UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2010.

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: 001-32477

TIENS BIOTECH GROUP (USA), INC.

(Exact name of registrant as specified in its charter)


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

No. 617, ~~Yuanquan~~Xinyuan Rd.

Wuqing New Tech Industrial Park

Tianjin, China 301700

(Address of principal executive offices) (Zip Code)

+86-22-8213-7914

(Registrant’s telephone number, including area code)

~~(Former name,~~No. ~~former address and former fiscal year~~6, ~~if changed since last~~ ~~report)~~Yuanquan Rd.

Wuqing New Tech Industrial Park

Tianjin, China 301700

(Former address)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

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.

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

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

Yes ¨ No x

There were 71,333,586 shares of the registrant’s common stock outstanding on ~~August~~November 1312, 2010.

TIENS BIOTECH GROUP (USA), INC.

INDEX TO FORM 10-Q

	~~PAGE~~	PAGE
PART I - FINANCIAL INFORMATION	3	3
ITEM 1. FINANCIAL STATEMENTS	3	3
Consolidated Balance Sheets as of June 30, 2010 (Unaudited) and December 31, 2009	3
Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and December 31, 2009		3
Consolidated Statements of Income and Other Comprehensive Income for the Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)	4
Consolidated Statements of Income and Other Comprehensive Income for the Three and Nine Months Ended September 30, 2010 and 2009 (Unaudited)		4
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (Unaudited)	5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (Unaudited)		5
Notes to Consolidated Financial Statements (Unaudited)	6	6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	24	24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	34	32
ITEM 4T. CONTROLS AND PROCEDURES	34	33
PART II - OTHER INFORMATION	34	33
ITEM 6. EXHIBITS	34	33

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF ~~JUNE~~SEPTEMBER 30, 2010 (UNAUDITED) AND DECEMBER 31, 2009

	June 30,		December 31,
	September 30,		December 31,
	2010		2009
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	57,~~660~~632,~~772~~304	$	1,848,328
Accounts receivable, trade - related parties, net of
Accounts receivable, trade - related parties, net of allowance for doubtful accounts of $1,538,200 and $1,419,178 as of September 30, 2010 and December 31, 2009, respectively		10,795,741		15,379,312
allowance for doubtful accounts of $1,307,687 and $1,419,178
Inventories		5,287,668		5,328,052
as of June 30, 2010 and December 31, 2009, respectively		8,809,737		15,379,312
Other receivables		1,256,939		995,657
Inventories		5,776,964		5,328,052
Other receivables - related parties		45,040,773		44,561,626
Other receivables		2,354,237		995,657
Employee advances		114,444		115,673
Other receivables - related parties		33,035,274		44,561,626
Prepaid expenses, net of allowance for doubtful accounts of $1,039,643 and $1,018,474 as of September 30, 2010 and December 31, 2009, respectively		431,442		658,193
Employee advances		238,075		115,673
Prepaid taxes		3,001,473		407,534
Prepaid expenses		351,905		658,193
Total current assets		73,560,784		69,294,375
Prepaid taxes		121,542		407,534
PROPERTY, PLANT AND EQUIPMENT, net		9,910,704		10,124,483
Total current assets		56,348,506		69,294,375
PROPERTY, PLANT AND EQUIPMENT, net		9,946,030		10,124,483
OTHER ASSETS:
Construction in progress		~~146~~170,~~343~~971,~~059~~153		125,572,621
Construction deposits		58,~~068~~250,~~290~~520		1,405,997
Intangible assets, net		12,~~764~~898,~~848~~229		12,864,295
Other assets		1813,~~039~~507,~~203~~370		11,847,937
Total other assets		~~182~~205,~~215~~627,~~400~~272		151,690,850
Total assets	$	~~248~~289,~~509~~098,~~936~~760	$	231,109,708
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	46,~~387~~350,~~829~~030	$	5,012,157
Advances from customers - related parties		1713,~~055~~045,~~922~~749		4,426,751
Wages and benefits payable		~~788~~808,~~451~~228		1,484,852
Income taxes payable		330,095		-
Short-term debt - related party		8,958,000		-
Contractor deposits		258,403		183,395
Income taxes payable		570,185		-
Contractor payables		20,942,557		18,513,216
Contractor deposits		204,451		183,395
Other payables		1,248,953		1,151,551
Contractor payables		35,554,584		18,513,216
Other payables - related parties		1,502,767		3,326,110
Other payables		1,164,677		1,151,551
Total current liabilities		46,514,977		34,098,032
Other payables - related parties		15,630,625		3,326,110
Total current liabilities		82,286,529		34,098,032
NON-CURRENT LIABILITIES
Deferred income		11,~~283~~470,~~364~~050		11,236,501
Total non current liabilities		11,~~283~~470,~~364~~050		11,236,501
Total liabilities		5793,~~798~~756,~~341~~579		45,334,533
EQUITY:
Shareholders' equity of the Company:
Common stock, $0.001 par value, 250,000,000 shares authorized,
Common stock, $0.001 par value, 250,000,000 shares authorized, 71,333,586 issued and outstanding, respectively		71,334		71,334
71,333,586 issued and outstanding, respectively		71,334		71,334
Paid-in-capital		18,271,518		18,042,189
Paid-in-capital		18,194,133		18,042,189
Statutory reserves		16,465,144		13,217,217
Retained earnings		~~126~~128,~~769~~490,~~661~~119		126,370,263
Accumulated other comprehensive income		1821,~~880~~394,~~529~~864		18,262,123
Total shareholders' equity of the Company		~~180~~184,~~380~~692,~~801~~979		175,963,126
Noncontrolling interest		10,~~330~~649,~~794~~202		9,812,049
Total equity		~~190~~195,~~711~~342,~~595~~181		185,775,175
Total liabilities and equity	$	~~248~~289,~~509~~098,~~936~~760	$	231,109,708

The accompanying notes are an integral part of this statement.

~~FOR THE~~TIENS ~~THREE~~BIOTECH ~~AND~~GROUP ~~SIX MONTHS ENDED JUNE 30~~(USA), ~~2010~~INC. ~~and~~AND ~~2009 (UNAUDITED)~~SUBSIDIARIES

	Three months ended June 30,						Six months ended June 30,
	2010			2009			2010			2009
REVENUE - RELATED PARTIES	$	8,167,849		$	20,551,036		$	19,571,212		$	38,788,581
COST OF SALES - RELATED PARTIES		3,037,847			6,117,409			6,478,728			11,852,468
GROSS PROFIT		5,130,002			14,433,627			13,092,484			26,936,113
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		4,069,097			4,014,591			7,566,644			7,145,527
INCOME FROM OPERATIONS		1,060,905			10,419,036			5,525,840			19,790,586
(Interest expense)		-			(53,201	)		-			(105,817	)
Interest income		3,846			100,779			5,718			186,547
Other expense		(418,260	)		(28,144	)		(671,970	)		(73,432	)
OTHER (EXPENSE) INCOME, NET		(414,414	)		19,434			(666,252	)		7,298
INCOME BEFORE INCOME TAXES		646,491			10,438,470			4,859,588			19,797,884
INCOME TAXES		138,621			123,101			748,123			482,716
NET INCOME	$	507,870			10,315,369			4,111,465			19,315,168
LESS: Net income attributable to the noncontrolling interest		(122,083	)		(139,071	)		(464,140	)		(546,045	)
NET INCOME ATTRIBUTABLE TO THE COMPANY		385,787			10,176,298			3,647,325			18,769,123
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment		766,901			151,289			1,125,269			770,887
COMPREHENSIVE INCOME		1,152,688			10,327,587			4,772,594			19,540,010
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST		163,465			140,300			506,863			559,895
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE COMPANY	$	989,223		$	10,187,287		$	4,265,731		$	18,980,115
EARNINGS PER SHARE, BASIC AND DILUTED	$	0.01		$	0.14		$	0.05		$	0.26
WEIGHTED AVERAGE NUMBER OF SHARES, BASIC AND DILUTED		71,333,586			71,333,586			71,333,586			71,333,586

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 and 2009 (UNAUDITED)

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
REVENUE - RELATED PARTIES	$	10,381,886		$	9,439,739		$	29,953,098		$	48,228,320

COST OF SALES - RELATED PARTIES		4,145,014			3,144,650			10,623,742			14,997,118

GROSS PROFIT		6,236,872			6,295,089			19,329,356			33,231,202

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		4,060,812			2,916,202			11,627,456			10,061,729

INCOME FROM OPERATIONS		2,176,060			3,378,887			7,701,900			23,169,473

Interest expense		(117,165	)		(40,363	)		(117,165	)		(146,180	)
Interest income		2,523			76,154			8,241			262,701
Other income (expense)		120,665			(16,122	)		(551,305	)		(89,554	)
OTHER (EXPENSE) INCOME, NET		6,023			19,669			(660,229	)		26,967

INCOME BEFORE INCOME TAXES		2,182,083			3,398,556			7,041,671			23,196,440

INCOME TAXES		319,776			544,688			1,067,899			1,027,404

NET INCOME	$	1,862,307		$	2,853,868		$	5,973,772		$	22,169,036

LESS: Net income attributable to the noncontrolling interest		(141,849	)		(617,638	)		(605,989	)		(1,163,683	)

NET INCOME ATTRIBUTABLE TO THE SHAREHOLDERS OF THE COMPANY		1,720,458			2,236,230			5,367,783			21,005,353

OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment		2,826,688			182,028			3,951,957			406,870

COMPREHENSIVE INCOME		4,547,146			2,418,258			9,319,740			21,412,223

COMPREHENSIVE INCOME ATTRIBUTABLE TO THE NONCONTROLLING INTEREST		312,353			11,390			819,216			25,240

COMPREHENSIVE INCOME ATTRIBUTABLE TO THE SHAREHOLDERS OF THE COMPANY	$	4,234,793		$	2,406,868		$	8,500,524		$	21,386,983

EARNINGS PER SHARE, BASIC AND DILUTED	$	0.02		$	0.03		$	0.08		$	0.29

WEIGHTED AVERAGE NUMBER OF SHARES, BASIC AND DILUTED		71,333,586			71,333,586			71,333,586			71,333,586

The accompanying notes are an integral part of this statement.

TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)

	Six months ended June 30,
	Nine months ended September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	45,~~111~~973,~~465~~772		$	1922,~~315~~169,~~168~~036
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Bad debt expense		~~(116~~88,~~962~~205	)		(~~196~~902,~~863~~297	)
Depreciation		~~814~~1,~~376~~172,597			1,~~112~~662,~~849~~206
Amortization		~~167~~252,~~147~~075			~~194~~291,~~380~~418
Interest expense		-117,165			2(9,~~710~~357	)
Gain on sale of assets		(1543,~~085~~377	)		(1514,~~717~~846	)
Rental expense borne by a related party		~~163~~246,~~532~~623			~~163,331~~-
(Increase) decrease in assets:
Accounts receivable, trade - related parties		64,~~725~~742,~~384~~772			(510,~~532~~678,~~449~~476	)
Other receivables		(1237,~~349,264~~041	)		10(121,~~743~~058	)
Other receivables - related parties		~~213~~(92,~~304~~265	)		(~~992~~1,~~241~~306,527	)
Inventories		~~(421~~166,~~815~~337	)		32,~~355~~801,~~993~~809
Employee advances		~~(121~~3,~~454~~579	)		(80,~~805~~873	)
Prepaid expense		~~307~~236,~~795~~536			(~~435~~336,~~576~~620	)
Increase (decrease) in liabilities:
Accounts payable		~~(662~~1,~~699~~195,483	)		(1,~~579~~687,~~065~~613	)
Advances from customers - related parties		128,~~562~~401,~~625~~340			~~(219~~808,~~470~~830	)
Wages and benefits payable		(~~699~~697,~~884~~018	)		(~~703~~768,~~898~~334	)
Other taxes payable		615,431			8,920
Deferred income taxes		217,131			-
Other payables		94,272			(395,970	)
Other taxes payable		(2,202,718	)		(31,337	)
Other payables - related parties		191,991			(202,847	)
Other payables		(8,613	)		(176,274	)
Net cash provided by operating activities		22,580,159			13,809,193
Other payables - related parties		13,972,418			(76,484	)
Net cash provided by operating activities		33,505,001			32,900,155
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Life Resources		6,000,000			-
Collections from loans to local government		-			105,193
Proceeds from disposal of a subsidiary		700,000			-
Construction deposits		(2,678,074	)		(3,846,961	)
Collections from loans to local government		-			105,208
Contractor deposits		73,959			158,551
Construction deposits		(6,381,248	)		(3,465,755	)
Addition to construction in progress		(18,790,772	)		(15,954,182	)
Contractor deposits		16,990			85,498
Equipment deposits		(6,133,065	)		-
Addition to construction in progress		(37,556,932	)		(26,936,754	)
Proceeds from sales of properties		2,621,558			17,039
Equipment deposits		(1,414,417	)		(8,700,872	)
Purchase of equipment and automobiles		(578,794	)		(921,388	)
Proceeds from sales of properties		2,668,075			17,041
Net cash used in investing activities		(18,785,188	)		(20,441,748	)
Purchase of equipment and automobiles		(742,954	)		(1,755,815	)
Net cash used in investing activities		(42,710,486	)		(40,651,449	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan from (repayment to) related parties		-14,826,000			(3,~~945~~946,~~510~~050	)
Net cash used in financing activities		-			(3,945,510	)
Increase in paid in capital		-			245,030
EFFECT OF EXCHANGE RATE CHANGES ON CASH		17,473			64,084
Net cash provided by (used in) financing activities		14,826,000			(3,701,020	)
NET INCREASE (DECREASE) IN CASH		3,812,444			(10,513,981	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH		163,461			100,433
NET INCREASE (DECREASE) IN CASH		5,783,976			(11,351,881	)
CASH, beginning of period		1,848,328			44,854,511
CASH, end of period	$	57,~~660~~632,~~772~~304		$	3433,~~340~~502,~~530~~630
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	-		$	105,817
Income taxes	$	~~913~~993,~~722~~857		$	~~667~~871,~~347~~764

The accompanying notes are an integral part of this statement.

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 and 95.09% by Jinyuan Li, the Company’s current Chairman, CEO, President and ~~President~~Acting Chief Financial Officer. The Company owns 100% of Tianshi International Holdings Group Limited (“"Tianshi Holdings”"). Tianshi Holdings owns 80% of Tianjin Tianshi Biological Development Co., Ltd. (“"Biological”") and 100% of Tianjin Tiens Life Resources Co., Ltd. (“Life Resources”).

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. In the People’s Republic of China (“PRC”), the Company sells its products to Tianjin Tianshi Biological Engineering Co. Ltd. (“Tianshi Engineering”), a Chinese 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. Tianshi Engineering is 100% owned by Tianjin Tianshi Group Co., Ltd. (“Tianshi Group”). Tianshi Group is 90% owned by Jinyuan Li, ~~the Company’s Chairman, President~~ and ~~CEO, and~~ 10% owned by Baolan Li, Jinyuan Li’s daughter, who is a member of the Company’s Board of Directors. Outside the PRC, the Company sells its products to overseas affiliated companies located in 54 countries who in turn re-package them and sell to independent direct sales distributors.

Note 2 – Summary of significant accounting policies

Basis of presentation

The financial statements of the Company and its subsidiaries are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These Consolidated Financial Statements for interim periods are unaudited. In the opinion of management, the consolidated financial statements include all adjustments, consisting only of normal, recurring adjustments, necessary for their fair presentation. The results reported in these Consolidated Financial Statements are not necessarily indicative of the results that may be reported for the entire year. The accompanying consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with U.S. GAAP. These Consolidated Financial Statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission on April 2, 2010.

The reporting entity

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

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

Principles of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant inter-company transactions and balances are eliminated in consolidation.

Use of estimates

In preparing financial statements in conformity with U.S. GAAP, the Company makes estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and sales and expenses during the reported periods. Significant estimates include useful life of long lived assets, provision for bad debt, allowance for sales returns and provision for prepaid expenses. Management bases its estimates on historical experience and on various other assumptions that they believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Foreign currency translation

The reporting currency of the Company is the USU.S. dollar. Biological and Life Resources’ 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 OANDA.com ~~the People’s Bank of China~~ at the end of ~~each~~ 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 $~~620~~3,~~443~~ 951,956 and $~~210~~1,~~992~~570,553 for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009, respectively. Asset and liability accounts at September ~~June~~ 30, 2010 were translated at RMB 6.8170 to $1.00 compared to RMB 6.85 84 at ~~June~~September 30, 2009. Equity accounts are stated at their historical rate. The average translation rates applied to income statement accounts for the ~~six~~ nine months ended ~~June~~September 30, 2010 and 2009 were RMB 6.8380 and RMB 6.84, respectively. Cash flows are also translated at average translation rates for the period. Therefore, amounts reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.

Fair value of financial instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Fair value hierarchy prioritizes the inputs used in measuring fair value into three broad levels as follows:

• Level one — Quoted market prices in active markets for identical assets or liabilities;

• Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

• Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company’'s financial instruments consist primarily of cash, trade accounts receivable, trade payables, advances, and other receivables. The carrying amounts of the Company’'s financial instruments generally approximate their fair values at ~~June~~September 30, 2010 and December 31, 2009.

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 made full provision for accounts receivable-related parties aged over one year based upon the related parties’ ability to collect their receivables and a general allowance for doubtful ~~debt~~accounts of 0.5% of the ~~remaining~~ remaining accounts receivable-related parties. Management reviews its accounts ~~receivable~~ receivable on a regular basis to determine if the provision for doubtful ~~debts~~ accounts is adequate, paying particular attention to the age of receivables outstanding. At ~~June~~September 30, 2010 and December 31, 2009, there were no receivables due from Tianshi Engineering outstanding more than 90 days. At September ~~June~~ 30, 2010 and December 31, 2009, receivables due from overseas related companies outstanding more than 180 days totaled $65,~~486~~709,~~902~~ 664 and $53,~~089~~481,~~510~~334, 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:

	Provision for Doubtful Accounts
Six month period ended June 30, 2010
Nine month period ended September 30, 2010
Balance at Beginning of Period	$	1,419,178
Decrease of provision for Doubtful Accounts		(111,491	)
Increase in provision for Doubtful Accounts		119,022
Balance at End of Period	$	1,~~307~~538,~~687~~200
Six month period ended June 30, 2009
Nine month period ended September 30, 2009
Balance at Beginning of Period	$	1,108,789
Decrease of provision for Doubtful Accounts		(~~195~~900,~~303~~254	)
Balance at End of Period	$	~~913~~208,~~486~~535

Inventories

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

Employee advances

Employee advances represent cash advances to various employees of the Company. In the PRC, a majority of business transactions are completed in cash. These cash advances represent monies advanced to certain employees to pay for various expenses and purchases related to the Company’'s daily operations.

Prepaid expenses

Prepaid expenses consist of advances to suppliers and short-term prepaid expenses. The Company reviews its advances to suppliers annually to determine whether provisions should be made. The amount included in prepaid expenses is net of any provisions. Provisions for prepaid expenses are as follows:

	Provision for Doubtful Accounts
Six month period ended June 30, 2010
Nine month period ended September 30, 2010
Balance at Beginning of Period	$	1,018,474
Increase of provision for Doubtful Accounts		4,248
Increase in provision for Doubtful Accounts		21,169
Balance at End of Period	$	1,~~022~~039,~~722~~643
Six month period ended June 30, 2009
Nine month period ended September 30, 2009
Balance at Beginning of Period	$	952,071
Increase of provision for Doubtful Accounts		1,305
Increase in provision for Doubtful Accounts		2,284
Balance at End of Period	$	~~953~~954,~~376~~355

Prepaid taxes

Prepaid taxes consist of payments of value added tax (“VAT”) to the Chinese government related to the purchase of new production equipment. Effective January 1, 2009, the Chinese government allows VAT amounts paid on new production equipment to be used to offset future VAT liabilities, in order to encourage investment.

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 Life
Buildings and improvements	20 years
Machinery and equipment	10 years
Computer, office equipment and furniture	5 years
Automobiles	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~~expense as incurred. Major additions and betterments 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. The Company expects to place certain buildings into service during the third quarter of 2010 and will begin depreciating those assets accordingly. The Company’s manufacturing plant facilities are not expected to be placed into service until a future period.

In October 2010, a portion of the Company's facilities moved to the newly constructed plant facilities. Approximately $43,000,000 of construction in progress was transferred to fixed assets at that time. Depreciation of those assets began in November 2010.

Construction deposits

Construction deposits represent advances paid by the Company to contractors for construction in progress.

Intangible assets

Intangible assets mainly consist of land use rights. All land located in the PRC is owned by the government and cannot be sold to any individual or company. However, the government grants “"land use rights”" for a specified period of time. The Company amortizes its land use rights according to the actual useful life of 50 years. Other intangible assets include patents and trademarks and are amortized over their estimated useful lives ranging from five to ten years.

Other assets

Other assets consist of deposits made to purchase equipment and a long-term prepaid expense. The Company will transfer the deposits made to purchase equipment from other assets to property, plant and equipment upon taking ownership. The Company amortizes its long-term prepaid expense according to the service period. Amortization expense for the nine months ended September 30, 2010 and 2009 amounted to $22,065 and $62,508, respectively, and $7,434 and $11,390 for the three months ended September 30, 2010 and 2009, respectively.

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 government grants. On August 2, 2005 and November 20, 2006, the Company received two government grants related to the purchase of land use rights in the amount of RMB 35,803,461 (or USU.S. $5,258,454). On August 28, 2008, Life Resources paid RMB 41,022,061 (or USU.S. $6,024,910) for the zoning changes to to one parcel of land on which the land use rights were changed from “industrial” to “educational”. On September 12, 2008, the Company received RMB 41,022,061 (or US U.S. $6,024,910) from a government grant. The grants are treated as deferred income and will be amortized over the life of the buildings on the land.

Noncontrolling interest

Noncontrolling interest represents the outside shareholder’s 20% ownership of ~~Biological and 4%~~ ~~ownership of Tiens Yihai Co~~Biological. Ltd. (“Tiens Yihai”). Effective as of November 15, 2009, the Company transferred its interest in Tiens Yihai to Tianshi International Investment Group Co., Ltd. (“Tianshi Investment”), a company 100% owned by Jinyuan Li.

Revenue recognition

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

For overseas sales, the Company sells mostly finished products. The Company recognizes revenue from international sales (non-Chinese) to affiliated 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. 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, and management does not anticipate allowing any returns in 2010 related to previous revenues, no allowance for estimated returns has been recorded as of ~~June~~September 30, 2010 and December 31, 2009.

Advertising costs

The Company sells its products to related parties, and these related parties are primarily responsible for marketing. Advertising costs of the Company for the six months ended June 30, 2010 and 2009 amounted to $6,803 and $6,211, respectively, and for the three months ended June 30, 2010 and 2009 amounted to $6,803 and $6,211, respectively, and were expensed as incurred.

Advertising costs

The Company sells its products to related parties, and these related parties are primarily responsible for marketing. Advertising costs of the Company for the nine months ended September 30, 2010 and 2009 amounted to $13,092 and $6,211, respectively, and for the three months ended September 30, 2010 and 2009 amounted to $6,289 and $0, respectively, and were expensed as incurred.

Shipping and handling

Shipping and handling costs totaled $~~192~~279,~~636~~651 and $~~242~~314,~~772~~ 194 for the ~~six~~nine months ~~ended~~ ~~June~~ended September 30, 2010 and 2009, respectively, and $6987,~~884~~015 and $~~102~~71,~~070~~422 for the ~~three~~ three months ended ~~June~~September 30, 2010 and 2009, 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~~ payments received from customers are included in revenue and the related shipping and handling costs are 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. The Company expensed research and development costs of $~~924~~1,~~675~~ 255,262 and $~~668~~960,~~720~~ 484 for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009, respectively, and $~~626~~330,~~542~~587 and $~~289~~291,~~260~~764 for the three months ended ~~June~~September 30, 2010 and 2009, respectively. These costs are included in selling, general and ~~administrative~~ administrative expenses in the accompanying statements.

Income taxes

The Company accounts for income taxes under the liability method. Deferred income taxes are recognized for the estimated tax consequences in future years, as differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end, based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established to reduce deferred tax assets to the amount expected to be realized when, in management’s opinion, it is more likely than not that some portion of the deferred tax assets will not be realized. The provision for income taxes represents current taxes payable net of the change during the period in deferred tax assets and liabilities.

The Company has not been subjected to income tax examinations by taxing authorities for the ~~six~~nine months ended ~~June~~September 30, 2010 and the year ended December 31, 2009. The Company is subject to tax examination in the PRC for all years, as tax ~~returns~~ returns remain open to examination until notified by the taxing authorities, and ~~the~~ the Company has not received any notifications to date. The ~~company~~Company records ~~interest~~ interest and penalties as other expense on the consolidated income and other comprehensive income statements. During the ~~six~~nine months ended September ~~June~~ 30, 2010 and the year ended December 31, 2009, the Company did not recognize any amount in interest and penalties.

Earnings per share

Basic earnings per share (“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 six months ended June 30, 2010 and 2009.

~~Recently~~Earnings ~~issued accounting~~per ~~pronouncements~~share

InBasic ~~January~~earnings ~~2010,~~per ~~the~~share ~~FASB~~(“EPS”) ~~issued~~excludes ~~new~~dilution ~~guidance~~and ~~for~~is ~~fair~~computed ~~value~~by ~~measurements~~dividing ~~and~~net ~~disclosures~~income ~~which~~(loss) ~~requires~~attributable ato ~~reporting~~common ~~entity~~stockholders toby ~~disclose~~the ~~separately~~weighted ~~the~~average ~~amounts~~number of ~~significant~~common ~~transfers~~shares inoutstanding ~~and out of Level 1 and 2 fair value measurements and describe the reasons~~ for the ~~transfers~~period. ~~The~~There ~~guidance~~are ~~also~~no ~~requires~~differences ~~a reporting~~between ~~entity~~Basic ~~to present separately information about purchases, sales, issuances,~~ and ~~settlements~~ inDiluted ~~the~~EPS ~~reconciliation~~ for ~~fair value measurements using significant unobservable inputs (Level 3). The guidance was effective on January 1, 2010, except for disclosures about purchases, sales, issuances, and settlements in~~ the ~~roll~~ ~~forward~~nine ofmonths ~~activity~~ended inSeptember ~~Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15~~30, 2010, and ~~for~~ ~~interim periods within those fiscal years~~2009. The guidance adopted on January 1, 2010 did not have an effect on the Company’s consolidated financial statements. Adoption of the remaining guidance is not expected to have a material impact on the Company’s consolidated financial statements.

Note 3 – Supplemental disclosure of cash flow information

On February 10, 2010, Tianshi Holdings, Fuhong Development Co., Ltd. (“Fuhong Development”), and Tianshi Investment entered into an agreement, pursuant to which liabilities in the form of a loan receivable due to Fuhong Development from the Company in the amount of $3,000,000 were offset against assets in the form of a loan receivable due to the Company from Tianshi Investment. Each of Fuhong Development and Tianshi Investment is 100% owned by Jinyuan Li.

The right to offset existed because:

Tianshi Investment had a determinable outstanding debt payable to the Company;

The Company had a determinable outstanding debt payable to Fuhong Development;

The Company had the right to offset the two amounts;

The Company, Fuhong Development and Tianshi Investment agreed to offset the two amounts; and

The agreement to offset is enforceable under Chinese contract law.

On June 10, 2010, Tianshi Holdings, Fuhong Development, and Tianshi Investment entered into another agreement, pursuant to which liabilities in the form of a loan receivable due to Fuhong Development from the Company in the amount of $3,000,000 were offset against assets in the form of a loan receivable due to the Company from Tianshi Investment.

The right to offset existed because:

1. 7 Tianshi Investment had a determinable outstanding debt payable to the Company;

The Company had a determinable outstanding debt payable to Fuhong Development;

The Company had the right to offset the two amounts;

The Company, Fuhong Development and Tianshi Investment agreed to offset the two amounts; and

The agreement to offset is enforceable under Chinese contract law.

During the nine months ended September 30, 2010, $20,300,964 of trade accounts receivable from Tianshi Engineering were offset against $20,300,964 of advances from customers received from Tianshi Engineering.

Note 4 – Inventories

Inventories consisted of the following at ~~June~~September 30, 2010 and December 31, 2009:

	June 30,		December 31,
	September 30,		December 31,
	2010		2009
Raw materials	$	1865,~~355,394~~062	$	1,937,306
Packaging material		~~491~~541,~~352~~591		729,517
Miscellaneous supplies		1,~~732~~937,~~110~~015		848,720
Work in process		~~640~~611,~~181~~083		476,529
Finished goods		1,~~557~~332,~~927~~917		1,335,980
Total	$	5,~~776~~287,~~964~~668	$	5,328,052

The Company has not written off any obsolete goods for the ~~six~~nine months ended September ~~June~~ 30, 2010 and 2009.

Note 5 – Prepaid expenses

Prepaid expenses consist of advances to suppliers and short-term prepaid expenses. The details of prepaid expenses, net of the allowance as disclosed in Note 2, at ~~June~~ September 30, 2010 and December 31, 2009 are as follows:

	June 30,		December 31,
	September 30,		December 31,
	2010		2009
Advance to suppliers	$	~~292~~393,~~361~~815	$	655,443
Short-term prepaid expenses		5937,~~544~~627		2,750
Total	$	~~351~~431,~~905~~442	$	658,193

Note 6 – Property, plant and equipment, net

Property, plant and equipment consist of the following at ~~June~~September 30, 2010 and December 31, 2009:

	June 30,			December 31,
	September 30,			December 31,
	2010			2009
Buildings and improvements	$	1,~~565~~591,~~436~~336		$	1,558,934
Office equipment		~~357~~370,~~690~~434			348,284
Computer equipment and software		2,~~418~~474,~~605~~049			2,405,467
Machinery and equipment		14,~~448~~850,~~738~~650			14,211,726
Automobiles		4,~~878~~952,~~101~~722			4,470,909
Total		2324,~~668~~239,~~570~~191			22,995,320
Less: accumulated depreciation		(1314,~~722~~328,~~540~~487	)		(12,870,837	)
Property, plant and equipment, net	$	9,~~946~~910,~~030~~704		$	10,124,483

Depreciation expense for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009 amounted to $~~814~~1,~~376~~172,597 and $1,~~112~~662,~~849~~206, respectively, and $~~396~~358,~~907~~221 and $~~568~~549,~~038~~357 for the three months ended ~~June~~September 30, 2010 and 2009, respectively.

Note 7 - Intangible assets

Intangible assets consist of the following at ~~June~~September 30, 2010 and December 31, 2009:

	June 30,			December 31,
	September 30,			December 31,
	2010			2009
Land use rights	$	13,~~587~~812,~~889~~704		$	13,531,454
Other intangible assets		~~345~~351,~~709~~429			344,274
Less accumulated amortization		(1,~~168~~265,~~750~~904	)		(1,011,433	)
Intangible assets, net	$	12,~~764~~898,~~848~~229		$	12,864,295

Amortization expense for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009 amounted to $~~152~~230,~~516~~010 and $~~194~~228,~~380,~~910 respectively, and $7677,~~273~~493 and $9785,~~237~~648 for the three months ended ~~June~~ September 30, 2010 and 2009, respectively.

The estimated amortization expense for the next five years is as follows:

Estimated amortization expense for
the year ending December 31,	Amount
2010 (6 months remaining)	$	205,480
2010 (3 months remaining)	$	77,816
2011	$	~~298~~304,~~416~~619
2012	$	~~298~~304,~~416~~619
2013	$	~~287~~293,~~322~~294
2014	$	~~286~~292,~~689~~647
2015 and thereafter	$	11,~~388~~625,~~525~~234

Note 8 – Statutory reserves

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

Statutory reserve fund

Each of the Company’s Chinese subsidiaries is required to transfer 10% of its net income, as determined in accordance with the PRC accounting rules and regulations, to a statutory surplus reserve fund until such reserve balance reaches 50% of that entity’s registered capital. During 2005, Biological’'s statutory reserve fund had reached 50% of its registered capital, so no statutory reserve was required thereafter. Life Resources, which has not reached its statutory reserve fund level, is currently required to make this transfer. On June 21, 2010, Life Resources transferred $2,165,285, representing 10% of its 2009 net income, as determined in accordance with PRC accounting rules and regulations, to this reserve. As of ~~June~~September 30, 2010, Life Resources is required to transfer a remaining $12,193,914 in future periods to the statutory reserve fund to meet the 50% requirement.

The transfer to this reserve fund must be made before distribution of any dividend to shareholders. On ~~June~~September 30, 2010 and December 31, 2009, the amounts of the statutory reserve fund were $7,151,510 and $4,986,225, respectively.

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

Common welfare fund

Each of the Company’s Chinese subsidiaries is required to transfer part of its net income in accordance with the PRC accounting rules and regulations, which is determined by its board of directors, to a statutory common welfare fund until the statutory reserve fund reaches 50% of that entity’s registered capital. Beginning 2005, Biological was not required to transfer any additional net income to the statutory reserve fund, so no transfer to the common welfare was required thereafter. Life Resources, which has not reached its statutory reserve fund level, is still required to make this transfer accompanying the transfer of statutory reserves. On June 21, 2010, Life Resources transferred $1,082,642, representing 5% of its 2009 net income, as determined by its board of directors, to this fund. As of ~~June~~September 30, 2010, Life Resources is required to transfer a remaining $6,096,957 in future periods to the common welfare fund.

This fund can only be utilized on capital items for the collective benefit of the Company’s employees, such as construction of dormitories, cafeteria facilities, and other staff welfare facilities. This fund is non-distributable other than upon liquidation. The transfer to this fund must be made before distribution of any dividend to shareholders. On ~~June~~September 30, 2010 and December 31, 2009, the amounts of the Company’s common welfare fund were $7,057,619 and $5,974,977, respectively.

Enterprise fund

The enterprise fund may be used to acquire fixed assets or to increase the working capital for production and operation of the business. No minimum contribution is required. For the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009, no transfer was ~~made~~ made to this fund and the amount of the Company’s enterprise fund on each of September ~~June~~ 30, 2010 and December 31, 2009 was $2,256,015.

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

The Company mainly conducts related party transactions with Tianshi Group, Tianshi Engineering, Tianshi Investment, Fuhong Development, Tianjin Tianshi Pharmaceuticals Co., Ltd. (“Tianshi Pharmaceuticals”) 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 Pharmaceuticals is wholly owned by Tianshi Group. Tianshi Investment and Fuhong Development are each 100% owned by Jinyuan Li. Jinyuan Li owns or controls the overseas related companies of Tianshi Group.

The Company’s related party transactions are required to be reviewed and approved or ratified by the Board of Directors. No director that is a related person in a related party transaction may participate in any discussion, approval or ratification of the related party transaction except to provide information concerning it. The following tables are provided to facilitate an understanding of the transactions and outstanding balances between those related parties.

	Three months ended June 30,				Six months ended June 30,
	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Revenue-related parties	$	810,~~167~~381,~~849~~886	$	209,~~551~~439,~~036~~739	$	1929,~~571~~953,~~212~~098	$	3848,~~788~~228,~~581~~320

	June 30, 2010		December 31, 2009
	September 30, 2010		December 31, 2009
Accounts receivable, trade – related parties, net of allowance for doubtful accounts of $1,307,687 and $1,419,178 as of June 30, 2010 and December 31, 2009, respectively	$	8,809,737	$	15,379,312
Accounts receivable, trade – related parties, net of allowance for doubtful accounts of $1,538,200 and $1,419,178 as of September 30, 2010 and December 31, 2009, respectively	$	10,795,741	$	15,379,312
Other receivables – related parties	$	3345,~~035~~040,~~274~~773	$	44,561,626
Advances from customers – related parties	$	1713,~~055~~045,~~922~~749	$	4,426,751
Other payables – related parties	$	1,502,767	$	3,326,110
Short-term debt - related party	$	8,958,000	$	-
Other payables – related parties	$	15,630,625	$	3,326,110

Revenue - related parties

The details of revenue-related parties are as follows:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

2010

2009

2010

2009

Tianshi Engineering

46,~~415~~152,~~082~~896

94,~~669~~663,~~603~~939

1117,~~198~~351,~~355~~251

1217,~~412~~076,~~223~~163

Overseas Related Companies

34,~~752~~228,~~767~~990

104,~~881~~775,~~433~~800

812,~~372~~601,~~857~~847

2631,~~376~~152,~~358~~158

Total

810,~~167~~381,~~849~~886

209,~~551~~439,~~036~~739

1929,~~571~~953,~~212~~098

3848,~~788~~228,~~581~~320

The Company markets its products through various domestic and international business entities that are related to the Company through common ownership.

In China, 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 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 re-package the Company’s products and then sell to overseas independent distributors or end users of the products. Due to the common ownership, there are no formal sales or administrative agreements among Biological and those overseas related companies. The business operations among these related entities are regulated through internal ordinances.

Accounts receivable, trade - related parties

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

	June 30, 2010			December 31, 2009
	September 30, 2010			December 31, 2009
Tianshi Engineering	$	-		$	5,035,320
Overseas Related Companies		1012,~~117~~333,~~424~~941			11,763,170
Allowance for Doubtful Accounts		(1,~~307~~538,~~687~~200	)		(1,419,178	)
Total	$	810,~~809~~795,~~737~~741		$	15,379,312

Sales to Tianshi Engineering for the nine months ended September 30, 2010 were $17,351,251. The receivables that arose from these sales were fully offset against advances from Tianshi Engineering as of September 30, 2010.

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:

	June 30,		December 31,
	2010		2009
Tianshi Investment	$	27,300,000	$	37,000,000
Tianshi Engineering		5,354,348		5,688,926
Tianjin Tianshi Life Science Co., Ltd.		148,798		55,878
All-legend Property Service (Tianjin) Co., Ltd.		126,391		77,612
Tiens SmartFlow Logistics (International) Group Ltd.		57,037		74,651
Tianshi Yinshi Hotel		36,718		36,566
Tianshi Indonesia Logistic & Trade Co., Ltd.		9,860		9,873
Tianshi Group		-		1,613,168
All-legend Hotel Management Co., Ltd.		-		2,730
Others		2,122		2,222
Total	$	33,035,274	$	44,561,626

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. 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. On April 21, 2009, the Company entered into a loan agreement with Tianshi Engineering. Pursuant to that agreement, effective as of April 1, 2009, $2,562,017 of other receivables-related parties, which originated from Tianshi Engineering as accounts receivable, became interest bearing. The loan was due on June 30, 2009 and the stated interest rate was 4.86%. Both the principal of $2,562,017 and interest on the loan of $12,624 were paid off on May 7, 2009. For the six months ended June 30, 2010, the Company did not convert any accounts receivables-related parties to other receivables-related parties.

The Company and Tianshi Group use common meters at the Company’s headquarters for electricity and water, and also use 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.

	September 30,		December 31,
	2010		2009
Tianshi Investment	$	27,300,000	$	37,000,000
Tianshi Engineering		5,682,839		5,688,926
Tianjin Tianshi Life Science Co., Ltd.		11,828,993		55,878
All-legend Property Service (Tianjin) Co., Ltd.		139,071		77,612
Tiens SmartFlow Logistics (International) Group Ltd.		-		74,651
Tianshi Yinshi Hotel		37,325		36,566
Taijisheng Health Management Co.,Ltd		4,447		-
Tianshi Indonesia Logistic & Trade Co., Ltd.		9,891		9,873
Tianshi Group		-		1,613,168
All-legend Hotel Management Co., Ltd.		37,002		2,730
Others		1,205		2,222
Total	$	45,040,773	$	44,561,626

OnHistorically, ~~December~~Tianshi ~~25,~~Engineering ~~2008,~~remitted ~~Biological~~payment ~~entered~~to athe ~~Real~~Company ~~Property~~upon ~~Transfer~~sales ~~Agreement~~to ~~(the~~third party ~~“2008~~customers. ~~Transfer~~However, ~~Agreement”)~~to ~~with~~support Tianshi ~~Group~~Engineering’s marketing efforts in anticipation of receiving a direct selling license in China, ~~pursuant~~the Company agreed to ~~which~~allow ~~Biological transferred~~Tianshi ~~four~~Engineering ~~buildings~~to atdefer payment. Balances not remitted to the Company ~~price~~within of90 ~~RMB~~days ~~32,800,000~~are ~~(or~~converted USto $4other receivables - related parties. Beginning January 1,~~797~~ 2007,~~984)~~ the other receivables - related parties became interest bearing. AsThe stated interest rate is the interest rate for the same level of ~~March~~loan 31stipulated by the People’s Bank of China. For the nine months ended September 30, 2010, the ~~amount~~Company ~~was~~did ~~paid~~not inconvert ~~full~~any byaccounts ~~Tianshi~~receivables ~~Group~~- related parties to other receivables - related parties.

On ~~November~~December 1525, ~~2009~~2008, ~~Tianshi~~Biological ~~Holdings~~entered ~~and~~into ~~Tianshi~~a ~~Investment~~Real ~~entered~~Property ~~into~~Transfer aAgreement ~~Transfer~~(the ~~Contract,~~“2008 ~~pursuant~~Transfer toAgreement”) ~~which~~with Tianshi ~~Holdings~~Group, ~~agreed~~pursuant to ~~sell~~which ~~all of the~~Biological ~~registered~~transferred ~~share~~four ~~capital~~buildings ofat ~~Tiens~~the ~~Yihai~~price itof ~~owned~~RMB to32,800,000 ~~Tianshi~~(or ~~Investment~~U.S. ~~for~~ $374,797,984).0 ~~million.~~ As of ~~June~~March 3031, 2010, ~~$9,700,000 of~~ the ~~purchase~~amount ~~price~~ was paid~~; $3,700,000~~ ~~was received~~ in ~~cash,~~full ~~while~~by ~~$6,000,000~~Tianshi ~~was offset against payables owed to Fuhong (as further described under the caption “Other payables – related parties” below~~Group.)

On November 15, 2009, Tianshi Holdings and Tianshi Investment entered into a Transfer Contract, pursuant to which Tianshi Holdings agreed to sell all of the registered share capital of Tiens Yihai it owned to Tianshi Investment for $37,000,000. As of September 30, 2010, $9,700,000 of the purchase price was paid; $3,700,000 was received in cash, while $6,000,000 was offset against payables owed to Fuhong (as further described under the caption "Other payables – related parties" below.)The remaining balance outstanding is due in November 2010.

A portion of the construction in progress recorded and paid for by Life Resources is built on the land owned by Tianshi Life Science. Tianshi Life Science intends to reimburse Life Resources for the cost of this portion of the construction in progress. The agreement is currently being drafted for the amount of RMB 78,017,869 (approximately U.S. $11,648,068). and is expected to be collected by December 31, 2010. This amount has been reclassified as other receivable - related party as of September 30, 2010, accordingly.

Advances from customers - related parties

These advances represent prepayments made to the Company to insure that related party customers could obtain enough of the Company’s products to meet their market demands. As of ~~June~~September 30, 2010 and December 31, 2009, advances from related ~~party~~ party customers amounted to $1713.10 million and $4.4 million, respectively.

Short-term debt – related party

On August 24, 2010, Tianshi Engineering and Life Resources entered into a loan agreement. In order to support the business development of Life Resources, Tianshi Engineering agreed to make a loan to Life Resources equal to the amount of outstanding advances from customers as of June 30, 2010. The amount of the loan, which was reclassified to short - term debt – related party from advances from customers, is RMB 60,000,000 (or U.S. $8,958,000), and is due in full on December 31, 2010. Interest is caculated based on the benchmark interest rate of the People's Bank of China on July 1, 2010 (5.31％APR).

Other payables - related parties

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

	June 30, 2010		December 31, 2009
	September 30, 2010		December 31, 2009
Tianshi Group	$	18,~~076~~751,~~675~~840	$	-
Tianshi Engineering		~~145~~6,~~907~~596,720		40,805
Tianshi Germany Co., Ltd.		~~101~~102,~~805~~129		107,326
Tianjin Tianshi Global International Trade Co., Ltd.		9395,~~997~~552		93,606
Tianyuan Capital Development Co. Ltd.		84,359		84,359
Tianshi Administrative Committee of Industrial Park		1415		14
Fuhong Development Co. Ltd.		-		3,000,000
Others		10		-
Total	$	115,~~502~~630,~~767~~625	$	3,326,110

These amounts arose primarily from cash advances to Life Recources from related parties to support its operations. Other amounts are for previous cash advances from related parties such as management fees due to related parties and various non-operational ~~transactions~~ transactions incurred with related parties.

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 of $6.5 million without interest. The loan was originally due on June 30, 2008, but subsequently extended, most recently to June 30, 2009 on December 31, 2008. On June 30, 2009, the loan was paid in full by the Company.

On November 10, 2009, Tianshi Holdings borrowed $3,000,000 from Fuhong Development to fund its capital contribution to Life Resources. On February 10, 2010, the loan was paid in full by canceling the same amount Tianshi Investment owed to the Company.

On March 3, 2010, Tianshi Holdings borrowed another $3,000,000 from Fuhong Development to fund its capital contribution to Life Resources. On June 11, 2010, the loan was paid in full by canceling the same amount Tianshi Investment owed to the Company.

During the third quarter of 2010, the Company received $7,614,300 and $6,270,600 from Tianshi Group and Tianshi Engineering, respectively, in order to fund a portion of the construction in progress. The amounts are expected to be returned in November, 2010.

Other Transactions with Tianshi Engineering

On October 31, 2007, Biological entered into four lease agreements with Tianshi Engineering that enable Tianshi Engineering to share the use of certain of Biological’s production workshops and equipment to manufacture products which Tianshi Engineering owns, or jointly owns, with Biological. Each of the four agreements was effective as of January 1, 2008 and ~~expired~~expires on December 31, ~~2009~~2010. On December 31, 2007, Biological entered into two supplemental agreements, which added fourteen pieces of personal care products production equipment to, and removed two health products production workshops from, two of the lease agreements ~~Biological entered into on October 31, 2007~~.

~~On December~~Rent ~~25,~~revenue ~~2008,~~accrued ~~Biological~~from ~~entered~~these ~~the~~leases amounted ~~2008~~to ~~Transfer~~$156,435 ~~Agreement~~and ~~with~~$164,670 ~~Tianshi Group~~for ~~(as~~the ~~further~~nine ~~described~~months ~~under~~ended ~~the~~September ~~caption~~30, ~~“Other~~2010 ~~receivables - related~~and ~~parties”~~2009, ~~above)~~respectively, ~~pursuant~~and to$52,705and ~~which~~$54,905 ~~Biological transferred~~for tothe ~~Tianshi~~three ~~Group~~months ~~four buildings which were covered by the above~~ended ~~mentioned~~September ~~lease agreements. Accordingly~~30, ~~the~~2010 ~~two~~and ~~lease~~2009, ~~agreements which covered production workshops expired at the end of 2008~~respectively.

Rent revenue accrued from these leases amounted to $103,730 and $109,765 for the six months ended June 30, 2010 and 2009, respectively, and $51,876 and $54,909 for the three months ended June 30, 2010 and 2009, respectively.

Other Transactions with Tianshi Group

On January 1, 2009, Biological entered into an office and facilities lease ~~agreement~~ agreement with Tianshi Group. Under the terms of the agreement, Biological’s annual rent is equal to 1% of its gross revenues. In addition, Biological is obligated to pay insurance, maintenance and other expenses related to the premises. This agreement ~~expired~~expires on December 31, ~~2009, and was renewed by Biological and Tianshi Group, effective as of January 1,~~ 2010~~, for 2010~~. On January 1, 2010, ~~Life~~ Life Resources entered an office and facilities lease agreement with Tianshi Group on the same terms as Biological’s lease agreement with Tianshi Group. The ~~Company~~ Company paid rent under ~~this~~these ~~lease~~leases in the ~~amounts~~amount of $~~259~~330,~~718~~358 and $~~302~~375,~~688~~931 for the ~~six~~ nine months ended ~~June~~September 30, 2010 and 2009, respectively, and $~~100~~70,~~492~~640 and $~~141~~73,~~700~~243 for the three months ended September ~~June~~ 30, 2010 and 2009, respectively.

20On January 1, 2009, Biological and Life Resources entered into a Lease Agreement with Tianshi Group pursuant to which Biological and Life Resources will have the right to use and occupy the workshop spaces being transferred under the 2008 Transfer Agreement. The leases are rent-free, except that Biological and Life Resources are required to pay Tianshi Group for utility charges and maintenance costs on the buildings. The leases continue until the earlier of the date that Biological and Life Resources acquire use of alternate facilities or the land use rights on the underlying property expire. For the nine months ended September 30, 2010 and 2009, Biological and Life Resources recorded $247,265 and $245,019 of the rent expense, which is not paid to Tianshi Group, but recorded as paid in capital based upon market price.

On January 1, 2009, each of Biological and Life Resources entered a Lease Agreement with Tianshi Group pursuant to which Biological and Life Resources will have the right to use and occupy the workshop spaces being transferred under the 2008 Transfer Agreement. The leases are rent-free, except that Biological and Life Resources are required to pay Tianshi Group for utility charges and maintenance costs on the buildings. The leases continue until the earlier of the date that Biological and Life Resources acquire use of alternate facilities or the land use rights on the underlying property expire. For the six months ended June 30, 2010 and 2009, Biological and Life Resources recorded $163,532 and $163,331 of the rent expense, which is not paid to Tianshi Group, but recorded as paid in capital based upon market price.

Transactions with Tianyuan Capital

On September 10, 2004, Tianshi Holdings entered a loan agreement with Tianyuan Capital to borrow $10.65 million to fund Tianshi Holdings’ contribution due to Tiens Yihai. Jinyuan Li owns 100% of Tianyuan Capital.

The loan was pre-paid in full on December 31, 2009.

Transactions with Tianshi Pharmaceuticals

On December 15, 2009, the Company entered into a one-year lease agreement with Tianshi Pharmaceuticals. Under the terms of the lease agreement, the ~~Company~~ Company leased equipment for the fee of RMB 25,383 (or USU.S. $3,714) per month. In addition, the Company is obligated to pay insurance, maintenance and other ~~expenses~~ expenses related on to the ~~equipments~~equipment. This agreement is became effective ~~from~~ on January 1, 2010 and expires on December 31, 2010. The Company has paid $2233,~~284~~605 </f ont>of ~~the~~ rent expense for the ~~six~~nine months ended ~~June~~September 30, 2010.

Note 10 – Additional product sales information

The Company has a single operating segment. All of the Company’'s revenues ~~were~~ were generated from related parties. Summarized enterprise-wide financial information concerning the Company’s revenues based on product groups is shown in the following table:

Revenue by Product Group:

	Three months ended June 30,				Six months ended June 30,
	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Wellness products	$	79,~~643~~185,~~664~~407	$	198,~~038~~575,~~898~~183	$	1726,~~809~~994,~~404~~811	$	3644,~~202~~777,~~610~~793
Dietary supplement products		~~524~~1,~~185~~196,479		1864,~~494,033~~556		12,~~761~~958,~~808~~287		23,~~567~~432,~~866~~422
Personal care products		-		~~18,105~~-		-		18,105
Total	$	810,~~167~~381,~~849~~886	$	209,~~551~~439,~~036~~739	$	1929,~~571~~953,~~212~~098	$	3848,~~788~~228,~~581~~320

Note 11 - 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.

21The Company's subsidiaries, Biological and Life Resources, were incorporated in the PRC. According to US GAAP, the following are the income tax credits granted by the Chinese government, which are significant components of income taxes associated with continuing operations required to be disclosed.

~~The Company’s~~Beginning ~~subsidiaries~~January 1, ~~Biological~~2008, ~~and~~Enterprise ~~Life~~Income ~~Resources,~~Tax ~~were~~(“EIT”) ~~incorporated~~laws ~~in the~~became ~~PRC~~effective. According to USthe ~~GAAP~~EIT, the ~~following~~standard ~~are~~tax ~~the~~rate ~~income~~is 25% and high-tech companies could be subject to a special reduced tax ~~credits~~rate ~~granted~~of 15%. The qualification of a byhigh-tech company is to be reviewed annually. For the ~~Chinese~~fiscal ~~government~~years 2008, 2009 ~~which~~and ~~are~~2010 Biological ~~significant~~qualified ~~components~~as ofa ~~income~~high-tech ~~taxes~~company. However, ~~associated~~Biological ~~with~~was ~~continuing~~required ~~operations~~by ~~required~~the local tax authority to prepay income tax at a tax rate of 25% every year, although the prepaid income tax could be ~~disclosed~~refunded in the next year. On December 17, 2009 and June 24, 2010, the prepaid income tax amounts of $1,562,168 for 2008 and $578,267 for 2009 were fully refunded.

~~Beginning January 1, 2008, Enterprise Income Tax (“EIT”) laws became effective.~~ According to the EIT, ~~the~~Life ~~standard~~Resources ~~tax~~was exempt ~~rate~~from isPRC ~~25%~~income ~~and~~taxes for ~~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. In~~ the fiscal ~~year~~years 2008 and 2009,. ~~Biological~~Beginning ~~was~~on ~~qualified~~January as1, ~~a high-tech company. However~~2010, ~~Biological~~Life ~~was required~~Resources byqualifies ~~the~~for ~~local tax authority to prepay income tax at~~ a ~~tax rate of 25~~12.5% ~~every~~ ~~year,~~reduced ~~although the prepaid income~~ tax ~~could~~rate ~~be refunded in the next year. On December 17, 2009 and June 24, 2010, the prepaid income tax amounts of $1,562,168~~ for ~~2008 and $578,267 for 2009~~three ~~were fully refunded~~years.

~~According to~~Provisions ~~the~~for ~~EIT, Life Resources could be fully exempt from PRC~~ income taxes ~~for~~were ~~two years~~all ~~starting~~current ~~from~~income ~~January 1, 2008, followed by a 12.5% reduced~~ tax ~~rate~~expenses and for the ~~next~~nine ~~three~~months ~~years.~~ended September ~~However~~30, ~~before~~2010 ~~the~~and ~~tax~~2009, ~~exemption~~were ~~qualification of Life~~$1,067,899 and ~~Resources~~$1,027,404, ~~was~~respectively, ~~approved~~and byfor the ~~tax~~three ~~authority, Life Resources was required by~~months ~~local~~ended ~~tax~~September ~~authority~~30, to2010 ~~prepay~~and ~~income~~2009 ~~tax~~were ~~at a tax rate of 25%. On October 10~~$319, ~~2008,~~776 ~~the approval was issued~~ and ~~prepaid income tax of~~ $~~685~~544,~~475~~688, ~~in Life Resources was refunded in 2009~~respectively.

~~Provisions for~~The ~~income~~following ~~taxes~~table ~~were~~reconciles ~~all current income tax expenses and for~~ the ~~six months~~U.S. ~~ended June~~statutory ~~30,~~rates ~~2010~~to ~~and 2009, were $748,123 and $482,716, respectively, and~~the ~~for~~Company's ~~the~~effective ~~three~~tax ~~months ended June 30, 2010 and 2009 were $138,621 and $123,101, respectively.~~rate:

~~The following table reconciles the U.S. statutory rates to the Company’s effective tax rate:~~22

	Three months ended June 30,						Six months ended June 30,
	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
U.S. Statutory rate		34.0	%		34.0	%		34.0	%		34.0	%
Foreign income not recognized		(34.0	)		(34.0	)		(34.0	)		(34.0	)
China income taxes		25.0			25.0			25.0			25.0
Effect of reduced tax rate		(710.13	)		(239.80	)		(9.78	)		(2220.6	)
Total provision for income taxes		1714.97	%		116.20	%		15.32	%		24.4	%

The estimated tax savings due to the reduced tax rate for the ~~six~~nine months ended ~~June~~ September 30, 2010 and 2009 amounted to $~~611~~889,~~612~~ 667 and $3,~~565~~715,~~280~~841, respectively. The net effect on earnings per share if the income tax had been applied would decrease earnings per share for the nine ~~six~~ months ended ~~June~~September 30, 2010 and 2009 by $0.01 and $0.05, respectively.

Note 12 – Retirement plan

Regulations in the PRC require the Company to contribute to a defined contribution retirement plan for all employees. All Company employees are entitled to a retirement pension amount calculated based upon salary at date of retirement and length of service in accordance with a government managed pension plan. The PRC government is responsible for the pension liability to the retired staff.

22The Company is required to make contributions to the state retirement plan at 20% of the employees' monthly salaries. Employees are required to contribute 8% of their salaries to the plan. Total pension expense incurred by the Company amounted to $770,476 and $699,755 for the nine months ended September 30, 2010 and 2009, respectively, and $237,593 and $248,394 for the three months ended September 30, 2010 and 2009, respectively.

The Company isalso ~~required~~has toan ~~make~~unemployment insurance ~~contributions~~plan tofor ~~the~~its ~~state~~employees. ~~retirement~~The plan atrequires 20each 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 ~~employees’~~contribution ~~monthly~~of ~~salaries~~each participant. ~~Employees~~The ~~are~~Company ~~required~~made contributions to ~~contribute~~the unemployment 8%insurance plan of ~~their~~ ~~salaries~~$76,001 and $70,280 for the nine months ended September 30, 2010 and 2009, respec tively, and $24,590 and $24,293 for the three months ended September 30, 2010 and 2009, respectively. All contributions are paid to a PRC insurance company, which in turn, is responsible for the ~~plan~~unemployment liability. Pursuant ~~Total~~to ~~pension~~the Company’s ~~expense~~medical ~~incurred~~insurance byplan for its employees, the Company is required to pay an ~~amounted~~amount equal to ~~$532~~10% of its employees' salary to a PRC insurance company,~~883~~ which amounted to $389,237 and $~~451~~357,~~361~~105 for the ~~six~~nine months ended ~~June~~September 30, 2010 and 2009, respectively, and $~~271~~121,~~251~~139 and $~~230~~125,~~448~~346 for the three months ended ~~June~~ September 30, 2010 and 2009, 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 $51,411 and $45,987 for the six months ended June 30, 2010 and 2009, respectively, and $26,103 and $23,566 for the three months ended June 30, 2010 and 2009, respectively. All contributions are paid to a PRC insurance company, which in turn, is responsible for the unemployment liability. Pursuant to the Company’s medical insurance plan for its employees, the Company is required to pay an amount equal to 10% of its employees’ salary to a PRC insurance company, which amounted to $268,098 and $231,759 for the six months ended June 30, 2010 and 2009, respectively, and $136,431 and $118,329 for the three months ended June 30, 2010 and 2009, respectively.

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 and references to “renminbi” or “RMB” are to the People’s Republic of China Renminbi. References to “we”, “us”, “our”, 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. Our operations are conducted from our headquarters in Tianjin, People’s Republic of China (“China” or the “PRC”) through our 80% owned subsidiary, Tianjin Tianshi Biological Development Co. Ltd. (“Biological”) and our wholly-owned subsidiary, Tianjin Tiens Life Resources Co., Ltd. (“Life Resources”). We sell our products to affiliated companies in China and internationally.

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

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. Tianshi Engineering is 100% owned by Tianjin Tianshi Group Co., Ltd. (“Tianshi Group”). Tianshi Group is 90% owned by Jinyuan Li, our Chairman, President, CEO and ~~CEO~~Acting CFO, and 10% owned by Baolan Li, Jinyuan Li’s daughter, who is a member of our Board of Directors.

Life Resources is currently constructing research and development, manufacturing and logistic facilities, as well as administrative offices in Tianjin, China totaling approximately 420,000 square meters. We moved our administrative offices to the newly constructed Industrial Park on October 16, 2010. We expect to complete the move of our other facilities during the fourth quarter of 2010 and during 2011.

~~Life Resources~~RESULTS isOF ~~currently~~OPERATIONS ~~constructing~~FOR ~~research and development, manufacturing and~~THE ~~logistic~~THREE ~~facilities,~~AND asNINE ~~well~~MONTHS asENDED ~~administrative~~SEPTEMBER ~~offices in Tianjin~~30, ~~China totaling~~2010 ~~approximately~~COMPARED ~~420,000~~TO ~~square~~THE ~~meters. We~~THREE ~~intend~~AND ~~to move our~~NINE ~~headquarters~~MONTHS toENDED ~~these~~SEPTEMBER ~~new~~30, ~~facilities once they are completed.~~2009

	Three months ended September 30,									Nine months ended September 30,
	2010			2009						2010			2009
	(Unaudited)			(Unaudited)			Change			(Unaudited)			(Unaudited)			Change
REVENUE - RELATED PARTIES	$	10,381,886		$	9,439,739			10.0	%	$	29,953,098		$	48,228,320			-37.9	%

COST OF SALES		4,145,014			3,144,650			31.8	%		10,623,742			14,997,118			-29.2	%

GROSS PROFIT		6,236,872			6,295,089			-0.9	%		19,329,356			33,231,202			-41.8	%

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		4,060,812			2,916,202			39.3	%		11,627,456			10,061,729			15.6	%

INCOME FROM OPERATIONS		2,176,060			3,378,887			-35.6	%		7,701,900			23,169,473			-66.8	%

(Interest expense)		(117,165	)		(40,363	)		190.3	%		(117,165	)		(146,180	)		-19.8	%
Interest income		2,523			76,154			-96.7	%		8,241			262,701			-96.9	%
Other income (expense)		120,665			(16,122	)		-848.4	%		(551,305	)		(89,554	)		515.6	%
OTHER (EXPENSE) INCOME, NET		6,023			19,669			-69.4	%		(660,229	)		26,967			-2548.3	%

INCOME BEFORE PROVISION FOR INCOME TAXES		2,182,083			3,398,556			-35.8	%		7,041,671			23,196,440			-69.6	%

PROVISION FOR INCOME TAXES		319,776			544,688			-41.3	%		1,067,899			1,027,404			3.9	%

NET INCOME		1,862,307			2,853,868			-34.7	%		5,973,772			22,169,036			-73.1	%

LESS: Net income attributable to the noncontrolling interest		141,849			617,638			-77.0	%		605,989			1,163,683			-47.9	%

NET INCOME ATTRIBUTABLE TO TIENS BIOTECH GROUP	$	1,720,458		$	2,236,230			-23.1	%	$	5,367,783		$	21,005,353			-74.4	%

WEIGHTED AVERAGE NUMBER OF SHARES, BASIC AND DILUTED		71,333,586			71,333,586						71,333,586			71,333,586

EARNINGS PER SHARE, BASIC AND DILUTED	$	0.02		$	0.03					$	0.08		$	0.29

Revenue. For the third quarter of 2010, revenue was $10.4 million, an increase of 10.0% compared to $9.4 million for the same period in 2009. For the nine months ended September 30, 2010, revenue was $30.0 million, a decrease of 37.9% compared to $48.2 million for the same period in 2009. The decrease in revenue for the first nine months of 2010 was due to the decrease of 59.5% in international sales.

For the third quarter of 2010, revenue in China was $6.2 million, an increase of 31.9% compared to $4.7 million for the same period in 2009. For the nine months ended September 30, 2010, revenue in China was $17.4 million, a 1.6% increase compared to $17.1 million for the same period in 2009. Third quarter sales for 2009 were down due to domestic distributors stocking up on our products in prior quarters. Therefore, the sales for the same quarter in 2010 increased. The amount of domestic sales this quarter approximates the average quarterly sales in 2009.

For the third quarter of 2010, international revenue was $4.2 million, a decrease of 11.4% compared to $4.8 million for the same period in 2009. For the nine months ended September 30, 2010, international revenue was $12.6 million, a decrease of 59.5% compared to $31.2 million for the same period in 2009. The reasons for the decrease in international revenue include, but are not limited to the following: (1) During 2008, China’s Administration of Quality Supervision, Inspection and Quarantine (“AQSIQ”) carried out a national campaign against unsafe food and substandard products, which brought on a general slow-down and backlog of export clearances for Chinese food products. Upon the lifting of the regulations, overseas affiliated companies began to purchase more products, thereby increasing sales in the first three quarters of 2009; (2) Our Indonesia affiliated company has not purchased from us during the first </f ont>nine months 2010, given they purchased more products in 2009 after the 2008 product scarcity for the reason noted above. During the first half of 2009, our Indonesia affiliated company purchased $9.2 million of finished and unfinished product from us, which was 2.7 times their purchases for the first half of 2008. In addition, local Original Equipment Manufacturers (“OEM”) have been producing the healthcare products with our unfinished goods for the country, and their total sales dropped by 33%. The sales decline to Indonesia accounts for 57% of our total international revenue decline for the nine months. (3) The lasting global economic recession has generally reduced customers' buying power. During the early stages of the recession, the direct selling business is generally benefited with the new sales force joined by the unemployed population. This positive effect has been fading away during the later stages of the recession; (4) Our affiliated companies in many regions have made certain adjustments to their marketing programs and reorganizations at their branch and higher levels, which is expected to boost sales performance over the long-run but negatively affect sales in the short-run.

~~RESULTS~~Cost of OFsales. ~~OPERATIONS~~Cost ~~FOR~~of ~~THE~~sales ~~THREE~~for ~~AND~~the ~~SIX~~third quarter ~~MONTHS~~of ~~ENDED~~2010 ~~JUNE~~increased to $4.1 million, or by 31.8%, compared to $3.1 million for the same period in 2009. For the nine months ended September 30, 2010, ~~COMPARED~~cost of TOsales ~~THE~~was $10.6 million, a decrease of 29.2% compared to $15.0 million for ~~THREE~~the ~~AND~~same ~~SIX~~period ~~MONTHS~~in ~~ENDED~~2009. The ~~JUNE~~increase 30in cost of sales for the current quarter, as compared to the same quarter of 2009, is due to the sale of products with higher costs.

	Three months ended June 30,									Six months ended June 30,
	2010			2009						2010			2009
	(Unaudited)			(Unaudited)			Change			(Unaudited)			(Unaudited)			Change
REVENUE – RELATED PARTIES	$	8,167,849		$	20,551,036			-60.3	%	$	19,571,212		$	38,788,581			-49.5	%
COST OF SALES		3,037,847			6,117,409			-50.3	%		6,478,728			11,852,468			-45.3	%
GROSS PROFIT		5,130,002			14,433,627			-64.5	%		13,092,484			26,936,113			-51.4	%
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES		4,069,097			4,014,591			1.4	%		7,566,644			7,145,527			5.9	%
INCOME FROM OPERATIONS		1,060,905			10,419,036			-89.8	%		5,525,840			19,790,586			-72.1	%
(Interest expense)		-			(53,201	)		-100.0	%		-			(105,817	)		-100.0	%
Interest income		3,846			100,779			-96.2	%		5,718			186,547			-96.9	%
Other expense		(418,260	)		(28,144	)		1386.1	%		(671,970	)		(73,432	)		815.1	%
OTHER (EXPENSE) INCOME, NET		(414,414	)		19,434			-2232.4	%		(666,252	)		7,298			-9229.2	%
INCOME BEFORE PROVISION FOR INCOME TAXES		646,491			10,438,470			-93.8	%		4,859,588			19,797,884			-75.5	%
PROVISION FOR INCOME TAXES		138,621			123,101			12.6	%		748,123			482,716			55.0	%
NET INCOME		507,870			10,315,369			-95.1	%		4,111,465			19,315,168			-78.7	%
LESS: Net income attributable to the noncontrolling interest		122,083			139,071			-12.2	%		464,140			546,045			-15.0	%
NET INCOME ATTRIBUTABLE TO TIENS BIOTECH GROUP	$	385,787		$	10,176,298			-96.2	%	$	3,647,325		$	18,769,123			-80.6	%
WEIGHTED AVERAGE NUMBER OF SHARES, BASIC AND DILUTED		71,333,586			71,333,586						71,333,586			71,333,586
EARNINGS PER SHARE, BASIC AND DILUTED	$	0.01		$	0.14					$	0.05		$	0.26

Gross profit. Gross profit for the third quarter of 2010 was $6.2 million, a decrease of 0.9% compared to $6.3 million for the same period in 2009. The gross profit margin for the third quarter of 2010 was 60.1%, compared to 66.7% for the same period in 2009. For the nine months ended September 30, 2010, gross profit was $19.3 million, a decrease of 41.8% compared to $33.2 million for the same period in 2010, and the gross profit margin was 64.5% compared to 68.9% for the same period in 2009. The decrease in profit margin for the current quarter is due to the following: (1) Sales of our products with more than 65% profit margins amounted to only 27.4% of revenues as compared to 31.1% in the third quarter of 2009; and (2) The U.S. dollar depreciated approximately 2% between September 30, 2009 and September 30, 2010. Our international sales are quoted in U.S. dollars and collected in RMB; therefore, our gross profit margin decreased by the same percentage as the depreciation of the dollar.

~~Revenue~~Selling, general and administrative expenses. ~~For~~Selling, ~~the~~general and administrative ~~second~~expenses were $4.1 million for the third quarter of 2010, ~~revenue~~an increase of 39.3% compared to $2.9 million for the same period in 2009. This increase was primarily due to changes in our provision for doubtful accounts. During the third quarter of 2009, based on a significant overall improvement in the aging of our accounts receivable, we reduced our provision for doubtful accounts by $80.27 million, which was recorded as a ~~decrease~~reduction of 60$0.3%7 ~~compared~~million in our bad debt toexpense. During the third quarter of 2010, based on an overall worsening in the aging of our accounts receivable, we increased our provision for doubtful accounts by $200.62 million, which was recorded as an increase of $0.2 million in our bad debt expense. Selling, general and administrative expenses as a percentage of sales were 39.1% for the third quarter of 2010 compared to 30.9% for the same period in 2009. For the ~~six~~nine months ended ~~June~~September 30, 2010, selling, ~~revenue~~general ~~was~~and administrative expenses were $1911.6 million, aan ~~decrease~~increase of 49 15.56% compared to $3810.8 1 million ~~for~~in the same period in 2009. ~~The~~This ~~decrease~~increase was mainly due to changes in ~~revenue~~our provision for ~~the~~doubtful ~~first~~accounts as described ~~six~~above. During the nine months ended September 30, 2009, we reduced our provision for doubtful accounts by $0.9 million, which was recorded as a reduction of $0.9 million in our bad debt expense. During the nine months ended September 30, 2010, ~~was~~we ~~primarily~~increased ~~due~~our toprovision for doubtful accounts by $0.1 million, which was recorded as a ~~decrease~~increase of 68$0.3%1 million in ~~international~~our bad debt expense. For the nine months ended September 30, 2010, selling, general and administrative expenses as a percentage of sales were 38.8%, compared to 20.9% for the same period in 2009.

~~For the~~Other ~~second quarter of 2010~~(expense) income, net. Other ~~revenue~~income ~~in China~~ was $40.401 million, afor ~~decrease~~the third quarter of ~~54.3%~~ 2010, compared to other income of $90.7 02 million for the same period in 2009. For the ~~six~~nine months ended ~~June~~ September 30, 2010, ~~revenue~~other inexpense ~~China~~ was $110.27 million, acompared ~~9.8%~~to ~~decrease~~other ~~compared~~income toof $120.4 03 million for the same period in 2009. ~~The~~These ~~decrease~~differences ~~was~~were mainly due to ~~domestic~~ ~~distributors’~~increase ~~reduced~~in ~~purchasing~~loss ~~demand~~based ~~following~~on ~~their~~currency ~~stocking~~translation updifferences ~~of products~~between ~~during 2009, combined with concerns about~~ the ~~world economic recovery slow down~~two periods.

~~For the~~Provision ~~second~~for ~~quarter~~income oftaxes. Provision ~~2010,~~for ~~international~~income ~~revenue~~taxes was $30.~~8 million, a decrease of~~3 ~~65.5% compared to $10.9~~ million for the ~~same~~third ~~period~~quarter inof ~~2009. For the six months ended June 30,~~ 2010, ~~international revenue was $8.4 million, a decrease of 68.3%~~ compared to $260.45 million for the same period in 2009. The ~~possible~~main ~~reasons~~reason for this ~~the~~decrease was the decrease in ~~international~~net ~~revenue~~income. ~~are~~For asthe ~~follows:~~nine ~~(1)~~months ~~During~~ended ~~2008, China’s~~September ~~Administration of Quality Supervision~~30, ~~Inspection and Quarantine carried out a national campaign against unsafe food and substandard products~~2010, ~~which~~provision ~~brought~~for onincome ataxes ~~general~~was ~~slow-down~~$1.1 ~~and~~million ~~backlog~~compared ofto ~~export~~$1.0 ~~clearances~~million for ~~Chinese food products. Upon~~ the ~~lifting~~same ~~of the regulations, overseas affiliated companies~~period ~~began to purchase more products, thereby increasing sales~~ in ~~the first two quarters of~~ 2009;. ~~(2) Particularly,~~The ~~our~~main ~~second quarter 2010 sales to~~reason ~~Indonesia,~~for ~~Russia, Vietnam and Peru further decreased due to the~~this ~~distributors~~increase inwas ~~these~~that ~~countries~~Life ~~purchasing more products in the first half of~~Resources ~~2009,~~began ~~after~~applying the ~~2008~~reduced ~~product~~income ~~scarcity for~~tax ~~the~~rate ~~reason~~of ~~noted above~~12. ~~For~~5% ~~example,~~on ~~Indonesia~~January ~~purchased~~1, ~~$9.2~~2010, ~~million from us during the~~while ~~first half~~it ~~of 2009, which~~ was ~~2.7 times their purchases for the first half~~ ofexempt ~~2008;~~from ~~(3)~~income ~~The~~tax ~~lasting global economic recession has substantially reduced~~in ~~customers’ buying power~~2009. ~~During~~According ~~the~~to ~~early stages of~~ the ~~recession~~EIT, ~~the direct~~ ~~selling~~Life ~~business~~Resources iswas ~~generally benefited~~fully ~~with~~exempt ~~the new sales force~~from ~~joined by the unemployed population. This positive effect has been fading~~paying ~~away~~PRC ~~during the later stages of the recession; (4) Our affiliated companies in~~income ~~many~~taxes ~~regions~~for ~~have~~two ~~made~~years ~~certain adjustments~~starting ~~to their~~on ~~marketing~~January ~~programs and~~1, ~~reorganization of their branch and distributor levels~~2008, followed ~~which~~by ~~is expected~~a to12.5% ~~boost~~reduced ~~sales~~tax ~~performance~~rate ~~over~~for the ~~long-run~~next ~~but~~three ~~negatively affect sales in the short-run~~years.

~~The~~Net ~~management~~income. As ofa ~~the~~result ~~Company~~of ~~believes that~~ the foregoing ~~decline~~factors, innet ~~our~~income ~~revenues~~for ~~is temporary with~~ the ~~additive~~third ~~effect~~quarter of ~~the~~2010 ~~above~~was ~~stated reasons~~$1.9 ~~The~~million, a ~~management~~decrease of ~~our~~34.7% ~~domestic~~compared ~~and~~to ~~overseas~~$2.9 ~~affiliated~~million ~~companies~~for ~~have~~the ~~indicated~~same ~~that~~period in ~~they~~2009. For ~~are~~the ~~not~~nine ~~seeing~~months ~~sizable~~ended ~~declines~~September of30, ~~their revenue~~2010, ~~and~~net ~~that~~income ~~they expect that~~was ~~the~~$6.0 ~~market~~million, ~~fluctuation~~a ~~will~~decrease beof ~~temporary~~73.1% ~~They~~compared ~~believe~~to ~~that~~$22.2 ~~revenue~~million ~~growth~~for ~~will resume in~~ the ~~near~~same ~~future, consistent with what they have achieved during the~~period ~~majority of~~in ~~the past 15 years~~2009.

Cost of Sales. Cost of sales for the second quarter of 2010 decreased to $3.0 million, or by 50.3%, compared to $6.1 million for the same period in 2009. For the six months ended June 30, 2010, cost of sales was $6.5 million, a decrease of 45.3 % compared to $11.9 million for the same period in 2009. Cost of sales for the period decreased at a slightly lower rate than revenue, primarily due to fixed costs, which do not increase or decrease in line with revenue changes.

Gross Profit. Gross profit for the second quarter of 2010 was $5.1 million, a decrease of 64.5% compared to $14.4 million for the same period in 2009. The gross profit margin for the second quarter of 2010 was 62.8%, compared to 70.2% for the same period in 2009. For the six months ended June 30, 2010, gross profit was $13.1 million, a decrease of 51.4% compared to the same period in 2010, and the gross profit margin was 66.9% compared to 69.4% for the same period in 2009. These decreases were mainly due to the decrease of revenue overall and fixed costs, which do not increase or decrease in line with revenue changes.

Selling, general and administrative expenses. Selling, general and administrative expenses were $4.1 million for the second quarter of 2010, an increase of 1.4% compared to $4.0 million for the same period in 2009. This increase was primarily due to the increase in research and development expenses. Selling, general and administrative expenses as a percentage of sales were 49.8% for the second quarter of 2010 compared to 19.5% for the same period in 2009. For the six months ended June 30, 2010, selling, general and administrative expenses were $7.6 million, an increase of 5.9% compared to $7.1 million in the same period in 2009. This increase was mainly due to the increase in research and development expense. For the six months ended June 30, 2010, selling, general and administrative expenses as a percentage of sales was 38.7%, compared to 18.4% for the same period in 2009.

Other (expense) income, net. Other expense was $0.4 million for the second quarter of 2010, compared to other income of $0.02 million for the same period in 2009. For the six months ended June 30, 2010, other expense was $0.7 million compared to other income of $0.01 million for the same period in 2009. These differences were mainly due to increase in loss based on currency translation differences between the two periods.

Provision for income taxes. Provision for income taxes was $0.1 million for the second quarter of 2010 compared to $0.1 million for the same period in 2009. For the six months ended June 30, 2010, provision for income taxes was $0.7 million compared to $0.5 million for the same period in 2009. The main reason for this increase was that Life Resources began applying the reduced income tax rate of 12.5% from January 1, 2010, while it was exempt from income tax in 2009.

Net income. As a result of the foregoing factors, net income for the second quarter of 2010 was $0.5 million, a decrease of 95.1% compared to $10.3 million for the same period in 2009. For the six months ended June 30, 2010, net income was $4.1 million, a decrease of 78.7% compared to $19.3 million for the same period in 2009.

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 $2233.65 million for the ~~six~~nine months ended ~~June~~ September 30, 2010, compared to net cash provided by operating activities of $1332.89 million for the same period of 2009. This increase was primarily due to the collection of accounts receivable and advance receipts from Tianshi Engineering for expected future shipment of product.

As of ~~June~~September 30, 2010, we had ~~positive~~negative working capital of $9.8.7 million, compared to positive working capital of $35.2 million as of December 31, 2009. ~~The~~During ~~$6.6~~the ~~million~~first ~~decrease and~~nine ~~$11.5~~months ~~million~~of ~~decrease~~the inyear, we collected $14.2 million of accounts receivable due from related parties and received $13.3 million of other ~~receivables~~payables ~~due~~and $22.8 million of advances from customers from related parties,. ~~respectively~~Simultaneously, ~~along~~the ~~with~~contractor ~~the~~payables increased to $1235.6 million. ~~increase~~The administrative building in ~~advances~~our Industrial Park ~~from~~has ~~customers~~been ~~contributed~~completed, and we have paid the construction payable in high frequency, as the construction in process increased $45.4 million compared to $17 million increase in contractor payables in the ~~majority~~first nine months 2010. Cash was $7.6 million as of ~~this~~September ~~working~~30, ~~capital~~2010, compared to $1.8 million as of December ~~decline~~31, 2009.

Net cash used in investing activities ~~decreased~~increased by $12.71 million for the ~~six~~nine months ended ~~June~~September 30, 2010 compared to the same period of 2009. During the ~~first~~ ~~six months of 2010, we collected $6 million net cash provided from investment in Life Resource. During the~~ first ~~six~~nine months of 2010, we paid $1837.86 million to contractors for construction in progress, compared to $1626.0 9 million for the same period in 2009.

Going forward, our primary requirements for cash consist of:

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

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

· the development costs of new products; and

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

~~We believe~~Should ~~that~~ the ~~cash~~cashflow ~~flow~~from ~~would~~operation be insufficient ~~sufficient~~in ~~for~~ the next twelve months~~. Thereafter~~, ~~financing~~the ~~may~~company behas ~~needed~~also toestablished credit facility ~~fund~~with ~~research~~local ~~and development~~commercial ~~efforts and operations~~bank. However, ~~but~~at this time management is ~~unable~~ atnot ~~this time~~able to determine ~~what~~the exact ~~level of~~ financing amount ~~would be~~ needed ~~or desirable then~~.

Critical Accounting Policies

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

Revenue recognition.

We sell both semi-finished products and finished products to Tianshi Engineering domestically. Revenue from the sale of semi-finished products is recognized at FOB delivery point, when the semi-finished products are sold to Tianshi Engineering. Revenue from the sale of finished products is recognized only when the related party Chinese distributor recognizes sales of our products to unaffiliated third parties. Revenues in both cases are net of value added taxes.

For overseas sales, we sell mostly finished products. We recognize revenue from international sales (outside of China) to affiliated parties, net of value added taxes, as goods are shipped and clear review by the customs department of the Chinese government.

We are generally not contractually obligated to accept returns. However, on a case by case negotiated basis, we permit customers to return products. 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 we did not receive any returns of products during the past three years, and management does not anticipate allowing any returns in ~~2010~~ 2010 related to previous revenues, no allowance for estimated returns has been recorded as of ~~June~~September 30, 2010.

Bad debts.

Our trade accounts receivables are mainly due from related companies. We have made full provision for accounts receivable-related parties aging over one year and a general allowance for doubtful debts of 0.5% of the remaining accounts receivable-related parties. Management reviews its accounts receivable on a regular basis to determine if the bad debt allowance is adequate at each year-end, paying particular attention to the age of receivables outstanding.

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 January 2010, the FASB issued new guidance for fair value measurements and disclosures which requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and 2 fair value measurements and describe the reasons for the transfers. The guidance also requires a reporting entity to present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value measurements using significant unobservable inputs (Level 3). The guidance was effective on January 1, 2010, except for disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The guidance adopted on January 1, 2010 did not have an effect on our consolidated financial statements. Adoption of the remaining guidance is not expected to have a material impact on our consolidated financial statements.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

In China, we sell our products to Tianshi Engineering, an affiliated company. Tianshi Engineering, in turn, markets and sells the products to customers through its branches and affiliated companies and at chain stores owned by individual distributors.

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 our 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.

2928

Internationally, we sell our products directly to overseas affiliates located in 54 countries, who in turn re-package the products to meet the needs of the local markets and sell to independent distributors or end users of our products. 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 our company.

	June 30, 2010		December 31, 2009
	September 30, 2010		December 31, 2009
Accounts receivable, trade – related parties, net of allowance for doubtful accounts of $1,307,687 and $1,419,178 as of June 30, 2010 and December 31, 2009, respectively	$	8,809,737	$	15,379,312
Accounts receivable, trade – related parties, net of allowance for doubtful accounts of $1,538,200 and $1,419,178 as of September 30, 2010 and December 31, 2009, respectively	$	10,795,741	$	15,379,312
Other receivables – related parties	$	3345,~~035~~040,~~274~~773	$	44,561,626
Advances from customers – related parties	$	1713,~~055~~045,~~922~~749	$	4,426,751
Other payables – related parties	$	1,502,767	$	3,326,110
Short-term debt - related party	$	8,958,000	$	-
Other payables – related parties	$	15,630,625	$	3,326,110

Revenue - Related Parties

The details of revenue-related parties are as follows:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 30,

2010

2009

2010

2009

Tianshi Engineering

46,~~415~~152,~~082~~896

94,~~669~~663,~~603~~939

1117,~~198~~351,~~355~~251

1217,~~412~~076,~~223~~163

Overseas Related Companies

34,~~752~~228,~~767~~990

104,~~881~~775,~~433~~800

812,~~372~~601,~~857~~847

2631,~~376~~152,~~358~~158

Total

810,~~167~~381,~~849~~886

209,~~551~~439,~~036~~739

1929,~~571~~953,~~212~~098

3848,~~788~~228,~~581~~320

Accounts Receivable, Trade - Related Parties

The details of accounts receivable, trade – related parties are as follows:

	June 30, 2010			December 31, 2009
	September 30, 2010			December 31, 2009
Tianshi Engineering	$	-		$	5,035,320
Overseas Related Companies		1012,~~117~~333,~~424~~941			11,763,170
Allowance for Doubtful Accounts		(1,~~307~~538,~~687~~200	)		(1,419,178	)
Total	$	810,~~809~~795,~~737~~741		$	15,379,312

3029

Other Receivables - Related Parties

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

	June 30,		December 31,
	September 30,		December 31,
	2010		2009
Tianshi Investment	$	27,300,000	$	37,000,000
Tianshi Engineering		5,~~354~~682,~~348~~839		5,688,926
Tianjin Tianshi Life Science Co., Ltd.		~~148~~11,~~798~~828,993		55,878
All-legend Property Service (Tianjin) Co., Ltd.		~~126~~139,~~391~~071		77,612
Tiens SmartFlow Logistics (International) Group Ltd.		~~57,037~~-		74,651
Tianshi Yinshi Hotel		3637,~~718~~325		36,566
Tianshi Indonesia Logistic & Trade Co., Ltd.		9,860		9,873
Taijisheng Health Management Co.,Ltd		4,447		-
Tianshi Indonesia Logistic & Trade Co., Ltd.		9,891		9,873
Tianshi Group		-		1,613,168
All-legend Hotel Management Co., Ltd.		-37,002		2,730
Others		21,~~122~~205		2,222
Total	$	3345,~~035~~040,~~274~~773	$	44,561,626

Historically, Tianshi Engineering remitted payment to usthe 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, wethe Company agreed to allow Tianshi Engineering to defer payment. ~~The~~Balances ~~credit~~not ~~terms~~remitted ~~provide~~to anthe ~~interest-free~~Company ~~credit term~~within of90 ~~three~~days ~~months. Any amounts exceeding this term~~ are ~~transferred from~~converted ~~accounts receivable - related parties~~ to other ~~receivable~~receivables - related parties. Beginning January 1, 2007, the other receivables - related parties became interest bearing. ~~once~~The astated ~~loan contract is adopted. The~~ interest rate is the interest rate, for on the ~~date~~same ~~the~~level of loan ~~commences, that is~~ stipulated by the People’s Bank of China. ~~for~~For athe ~~loan~~nine ofmonths ended September 30, 2010, the ~~same~~Company did not convert any accounts ~~level~~receivables - related parties to other receivables - related parties.

On ~~April 21~~December 25, ~~2009~~2008, ~~our~~Biological ~~company~~ entered into a ~~loan~~Real ~~agreement~~Property ~~with~~Transfer ~~Tianshi~~Agreement ~~Engineering.~~(the ~~Pursuant~~“2008 ~~to that agreement, effective as of April 1, 2009, $2,562,017 of~~Transfer ~~other~~Agreement”) ~~receivables-related~~with ~~parties, which originated from~~ Tianshi ~~Engineering as~~ ~~accounts receivable~~Group, ~~became~~pursuant ~~interest~~to ~~bearing.~~which ~~The~~Biological ~~loan~~transferred ~~was~~four ~~due~~buildings onat ~~June~~the ~~30,~~price ~~2009~~of ~~and~~RMB ~~the~~32,800,000 ~~stated~~(or ~~interest rate was 4~~U.~~86%~~S. ~~Both the principal of~~ $24,~~562~~797,~~017~~984). ~~and interest~~As ~~on the loan~~ of ~~$12,624~~March ~~were paid off on May 7~~31, ~~2009. During the first quarter of~~ 2010, wethe ~~did~~amount ~~not convert any accounts receivables-related~~was ~~parties~~paid toin ~~other~~full ~~receivables-related~~by ~~parties~~Tianshi Group.

~~Our~~On November 15, 2009, Tianshi Holdings ~~Company~~ and Tianshi ~~Group~~Investment ~~use~~entered ~~common~~into ~~meters~~a atTransfer ~~our~~Contract, ~~headquarters~~pursuant ~~for~~to ~~electricity~~which ~~and~~Tianshi ~~water,~~Holdings agreed ~~and~~to ~~also~~sell ~~used~~all of the ~~same~~registered ~~employee~~share ~~insurance~~capital ~~account.~~of ~~When making~~Tiens ~~payments~~Yihai it owned to Tianshi ~~these~~Investment ~~outside~~for ~~parties~~$37,000,000. weAs ~~usually~~of ~~pay~~September 30, 2010, $9,700,000 of the ~~fees~~purchase ~~first~~price ~~and~~was ~~then~~paid; ~~are reimbursed~~$3,700,000 bywas ~~Tianshi~~received ~~Group.~~in ~~These~~cash, ~~pro-rated~~while ~~amounts~~$6,000,000 ~~relating~~was offset against payables owed to Fuhong ~~Tianshi~~(as ~~Group~~further ~~are~~described ~~categorized~~under asthe ~~other~~caption ~~receivables~~"Other -payables – related parties" below.)

OnA portion of the construction in ~~December~~progress ~~25,~~recorded ~~2008,~~and ~~Biological~~paid ~~entered~~for aby ~~Real~~Life ~~Property~~Resources is ~~Transfer~~built ~~Agreement~~on (the ~~“2008~~ ~~Transfer~~plant ~~Agreement”)~~owned ~~with~~by Tianshi ~~Group,~~Life ~~pursuant~~Science. Tianshi Life Science intends to reimburse ~~which~~Life ~~Biological~~Resources ~~transferred~~forthe ~~four~~cost ~~buildings~~of atthis portion of the ~~price~~construction in progress. The agreement is currently being drafted for the amount of RMB 3278,~~800~~017,~~000~~869 (orapproximately USU.S. $411,~~797~~648,~~984~~068). ~~As of~~This ~~March~~amount ~~31,~~has ~~2010,~~been ~~the~~reclassified ~~amount~~as ~~was~~other ~~paid~~receivable - related inparty ~~full~~as byof ~~Tianshi~~September ~~Group~~30, 2010, accordingly.

On November 15, 2009, Tianshi Holdings and Tianshi Investment entered into a Transfer Contract, pursuant to which Tianshi Holdings agreed to sell all of the registered share capital of Tiens Yihai it owned to Tianshi Investment for $37.0 million. Tiens Yihai holds land use rights for 50 acres of land located in Shanghai, China. Tiens Yihai was originally established to build a new research and development facility, but our company suspended the proposed development in March 2007. Tianshi Holdings held 96% of the equity interest in Tiens Yihai. Tianjin Tianshi Pharmaceuticals Co., Ltd. owned the remaining 4% of Tiens Yihai’s share capital. As of June 30, 2010, $9,700,000 of the purchase price was paid; $3,700,000 was received in cash, while $6,000,000 was offset against payables owed to Fuhong (as further described under the caption “Other Payables – Related Parties” below.) The remaining $27,300,000 is payable by November 14, 2010.

Advances from Customers - Related Parties

Advances from related party customers were $1713.10 million and $4.4 million as of ~~June~~ September 30, 2010 and December 31, 2009, respectively. These advances represented prepayments made to us to insure that customers could obtain enough of our products to meet their market demands. The majority of the $177.1 6 million in advances was from Tianshi Engineering, whose sales cover the China region, and have ~~had~~h ad a higher historical sales ~~growth~~ growth rate than the overseas regions. The increase in advances reflects their outlook of business in the China region.

Short-term debt – related party

On August 24, 2010, Tianshi Engineering and Life Resources entered into a loan agreement. In order to support the business development of Life Resources, Tianshi Engineering agreed to make a loan to Life Resources equal to the amount of outstanding advances from customers as of June 30, 2010 and then they will reinforce the advances from customers to cover their purchase of next quarter . The amount of the loan, which was reclassified to short - term debt – related party from advances from customers, is RMB 60,000,000 (or U.S. $8,958,000), and is due in full on December 31, 2010. Interest is caculated based on the benchmark interest rate of the People's Bank of China on July 1, 2010 (5.31％APR).

Other Payables - Related Parties

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

	June 30, 2010		December 31, 2009
	September 30, 2010		December 31, 2009
Tianshi Group	$	18,~~076~~751,~~675~~840	$	-
Tianshi Engineering		~~145~~6,~~907~~596,720		40,805
Tianshi Germany Co., Ltd.		~~101~~102,~~805~~129		107,326
Tianjin Tianshi Global International Trade Co., Ltd.		9395,~~997~~552		93,606
Tianyuan Capital Development Co. Ltd.		84,359		84,359
Tianshi Administrative Committee of Industrial Park		1415		14
Fuhong Development Co. Ltd.		-		3,000,000
Others		10		-
Total	$	115,~~502~~630,~~767~~625	$	3,326,110

On ~~January~~ 21November 10, ~~2008~~2009, ~~Life Resources and~~ Tianshi ~~Investment entered into a loan~~Holdings ~~agreement~~borrowed $3,000,000 ~~pursuant~~from toFuhong ~~which~~Development ~~Tianshi Investment agreed~~ to ~~provide~~fund aits ~~loan~~capital tocontribution ~~Life~~to ~~Resources~~Life ~~of $6~~Resources.5 ~~million~~On ~~without interest. The loan was originally due on June~~February 3010, ~~2008~~2010, ~~but~~the ~~subsequently~~loan was ~~extended,~~paid ~~most~~in ~~recently~~full toby ~~June~~canceling ~~30,~~the ~~2009,~~same onamount ~~December~~Tianshi ~~31,~~Investment ~~2008.~~owed Onto ~~June 30, 2009, we paid~~ the ~~loan in full~~Company.

On ~~June 5,~~March ~~2009~~3, ~~Biological~~2010, Tianshi Holdings~~, Tianshi Investment and Tianshi Group~~ ~~entered~~borrowed ~~into~~another an$3,000,000 ~~agreement~~from ~~pursuant~~Fuhong Development to ~~which~~fund ~~Biological~~its ~~agreed~~capital contribution to ~~pay~~Life $3Resources.~~9 million~~ toOn ~~Tianshi~~June ~~Group~~11, ~~on behalf of Tianshi Investment~~2010, ~~Tianshi~~the ~~Investment agreed to cancel a $3.9 million~~ loan ~~owed~~was bypaid ~~Tianshi~~in ~~Holdings, and Tianshi~~full ~~Holdings~~by ~~agreed~~canceling tothe ~~cancel~~same aamount ~~$3.9~~Tianshi ~~million~~Investment ~~dividend~~ owed byto the ~~Biological~~Company.

~~On November~~During ~~10,~~the ~~2009~~third quarter of 2010, ~~Tianshi~~the ~~Holdings~~Company ~~borrowed~~received $37,~~000~~614,~~000~~ 300 and $6,270,600 from ~~Fuhong~~Tianshi ~~Development to~~Group ~~fund~~and ~~its~~Tianshi Engineering, ~~capital~~respectively, ~~contribution~~in order to ~~Life~~fund ~~Resources.~~a Onportion ~~February~~of ~~10, 2010,~~ the ~~loan~~ ~~was paid~~ construction in ~~full~~progress. The byamounts are ~~cancelling~~expected ~~the~~to ~~same~~be ~~amount~~returned ~~Tianshi~~in ~~Investment owed to~~November, ~~the Company~~2010.

Other Transactions with Tianshi Engineering

On October 31, 2007, Biological entered into four lease agreements with Tianshi Engineering that enable 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. Each of the four agreements was effective as of ~~January~~ January 1, 2008 and ~~expired~~expire on December 31, ~~2009~~2010. On December 31, 2007, Biological entered into two supplemental agreements, which added fourteen pieces of personal care products production equipment to, and removed two health products production workshops from, two of the lease ~~agreements Biological~~ ~~entered into on October 31, 2007~~agreements.

32Rent revenue accrued from these leases amounted to $156,435 and $164,670 for the nine months ended September 30, 2010 and 2009, respectively, and $52,705 and $54,905 for the three months ended September 30, 2010 and 2009, respectively.

On December 25, 2008, Biological entered the 2008 Transfer Agreement with Tianshi Group (as further described under the caption “Other Receivables – Related Parties” above), pursuant to which Biological transferred to Tianshi Group four buildings which were covered by the above mentioned lease agreements. Accordingly, the two lease agreements which covered production workshops expired at the end of fiscal 2008.31

On November 20, 2009, the lease agreement for health products production equipment and the lease agreement for personal care product production equipment were renewed by Biological and Tianshi Engineering for 2010. Following is a summary of the monthly rent payable to Biological under the two leases Biological entered into on November 20, 2009:

Lease Agreement	Monthly rent
Lease Agreement for Health Products Production Equipment	$	11,255
Lease Agreement for Personal Care Product Production Equipment	$	6,029

Other Transactions with Tianshi Group

On January 1, 2009, Biological entered into an office and facilities lease agreement with Tianshi Group. Under the terms of the agreement, Biological’s annual rent is equal to 1% of its gross revenues. In addition, Biological is obligated to pay insurance, maintenance and other expenses related to the premises. This agreement ~~expired~~expires on December 31, ~~2009 and was renewed by Biological and Tianshi Group, effective as of January 1,~~ 2010~~, for 2010~~. On January 1, 2010, Life Resources entered an office and facilities lease agreement with Tianshi Group on the same terms as Biological’s lease agreement with Tianshi Group. The Company paid rent under ~~this~~these ~~lease~~leases in the ~~amounts~~amount of $~~259~~330,~~718~~358 and $~~302~~375,~~688~~931 for the ~~six~~ nine months ended ~~June~~September 30, 2010 and 2009, respectively, and $~~100~~70,~~492~~640 and $~~141~~73,~~700~~ 243 for the three months ended ~~June~~September 30, 2010 and 2009, respectively.

On January 1, 2009, ~~each of~~ Biological and Life Resources entered into a Lease Agreement with Tianshi Group pursuant to which Biological and Life Resources will have the right to use and occupy the workshop spaces being transferred under the 2008 Transfer Agreement. The leases are rent-free, except that Biological and Life Resources are required to pay Tianshi Group for utility charges and maintenance costs on the buildings. The leases continue until the earlier of the date that Biological and Life Resources acquire use of alternate facilities or the ~~land~~ land use rights on the underlying property expire. For the ~~six~~nine months ended ~~June~~ September 30, 2010 and 2009, Biological and Life Resources recorded $~~163~~247,~~532~~ 265 and $~~163~~245,~~331~~ 019 of the rent expense, which is not paid to Tianshi Group, ~~but~~ but recorded as paid in capital based upon market price.

Transactions with Tianyuan Capital

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 the aggregate 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 used the loan proceeds to fund its capital contribution to Tiens Yihai. Mr. Jinyuan Li owns 100% of Tianyuan Capital. The loan was pre-paid in full by us on December 31, 2009.

Transactions with Tianshi Pharmaceuticals

On December 15, 2009, wethe Company entered into a one-year lease agreement with Tianshi Pharmaceuticals. Under the terms of the lease agreement, wethe Company leased equipment for the fee of RMB 25,383 (or US U.S. $3,714) per month. In addition, wethe ~~are~~Company is obligated to pay insurance, maintenance and other expenses related ~~on the~~to ~~equipments~~the equipment. This agreement isbecame effective ~~from~~on January 1, 2010 and expires on December 31, 2010. WeThe Company has paid $2233,~~284~~605 of ~~the~~ rent expense for the ~~six~~nine months ~~ended~~ ~~June~~ended September 30, 2010.

Transactions with Tianshi Life Science

A portion of the construction in progress recorded and paid for by Life Resources is built on the plant owned by Tianshi Life Science. Tianshi Life Science intends to reimburse Life Resources for the cost of this portion of the construction in progress. The agreement is currently being drafted for the amount of RMB 78,017,869 (approximately U.S. $11,648,068). This amount has been reclassified as other receivable - related party as of September 30, 2010, accordingly.

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 needs 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 us, or at all.

OFF-BALANCE SHEET ARRANGEMENTS

We have no off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4T. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness, as of the end of the period covered by this report, of our disclosure controls and procedures, as such term is defined in Exchange Act Rule 13a-15(e). Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of such date, the Company’s disclosure controls and procedures were effective.

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the ~~second~~ third quarter of 2010 that has materially affected, or is ~~reasonably~~ reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 6. EXHIBITS

The exhibits listed on the Exhibit Index are provided as part of this report.

3433

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 19, 2010
Date: November 15, 2010
	/s/ Jinyuan Li
	Jinyuan Li
	Chief Executive Officer, President and Acting Chief Financial Officer
	(Principal Executive Officer, Principal Financial and Accounting Officer)

3534

EXHIBIT INDEX

Exhibit No.		Description
10.1		Loan Agreement, dated ~~June~~August 1124, 2010 by and between ~~Tianshi~~Tianjin ~~International~~Tiens ~~Holding~~Life ~~Group~~Resources Co., Ltd., ~~Tianshi~~and ~~International~~Tianjin ~~Investment~~Tianshi ~~Group~~Biological ~~Co.,~~Engineering ~~Ltd. and Fuhong Development~~ Co., Ltd.
31.1		Certification of the Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Executive Officer and Acting Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

3635

Filing Compare · TIENS BIOTECH GROUP USA INC