 and $0 for
        the
        three months ended March 31, 2008 and 2007, respectively.
 
 **Note
        6 – Employee advances**
 
 Employee
        advances represent cash advances to various employees of the Company. In
        the
        PRC, a majority of business transactions are completed in cash. These cash
        advances represent monies advanced to certain employees to pay for various
        expenses and purchases related to the Company's daily operations. Employee
        advances amounted to $118,583 and $65,901 at March 31, 2008 and December
        31,
        2007, respectively.
 
 22
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  **Note
        7 – Prepaid expenses**
 
 Prepaid
        expenses consist of advances to suppliers and short-term prepaid expenses.
        The
        details of prepaid expenses at March 31, 2008 and December 31, 2007 are as
        follows:
 
 March
                  31,
              
              December
                  31,2008
              
              2007Advance
                  to suppliers
              
              $
              363,262
              
              $
              622,275Short-term
                  prepaid expenses
              
              
              170,068
              
              
              1,363Total
              
              $
              533,330
              
              $
              623,638
 
 **Note
        8 – Property, plant and equipment, net**
 
 Property,
        plant and equipment consist of the following at March 31, 2008 and December
        31,
        2007:
 
 March
                  31,
              
              December
                  31,2008
              
              2007Buildings
                  and improvements
              
              $
              7,217,767
              
              $
              6,923,475Office
                  equipment
              
              
              429,775
              
              
              405,277Computer
                  equipment and software
              
              
              2,799,685
              
              
              2,678,312Machinery
                  and equipment
              
              
              11,899,769
              
              
              11,333,473Automobiles
              
              
              5,410,001
              
              
              5,188,650Total
              
              
              27,756,997
              
              
              26,529,187Less:
                  accumulated depreciation
              
              
              (11,621,029
              )
              
              (10,457,287
              )Property,
                  plant and equipment, net
              
              $
              16,135,968
              
              $
              16,071,900
 
 Depreciation
        expense for the three months ended March 31, 2008 and 2007 amounted to $683,155
        and $700,148 respectively.
 
 **Note
        9 - Intangible assets**
 
 Intangible
        assets consist of the following at March 31, 2008 and December 31,
        2007:
 
 March
                  31,
              
              December
                  31,2008
              
              2007Land
                  use rights
              
              $
              9,794,020
              
              $
              9,402,699Other
                  intangible assets
              
              
              342,560
              
              
              328,873Less
                  accumulated amortization
              
              
              (559,972
              )
              
              (484,693
              )Intangible
                  assets, net
              
              $
              9,576,608
              
              $
              9,246,879
 
 Amortization
        expense for the three months ended March 31, 2008 and 2007 amounted to $60,894
        and $58,597 respectively. The estimated amortization expense for the next
        five
        years is as follows:
  23
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Estimated amortization expense forthe year ending December 31,
              
              Amount2008
              
              $
              220,4242009
              
              $
              220,0492010
              
              $
              219,6732011
              
              $
              213,3332012
              
              $
              213,333
 
 All
        the
        land located in the PRC is owned by the government and cannot be sold to
        any
        individual or company. However, the government grants "land use rights" for
        a
        specified period of time. The Company’s subsidiary, Tiens Yihai, acquired land
        use rights in Shanghai, PRC for approximately 50 acres for fifty years from
        November 30, 2006 for $2,530,644. The costs are being amortized over fifty
        years
        from December 2006, using the straight-line method. As of March 31, 2008,
        $69,835 was amortized for the land use rights of Tiens Yihai.
 
 **Note
        10 – Related party transactions and balances**
 
 The
        Company mainly conducted related party transactions with Tianshi Group, Tianshi
        Engineering, Tianshi Investment and overseas related companies of Tianshi
        Group.
        Tianshi Group is owned 90% by Jinyuan Li and 10% by his daughter, Baolan
        Li.
        Tianshi Engineering is owned 51% by Tianshi Group and 49% by Baolan Li. Tianshi
        Investment is 100% owned by Jinyuan Li. Jinyuan Li owns or controls the overseas
        related companies of Tianshi Group.
  The
        Company’s related party transactions are required to be reviewed and approved or
        ratified by its Board of Directors. No director that is a related person
        in a
        related party transaction may participate in any discussion, approval or
        ratification of the related party transaction except to provide information
        concerning it. The following tables are provided to facilitate your
        understanding of the transactions and outstanding balances between those
        related
        parties.
  24
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Three months ended March 31, 2008
              
              Three months ended March 31, 2007Revenue-related
                  parties
              
              $
              12,820,821
              
              $
              16,236,789
  March 31, 2008
                
                December 31, 2007Accounts
                    receivable, trade – related parties, net of allowance for doubtful
                    accounts of $59,412 and $71,700 as of March 31, 2008 and December
                    31,
                    2007, respectively
                
                $
                11,822,927
                
                $
                14,268,229Other
                    receivables – related parties
                
                $
                12,744,336
                
                $
                13,887,138Advances
                    from customers – related parties
                
                $
                1,772,749
                
                $
                1,700,838Other
                    payables – related parties
                
                $
                4,855,515
                
                $
                7,938,205Current
                    portion of long-term debt – related party
                
                $
                2,130,000
                
                $
                2,130,000Long
                    term debt – related party
                
                $
                4,267,742
                
                $
                4,267,742
  ***Revenue
        -related parties***
  The
        details of revenue-related parties are as follows:
  Three
                  months ended March 31,2008
              
              2007Tianshi
                  Engineering
              
              $
              6,105,779
              
              $
              7,210,301Overseas
                  Related Companies
              
              
              6,715,042
              
              
              9,026,488Total
              
              $
              12,820,821
              
              $
              16,236,789
  The
        Company markets all of its products through various domestic and international
        business entities that are related to the Company through common ownership.
        As a
        result, all of the Company’s total consolidated sales were to related
        parties.
 
 The
        Company sells products to Tianshi Engineering, a related party through common
        ownership. Tianshi Engineering, in turn, markets and sells the
        products to customers through its branches and affiliated companies and at
        chain
        stores which are owned by individual distributors .
        Tianshi
        Engineering is solely responsible for all marketing and payments of sales
        commissions to independent distributors.
  Internationally,
        the Company sells its products directly to overseas affiliates. These overseas
        related companies market and sell the Company’s products to overseas independent
        distributors or end users of the products. Due to the common ownership, there
        are no formal sales or administrative agreements among Biological and those
        overseas related companies. The business operations among these related entities
        are regulated through internal ordinances.
  25
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  ***Accounts
        receivable, trade - related parties***
  The
        details of accounts receivable, trade - related parties are as
        follows:
  March 31, 2008
              
              December 31, 2007Tianshi
                  Engineering
              
              $
              2,581,256
              
              $
              2,062,333Overseas
                  Related Companies
              
              
              9,301,083
              
              
              12,277,596Allowance
                  for Doubtful Accounts
              
              
              (59,412
              )
              
              (71,700
              )Total
              
              $
              11,822,927
              
              $
              14,268,229
  ***Other
        receivables - related parties***
 
 Other
        receivables - related parties are generated by the Company making various
        cash
        advances and short term loans, the allocation of various expenses to related
        parties, and amounts transferred from accounts receivable. The
        following table summarizes the other receivables - related parties
        balances:
 
 March
                  31,
              
              December
                  31,2008
              
              2007Tianshi
                  Engineering
              
              $
              9,854,549
              
              $
              9,460,811Tianshi
                  Group
              
              
              2,155,741
              
              
              2,347,489Xiongshi
                  Construction
              
              
              712,050
              
              
              2,062,763Beijin
                  Xingda Travel Co., Ltd
              
              
              6,747
              
              
              5,959Tianjin
                  Xingda Travel Co., Ltd
              
              
              6,929
              
              
              1,939Tianshi
                  Pharmaceuticals
              
              
              3,502
              
              
              5,065Shanghai
                  Tianshi Jinquan Investment Co.
              
              
              2,951
              
              
              874Shengshi
                  Real Estate Development
              
              
              1,482
              
              
              2,238Shanghai
                  Gujia
              
              
              385
              
              
              -Total
              
              $
              12,744,336
              
              $
              13,887,138
  Historically,
        Tianshi Engineering remitted payment to the Company upon sales to third party
        customers. However, to support Tianshi Engineering’s marketing efforts in
        anticipation of receiving a direct selling license in China, the Company
        agreed
        to allow Tianshi Engineering to
        defer
        payment to the Company.  The
        credit terms provide an interest-free credit term of three months.  Balances
        not remitted to the Company within 90 days are converted to other receivables
        -
        related parties. Beginning January 1, 2007, the other receivables - related
        parties became interest bearing. The stated interest rate is the interest
        rate
        for the same level of loan stipulated by the People’s Bank of
        China.
 
 26
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  The
        Company and Tianshi Group used common meters at the Company’s headquarters for
        electricity and water, and also used the same employee insurance account.
        When
        making payments to these outside parties, the Company usually pays the fees
        first and then is reimbursed by Tianshi Group. These pro-rated amounts relating
        to Tianshi Group are categorized as other receivables - related parties.
        In
        addition, during 2006 the Company was owed other receivables-related parties
        in
        the amount of RMB 7,560,000 ($1,033,603) from Tianjin Juchao Commercial and
        Trading Co., Ltd (“Juchao”), a related party owned by Jinyuan Li. On March 31,
        2006, Juchao declared termination of its operations, and all of its rights
        and
        liabilities were transferred to Tianshi Group. This amount was also included
        in
        other receivables – related parties.
  ***Advances
        from customers - related parties***
  These
        advances represent prepayments made to the Company to insure that overseas
        related companies could obtain enough of the Company’s products to meet their
        market demands.
  ***Other
        payables - related parties***
  The
        details of other payable-related parties are as follows:
 
 March 31, 2008
              
              December 31, 2007Tianshi
                  Investment
              
              $
              3,565,548
              
              $
              7,490,136Tianshi
                  Group
              
              
              921,775
              
              
              -Tianshi
                  Engineering
              
              
              155,746
              
              
              244,980Tianshi
                  Germany Co., Ltd
              
              
              118,195
              
              
              109,233Tianyuan
                  Capital Development Co. Ltd. ("Capital")
              
              
              84,359
              
              
              84,359Tianshi
                  Pharmaceuticals
              
              
              9,695
              
              
              9,308Tianshi
                  Shanghai Co., Ltd
              
              
              183
              
              
              176Tianshi
                  Administrative Committee of Industrial Park
              
              
              14
              
              
              13Total
              
              $
              4,855,515
              
              $
              7,938,205
  These
        amounts arose primarily from previous cash advances from related parties
        such as
        management fees due to related parties and various non-operational transactions
        incurred with related parties.
 
 On
        December 21, 2007, Tianshi Holdings and Tianshi Investment entered a Capital
        Contribution Agreement, pursuant to which Tianshi Investment agreed to fund
        a
        capital increase of Life Resources in the amount of $7.5 million. Tianshi
        Holdings agreed to repay the $7.5 million to Tianshi Investment within five
        days
        of the date of the government approval of the transfer of the shares of Life
        Resources to Tianshi Holdings. The approval was received on March 13, 2008
        and
        the $7.5 million was repaid on March 18, 2008, by canceling $7.5 million
        of
        accounts receivable owed to the Company by Tianshi Engineering (see
        Note 4).
 
 27
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  On
        January 21, 2008, Life Resources and Tianshi Investment entered into a loan
        agreement, pursuant to which Tianshi Investment agreed to provide a loan
        to Life
        Resources for up to $6.5 million (in aggregate principal amount) without
        interest. The loan is due on June 30, 2008. As of March 31, 2008, $3.5 million
        of the $6.5 million had been loaned to Life Resources.
  ***Long
        term debt - related party***
 
 On
        September 10, 2004, Tianshi Holdings entered into a loan agreement with Tianyuan
        Capital to borrow $10.65 million to fund Tianshi Holdings' contribution due
        to
        Tiens Yihai. Jinyuan Li is a director of Tiens Yihai and a director of Tianyuan
        Capital. Jinyuan Li owns 100% of Tianyuan Capital.
 
 The
        principal of the loan will be paid in ten consecutive semi-annual installments
        of $1,065,000 on the last day of June and December, commencing June 2006
        and
        ending June 31, 2011. The first interest payment was to be paid on December
        31,
        2004 at an annual interest rate of 5%. Four
        installment payments had been made by the end of December, 2007. Interest
        of
        $52,584 for the remaining loan was accrued for the three months ended March
        31,
        2008.
 
 The
        loan
        balance at March 31, 2008 and December 31, 2007 consisted of the following:
 
 March 31, 2008
              
              December 31, 2007Note
                  payable to Tianyuan CapitalDevelopment
                  Corp. Ltd., related party
              
              $
              6,397,742
              
              $
              6,397,742Less
                  current portion of long term debt
              
              
              (2,130,000
              )
              
              (2,130,000
              )Total
              
              $
              4,267,742
              
              $
              4,267,742
 
 Total
        principal payments for the next four years on all long-term debt are as follows:
 
 Year
                  EndingDecember
                  31,
              
              
              Amount2008
              
              $
              2,130,0002009
              
              $
              2,130,0002010
              
              $
              2,130,0002011
              
              $
              7,742
 
 ***Other
        Transactions with Tianshi Engineering***
 
 On
        December 31, 2005, Biological entered into four lease agreements with Tianshi
        Engineering which enabled Tianshi Engineering to share the use of certain
        of
        Biological’s product production workshops and equipment to manufacture products
        which Tianshi Engineering owns, or jointly owns with Biological for one year
        beginning January 1, 2006. These four lease agreements were renewed in December
        2006 for the 2007 fiscal year and October 2007 for the 2008 fiscal year.
        Rent
        revenue accrued from these leases amounted to $79,309 and $93,132 for three
        months ended March 31, 2008 and 2007, respectively.
 
 28
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  ***Other
        Transactions with Tianshi Group***
 
 On
        June
        30, 2002, the Company entered into an office and facilities lease agreement
        with
        Tianshi Group. Under the terms of the five year agreement, the Company’s annual
        rent is equal to 1% of gross revenues. In addition, the Company is obligated
        to
        pay insurance, maintenance and other expenses related to the premises. This
        agreement expired on December 31, 2007.  The
        Company entered into a new one-year lease agreement with Tianshi Group,
        effective January 1, 2008 covering the same facilities and having identical
        rent
        terms. For the three months ended March 31, 2008 and 2007, the Company paid
        this
        rent in the amounts of $188,391 and $166,332, respectively.
 
 ***Other
        Transactions with Tianshi Investments***
 
 On
        December 20, 2007, Tianshi Holding entered into a Sale and Purchase Agreement
        with Tianshi Investment, Biological and Tianshi Engineering. Pursuant to
        the
        Sale and Purchase Agreement, Tianshi Holdings agreed to buy all of the
        registered share capital of Life Resources from Tianshi Investment for RMB
        474,674,415 ($64,247,182). The closing of the transaction was subject to
        government approval of the transfer of Life Resources to Tianshi Holdings.
        On
        March 13, 2008, the government approved the transfer.
  Pursuant
        to the Sale and Purchase Agreement, Tianshi Holdings advanced a deposit of
        $64,247,182 to Tianshi Investment on December 20, 2007. This acquisition
        deposit
        was settled as follows:
 
 •  $28,592,743
        was paid by canceling a loan in the principal amount of RMB200,000,000 to
        Tianshi Engineering owned by Biological together with interest
        accrued;
 •  $16,557,914
        was paid by canceling other payables owed by Tianshi Engineering to Biological;
        and
 •  $19,096,525
        was paid in cash.
 
 On
        January 14, 2008, Tianshi Holdings and Tianshi Investment entered into a
        loan
        agreement pursuant to which Tianshi Holdings loaned Tianshi Investment $4.1
        million without interest. The loan was required to be used by Tianshi Investment
        to increase the registered share capital of Life Resources. The loan was
        due on
        March 31, 2008, provided however, that if the government approved the transfer
        of the shares of Life Resources to Tianshi Holdings prior to that date, the
        loan
        would be cancelled, as Life Resources would then be a wholly-owned subsidiary
        of
        Tianshi Holdings. The approval was received on March 13, 2008, and therefore,
        the loan was cancelled on the same date.
 
 29
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  **Note
        11 – Minority interest and distribution**
 
 The
        roll
        forward of the Minority Interest balance in the balance sheet is shown
        below:
 
 Biological
              
              
              
              Tiens
                  YihaiMinority
              
              
              
              Minority
              
              TotalBiological
              
              Owners
              
              Tiens Yihai
              
              Owners
              
              MinorityUSD
              
              (20%)
              
              USD
              
              (0.60%)
              
              InterestDecember 31, 2006
              
              $
              58,499,962
              
              $
              11,699,992
              
              $
              30,555,046
              
              $
              183,331
              
              $
              11,883,323Net
                  income (loss)
              
              
              24,840,180
              
              
              4,968,036
              
              
              (273,217
              )
              
              (1,639
              )
              
              4,966,397Other
                  comprehensive income
              
              
              2,947,667
              
              
              589,533
              
              
              2,019,326
              
              
              12,116
              
              
              601,649Additional
                  paid-in-capital
              
              
              86,381
              
              
              17,276
              
              
              -
              
              
              -
              
              
              17,276Dividend
                  distribution
              
              
              (56,622,912
              )
              
              (11,324,582
              )
              
              -
              
              
              -
              
              
              (11,324,582
              )December
                  31, 2007
              
              $
              29,751,278
              
              $
              5,950,255
              
              $
              32,301,156
              
              $
              193,808
              
              $
              6,144,063Net
                  income (loss)
              
              
              4,441,182
              
              
              888,236
              
              
              33,457
              
              
              201
              
              
              888,437Other
                  comprehensive income
              
              
              1,335,383
              
              
              267,078
              
              
              1,345,039
              
              
              8,069
              
              
              275,147March
                  31, 2008
              
              $
              35,527,843
              
              $
              7,105,569
              
              $
              33,679,651
              
              $
              202,078
              
              $
              7,307,647
  Dividends
        declared by Biological are split pro rata between the shareholders according
        to
        their ownership interest. The payment of the dividends to the shareholders
        may
        occur at different times, resulting in distributions which do not appear
        to be
        reflective of the minority ownership percentages. The table below shows the
        outstanding dividends payable of Biological, as well as the allocation of
        dividends between Tianshi Holdings and the minority shareholder.
  30
  Tianshi
              
              MinorityDate
              
              Holding
              
              Shareholder
              
              TotalsDividends
                  outstanding, December 31, 2006 Balance
              
              $
              45,978,854
              
              $
              238,311
              
              $
              46,217,165Dividends
                  declared
              
              
              45,298,330
              
              
              11,324,582
              
              
              56,622,912Dividends
                  paid
              
              
              (86,747,565
              )
              
              (6,676,102
              )
              
              (93,423,667
              )Accumulated
                  Other Comprehensive Income
              
              
              3,900,013
              
              
              15,838
              
              
              3,915,851Dividends
                  outstanding, December 31, 2007 Balance
              
              $
              8,429,632
              
              $
              4,902,629
              
              $
              13,332,261Dividends
                  declared
              
              
              -
              
              
              -
              
              
              -Dividends
                  paid
              
              
              -
              
              
              -
              
              
              -Accumulated
                  Other Comprehensive Income
              
              
              350,824
              
              
              204,037
              
              
              554,861Dividends
                  outstanding, March 31, 2008 Balance
              
              $
              8,780,456
              
              $
              5,106,666
              
              $
              13,887,122
  31
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  **Note
        12 – Accumulated other comprehensive income (loss)**
 
 TianshiBiological
              
              Tiens
                    Yihai
              
              Life Resources
              
              Holdings
              
              TotalBalance
                  as of December 31, 2006
              
              $
              2,109,074
              
              $
              1,727,692
              
              $
              -
              
              $
              1,878,222
              
              $
              5,714,988Increase
                  during the year
              
              
              2,358,134
              
              
              2,007,211
              
              
              -
              
              
              3,900,014
              
              
              8,265,359Balance
                  as of December 31, 2007, as previously reported
              
              $
              4,467,207
              
              $
              3,734,903
              
              $
              -
              
              $
              5,778,236
              
              $
              13,980,346Add
                  adjustment for the acquisition of Life Resources
              
              
              -
              
              
              -
              
              
              1,979,698
              
              
              -
              
              
              1,979,698Balance
                  as of December 31, 2007, restated
              
              $
              4,467,207
              
              $
              3,734,903
              
              $
              1,979,698
              
              $
              5,778,236
              
              $
              15,960,044Increase
                  during the year
              
              
              1,068,305
              
              
              1,336,970
              
              
              1,680,941
              
              
              337,644
              
              
              4,423,860Balance
                  as of March 31, 2008
              
              $
              5,535,512
              
              $
              5,071,873
              
              $
              3,660,639
              
              $
              6,115,880
              
              $
              20,383,904
 
 Accumulated
        other comprehensive income recorded in Biological, Tiens Yihai and Life
        Resources are due to foreign currency translation adjustments. Accumulated
        other
        comprehensive income was recorded in Tianshi Holdings due to the effect of
        foreign exchange rate on dividend receivables from Biological.
 
 **Note
        13 – Additional product sales information**
 
 The
        Company has a single operating segment. All of the Company's revenues were
        generated from related parties. Summarized enterprise-wide financial information
        concerning the Company’s revenues based on geographic area and product groups is
        shown in the following tables:
 
 32
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Revenue
        by Geographic Area:
 
 Three
                  months ended March 31,Revenue
              
              
              2008
              
              
              2007China
              
              $
              6,105,779
              
              $
              7,210,301Indonesia
              
              
              2,274,788
              
              
              1,748,417Russia
              
              
              1,946,240
              
              
              1,159,162India
              
              
              959,052
              
              
              35,468Other
                  international countries
              
              
              1,534,962
              
              
              6,083,441Total
              
              $
              12,820,821
              
              $
              16,236,789
 
 Revenue
        by Product Group:
 
 Three
                  months ended March 31,2008
              
              2007Wellness
                  products
              
              $
              11,757,053
              
              $
              14,727,047Dietary
                  supplement products
              
              
              1,029,966
              
              
              1,350,883Personal
                  care products
              
              
              33,802
              
              
              158,860Total
              
              $
              12,820,821
              
              $
              16,236,789
 
 **Note
        14 - Income taxes**
 
 The
        Company is subject to income taxes on an entity basis on income arising in
        or
        derived from the tax jurisdiction in which each entity is domiciled. The
        Company's subsidiary, Tianshi Holdings, was incorporated in the British Virgin
        Islands and is not liable for income taxes.
 
 The
        Company's subsidiaries, Biological, Tiens Yihai and Life Resources, are
        Sino-Foreign Joint Ventures incorporated in the PRC.
 
 Prior
        to
        2008, pursuant to the income tax laws of the PRC concerning Foreign Investment
        Enterprises and Foreign Enterprises and various local income tax laws (the
        "Income Tax Law"), Sino-foreign joint venture enterprises generally were
        subject
        to income tax at an effective rate of 33% (30% state income taxes plus 3%
        local
        income taxes) on income as reported in their statutory financial statements
        unless the enterprise is located in specially-designated regions or cities
        for
        which more favorable effective rates apply.
 
 Biological
        is located in Tianjin Wuqing Development Area, a national new technology
        development zone and is subject to the special reduced income tax rate of
        15%.
        Pursuant to the approval of the relevant PRC tax authorities, Biological
        is
        fully exempt from PRC income taxes for two years starting from the year profits
        are first made, followed by a 7.5% reduced tax rate for the next three years.
 
 33
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  Biological
        started generating taxable profits in the year ended December 31, 2003.
        Effective January 1, 2005, the two-year 100% exemption for income taxes expired
        for Biological and it became subject to income tax at a reduced rate of 7.5%,
        which expired on January 1, 2008.
 
 Tiens
        Yihai is located in a Special Industry Zone and is subject to a special reduced
        income tax rate of 15%. Pursuant to the approval of the relevant local Chinese
        tax authorities, Tiens Yihai is fully exempt from PRC income taxes for two
        years
        starting from the first year profits are made, followed by a 7.5% reduced
        tax
        rate for the next three years. In addition, in order to encourage Tiens Yihai
        to
        do business in the Special Industry Zone, the local Chinese tax authorities
        agreed to refund 50% of the total income tax after the five-year tax break.
        As
        of March 31, 2008, Tiens Yihai was in the developmental stage of its
        organization and did not have any operating income.
 
 Life
        Resources is located in Tianjin Wuqing Development Area, a national new
        technology development zone. Pursuant to the approval of the relevant PRC
        tax
        authorities, Life Resources is fully exempt from PRC income taxes for two
        years
        starting from the year profits are first made, followed by a 7.5% reduced
        tax
        rate for the next three years. As of March 31, 2008, Life Resources was in
        the
        developmental stage and did not have any operating income.
 
 Beginning
        January 1, 2008, the new Enterprise Income Tax (“EIT”) law replaced the existing
        laws for Domestic Enterprises (“DES”) and Foreign Invested Enterprises (“FIEs”).
        The new standard EIT rate of 25% will replace the 33% rate currently applicable
        to both DES and FIEs. According to the new EIT, high-tech companies could
        be
        subject to a special reduced tax rate of 15%. The qualification of a high-tech
        company is to be reviewed annually. Biological currently qualifies as a
        high-tech company. However, as there is no detailed regulation regarding
        the
        implementation of the new EIT, in the first quarter of 2008, Biological was
        required by local tax authority to prepay income tax at a tax rate of 25%.
 
 According
        to the new EIT, Life Resources could still be fully exempt from PRC income
        taxes
        for two years starting from January 1, 2008, followed by a 12.5% reduced
        tax
        rate for the next three years. The Company is currently evaluating the effect
        the new EIT law will have on its financial position.
 
 Provisions
        for income taxes were all current income tax expenses and for the three months
        ended March 31, 2008 and 2007 were $1,480,394 and $711,010, respectively.
 
 The
        following table reconciles the U.S. statutory rates to the Company's effective
        tax rate:
 
 2008
              
              2007U.S.
                  Statutory rate
              
              
              34.0%
              
              
              34.0%Foreign
                  income not recognized in USA
              
              
              (34.0)
              
              
              (34.0)China
                  income taxes
              
              
              25.0
              
              
              33.0Effect
                  of reduced tax rate
              
              
              -
              
              
              (25.5)Total
                  provision for income taxes
              
              
              25.0%
              
              
              7.5
  The
        estimated tax savings due to the reduced tax rate for the three months ended
        March 31, 2008 and 2007 amounted to $0 and $2,417,435 respectively. The net
        effect on earnings per share if the income tax had been applied would decrease
        earnings per share for the three months ended March 31, 2008 and 2007 by
        $0 and
        $0.03, respectively
  34
  TIENS
          BIOTECH GROUP (USA), INC. AND SUBSIDIARIES
 
 NOTES
          TO
          CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  **Note
        15 – Retirement plan**
 
 Regulations
        in the PRC require the Company to contribute to a defined contribution
        retirement plan for all employees. All Biological employees are entitled
        to a
        retirement pension amount calculated based upon their salary at their date
        of
        retirement and their length of service in accordance with a government managed
        pension plan. The PRC government is responsible for the pension liability
        to the
        retired staff.
 
 Biological
        is required to make contributions to the state retirement plan at 20% of
        the
        employees' monthly salary. Employees are required to contribute 8% of their
        salary to the plan. Total pension expense incurred by the Company amounted
        to
        $186,370 and $144,864 for the three months ended March 31, 2008 and 2007,
        respectively.
 
 The
        Company also has an unemployment insurance plan for its employees. The plan
        requires each employee to contribute 1% of his or her salary to the plan.
        The
        Company matches the contributions in an amount equal to two times the
        contribution of each participant. The Company made contributions to the
        unemployment insurance plan of $18,376 and $14,387 for the three months ended
        March 31, 2008 and 2007, respectively. All contributions are paid to a PRC
        insurance company, which in turn, is responsible for the unemployment liability.
        On January 1, 2002, the Company introduced a basic medical insurance plan
        for
        its employees. Pursuant to that medical insurance plan, the Company is required
        to pay an amount equal to 10% of its employees' salary to a PRC insurance
        company, which amounted to $95,110 and $78,809 for the three months ended
        March
        31, 2008 and 2007, respectively.
  35
  **ITEM
        2.**  **MANAGEMENT’S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS Of
        OPERATIONS**




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




**FORWARD-LOOKING
      STATEMENTS:**





The
      following discussion of the financial condition and results of operations should
      be read in conjunction with the consolidated financial statements and related
      notes thereto. The words or phrases “would be,” “will allow,” “expect to”,
“intends to,” “will likely result,” “are expected to,” “will continue,” “is
      anticipated,” “estimate,” “project,” or similar expressions are intended to
      identify “forward-looking statements”. Such statements include those concerning
      our expected financial performance, our corporate strategy and operational
      plans. Actual results could differ materially from those projected in the
      forward-looking statements as a result of a number of risks and uncertainties,
      including: (a) those risks and uncertainties related to general economic
      conditions in China, including regulatory factors that may affect such economic
      conditions; (b) whether we are able to manage our planned growth efficiently
      and
      operate profitable operations, including whether our management will be able
      to
      identify, hire, train, retain, motivate and manage required personnel or that
      management will be able to successfully manage and exploit existing and
      potential market opportunities; (c) whether we are able to generate sufficient
      revenues or obtain financing to sustain and grow our operations; (d) whether
      we
      are able to successfully fulfill our primary requirements for cash which are
      explained below under “Liquidity and Capital Resources”; and (e) whether Tianshi
      Engineering, our affiliate who sells our products in China, obtains a direct
      selling license in China. Statements made herein are as of the date of the
      filing of this Form 10-Q with the Securities and Exchange Commission and should
      not be relied upon as of any subsequent date.





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




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




**OVERVIEW**




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




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




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


36





On
      April
      20, 2004, Tianshi Holdings entered a joint venture contract with Tianshi
      Pharmaceuticals to establish Tiens Yihai. Tiens Yihai is 99.4% owned by Tianshi
      Holdings and 0.6% owned by Tianshi Pharmaceuticals. Tiens Yihai is located
      in
      Shanghai, China, and was established to build a new research and development
      facility, which would also produce certain of our products. In October 2004,
      the
      Company paid a deposit of $3.6 million to Zhu Jia Jiao Industrial Park Economic
      Development Ltd (representative of the local government, “Local Government”) for
      acquiring the land use right of 1,600 mu (263 acres) located in Shanghai.
      However, in 2005, the Chinese central government issued its “Adjustment of
      Macro-Economic Policy”. This policy implemented a new system of investment and
      use of state-owned assets, including land. Pursuant to this policy, local
      government organizations adjusted and re-allotted projects, including
      investment, construction and reconstruction of state-owned resources. As a
      result, projects and enterprises that had been affected, including Tiens Yihai,
      were awaiting further decisions by state and local government.





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





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





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





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


37


**RESULTS
      OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008 COMPARED TO THE THREE
      MONTHS ENDED MARCH 31, 2007**





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





Three months
              ended March 31,2008
              (unaudited)
            
            2007
              As
                adjusted
            
            Change**Income
                Statement Data**Revenue-related
                parties
            
            $
            12,820,821
            
            $
            16,236,789
            
            
            -21.0%Cost
                of sales-related parties
            
            
            4,040,060
            
            
            4,435,599
            
            
            -8.9%Gross
                profit
            
            
            8,780,761
            
            
            11,801,190
            
            
            -25.6%Selling,
                general and administrative expense
            
            
            3,247,199
            
            
            3,264,907
            
            
            -0.5%Income
                from operations
            
            
            5,533,562
            
            
            8,536,283
            
            
            -35.2%Other
                income, net
            
            
            444,171
            
            
            450,212
            
            
            -1.3%Income
                before provision for income taxes and minority interest
            
            
            5,977,733
            
            
            8,986,495
            
            
            -33.5%Provision
                for income taxes
            
            
            1,480,394
            
            
            711,010
            
            
            108.2%Income
                before minority interest
            
            
            4,497,339
            
            
            8,275,485
            
            
            -45.7%Minority
                interest
            
            
            888,437
            
            
            1,753,218
            
            
            -49.3%Net
                income
            
            $
            3,608,902
            
            $
            6,522,267
            
            
            -44.7%Other
                comprehensive income foreign currency translation adjustment
            
            $
            4,423,860
            
            $
            1,389,352
            
            
            218.4%Comprehensive
                income
            
            $
            8,032,762
            
            $
            7,911,619
            
            
            1.5%Weighted
                average number of shares outstanding, basic and diluted
            
            
            71,333,586
            
            
            71,333,586Earnings
                per share, basic and diluted
            
            $
            0.05
            
            $
            0.09





38





Revenue .
      For the
      first quarter of 2008, revenue was $12.8 million, a decrease of 21.0%, compared
      to $16.2 million for the same period in 2007. The breakdown of revenue between
      Chinese and international sales is as follows.





Three months
              ended March 31,2008
            
            2007
            
            ChangeChina
            
            $
            6,105,779
            
            $
            7,210,301
            
            
            -15.3%International
            
            $
            6,715,042
            
            $
            9,026,488
            
            
            -25.6%Total
            
            $
            12,820,821
            
            $
            16,236,789
            
            
            -21.0%




For
      the
      first quarter of 2008, revenue in China was $6.1 million, a decrease of 15.3%
      compared to $7.2 million for the same period in 2007. We believe that sales to
      China were negatively impacted by continued uncertainty in China regarding
      the
      impact of recently enacted direct selling regulations and uncertainty regarding
      the timing of the direct selling license application process and approval.
      The
      application of Tianshi Engineering for a direct selling license in China is
      still pending.




For
      the
      first quarter of 2008, international revenues were $6.7 million, a decrease
      of
      25.6% compared to $9.0 million for the same period in 2007. In August of 2007,
      China’s Administration of Quality Supervision, Inspection and Quarantine
      (“AQSIQ”) announced an ongoing national campaign in China against unsafe food
      and substandard products. The special campaign against poor product quality
      was
      launched in response to a series of safety scares involving Chinese products
      worldwide. The campaign set 20 detailed goals, including twelve "100 percents".
      For example, 100 percent of food producers should be licensed; 100 percent
      of
      agricultural wholesale markets in cities must be monitored; 100 percent of
      suppliers of raw materials for exported products should be inspected; and 100
      percent of agricultural products must be free of five types of strong
      pesticides. The campaign, which was originally scheduled to finish at the end
      of
      2007, is currently scheduled to continue throughout 2008.





As
      a
      result of this campaign by the AQSIQ, there has been a general slow-down and
      backlog of export clearances for Chinese food products, and we have experienced
      significant delays in obtaining export clearance for all of the products which
      we sell to our international affiliates. However, to date, there have not been
      any specific problems identified with our products. We believe that these delays
      have resulted in our international affiliates not being able to purchase
      sufficient quantities of our products to meet their demand and a corresponding
      sharp decrease in our international revenue. Continued delays in the export
      clearance for our products may continue to negatively affect our international
      revenue. Currently we are not able to provide an estimate as to the timing
      for
      the clearance of our products for export.





Cost
      of Sales .
      Cost of
      sales for the first quarter of 2008 decreased to $4.0 million, or by 8.9%,
      compared to $4.4 million for the same period in 2007. This decrease was
      primarily due to the decrease in revenue. The decrease in cost of sales was
      not
      in line with the decrease in revenue due to increases in the cost of our raw
      materials, and a strong remenbi compared to the dollar.




Gross
      Profit .
      Gross
      profit for the first quarter of 2008 was $8.8 million, a decrease of 25.6%
      compared to $11.8 million for the same period in 2007. The gross profit margin
      for the first quarter of 2008 was 68.5%, compared to 72.7% for the same period
      in 2007. This decrease reflects the increase in the cost of our raw materials
      while the price at which we sell our products has remained
      constant.




Selling,
      general and administrative expenses .
      Selling, general and administrative expenses were $3.2 million for the first
      quarter of 2008 and 2007. The selling and administrative expenses as a
      percentage of sales was 25.3% for the first quarter of 2008 compared to 20.1%
      for the same period in 2007. This increase is due to the fixed costs associated
      with selling, general and administrative expenses and the decline in
      revenue.


39




Other
      income, net .
      Other
      income, net was $0.4 million of income for the first quarter of 2008, compared
      to $0.5 million of income for the same period in 2007. There was a decrease
      in
      interest income because Tianshi Engineering paid off its $25.9 million loan
      from
      Biological in December of 2007, and an increase in other income due to the
      effect of the strength of the Remenbi in translating a dividend received by
      Tianshi Holdings.





Provision
      for income taxes .
      Provision for income taxes was $1.5 million for the first quarter of 2008
      compared to $0.7 million for the same period in 2007. From January 1, 2005
      through December 31, 2007, Biological was subject to income tax at a reduced
      rate of 7.5%. Beginning on January 1, 2008, the new Enterprise Income Tax
      (“EIT”) law replaced the previous laws for Foreign Invested Enterprises
      (“FIEs”). A new standard EIT rate of 25% will apply to FIEs. According to the
      new EIT, high-tech companies could be subject to a special reduced tax rate
      of
      15%. The qualification of a high-tech company is to be reviewed annually.
      Biological currently qualifies as a high-tech company. However, as there are
      not
      yet any detailed regulations regarding the implementation of the new EIT, in
      the
      first quarter of 2008, Biological was required by the local tax authority to
      prepay income tax at a tax rate of 25%.





Net
      income .
      As a
      result of the foregoing factors, net income for the first quarter of 2008 was
      $3.6 million, a decrease of 44.7% compared to $6.5 million for the same period
      in 2007.





Other
      comprehensive income .
      Other
      comprehensive income increased to $4.4 million for the first quarter of 2008,
      compared to $1.4 million for the same period in 2007. Other comprehensive income
      represents foreign currency translation adjustments for the year. Accumulated
      other comprehensive income was recorded in Biological, Tiens Yihai and Life
      Resources due to balance sheet translations. Accumulated other comprehensive
      income was recorded in Tianshi Holdings due to the effect of foreign exchange
      rate on dividend receivables from Biological. The amounts shown in the Income
      Statement are net of minority interests. The sharp increase in other
      comprehensive income was due to the increase in the value of the remenbi against
      the dollar from RMB7.72 to $1 at March 31, 2007 to RMB7.02 to $1 at March 31,
      2008.





**Financial
      Condition, Liquidity and Capital Resources**





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





Net
      cash
      provided by operating activities was $1.6 million for the first quarter of
      2008,
      compared to $5.1 million for the first quarter of 2007. The decrease primarily
      reflects a decrease in net income of $2.9 million.





As
      of
      March 31, 2008, we had positive working capital of $59.6 million. Cash was
      $58.2
      million as of March 31, 2008, compared to $54.1 million as of December 31,
      2007.





Net
      cash
      used in investing activities was $3.2 million for the first quarter of 2008
      compared to $7.2 million for the first quarter of 2007. This decrease was due
      to
      a decrease in the construction costs of Life Resources and Tianshi Engineering
      paying off its loan to Biological.





Net
      cash
      provided by financing activities was $3.5 million for the first quarter of
      2008,
      compared to $0.8 million used in financing activities for the first quarter
      of
      2007. This difference was primarily due to loans received by Life
      Resources.





Accounts
      receivable-related parties decreased to $11.8 million as of March 31, 2008
      from
      $14.3 million as of December 31, 2007. Other receivable-related parties
      decreased to $12.7 million as of March 31, 2008 from $13.9 million as of
      December 31, 2007.


40





Going
      forward, our primary requirements for cash consist of:





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





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





o
            the
                development costs of new products;
                and





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





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





**Critical
      Accounting Policies**




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





Revenue
      recognition .




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





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





The
      Company is generally not contractually obligated to accept returns. However,
      on
      a case by case negotiated basis, the Company permits customers to return their
      products. In accordance with SFAS No. 48, "Revenue Recognition when the Right
      of
      Return Exists", revenue is recorded net of an allowance for estimated returns.
      Such reserves are based upon management’s evaluation of historical experience
      and estimated costs. The amount of the reserves ultimately required could differ
      materially in the near term from amounts included in the accompanying
      consolidated financial statements. As the Company did not receive any returns
      of
      products during the past three years, no allowance for estimated returns has
      been recorded for the quarter ended March 31, 2008.




Bad
      debts .




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


41




Inventories .




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




**Recent
      Accounting Pronouncements**





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS
      157”). SFAS 157 defines fair value, establishes a framework for measuring fair
      value and expands disclosure of fair value measurements. SFAS 157 applies under
      other accounting pronouncements that require or permit fair value measurements
      and accordingly, does not require any new fair value measurements. SFAS 157
      is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007. The adoption of this pronouncement has not had a material
      impact on the Company’s consolidated financial statements.




In
      February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
      Financial Assets and Financial Liabilities - Including an amendment of FASB
      Statement No. 115 "
      (“SFAS
      159”). SFAS 159 permits companies to choose to measure many financial
      instruments and certain other items at fair value that  are
      not
      currently required to be measured at fair value. The objective of SFAS 159
      is to
      provide opportunities to mitigate volatility in reported earnings caused
      by  measuring
      related assets and liabilities differently, without having to apply hedge
      accounting provisions. SFAS 159 also establishes presentation and
      disclosure  requirements
      designed to facilitate comparisons between companies that choose different
      measurement attributes for similar types of assets and liabilities.
      SFAS  159
      will
      be effective in the first quarter of fiscal 2009. Management is evaluating
      the
      impact that this statement will have on our consolidated financial  statements.





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





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





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


42




**CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**




We
      market
      all of our products through various domestic and international business entities
      that are related to us through common ownership. As a result, all of our
      consolidated sales in 2007 were to related parties.





We
      have a
      sales contract with Tianshi Engineering which requires Tianshi Engineering
      to
      purchase all of our products to be sold in China. We sell our finished products
      to Tianshi Engineering at a price equal to 25% of the Chinese market price
      for
      the products. This 25% figure was negotiated between the parties in 2003, before
      we acquired Tianshi Holdings, and we believe that it is a reasonable sales
      price
      for us to receive. The price of semi-finished goods sold to Tianshi Engineering
      was originally set at the beginning of 2006 to provide us with a 75% gross
      profit margin. However, based on fluctuations in the cost of raw materials
      and
      quantities produced, the gross profit margin percentage varied during the year.
      This 75% figure was negotiated between the parties, and we believe that it
      is
      reasonable. The goal of this new pricing policy was to try to maintain the
      Company’s gross margins on semi-finished goods at a similar level to historical
      gross margins for finished goods. All of Tianshi Engineering’s Chinese
      affiliated companies are owned in whole or in part by Jinyuan Li’s immediate
      family members.





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





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




**March 31, 2008**
            
            **December 31, 2007**Accounts
                receivable, trade - related parties, net of allowance for doubtful
                accounts of $59,412 and $71,700 as of March 31, 2008 and December
                31,
                2007, respectively
            
            $
            11,822,927
            
            $
            14,268,229Other
                receivables - related parties
            
            $
            12,744,336
            
            $
            13,887,138Advances
                from customers - related parties
            
            $
            1,722,749
            
            $
            1,700,838Other
                payables - related parties
            
            $
            4,855,515
            
            $
            7,938,205Current
                portion of long-term debt - related party
            
            $
            2,130,000
            
            $
            2,130,000Long
                term debt - related party
            
            $
            4,267,742
            
            $
            4,267,742




**Revenue
      - Related Parties**





The
      details of revenue-related parties are as follows:





**Three Months Ended****March 31, 2008**
            
            **March 31, 2007**Tianshi
                Engineering
            
            $
            6,105,779
            
            $
            7,210,301Overseas
                Related Companies
            
            
            6,715,042
            
            
            9,026,488Total
            
            $
            12,820,821
            
            $
            16,236,789




**Accounts
      Receivable, Trade - Related Parties**





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




**March 31, 2008**
            
            **December 31, 2007**Tianshi
                Engineering
            
            $
            2,581,256
            
            $
            2,062,333Overseas
                Related Companies
            
            
            9,301,083
            
            
            12,277,596Allowance
                for Doubtful Accounts
            
            
            (59,412
            )
            
            (71,700
            )Total
            
            $
            11,822,927
            
            $
            14,268,229




43




**Other
      Receivables - Related Parties**





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




The
      details of other receivables-related parties are as follows:




**March 31, 2008**
            
            **December 31, 2007**Tianshi
                Engineering
            
            $
            9,854,549
            
            $
            9,460,811Tianshi
                Group
            
            
            2,155,741
            
            
            2,347,489Xiongshi
                Construction
            
            
            712,050
            
            
            2,062,763Beijing
                Xingda Travel Co., Ltd
            
            
            6,747
            
            
            5,959Tianjin
                Xingda Travel Co., Ltd
            
            
            6,929
            
            
            1,939Tianshi
                Pharmaceuticals
            
            
            3,502
            
            
            5,065Shanghai
                Tianshi Jinquan Investment Co.
            
            
            2,951
            
            
            874Shengshi
                Real Estate Development
            
            
            1,482
            
            
            2,238Shanghai
                Gujia
            
            
            385
            
            
            -Total
            
            $
            12,744,336
            
            $
            13,887,138





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




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





**Advances
      from Customers - Related Parties**





Advances
      from related party customers were $1.8 million and $1.7 million as of March
      31,
      2008 and December 31, 2007, respectively. These advances represented prepayments
      made to us to insure that overseas customers could obtain enough of our products
      to meet their market demands.




**Other
      Payables - Related Parties**





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


44




**March 31, 2008**
            
            **December 31, 2007**Tianshi
                Investment
            
            $
            3,565,548
            
            $
            7,490,136Tianshi
                Group
            
            
            921,775
            
            
            -Tianshi
                Engineering
            
            
            155,746
            
            
            244,980Tianshi
                Germany Co., Ltd
            
            
            118,195
            
            
            109,233Tianyuan
                Capital Development Co. Ltd.
            
            
            84,359
            
            
            84,359Tianshi
                Pharmaceuticals
            
            
            9,695
            
            
            9,308Tianshi
                Shanghai Co., Ltd
            
            
            183
            
            
            176Tianshi
                Administrative Committee of Industrial Park
            
            
            14
            
            
            13Total
            
            $
            4,855,515
            
            $
            7,938,205




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





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





**Long
      Term Debt - Related Party**





On
      September 10, 2004, Tianshi Holdings entered a term loan agreement with Tianyuan
      Capital Development Co. Ltd. ("Tianyuan Capital"), pursuant to which Tianyuan
      Capital agreed to lend $10.65 million (in aggregate principal amount) to Tianshi
      Holdings, at an interest rate of 5% per year, with interest payable on June
      30
      and December 31, commencing December 31, 2004. Tianshi Holdings must repay
      the
      loan in ten consecutive semi-annual installments of $1,065,000 ending June
      30,
      2011. Tianshi Holdings used the loan proceeds to fund its capital contribution
      to Tiens Yihai. Mr. Jinyuan Li owns 100% of Tianyuan Capital. Interest of
      $52,584 was accrued or the loan for the first quarter of 2008.





**Other
      Transactions with Tianshi Engineering**





On
      December 31, 2005, Biological entered into four lease agreements with Tianshi
      Engineering which enabled Tianshi Engineering to share the use of certain of
      Biological’s product production workshops and equipment to manufacture products
      which Tianshi Engineering owns, or jointly owns, with Biological, for one year
      beginning January 1, 2006. These four lease agreements were renewed in December
      2006 for the 2007 fiscal year and on October 17, 2007 for the 2008 fiscal year.
      Rent revenue from these leases amounted to $79,309 for the first quarter of
      2008.





**Other
      Transactions with Tianshi Group**





Since
      2003, Biological has leased office space and manufacturing facilities from
      Tianshi Group. The lease provides for an annual rent equal to 1% of our total
      gross revenues. The rent was negotiated by the parties before we acquired
      Tianshi Holdings, and we believe that it is a reasonable rent for the
      facilities. The term of the lease was for five years and expired on December
      31,
      2007. In addition, we are obligated to pay insurance, maintenance and other
      expenses related to the premises. We entered into a new one-year lease agreement
      with Tianshi Group, effective January 1, 2008 covering the same facilities
      and
      having identical rent terms. The total amount paid on this lease for the first
      quarter of 2008 was $188,391 .


45




**Transactions
      with Tianshi Investments**





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





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





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





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





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





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





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





On
      January 21, 2008 Tianshi Investment entered into a loan agreement pursuant
      to
      which Tianshi Investment agreed to loan to Life Resources up to $6.5 million
      without interest. The loan is due on June 30, 2008.  As
      of
      March 31, 2008, $3.5 million of the $6.5 million available had been loaned
      to
      Life Resources. Life Resources used the loan to increase its registered share
      capital.





**MANAGEMENT
      ASSUMPTIONS**




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




**OFF-BALANCE
      SHEET ARRANGEMENTS**




We
      have
      no off-balance sheet arrangements.


46





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




**EFFECTS
      OF INFLATION**




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




**EFFECT
      OF FLUCTUATION IN FOREIGN EXCHANGE RATES**




Our
      operating subsidiary, Biological, is located in China, and buys all of its
      raw
      materials in China and sells our products in China using the renminbi as the
      functional currency. Based on Chinese government regulations, all foreign
      currencies under the category of current accounts are allowed to be freely
      exchanged with hard currencies. As of March 31, 2008, the exchange rate was
      $1 =
      RMB 7.02 compared to $1 = RMB 7.31 as of December 31, 2007.





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





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





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




**Disclosure
      Controls and Procedures**





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





**Changes
      in Internal Control Over Financial Reporting**





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





**PART
      II - OTHER INFORMATION**




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




Our
      2007
      Annual Report on Form 10-K includes a detailed discussion of our risk factors.
      The information presented below updates those risk factors and should be read
      in
      conjunction with the risk factors and information disclosed in that Form
      10-K.


47





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





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





As
      a
      result of this campaign by the AQSIQ, there has been a general slow-down and
      backlog of export clearances for Chinese food products, and we have experienced
      significant delays in obtaining export clearance for all of the products which
      we sell to our international affiliates. We believe that these delays have
      resulted in some of our international affiliates not being able to purchase
      sufficient quantities of our products to meet their demand, resulting in a
      loss
      of sales. Continued delays in the export clearance for our products may continue
      to result in us not being able to meet the demand for our products from our
      international affiliates and future loss of sales. Currently we are not able
      to
      provide an estimate as to the timing for the clearance of our products for
      export.





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





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





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





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


48





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




Exhibit No.
            
            Description10.1
            
            Loan
                Agreement dated January 14, 2008 by and between Tianshi International
                Holdings Group Limited andTianshi
                International Investment Group Co., Ltd.10.2
            
            Loan
                Agreement dated January 21, 2008 by and betweenTianshi
                International Investment Group Co., Ltd. and Tianjin Tiens Life Resources
                Co., Ltd.31.1
            
            Certification
                of the Chief Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 2002.31.2
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 2002.32.1
            
            Certification
                of the Chief Executive Officer and Chief Financial Officer pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of
                2002





49




**SIGNATURES**




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




Date:
      May
      15, 2008




/s/
                Jinyuan LiJinyuan
                LiChief
                Executive Officer and President(Principal
                Executive Officer)





Date:
      May
      15, 2008





/s/
                Wenjun JiaoWenjun
                JiaoChief
                Financial Officer(Principal
                Accounting Officer)




50