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 and CEO, and 10% owned by Baolan Li, Jinyuan Li's daughter.

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 intend to move our headquarters to these new facilities once they are completed.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30 2009 COMPARED
TO THE THREE AND SIX MONTHS ENDED JUNE 30, 2008

                              Three months ended June 30,                         Six months ended June 30,
                                 2009               2008                            2009              2008
                              (Unaudited)       (Unaudited)        Change        (Unaudited)      (Unaudited)        Change
REVENUE - RELATED PARTIES   $    20,551,036     $ 19,654,447            4.6 %   $  38,788,581     $ 32,475,268           19.4 %

COST OF SALES                     6,117,409        6,203,705           -1.4 %      11,852,468       10,243,765           15.7 %

GROSS PROFIT                     14,433,627       13,450,742            7.3 %      26,936,113       22,231,503           21.2 %

SELLING, GENERAL
AND ADMINISTRATIVE
EXPENSES                          4,014,591        5,088,597          -21.1 %       7,145,527        8,335,796          -14.3 %

INCOME FROM OPERATIONS           10,419,036        8,362,145           24.6 %      19,790,586       13,895,707           42.4 %

OTHER (EXPENSE) INCOME,
NET                                  19,434       (1,057,848 )       -101.8 %           7,298         (613,677 )       -101.2 %

INCOME BEFORE PROVISION
FOR INCOME TAXES                 10,438,470        7,304,297           42.9 %      19,797,884       13,282,030           49.1 %

PROVISION FOR INCOME
TAXES                               123,101        1,664,054          -92.6 %         482,716        3,144,448          -84.6 %

NET INCOME                       10,315,369        5,640,243           82.9 %      19,315,168       10,137,582           90.5 %

LESS: Net income
attributable to the
noncontrolling interest             139,071          998,642          -86.1 %         546,045        1,887,079          -71.1 %

NET INCOME ATTRIBUTABLE
TO TIENS BIOTECH GROUP      $    10,176,298     $  4,641,601          119.2 %   $  18,769,123     $  8,250,503          127.5 %

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                 $          0.14     $       0.07                    $        0.26     $       0.12

Revenue. For the second quarter of 2009, revenue was $20.6 million, an increase of 4.6% compared to $19.7 million for the same period in 2008. For the six months ended June 30, 2009, revenue was $38.8 million, an increase of 19.4% compared to $32.5 million for the same period in 2008. The increase in revenue for the first six months of 2009 was primarily driven by an increase of 47.7% in international sales. The breakdown of revenue between Chinese and international sales is as follows.

                  Three months ended June 30,                      Six months ended June 30,
                     2009               2008         Change          2009              2008         Change
China           $     9,669,603     $  8,509,932        13.6 %   $  12,412,223     $ 14,615,711       -15.1 %
International   $    10,881,433     $ 11,144,515        -2.4 %   $  26,376,358     $ 17,859,557        47.7 %
Total           $    20,551,036     $ 19,654,447         4.6 %   $  38,788,581     $ 32,475,268        19.4 %

For the second quarter of 2009, revenue in China was $9.7 million, an increase of 13.6% compared to $8.5 million for the same period in 2008. This increase in domestic revenue was due to increased marketing efforts in China. For the six months ended June 30, 2009, revenue in China was $12.4 million, a 15.1% decrease compared to $14.6 million for the same period in 2008. The decrease in revenue for the first six months of 2009 was primarily due to the 55.1% decrease in revenue during the first quarter of 2009, which management believes was due to customers' reduced purchasing demand after stocking up on certain products during the third quarter of 2008 as a result of the price increase announcement by Tianshi Engineering during that quarter.

For the second quarter of 2009, international revenue was $10.9 million, a decrease of 2.4% compared to $11.1 million for the same period in 2008. This decrease in international revenue was mainly due to a decrease in sales in Europe-Asia region by $2.9 million in the second quarter of 2009, as compared to the second quarter of 2008. For the six months ended June 30, 2009, international revenue was $26.4 million, an increase of 47.7% compared to $17.9 million for the same period in 2008. This increase in international revenue for the first six months of 2009 was mainly due to the increased international revenue for the first quarter of 2009. From August 2007 to the end of 2008, China's Administration of Quality Supervision, Inspection and Quarantine ("AQSIQ") announced an ongoing national campaign in China against unsafe food and substandard products, which brought on a general slow-down and backlog of export clearances for Chinese food products. As a result our sales in international countries in the first quarter of 2008 were adversely affected. In the first quarter of 2009, our sales in international countries improved after the end of the AQSIQ export restrictions.

Cost of Sales. Cost of sales for the second quarter of 2009 decreased to $6.1 million, or by 1.4%, compared to $6.2 million for the same period in 2008. This decrease was mainly due to the decrease in the cost of some materials, such as capsules. For the six months ended June 30, 2009, cost of sales was $11.9 million, an increase of 15.7% compared to $10.2 million for the same period in 2008. Cost of sales for the period increased 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 2009 was $14.4 million, an increase of 7.3% compared to $13.5 million for the same period in 2008. The gross profit margin for the second quarter of 2009 was 70.2%, compared to 68.4% for the same period in 2008. For the six months ended June 30, 2009, gross profit was $26.9 million, an increase of 21.2% compared to the same period in 2008, and the gross profit margin was 69.4% compared to 68.5% for the same period in 2008. These increases were mainly due to the increase of revenue overall and the increase in the portion of the products we sold bearing a higher profit margin than that for the same period of 2008.

Selling, general and administrative expenses. Selling, general and administrative expenses were $4.0 million for the second quarter of 2009, a decrease of 21.1% compared to $5.1 million for the same period in 2008. The selling and administrative expenses as a percentage of sales was 19.5% for the second quarter of 2009 compared to 25.9% for the same period in 2008. This decrease was primarily due to the decrease in salary and insurance expenses as a result of salary reductions and reduced headcount, research and development expenses and commission expenses. For the six months ended June 30, 2009, selling, general and administrative expenses were $7.1 million, a decrease of 14.3% compared to $8.3 million in the same period in 2008. For the six months ended June 30, 2009, selling, general and administrative expenses as a percentage of sales was 18.4%, compared to 25.7% for the same period in 2008. This decrease was mainly due to the decrease in salary and insurance expenses.

Other income (expense), net. Other income was $0.02 million for the second quarter of 2009, compared to $1.1 million of expense for the same period in 2008. The difference was primarily due to a $1.2 million donation we made in June 2008 towards the Sichuan earthquake relief efforts. For the six months ended June 30, 2009, other income was $0.01 million compared to $0.6 million of expense for the same period in 2008. The difference was primarily due to the $1.2 million donation in June 2008 and the large gain on translation of currency from the fluctuation of foreign currency translation rate for the six months ended June 30, 2008.

Provision for income taxes. Provision for income taxes was $0.1 million for the second quarter of 2009 compared to $1.7 million for the same period in 2008. For the six months ended June 30, 2009, provision for income taxes was $0.5 million compared to $3.1 million for the same period in 2008. Beginning on January 1, 2008, new Enterprise Income Tax ("EIT") laws became effective and replaced the previous laws for Foreign Invested Enterprises ("FIEs"). A new standard EIT rate of 25% will apply to FIEs. According to the new EIT, high-tech companies could be subject to a special reduced tax rate of 15%. The qualification of a high-tech company is to be reviewed annually. In November 2008, Biological was qualified as a high-tech company. Previously, Biological paid income tax at the rate of 25%. However, Biological was required by the local tax authority to prepay income tax at tax rate of 25% every year, and the prepaid income tax could be refunded in the next year. In addition, beginning in June 2008, we transferred production and sale of semi-finished products from Biological to Life Resources. Life Resources is located in Tianjin Wuqing Development Area, a national new technology development zone. Pursuant to the approval of the relevant PRC tax authorities, Life Resources is fully exempt from PRC income taxes for two years starting from the year profits are first made, followed by a 7.5% reduced tax rate for the next three years.

Net income. As a result of the foregoing factors, net income for the second quarter of 2009 was $10.3 million, an increase of 82.9% compared to $5.6 million for the same period in 2008. For the six months ended June 30, 2009, net income was $19.3 million, an increase of 90.5% compared to $10.1 million for the same period in 2008. This increase reflects the increase in sales. In addition, beginning in June 2008, we transferred production of semi-finished products and sale from Biological to Life Resources, which has the exemption from PRC income taxes described above.

Other comprehensive income. Other comprehensive income decreased to $0.01 million for the second quarter of 2009, compared to $2.7 million for the same period in 2008. For the six months ended June 30, 2009, other comprehensive income was $0.2 million, compared to $7.1 million for the same period in 2008. This decrease was mainly due to the slowdown in the rate of increase in the value of the renminbi against the dollar for in for the six months ended June 30, 2009 compared to the same period in 2008. Other comprehensive income represents foreign currency translation adjustments for the period. Accumulated other comprehensive income was recorded in Biological, Tiens Yihai and Life Resources due to balance sheet translations. Accumulated other comprehensive income was recorded in Tianshi Holdings due to the effect of foreign exchange rate on dividend receivables from Biological.

Financial Condition, Liquidity and Capital Resources

Going forward, our primary requirements for cash consist of:

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

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

o the development costs of new products; and

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

We estimate that the completion of the Life Resources project will require approximately $220 million, including the $64 million already spent to acquire all of the registered share capital of Life Resources and $57.0 million spent on the project from January 1, 2008 to June 30, 2009. We intend to construct the facilities in phases over several years, based on available cash and capacity needs. Depending on the rate of construction and our cash flow, it is likely that we will require additional financing in the future to complete the long-term funding requirements of that project. However, we anticipate that our current operating activities will enable us to meet our anticipated cash requirements, including the Life Resources project, for the next twelve months.

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 $13.6 million for the six months ended June 30, 2009, compared to net cash used in operating activities of $1.1 million for the same period of 2008. The difference reflects an increase in net income of $9.2 million between the two comparable periods. In addition, accounts receivable-related parties increased $5.5 million for the six months ended June 30, 2009, compared with $15.7 million for the six months ended June 30, 2008.

As of June 30, 2009, we had positive working capital of $69.0 million. Cash was $34.3 million as of June 30, 2009, compared to $44.9 million as of December 31, 2008.

Net cash used in investing activities increased by $10.9 million for the six months ended June 30, 2009 compared to the same period of 2008. During the first three months of 2008, we received payment on a loan to related party in the amount of $2.1 million. In addition, we spent $16.0 million on the Life Resources construction project for the six months ended June 30, 2009, an increase of $6.2 million compared to the same period of 2008. Net cash used in financing activities was $3.8 million for the six months ended June 30, 2009, compared to net cash provided by financing activities of $1.3 million for the same period of 2008. During the second quarter of 2009, we repaid a loan in cash to Tianshi International Investment Group Co., Ltd. ("Tianshi Investment"), a company wholly-owned by Jinyuan Li, in the amount of $3.9 million.

Assets held for sale

In April 2004, Tianshi Holdings entered a joint venture contract with Tianshi Pharmaceuticals to establish Tiens Yihai Co. Ltd., a Chinese-Foreign Equity Joint Venture ("Tiens Yihai"). Tiens Yihai was initially 99.4% owned by Tianshi Holdings and 0.6% owned by Tianshi Pharmaceuticals. Tiens Yihai is located in Shanghai, China, and was established to build a new research and development facility in Shanghai, China. In March 2007, we decided to suspend the proposed development by Tiens Yihai.

On October 14, 2008, Tiens Yihai received an approval from the local government to decrease its registered capital from $200 million to $29,989,361, equal to its paid-in capital. Pursuant to the change in registered capital, the percentage of capital ownership of both investors changed. The share held by Tianshi Holdings decreased from 99.4% to 96% and the share owned by Tianshi Pharmaceuticals increased from 0.06% to 4% of Tiens Yihai's share capital.

Due to the continued uncertainty relating to the Tiens Yihai project, we plan to sell Tiens Yihai or the assets of Tiens Yihai in 2009. Tianshi Holdings, Tianshi Pharmaceuticals and Tianshi Group entered a letter of intent on December 31, 2008, pursuant to which Tianshi Pharmaceuticals agreed to buy Tianshi Holdings' 96% share of Tiens Yihai, with Tianshi Group guaranteeing payment. In addition, Tiens Yihai is currently in discussions with the Chinese government about a potential sale of its real property to the Chinese government.

The assets and liabilities of Tiens Yihai have been classified as assets held for sale and liabilities directly associated with assets classified as held for sale, respectively, for the consolidated balance sheets presented herein. The assets and liabilities of Tiens Yihai as of June 30, 2009 and December 31, 2008 were as follows:

                                                           June 30, 2009      December 31, 2008
Cash                                                      $    23,953,055    $        23,861,938
Other receivables-third parties                                     8,890                  6,126
Employee advances                                                     804                  1,341
Property, plant, and equipment,net                                409,707                548,717
Construction In progress                                        2,541,002              2,462,108
Intangible assets, net                                          2,572,540              2,596,029
Long-term prepaid expense                                       5,295,688              5,290,521
Assets held for sale                                      $    34,781,686    $        34,766,780

Accounts payable                                                    3,316                  3,312
Wages and benefits payable                                         83,286                 88,648
Other taxes payable                                                     -                      2
Other payables                                                     29,939                 29,898
Other payables - related parties                                      188                    187
Liabilities directly associted with assets classified
as held for sale                                          $       116,729    $           122,047

Critical Accounting Policies

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

Revenue recognition.

We sell both semi-finished products and finished products to Tianshi Engineering domestically. Life Resources mainly sells semi-finished products, and Biological mainly sells finished products. Revenue from the sale of semi-finished products is recognized at FOB Tianjin shipping 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 their products. In accordance with SFAS No. 48, "Revenue Recognition when the Right of Return Exists", revenue is recorded net of an allowance for estimated returns. Such reserves are based upon management's evaluation of historical experience and estimated costs. The amount of the reserves ultimately required could differ materially in the near term from amounts included in the accompanying consolidated financial statements. As we did not receive any returns of products during the past three years, and management does not anticipate allowing any returns in 2009 related to previous revenues, no allowance for estimated returns has been recorded as of June 30, 2009.

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 receivable 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 December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business Combinations" ("SFAS 141R"). SFAS 141R establishes principles and requirements for how the acquirer recognizes and measures in its financial statements the identifiable assets, the liabilities and any non-controlling interest in the acquiree, and the goodwill acquired in business combination or a gain from a bargain purchase. It also determines what information to disclose. The objective of SFAS 141R is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS 141R became effective in the first quarter of 2009. We adopted this Statement beginning January 1, 2009.

In December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in Consolidated Financial Statements - An amendment of ARB No. 51" ("SFAS 160"). SFAS 160 provides guidance on how to report a non-controlling interest in consolidated financial statements. The objective of SFAS 160 is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements. SFAS 160 became effective in the first quarter of 2009. As a result of the adoption of SFAS 160 from January 1, 2009, we reclassified minority interest of $9.6 million to noncontrolling interest as a component of equity on our Consolidated Balance Sheet for the six months ended June 30, 2009.

In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). SFAS 161 requires enhanced disclosure about an entity's derivative and hedging activities and thereby improves the transparency of financial reporting. The objective of SFAS 161 is to provide adequate information about how derivative and hedging activities affect an entity's financial position, financial performance, and cash flows. SFAS 161 became effective in the first quarter of 2009. The adoption of SFAS No. 161 from January 1, 2009 had no effect on our consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position ("FSP") No. 142-3, "Determination of the Useful Life of Intangible Assets" ("FSP 142-3"). FSP 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, "Goodwill and Other Intangible Assets." The intent . . .