TIENS BIOTECH GROUP (NYSE:TBV)

New Tiens is a newly formed Delaware corporation created by the Filing Persons for the purpose of causing a merger with TBG. Upon the contribution by TIH of its shares of TBG common stock to New Tiens, New Tiens will hold approximately 95.1% of the outstanding shares of TBG. At any time beginning at least 20 days following the date of the mailing of this Schedule 13E-3, or such later time as may be required to comply with Rule 13e-3 under the Securities Exchange Act, and all other applicable laws, the Filing Persons will cause New Tiens to merge with TBG in a “short form” merger under Section 253 of the Delaware General Corporation Law, referred to herein as the “DGCL”. Under the DGCL, no action is required by the board of directors of TBG or the stockholders of TBG (other than New Tiens) for the merger to become effective. TIH and New Tiens do not intend, nor are they required to under the DGCL, to enter into a merger agreement with TBG or to seek the approval of the board of directors of TBG for the merger. Holders of TBG common stock will not be entitled to vote their shares of TBG common stock with respect to the merger, but will be entitled to appraisal rights under and in accordance with the DGCL. Common stock of TBG constitutes the only class of capital stock of TBG that, in the absence of Section 253 of the DGCL, would be entitled to vote on the merger. New Tiens will be the surviving corporation in the merger.

Merger Consideration:

Upon the effective date of the merger, each share of TBG common stock (other than shares held by New Tiens, shares held in treasury and shares with respect to which appraisal rights have been properly exercised and not withdrawn or lost) will be cancelled and automatically converted into the right to receive $1.72 in cash, without interest.

• Revenue for the first quarter of 2011 was $13.1 million, compared to $11.4 million for 2010.  
• Net income for first quarter of 2011 was $2.9 million, or $0.04 per share, compared to $3.6 million, or $0.05 per share for 2010.

The 14.4% increase in revenue for the first quarter of 2011 mainly resulted from a 21.2% increase in domestic sales as compared to the year-ago period. There were two primary reasons for the robustness of the domestic market. First, distributors rushed to increase inventory in advance of the planned price increases for some products that were scheduled for March 2011. Additionally, Tiens began to see the effects of the long-awaited direct selling license that was awarded by the Ministry of Commerce of the People's Republic of China on March 11, 2011.  On the international front, Tiens experienced a modest 4.6% increase as a result of increased sales to South Africa.

Net income, however, was negatively impacted by an increase of $1.4 million in selling, general and administrative expenses. This increase was primarily responsible for the 18.3% decrease in net income for the quarter and was mainly due to increases in depreciation related to the transfer of construction in progress to fixed assets.

Jinyuan Li, Chairman, President and CEO of Tiens, said, "We are pleased by the increase in sales this quarter and expect our new domestic selling license to be a growing contributor to revenue in the months and years ahead. In the international arena, we are confident that our operations will gradually improve as worldwide economic conditions continue to recover. Likewise, operational improvements made at the distributor level should also boost results over time.  Our commitment to both domestic and international growth remains steadfast as we continue to manage our business through the economic recovery and look ahead toward further execution of our strategic growth plans in both China and abroad."

GeoTeam Note: Fourth quarter 2010 vs 2009 EPS was $(0.01) vs. $0.04. 

Jinyuan Li, Chairman, President and CEO of Tiens, said, “We remain confident that domestic sales will return to, and potentially exceed, previous levels, as distributors begin to replenish their stock of our products. In addition, we maintain this same positive sentiment regarding international sales, which we expect will benefit from the removal of export restrictions and gradual economic improvement. We are steadfast in our commitment to building greater market share in China, expanding our international customer base, and further implementing our strategic plans for long-term domestic and international growth.”

Life Resources Property

Life Resources is currently constructing research and development, manufacturing and logistic facilities, as well as administrative offices totaling approximately 420,000 square meters. The facilities are located in our current headquarters in Tianjin, China. As of December 31, 2010, the office buildings, dormitories, power center, boiler room, warehouse for wellness products had been transferred from construction in progress to fixed assets. The product exhibition center, quality control center and wash house were undergoing interior decoration and expect to be completed at the end of June 2011. The interior decoration of work plants and other warehouses has been nearly completed and these facilities will be put into use once the equipment is installed. We expect the equipment to be installed at the end of 2011. As of the end of 2010, the cost of the completed work of construction in progress and other facilities was $204,854,576 (based on an exchange rate of $1 = RMB 6.6120 as of December 31, 2010), which includes amounts paid for the underlying land use right. The office buildings, dormitories, power center, boiler room and warehouse for wellness products had been put into use from October 2010. We expect that other construction work and equipment installation will be completed in 2011.

		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

Jinyuan Li, Chairman, President and CEO of Tiens, said, "We are pleased to report an increase in domestic sales which we believe will continue in the future. Our total revenue decline should be temporary since both our domestic and global affiliated companies have not witnessed significant declines in their overall revenue. We are committed to expanding our international customer base and generating long-term domestic and international growth."

Going forward, our primary requirements for cash consist of:

• construction by Life Resources of new research and development, manufacturing and logistic facilities, and administrative offices;
• the continued production of existing products and general overhead and personnel related expenses to support these activities;
• the development costs of new products; and
• expansion of production scale to meet the demands of our markets.

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 exact financing amount needed.

• Revenue for the second quarter of 2010 was $8.2 million, compared to $20.6 million for the second quarter of 2009.
  
• For the six months ended June 30, 2010, net income was $4.1 million, or $0.5 per share, compared to $19.3 million, or $0.26 per share for the first six months of 2009.
  
• Revenue for the six months ended June 30, 2010 was $19.6 million, compared to $38.8 million for the first six months of 2009. 
  
•  Net income for the second quarter of 2010 was $0.5 million, or $0.01 per share, compared to net income of $10.3 million, or $0.14 per share, for the 2009 second quarter.

"The decrease in revenue was mainly due to a decrease in international sales which reflects China's Administration of Quality Supervision, Inspection and Quarantine carrying out a national campaign against unsafe food and substandard products in 2008, which brought on a general slow-down and backlog of export clearances for Chinese food products. Upon the lifting of the regulations, overseas affiliated companies began to purchase more products, thereby increasing sales in the first two quarters of 2009. Second quarter 2010 sales to Indonesia, Russia, Vietnam and Peru further decreased due to the distributors in these countries purchasing more products in the first half of 2009, after the 2008 product scarcity. The decrease in sales in China was mainly due to domestic distributors' reduced purchasing demand following their stocking up of products during 2009. Management believes the decrease in revenues is temporary, and that revenue growth will resume in the near future."

Jinyuan Li, Chairman, President and CEO of Tiens, said, "We believe that our international and domestic sales will return to and possibly exceed previous levels as our domestic and overseas affiliated companies have indicated that they are not seeing sizable declines of their revenue, and that they expect that the market fluctuation will be temporary. They believe that revenue growth will resume in the near future, consistent with what they have achieved during the majority of the past 15 years. We remain committed to building greater market share in China, expanding our international customer base, and remaining focused on our efforts to generate long-term domestic and international growth."

GeoTeam Note:

Readers should be aware that the company has been using the same excuse for its decline in business for several quarters, commenting that revenues will improve in the near future.

On June 17, 2010, Tiens Biotech Group (USA), Inc. (the “Company”) received notification from Manbo He that effective immediately, he resigned from his positions as Chief Financial Officer and Director of the Company. There were no disagreements between Mr. He and the Company on any matter relating to the Company’s operations, policies or practices, which resulted in his resignation.

Net income for 2009 was $24.8 million, or $0.33 per share, compared to $30.0 million, or $0.39 per share for 2008.

Results for 2009 reflect, in part, a decrease in revenue in China to $27.2 million from $33.7 million for 2008. The revenue decrease is attributed, in part, to a decline in domestic distributors' demand after stocking up on products in 2008. During the third quarter of 2008, Tianshi Engineering announced plans to increase prices of its products which prompted customers to stock up on certain products. Consumer product demand decreases in the first and third quarters of 2009 were offset by some increases in sales during the second and fourth quarters of 2009, which reflect marketing efforts during those periods.

Jinyuan Li, Chairman, President and CEO of Tiens, said, "We are steadfast in our commitment to building greater market share in China, expanding our international customer base, and further implementing our strategic plans for long-term domestic and international growth. We remain confident that domestic sales will return to, and potentially exceed, previous levels, as distributors begin to replenish their stock of our products. In addition, we maintain this same positive sentiment regarding international sales, which we expect will benefit from the removal of export restrictions and gradual economic improvement."

Source: PR Newswire (April 5, 2010)

Jinyuan Li, Chairman, President and CEO of Tiens, said, 'Tiens is pleased to report another quarter of positive results including a significant increase in net income. We are confident that international sales will remain strong and that domestic sales will return to, and potentially exceed, previous levels as customers begin to replenish stored up products. We are committed to further expanding our growing international customer base, gaining greater market share in China, and further implementing our strategic plans for long term growth.'

Source: PR Newswire (August 14, 2009)

In Tiens Biotech 2009 first quarter release, Jinyuan Li, Chairman, President and CEO of Tiens commented....'As the decline in sales in China reflects customers buying in greater volume prior to a price increase, we are optimistic that domestic sales will return to, and potentially exceed, previous levels as customers begin to replenish stored up products. Tiens remains committed to gaining greater market share in China, continuing to expand our growing international customer base, and further implementing our strategic plans for long term growth.'

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

As a result of this campaign by the AQSIQ, there has been a general slow-down and backlog of export clearances for Chinese food products, and from August 2007 through the first quarter of 2008, we experienced significant delays in obtaining export clearance for all of the products which we sell to our international affiliates. Beginning in the second quarter of 2008, these export restrictions were reduced for exports to countries in Africa and Asia, but remained in place for exports to countries in Europe and the Americas. During the last two quarters of 2008, these export restrictions were further reduced, and the campaign ended at the end of 2008."

Source: SEC Form 10K (For the fiscal year ended December 31, 2008.  Page 20)

 

TBV reported improved fourth quarter and year end 2008 financial results. For the quarter EPS rose 40% to $0.07.  For the year EPS rose 56% to $0.39 ($0.28 tax adjusted).  The company did not present a fourth quarter financial table.  However, readers can view the GeoManaged® financial table for a break out.

The GeoTeam® was hoping for a better fourth quarter coming off on the heels of a strong third quarter showing, when the company posted EPS of $0.20 .  Recall, that there were circumstances in the third quarter that helped boost results:

 "However the company also said that sales are benefiting from some larger than normal order patterns."

At the time of the third quarter release the Company did not specify how much of the $0.20 came from the unusual order patterns.  It now seems that a good chunk came from the order patterns, as the company's fourth quarter EPS dropped sequentially and is in line with the quarterly EPS range of the last three years.

Nevertheless, the company has shown glimpses of growth in 2008 and has a low tax adjusted P/E of 7 .  Also, certain export restrictions imposed in 2007 by the Administration for Quality Supervision, Inspection and Quarantine (AQSIQ) have now ended, which may be able to give a boost to revenues.  The GeoTeam® will continue to track TBV with the hope that the company can break out of its recent EPS range and deliver consistent growth. 

The GeoTeam® is still attempting to interview TBV.

 

Financial Table Update

Fourth Quarter Financial Results Ended December  

	4th Quarter 2008	4th Quarter 2007	Period Change
GAAP Revenue	$18.6 million	$13.3 million	39.85%
*GAAP EPS	$0.07	$0.05	40%

2008 Full Year Financial Results Ended December

	2008	2007	Period Change
GAAP Revenue	$77.2 million	$54.9 million	40.7 %
*GAAP EPS	$0.39	$0.25	56%

* In 2008 the company's tax rate was 7%, while in 2007 it was 8%.

2008 Full Year Financial Results Ended December Adjusted for a Standard U.S Tax Rate 

	2008	2007	Period Change
GAAP Revenue	$77.2 million	$54.9 million	40.7 %
*GAAP EPS	$0.28	$0.18	56%

 

Third quarter report showed impressive sales and earnings gains. Stock has been hitting 3 and 6 months highs. Is very close to hitting a 52 week high. Looks like the quarter may have been a break out quarter as some government regulations have been lifted that had been impeding growth in past quarters. However the company also said that sales are benefiting from some larger than normal order patterns. Need to interview to get a better read on the regulatory landscape as well as order patterns. . The company is paying little taxes and has 70 Million shares outstanding which is generally more than we like to see for a company of this size. 

After adjusting for a standard tax rate we get trailing EPS of $.27. The company grew EPS over 100% for the quarter and is selling at a tax adjusted P/E of 8 . May take a small position.

Jinyuan Li, Chairman, President and CEO of Tiens, said, 'We are extremely pleased with the significant increase in both our domestic and international revenue and continued sequential growth since the first quarter of 2008. We continue to benefit from reduced international export restrictions and are optimistic that our international sales will further increase as additional export restrictions are lifted. We are well positioned to capitalize on our growing international customer base and remain committed to gaining greater market share in China for our high quality products as well.'

Source: PR Newswire (November 14, 2008)