- Quarterly Report (10-Q)

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 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. 17, 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)

No. 6, 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 November 12, 2010.

TIENS BIOTECH GROUP (USA), INC.

INDEX TO FORM 10-Q

		PAGE
PART I - FINANCIAL INFORMATION		3

ITEM 1. FINANCIAL STATEMENTS		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 Nine Months Ended September 30, 2010 and 2009 (Unaudited)		4

Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2010 and 2009 (Unaudited)		5

Notes to Consolidated Financial Statements (Unaudited)		6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		24

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		32

ITEM 4T. CONTROLS AND PROCEDURES		33

PART II - OTHER INFORMATION		33

ITEM 6. EXHIBITS		33

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

	September 30,		December 31,
	2010		2009
	(Unaudited)
ASSETS

CURRENT ASSETS:
Cash	$	7,632,304	$	1,848,328
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
Inventories		5,287,668		5,328,052
Other receivables		1,256,939		995,657
Other receivables - related parties		45,040,773		44,561,626
Employee advances		114,444		115,673
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
Prepaid taxes		3,001,473		407,534
Total current assets		73,560,784		69,294,375

PROPERTY, PLANT AND EQUIPMENT, net		9,910,704		10,124,483

OTHER ASSETS:
Construction in progress		170,971,153		125,572,621
Construction deposits		8,250,520		1,405,997
Intangible assets, net		12,898,229		12,864,295
Other assets		13,507,370		11,847,937
Total other assets		205,627,272		151,690,850

Total assets	$	289,098,760	$	231,109,708

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable	$	6,350,030	$	5,012,157
Advances from customers - related parties		13,045,749		4,426,751
Wages and benefits payable		808,228		1,484,852
Short-term debt - related party		8,958,000		-
Income taxes payable		570,185		-
Contractor deposits		204,451		183,395
Contractor payables		35,554,584		18,513,216
Other payables		1,164,677		1,151,551
Other payables - related parties		15,630,625		3,326,110
Total current liabilities		82,286,529		34,098,032

NON-CURRENT LIABILITIES
Deferred income		11,470,050		11,236,501
Total non current liabilities		11,470,050		11,236,501

Total liabilities		93,756,579		45,334,533

EQUITY:
Shareholders' equity of the Company:
Common stock, $0.001 par value, 250,000,000 shares authorized, 71,333,586 issued and outstanding, respectively		71,334		71,334
Paid-in-capital		18,271,518		18,042,189
Statutory reserves		16,465,144		13,217,217
Retained earnings		128,490,119		126,370,263
Accumulated other comprehensive income		21,394,864		18,262,123
Total shareholders' equity of the Company		184,692,979		175,963,126
Noncontrolling interest		10,649,202		9,812,049
Total equity		195,342,181		185,775,175
Total liabilities and equity	$	289,098,760	$	231,109,708

The accompanying notes are an integral part of this statement.

TIENS BIOTECH GROUP (USA), INC. AND SUBSIDIARIES

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 NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009 (UNAUDITED)

	Nine months ended September 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,973,772		$	22,169,036
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Bad debt expense		88,205			(902,297	)
Depreciation		1,172,597			1,662,206
Amortization		252,075			291,418
Interest expense		117,165			(9,357	)
Gain on sale of assets		(43,377	)		(14,846	)
Rental expense borne by a related party		246,623			-
(Increase) decrease in assets:
Accounts receivable, trade - related parties		4,742,772			10,678,476
Other receivables		(237,041	)		(121,058	)
Other receivables - related parties		(92,265	)		(1,306,527	)
Inventories		166,337			2,801,809
Employee advances		3,579			(80,873	)
Prepaid expense		236,536			(336,620	)
Increase (decrease) in liabilities:
Accounts payable		1,195,483			(1,687,613	)
Advances from customers - related parties		8,401,340			808,830
Wages and benefits payable		(697,018	)		(768,334	)
Deferred income taxes		217,131			-
Other taxes payable		(2,202,718	)		(31,337	)
Other payables		(8,613	)		(176,274	)
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:
Proceeds from disposal of a subsidiary		700,000			-
Collections from loans to local government		-			105,208
Construction deposits		(6,381,248	)		(3,465,755	)
Contractor deposits		16,990			85,498
Addition to construction in progress		(37,556,932	)		(26,936,754	)
Equipment deposits		(1,414,417	)		(8,700,872	)
Proceeds from sales of properties		2,668,075			17,041
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			(3,946,050	)
Increase in paid in capital		-			245,030
Net cash provided by (used in) financing activities		14,826,000			(3,701,020	)

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	$	7,632,304		$	33,502,630

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	-		$	105,817
Income taxes	$	993,857		$	871,764

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 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 o perations

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 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 U.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 at the end of each reporting period. Translation adjustments resulting from this process are included in other comprehensive income in the statement of income and other comprehensive income.

Translation adjustments amounted to $3,951,956 and $1,570,553 for the nine months ended September 30, 2010 and 2009, respectively. Asset and liability accounts at September 30, 2010 were translated at RMB 6.70 to $1.00 compared to RMB 6.84 at September 30, 2009. Equity accounts are stated at their historical rate. The average translation rates applied to income statement accounts for the nine months ended September 30, 2010 and 2009 were RMB 6.80 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 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 accounts of 0.5% of the remaining accounts receivable-related parties. Management reviews its accounts receivable on a regular basis to determine if the provision for doubtful accounts is adequate, paying particular attention to the age of receivables outstanding. At September 30, 2010 and December 31, 2009, there were no receivables due from Tianshi Engineering outstanding more than 90 days. At September 30, 2010 and December 31, 2009, receivables due from overseas related companies outstanding more than 180 days totaled $5,709,664 and $3,481,334, 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
Nine month period ended September 30, 2010
Balance at Beginning of Period	$	1,419,178
Increase in provision for Doubtful Accounts		119,022
Balance at End of Period	$	1,538,200

Nine month period ended September 30, 2009
Balance at Beginning of Period	$	1,108,789
Decrease of provision for Doubtful Accounts		(900,254	)
Balance at End of Period	$	208,535

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
Nine month period ended September 30, 2010
Balance at Beginning of Period	$	1,018,474
Increase in provision for Doubtful Accounts		21,169
Balance at End of Period	$	1,039,643

Nine month period ended September 30, 2009
Balance at Beginning of Period	$	952,071
Increase in provision for Doubtful Accounts		2,284
Balance at End of Period	$	954,355

Prepaid tax e s

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 expense as incurred. Major additions and betterments to buildings and equipment are capitalized.

Constructio n 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 relev ant assets are completed and are ready for their intended use.

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 U.S. $5,258,454). On August 28, 2008, Life Resources paid RMB 41,022,061 (or U.S. $6,024,910) for the zoning changes 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 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.

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 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 September 30, 2010 and December 31, 2009.

Advertising c osts

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 h andling

Shipping and handling costs totaled $279,651 and $314,194 for the nine months ended September 30, 2010 and 2009, respectively, and $87,015 and $71,422 for the three months ended 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 received from customers are included in revenue and the related shipping and handling costs are included in selling, general and administrative expenses.

Research and d evelopment

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 $1,255,262 and $960,484 for the nine months ended September 30, 2010 and 2009, respectively, and $330,587 and $291,764 for the three months ended September 30, 2010 and 2009, respectively. These costs are included in selling, general and 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 nine months ended 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 remain open to examination until notified by the taxing authorities, and the Company has not received any notifications to date. The Company records interest and penalties as other expense on the consolidated income and other comprehensive income statements. During the nine months ended September 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 nine months ended September 30, 2010 and 2009.

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:

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 September 30, 2010 and December 31, 2009:

	September 30,		December 31,
	2010		2009

Raw materials	$	865,062	$	1,937,306
Packaging material		541,591		729,517
Miscellaneous supplies		1,937,015		848,720
Work in process		611,083		476,529
Finished goods		1,332,917		1,335,980
Total	$	5,287,668	$	5,328,052

The Company has not written off any obsolete goods for the nine months ended September 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 September 30, 2010 and December 31, 2009 are as follows:

	September 30,		December 31,
	2010		2009
Advance to suppliers	$	393,815	$	655,443
Short-term prepaid expenses		37,627		2,750
Total	$	431,442	$	658,193

Note 6 – Property, plant and equipment, net

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

	September 30,			December 31,
	2010			2009
Buildings and improvements	$	1,591,336		$	1,558,934
Office equipment		370,434			348,284
Computer equipment and software		2,474,049			2,405,467
Machinery and equipment		14,850,650			14,211,726
Automobiles		4,952,722			4,470,909
Total		24,239,191			22,995,320
Less: accumulated depreciation		(14,328,487	)		(12,870,837	)
Property, plant and equipment, net	$	9,910,704		$	10,124,483

Depreciation expense for the nine months ended September 30, 2010 and 2009 amounted to $1,172,597 and $1,662,206, respectively, and $358,221 and $549,357 for the three months ended September 30, 2010 and 2009, respectively.

Note 7 - Intangible assets

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

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

Amortization expense for the nine months ended September 30, 2010 and 2009 amounted to $230,010 and $228,910 respectively, and $77,493 and $85,648 for the three months ended 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 (3 months remaining)	$	77,816
2011	$	304,619
2012	$	304,619
2013	$	293,294
2014	$	292,647
2015 and thereafter	$	11,625,234

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 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 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 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 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 nine months ended September 30, 2010 and 2009, no transfer was made to this fund and the amount of the Company’s enterprise fund on each of September 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 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

	September 30, 2010		December 31, 2009
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	$	45,040,773	$	44,561,626
Advances from customers – related parties	$	13,045,749	$	4,426,751
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 September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Tianshi Engineering	$	6,152,896	$	4,663,939	$	17,351,251	$	17,076,163
Overseas Related Companies		4,228,990		4,775,800		12,601,847		31,152,158
Total	$	10,381,886	$	9,439,739	$	29,953,098	$	48,228,320

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:

	September 30, 2010			December 31, 2009
Tianshi Engineering	$	-		$	5,035,320
Overseas Related Companies		12,333,941			11,763,170
Allowance for Doubtful Accounts		(1,538,200	)		(1,419,178	)
Total	$	10,795,741		$	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:

	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

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. For the nine months ended September 30, 2010, the Company did not convert any accounts receivables - related parties to other receivables - related parties.

On December 25, 2008, Biological entered into a Real Property Transfer Agreement (the “2008 Transfer Agreement”) with Tianshi Group, pursuant to which Biological transferred four buildings at the price of RMB 32,800,000 (or U.S. $4,797,984). As of March 31, 2010, the amount was paid in full by Tianshi 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 September 30, 2010 and December 31, 2009, advances from related party customers amounted to $13.0 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 a s follows:

	September 30, 2010		December 31, 2009
Tianshi Group	$	8,751,840	$	-
Tianshi Engineering		6,596,720		40,805
Tianshi Germany Co., Ltd.		102,129		107,326
Tianjin Tianshi Global International Trade Co., Ltd.		95,552		93,606
Tianyuan Capital Development Co. Ltd.		84,359		84,359
Tianshi Administrative Committee of Industrial Park		15		14
Fuhong Development Co. Ltd.		-		3,000,000
Others		10		-
Total	$	15,630,625	$	3,326,110

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

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 i n 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 1 1 , 2010, the loan was paid in f ull by canceling the same amount Tianshi I nvestment owed to the Company.

During the third quarter of 2010, the Company received $ 7,614,300 and $6,270,60 0 from Tianshi Group and Tianshi Engineering, respect ive ly , in order to fund a portion of the construc tion 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 expires on December 31, 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.

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

Other Transactions with Tia nshi 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 expires on December 31, 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 these leases in the amount of $330,358 and $375,931 for the nine months ended September 30, 2010 and 2009, respectively, and $70,640 and $73,243 for the three months ended September 30, 2010 and 2009, respectively.

On 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.

Transactions with Tianshi Pharmaceuticals

On December 15, 2009, the Company entered into a one-year lease agreement with Tianshi Pharmaceutical s . Under the terms of the leas e agreement, the Company leased equipment for the fee of RMB 25,383 ( or U . S . $3,71 4 ) per month. In addition, the Company is obligated to pay insurance, maintenance and other expenses related to the equipment. This agreement became effective on January 1, 2010 and expire s on December 31, 2010. The C ompany ha s paid $ 33,605 </f ont> of rent expense for the nine months ended September 30, 2010.

Note 10 – Additional product sales information

The Company has a single operating segment. All of the Company's revenues we re 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 September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Wellness products	$	9,185,407	$	8,575,183	$	26,994,811	$	44,777,793
Dietary supplement products		1,196,479		864,556		2,958,287		3,432,422
Personal care products		-		-		-		18,105
Total	$	10,381,886	$	9,439,739	$	29,953,098	$	48,228,320

Note 1 1 - Income taxes

The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled. The Company's subsidiary, Tianshi Holdings, was incorporated in the British Virgin Islands and is not liable for income taxes.

The Company's subsidiaries, Biologica l and Life Resource s, 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 a ssociated with continuing operations required to be disclosed.

Beginning January 1, 2008, Enterprise Income Tax (“ EIT” ) laws became effective . According to the EIT, the standard tax rate is 25% and 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. For the fiscal year s 2008, 200 9 and 20 10 Biological qualifie d as a high-tech company. However, Biological was required by the local tax authority to prepay income tax at a tax rate of 25% every year, although the prepaid income tax could 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 w ere fully refunded.

According to the E IT, Life Resources was exempt from PRC income taxes for the fiscal years 2008 and 2009. Beginning on January 1, 2010, Life Resources qualifies for a 12.5% reduced tax rate for three years.

Provisions for income taxes were all current income tax expenses a nd for the nine months end ed September 30, 20 10 and 200 9 , were $ 1,067,899 and $ 1,027,404 , respectively, and for the three months ended September 30, 20 10 and 200 9 were $ 319,776 and $ 544,68 8 , respectively .

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

	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		(10.3	)		(9.0	)		(9.8	)		(20.6	)
Total provision for income taxes		14.7	%		16.0	%		15.2	%		4.4	%

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

Note 1 2 – 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.

The 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 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 par ticipant. The Company made contributions to the unemployment insurance plan of $ 76,00 1 and $ 70,280 for the nine months end ed September 30, 2010 and 200 9 , respec tively, and $ 24,5 90 and $ 24,293 for the three months ended September 30, 20 10 and 200 9 , respecti vely. 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 empl oyees' salary to a PRC insurance company, which amounted to $ 389,23 7 and $ 357,105 for the nine months end ed September 30, 20 10 and 200 9 , respectively, and $ 121,13 9 and $ 125,346 for the three months ended September 30, 20 10 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 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.

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED TO THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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, a n increase of 10.0% compar ed 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 wa s due to the decrease of 59. 5 % in international sales.

For the third quarter of 2010, revenue in China was $6.2 million, a n 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 Ch ina was $17.4 million, a 1. 6 % increase compared to $17.1 million for the same period in 2009. T hird quarter sale s f or 2009 w ere down due to domestic distributors stock ing up on our products in prior quarters . Therefore , the sale s f or the same quarter in 20 10 increased. T he amount of domestic sales this quarter approximates the average quarter ly 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 follow in g : (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 C hinese 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 purchase d from us during th e first </f ont> nine months 2010 , given the y purchas ed more products in 2009 after the 2008 product scarcity for the reason noted above. D uring 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, l ocal Original Equipment Manufacture rs ( “ OEM ” ) ha ve been produc ing 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 int ernational revenue decline for the nine m o nths. ( 3 ) The lasting global economic recession has generally reduced customers' buying power. During the early stages of the recession, the direct selli ng 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 the ir marketing program s and reorganization s at the ir branch and higher levels, which is expected to boost sales performance over the long-run but negatively affect sales in the short-run.

Cost of s ales . Cost of sales for the third quarter of 2010 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, cost of sales was $10.6 million, a decrease of 29.2% compared to $15.0 million for the same period in 2009. The increase in 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.

Gross p rofit . 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.

Selling, general and administrative expenses . Selling, general and administrative expenses were $4.1 million for the third quarter of 2010, 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 $0.7 million, which was recorded as a reduction of $0.7 million in our bad debt expense. 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 $0.2 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 nine months ended September 30, 2010, selling, general and administrative expenses were $11.6 million, an increase of 15.6% compared to $10.1 million in the same period in 2009. This increase was mainly due to changes in our provision for doubtful accounts as described 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, we increased our provision for doubtful accounts by $0.1 million, which was recorded as a increase of $0.1 million in 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.

Other (expense) income, net . Other income was $0.01 million for the third quarter of 2010, compared to other income of $0.02 million for the same period in 2009. For the nine months ended September 30, 2010, other expense was $0.7 million compared to other income of $0.03 million for the same period in 2009. T he se difference s w ere mainly due to increase in loss based on currency tra nslation differences between the two periods.

Provision for income taxes . P rovision for income taxes was $0.3 million for the third quarter of 2010 compared to $0.5 million for the same period in 2009. The main reason for this decrease was the decrease in net income. For the nine months ended September 30, 2010, provision for income taxes was $1.1 million compared to $1.0 million for the same period in 2009. The main reason for this increase was that Life Resources began applying the reduced income tax ra te of 12.5% on January 1, 2010, while it was ex e mpt from income tax in 2009. According to the EIT, Life Resources was fully exempt from paying PRC income taxes for two years starting on January 1, 2008, followed by a 12.5% reduced tax rate for the next thr ee years .

Net income . As a result of the foregoing factors, net income for the third quarter of 2010 was $1.9 million, a decrease of 34.7% compared to $2.9 million for the same period in 2009. For the nine months ended September 30, 2010, net income was $6.0 million, a decrease of 73.1% compared to $22.2 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 $33.5 million for the nine months ended September 30, 2010, compared to net cash provided by operating activities of $32.9 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 September 30, 2010, we had negative working capital of $8.7 million, compared to positive working capital of $35.2 million as of December 31, 2009. During the first nine months of the year, we collected $14.2 million of accounts receivable due from related parties and received $13.3 million of other payables and $22.8 million of advances from customers from related parties. Simultaneously, the contractor payables increased to $35.6 million. The administrative building in our Industrial Park has been 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 first nine months 2010. Cash was $7.6 million as of September 30, 2010, compared to $1.8 million as of December 31, 2009.

Net cash used in investing activities increased by $2.1 million for the nine months ended September 30, 2010 compared to the same period of 2009. During the first nine months of 2010, we paid $37.6 million to contractors for construction in progress, compared to $26.9 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 logis tic 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.

Should the cashflow from operation be insufficient in the next twelve months, the company has also established credit facility with local commercial bank. However, at this time management is not able to determine the exa ct financing amount needed .

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 finis hed products to Tianshi Engineering domestically. Revenue from the sale of semi-finished products i s recognized at FOB delivery point , when the semi-finished products are sold to Tianshi Engineering. Revenue from the sale of finished products is recognize d only when the related party Chinese distributor recognize s 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 internat ional 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 u ltimately 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 20 10 related to previous revenues, no allowance for estimated returns has bee n recorded as of September 3 0 , 20 10 .

Bad debts .

Our trade accounts receivables are mainly due from related companies. We have made full provision for accounts re ceivable-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 a dequate at each year-end, paying particular attention to the age of receivable s 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 good s or to determine if any reserves are necessary for potential obsolescence.

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 an d 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 p r ice 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 p e rcentage 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.

Internationally, we sell our products directly to overseas affiliates located in 54 countri es , 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 ar e 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.

	September 30, 2010		December 31, 2009
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	$	45,040,773	$	44,561,626
Advances from customers – related parties	$	13,045,749	$	4,426,751
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 September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Tianshi Engineering	$	6,152,896	$	4,663,939	$	17,351,251	$	17,076,163
Overseas Related Companies		4,228,990		4,775,800		12,601,847		31,152,158
Total	$	10,381,886	$	9,439,739	$	29,953,098	$	48,228,320

Accounts Receivable, Trade - Related Parties

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

	September 30, 2010			December 31, 2009
Tianshi Engineering	$	-		$	5,035,320
Overseas Related Companies		12,333,941			11,763,170
Allowance for Doubtful Accounts		(1,538,200	)		(1,419,178	)
Total	$	10,795,741		$	15,379,312

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:

	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

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. For the nine months ended September 30, 2010, the C ompany did not co nvert any accounts receivables - related parties to other receivables - related parties.

On December 25, 2008, Biological entered into a Real Property Transfer Agreement (the “ 2008 Transfer Agreement” ) with Tianshi Group, pursuant to which Biological tran sferred four buildings at the price of RMB 32,800,000 (or U.S. $4,7 97,984 ). As of March 31, 2010, the amount was paid in full by Tianshi Group.

On November 15, 2009, Tianshi Holdings and Tianshi Investment entered into a Transfer Contract, pursuant to whi ch 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 3 0 , 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.)

A portion of the construction in progress recorded and paid for by Life Resource s is built on the plant owned by Tianshi Life Scienc e. 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 (a pproximately U.S. $ 11,648,068 ). This amount has been reclas sified as other receivable - related party as of September 30, 2010 , accordingly .

Advances from Customers - Related Parties

Advances from related party customers were $ 13.0 million and $ 4. 4 million as of September 3 0 , 20 10 and December 31, 200 9 , respecti vely. These advances represented prepayments made to us to insure that customers could obtain enough of our products to meet their market demands. The m ajority of the $ 7.6 million in advances was from Tianshi Engineering, wh ose sales cover the China regio n, and have h ad a higher historical sales growth rate than the overseas regions. T h e increase in advances reflect s their outlook of business in the China region .

Short-term debt – related party

On August 24, 2010, Tianshi Engineering and Life Resource s entered into a loan agreement . In order to support the business development of Life Resource s, Tianshi Engineering agree d to make a loan to Life Resource s equal to the amount of outstanding advances from customers as of June 30, 2010 and then they will rei nforce the advances from customers to cover their purchase of next quarter . The amount of the loan , which was reclassified to s hort - term d ebt – r elated p arty from advances from customers , is RMB 60,000,000 (or U.S. $ 8,958,000) , and is due in full on Dec ember 31, 2010. Interest is caculated based on the benchmark interest rate of the P eople's B ank of C hina o n 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 r elated parties and various non-operational transactions incurred with related parties.

	September 30, 2010		December 31, 2009
Tianshi Group	$	8,751,840	$	-
Tianshi Engineering		6,596,720		40,805
Tianshi Germany Co., Ltd.		102,129		107,326
Tianjin Tianshi Global International Trade Co., Ltd.		95,552		93,606
Tianyuan Capital Development Co. Ltd.		84,359		84,359
Tianshi Administrative Committee of Industrial Park		15		14
Fuhong Development Co. Ltd.		-		3,000,000
Others		10		-
Total	$	15,630,625	$	3,326,110

On November 10, 2009, Tianshi Holdings borrowed $3,000,000 from Fuhong Development to fund its capital contribution to Life Resources. On Fe bruary 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 J une 11, 2010, the loan was paid in full by canceling the same amount Tianshi I nvestment owed to the Company.

During the third quarter of 2010, the Company received $7,614,300 and $6,270,60 0 from Tianshi Group and Tianshi Engineering, respect ive ly , in ord er 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 tha t 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 expire on December 31, 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.

Rent 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, 20 10 and 200 9 , respect ively .

Other Transactions with Tianshi Group

Transactions with Tianshi Pharmaceuticals

On December 15, 2009, the Company entered into a one-year lease agreement with Tianshi Pharmaceu tical s . Under the terms of the lease agreement, the Company leased equipment for the fee of RMB 25,383 (or U . S . $3,71 4) per month. In addition, the Company is obligated to pay insurance, maintenance and other expenses related to the equipment. This agreem ent became effective on January 1, 2010 and expire s on December 31, 2010. The C ompany ha s paid $ 33,605 of rent expense for the nine months 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 am ount 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 assumpti ons 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 i f 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 4 T . 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 third quarter of 20 10 that has materially affected, or is 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.

SIGNATURES

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

Date : November 15 , 2010

	/s/ Jinyuan Li

	Jinyuan Li
	Chief Executive Officer, President and Acting Chief Financial Officer
	(Principal Exe cutive Officer, Principal Financial and Accounting Officer)

EXHIBIT INDEX

Exhibit No.		Description

10.1		Loan Agreement, dated August 24 , 2010 by and between Tianjin Tiens Life Resources Co., Ltd. and Tianjin Tianshi Biological Engineering 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.

3 1 . 2		Certification of the Chief Executive Officer and Acting Chief Fina ncial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002