UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

~~Washington~~WASHINGTON, ~~D.C.~~ DC 20549

FORM 10-Q

þ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 31~~September 30, ~~2010~~2012

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

EXCHANGE ACT

For the Transition Period from _______ to _________

001-34123

(Commission File Number)

CHINA-BIOTICS, INC.

(Exact Name of registrant as specified in its charter)

Delaware

98-0393071

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer Identification No.)

No. 26, Orient Global Headquarter

Lane 118, Yonghe Road

Zhabei District, Shanghai 200072

People’s Republic of China

(Address of Principal Executive Offices)

Telephone number: (86 21) ~~3653~~5834 ~~0033~~9748

(Registrant’s Telephone Number, Including Area Code)

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~~ 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 þ ¨ No ¨þ

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~~ 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 ¨ No þ

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

Large accelerated filer ¨ Accelerated filer þ¨ Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company ¨þ

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

Yes ¨ No þ

As of ~~February~~December 1024, ~~2011~~2012, 22,150,200 shares of the registrant’s common stock were outstanding.

TABLE OF CONTENTS

			~~Page~~	Page
PART I - FINANCIAL INFORMATION	~~PART I - FINANCIAL INFORMATION~~
ITEM 1.	~~FINANCIAL STATEMENTS~~	FINANCIAL STATEMENTS	3	1
ITEM 2.	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15	19
ITEM 3.	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	24	36
ITEM 4.	~~CONTROLS AND PROCEDURES~~	CONTROLS AND PROCEDURES	25	36
PART II - OTHER INFORMATION	~~PART II - OTHER INFORMATION~~
ITEM 1.	~~LEGAL PROCEEDINGS~~	LEGAL PROCEEDINGS	26	39
ITEM 1A.	~~RISK FACTORS~~	RISK FACTORS	26	39
ITEM 2.	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	26	40
ITEM 3.	~~DEFAULTS UPON SENIOR SECURITIES~~	DEFAULTS UPON SENIOR SECURITIES	26	41
ITEM 4.	~~[REMOVED AND RESERVED.]~~	[REMOVED AND RESERVED.]	26	41
ITEM 5.	~~OTHER INFORMATION~~	OTHER INFORMATION	26	41
ITEM 6.	~~EXHIBITS~~	EXHIBITS	26	41
SIGNATURES			29	42

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CHINA-BIOTICS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts expressed in US Dollars)

	December 31, 2010			March 31, 2010
ASSETS
Current assets
Cash and cash equivalents	$	132,290,582		$	155,579,371
Accounts receivable, net		39,371,765			21,008,664
Other receivables		1,108,497			791,907
Inventories		1,524,039			1,100,707
Amount due from a director		157,276			2,367,892
Prepayments		1,531,851			1,104,149
Total current assets	$	175,984,010		$	181,952,690
Land use right		3,839,374			1,797,082
Property, plant and equipment, net		63,198,061			48,886,077
Deferred tax assets		-			298,833
Total assets	$	243,021,445		$	232,934,682
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	6,771,585		$	5,850,988
Tax payables		32,910,778			28,989,337
Other payables and accruals		3,033,732			1,815,487
Convertible note, net of discount of $0 and $2,853,094 as of December 31, 2010 and March 31, 2010, respectively		-			22,146,906
Embedded derivatives		-			14,797,000
Interest payable		-			3,156,035
Total current liabilities	$	42,716,095		$	76,755,753
Commitments and contingencies
Stockholders’ equity:
Common stock (par value of $0.0001, 100,000,000 shares authorized, 46,751,004 shares issued and 22,150,200 outstanding as of December 31, 2010 and 46,751,004 shares issued and 22,370,000 outstanding as of March 31, 2010)	$	4,675		$	4,675
Additional paid-in capital		82,769,074			82,769,074
Retained earnings		108,400,687			65,441,994
Treasury stock at cost (24,600,804 and 24,381,004 shares as of December 31, 2010 and March 31, 2010, respectively)		(2,742,072	)		(2,438	)
Accumulated other comprehensive income		8,847,192			4,939,830
Capital and statutory reserves		3,025,794			3,025,794
Total stockholders’ equity	$	200,305,350		$	156,178,929
Total liabilities and stockholders’ equity	$	243,021,445		$	232,934,682

~~The accompanying~~CHINA-BIOTICS, ~~notes~~INC. ~~are~~AND ~~an integral part of these financial statements.~~SUBSIDIARIES

3UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~CHINA-BIOTICS,~~THE THREE AND SIX MONTHS ENDED SEPTEMBER ~~INC.~~30, 2012 AND ~~SUBSIDIARIES~~2011

~~UNAUDITED CONDENSED~~TABLE ~~CONSOLIDATED STATEMENTS~~ OF ~~OPERATIONS~~CONTENTS

(Amounts expressed in US Dollars)

Unaudited Condensed Consolidated Financial Statements		2

Condensed Consolidated Balance Sheets as of September 30, 2012 (Unaudited) and March 31, 2012		3

Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income for the three and six months ended September 30, 2012 and 2011		4

Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity for the six months ended September 30, 2012		5

Unaudited Condensed Consolidated Statements of Cash Flow for the six months ended September 30, 2012 and 2011		6

Notes to the Unaudited Condensed Consolidated Financial Statements		7

	Three months ended December 31,						Nine months ended December 31,
	2010			2009			2010			2009
Net sales	$	32,384,645		$	23,294,321		$	80,909,011		$	55,855,442
Cost of sales		(11,198,703	)		(6,780,161	)		(27,317,786	)		(16,259,457	)
Gross profit	$	21,185,942		$	16,514,160		$	53,591,225		$	39,595,985
Operating expenses:
Selling expenses	$	(3,861,261	)	$	(4,140,738	)	$	(9,478,797	)	$	(9,221,564	)
General and administrative expenses		(3,190,506	)		(1,366,243	)		(5,870,538	)	$	(3,649,818	)
Research and development costs	$	(1,884,119	)		(894,101	)		(4,559,372	)		(2,282,409	)
Other income, net		539,451			3,179			894,538		$	72,110
Total operating expenses	$	(8,396,435	)	$	(6,397,903	)	$	(19,014,169	)	$	(15,081,681	)
	$	12,789,507		$	10,116,257		$	34,577,056		$	24,514,304
Other income and expenses:
Changes in the fair value of embedded derivatives	$	2,847,000		$	2,668,000		$	14,797,000		$	(6,248,000	)
Interest income		103,495			74,438			288,665			214,307
Total other income/(expenses)	$	2,950,495		$	2,742,438		$	15,085,665		$	(6,033,693	)
Income before taxes	$	15,740,002		$	12,858,695		$	49,662,721		$	18,480,611
Provision for income taxes		(2,476,772	)		(2,379,613	)		(6,704,028	)		(5,716,846	)
Net income	$	13,263,230		$	10,479,082		$	42,958,693		$	12,763,765
Earnings per share:
Basic	$	0.60		$	0.48		$	1.93		$	0.68
Diluted	$	0.44		$	0.32		$	1.16		$	0.68
Shares used in computation of earnings per share
Basic		22,150,200			21,978,242			22,275,758			18,706,788
Diluted		23,712,700			24,061,575			24,184,848			18,706,788

~~The accompanying~~CHINA-BIOTICS, ~~notes~~INC. ~~are~~AND ~~an integral part of these financial statements.~~SUBSIDIARIES

4CONDENSED CONSOLIDATED BALANCE SHEETS

~~CHINA-BIOTICS, INC.~~(Amounts ~~AND~~expressed ~~SUBSIDIARIES~~in US Dollars)

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

	September 30, 2012 (Unaudited)			March 31, 2012
ASSETS
Current assets
Cash and cash equivalents	$	55,494,476		$	70,086,074
Accounts receivable, net		30,986,608			33,392,474
Inventories		1,945,764			1,942,549
Deposits - short term		3,135,438			1,114,367
Prepayments		216,920			356,157
Other receivables		98,266			102,530
Total current assets		91,877,472			106,994,151

Loan receivable		20,751,701			20,753,343
Deposits - long term		30,068,048			30,070,428
Prepayments for equipment		17,443,346			22,007,427
Property, plant and equipment, net		97,625,964			72,080,331
Land use rights		5,005,550			5,056,884
Total assets	$	262,772,081		$	256,962,564
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	2,176,540		$	2,873,904
Other payables and accruals		5,264,681			5,425,821
Tax payables		31,147,556			33,364,611
Short term loan		3,956,322			3,165,308
Amount due to director		5,081,229			4,954,345
Total current liabilities		47,626,328			49,783,989
Long term loan		4,272,828			4,747,963
Total liabilities		51,899,156			54,531,952
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value of $0.01, 10,000,000 shares authorized, none issued		-			-
Common stock, par value of $0.0001, 100,000,000 shares authorized,42,370,000 shares issued and 22,150,200 outstanding as of September 30, 2012 and March 31, 2012, respectively		4,237			4,237
Additional paid-in capital		85,401,508			84,727,616
Retained earnings		115,967,135			108,179,075
Treasury stock at cost, 20,219,800 shares as of September 30, 2012 and March 31, 2012, respectively		(2,741,634	)		(2,741,634	)
Accumulated other comprehensive income		12,241,679			12,261,318
Total stockholders’ equity		210,872,925			202,430,612
Total liabilities and stockholders' equity	$	262,772,081		$	256,962,564

~~(Amounts~~The accompanying notes are an integral ~~expressed~~part inof USthese ~~Dollars)~~unaudited condensed consolidated financial statements.

	Common Stock
	Shares			Par value $0.0001		Additional Paid-in Capital		Retained Earnings		Treasury Stock			Accumulated Comprehensive Income		Capital & Statutory Reserves		Total
Balance-March 31, 2010		46,751,004			4,675		82,769,074		65,441,994		(2, 438	)		4,939,830		3,025,794		156,178,929
Acquisition of treasury stock		(24,600,804	)								(2,739,634	)						(2,739,634	)
Comprehensive income:
Net income									42,958,693									42,958,693
Other comprehensive income:
Foreign currency translation adjustments														3,907,362				3,907,362
Balance-December 31, 2010		22,150,200			4,675		82,769,074		108,400,687		(2,742,072	)		8,847,192		3,025,794		200,305,350

~~The accompanying~~CHINA-BIOTICS, ~~notes~~INC. ~~are~~AND ~~an integral part of these financial statements.~~SUBSIDIARIES

5UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

~~CHINA-BIOTICS, INC.~~ AND ~~SUBSIDIARIES~~OTHER COMPREHENSIVE INCOME

~~UNAUDITED CONDENSED~~(Amounts ~~CONSOLIDATED~~expressed ~~STATEMENTS~~in OFUS ~~CASH FLOW~~Dollars)

(Amounts expressed in US Dollars)

	Three months ended September 30,						Six months ended September 30,
	2012			2011			2012			2011
Net sales	$	20,151,854		$	4,150,101		$	37,534,337		$	13,109,326
Cost of sales		7,731,652			3,239,758			15,010,030			7,722,174
Cost of product returns		-			7,143,914			-			7,143,914
Gross profit (loss)		12,420,202			(6,233,571	)		22,524,307			(1,756,762	)
Operating expenses:
Selling expenses		2,577,171			2,018,182			6,613,536			3,988,351
General and administrative expenses		3,944,780			3,735,529			7,603,876			8,386,190
Total operating expenses		6,521,951			5,753,711			14,217,412			12,374,541
Income (loss) from operations		5,898,251			(11,987,282	)		8,306,895			(14,131,303	)
Other income and expenses:
Interest expense		(132,936	)		(66	)		(278,396	)		(336	)
Interest income		133,246			397,921			328,219			785,861
Interest income, net – loan receivable		772,302			-			1,548,985			-
Other expenses		(84,420	)		(233,093	)		(187,312	)		(454,729	)
Exchange gain (losses), net		3,242			(37,908	)		12,229			(75,043	)
Total other income		691,434			126,854			1,423,725			255,753
Income (loss) before taxes		6,589,685			(11,860,428	)		9,730,620			(13,875,550	)
Income taxes		873,588			-			1,942,560			41,908
Net income (loss)		5,716,097			(11,860,428	)		7,788,060			(13,917,458	)
Other comprehensive income
Foreign currency translation adjustment		(318,402	)		1,930,620			(19,639	)		(581,788	)
Comprehensive income (loss)	$	5,397,695		$	(9,929,808	)	$	7,768,421		$	(14,499,246	)

Weighted average number of shares
Basic		22,150,200			22,150,200			22,150,200			22,150,200
Diluted		22,359,439			22,150,200			22,343,091			22,150,200

Income (loss) per common stock
Basic	$	0.26		$	(0.54	)	$	0.35		$	(0.63	)
Diluted	$	0.26		$	(0.54	)	$	0.35		$	(0.63	)

	Nine months ended December 31,
	2010			2009
CASH FLOW FROM OPERATING ACTIVITIES
Net income	$	42,958,693		$	12,763,702
Adjustment for:
Changes in the fair value of embedded derivatives		(14,797,000	)		6,248,000
Loss on disposal of plant and equipment		272,745			-
Change in deferred tax		298,894			55,849
Depreciation		2,683,757			1,423,239
Increase in accounts receivable		(17,176,185	)		(8,298,996	)
(Increase)/Decrease in others receivable		(260,616	)		267,246
Increase in inventories		(376,618	)		(630,946	)
Increase in prepayments		(412,593	)		(4,489,544	)
Increase in accounts payable		714,883			3,069,677
Decrease in other payables and accruals		(424,120	)		(716,386	)
Increase in tax payables		2,854,776			3,430,453
NET CASH PROVIDED BY OPERATING ACTIVITIES	$	16,336,616		$	13,122,357
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of fixed assets	$	(14,402,923	)	$	(3,183,483	)
Proceeds from sales of property, plant and equipment		976			-
Purchase of land use right		(1,960,406	)		-
NET CASH USED IN INVESTING ACTIVITIES	$	(16,362,353	)	$	(3,183,483	)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash advance/Repayment from a director		5,409,787			3,113,900
Cash advance/Repayment to a director		(3,250,000	)		(7,908,948	)
Proceeds from issuance of common stock		-			74,906,572
Redemption of convertible note		(25,000,000	)		-
Treasury stock acquired		(2,739,634	)		-
NET CASH (USED IN)/PROVIDED BY FINANCING ACTIVITIES	$	(25,579,847	)	$	70,111,524
Effect of exchange rate changes on cash		2,316,795			204,165
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS BALANCES	$	(23,288,789	)	$	80,254,563
CASH AND CASH EQUIVALENTS BALANCES AT BEGINNING OF PERIOD		155,579,371			70,824,041
CASH AND CASH EQUIVALENTS BALANCES AT END OF PERIOD	$	132,290,582			151,078,604
Supplemental disclosure cash flow information:
Interest paid	$	5,148,983			1,005,859
Income tax paid		7,549,505			3,539,063

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

~~The accompanying notes are an integral part of these financial statements.~~4

6CHINA-BIOTICS, INC. AND SUBSIDIARIES

1.UNAUDITED ~~BASIS~~CONDENSED CONSOLIDATED STATEMENTS OF ~~PRESENTATION~~CHANGES ~~AND~~IN ~~PRINCIPALS~~STOCKHOLDERS' ~~OF CONSOLIDATION~~EQUITY

~~The accompanying~~(Amounts ~~unaudited~~expressed ~~condensed consolidated financial statements have been prepared~~ in ~~accordance~~US with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. The accompanying condensed consolidated financial statements do reflect all the adjustments that, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows for the interim periods reported. Such adjustments are of a normal, recurring nature. Our operating results for the three and nine months ended December 31, 2010 are not necessarily indicative of the results that may be expected for the year ending March 31, 2011.Dollars)

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes to consolidated financial statements included in our Annual Report on Form 10-K for the year ended March 31, 2010. There has been no material change in the significant accounting policies during the three months ended December 31, 2010.

	Common Stock
	Shares		Par value $0.0001		Additional Paid-in Capital		Retained Earnings		Treasury Stock			Accumulated Other Comprehensive Income			Total

Balance- April 1, 2012		42,370,000	$	4,237	$	84,727,616	$	108,179,075	$	(2,741,634	)	$	12,261,318		$	202,430,612
Fair value of vested options						673,892										673,892
Net income								7,788,060								7,788,060
Foreign currency translation adjustments													(19,639	)		(19,639	)
Balance- September 30, 2012 (Unaudited)		42,370,000	$	4,237	$	85,401,508	$	115,967,135	$	(2,741,634	)	$	12,241,679		$	210,872,925

~~Reclassification~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Certain reclassifications have been made to the prior years’ financial statements to conform to the current year presentation. The reclassifications had no effect on previously reported results or retained earnings.5

~~Recent Accounting~~CHINA-BIOTICS, ~~Pronouncements~~INC. AND SUBSIDIARIES

InUNAUDITED ~~July 2010,~~CONDENSED ~~the~~CONSOLIDATED ~~Financial Accounting Standards Board (the “FASB”) issued Accounting~~STATEMENTS ~~Standards~~OF ~~Update~~CASH (“ASU”) 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” ASU 2010-20 amends the existing disclosure guidance, thus requiring an entity to provide a greater level of disaggregated information about the credit quality of its financing receivables and its allowance for credit losses. ASU 2010-20 is effective for fiscal and interim periods beginning after December 15, 2010. The Company will review the requirements under the standard to determine what impacts, if any, the adoption of the standard would have on our condensed consolidated financial statements.FLOW

~~In January~~(Amounts ~~2010,~~expressed the FASB issued ASU 2010-06, “Improving Disclosure about Fair Value Measurements,” under Topic 820, “Fair Value Measurements and Disclosures,” to improve and provide new disclosures for recurring and nonrecurring fair value measurements under the three-level hierarchy of inputs for transfers in ~~and~~US out of Levels 1 and 2, and activity in Level 3. This update also clarifies existing disclosures of the level of disaggregation for the classes of assets and liabilities and the disclosure about inputs and valuation techniques. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for financial statements issued for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The adoption of ASU 2010-06 did not have a material impact on our consolidated financial statements. The Company is currently assessing the impact, if any, of ASU 2010-06 disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements on our consolidated financial statements.Dollars)

	Six months ended September 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	7,788,060		$	(13,917,458	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Amortization		52,321			19,284
Depreciation		2,367,770			1,546,791
Provision of allowance for doubtful accounts		582,973			814,828
Fair value of vested options		673,892			810,797
Change in operating assets and liabilities :
- Accounts receivable		1,293,633			22,464,888
- Inventories		(259	)		(1,612,140	)
- Deposits		(2,019,727	)		87,372
- Prepayments		139,803			(2,701,323	)
- Other receivables		4,421			88,258
- Accounts payable		(701,859	)		(4,927,553	)
- Other payables and accruals		(169,426	)		(86,641	)
- Taxes payable		(2,268,219	)		(1,896,122	)
NET CASH PROVIDED BY OPERATING ACTIVITIES		7,743,383			690,981

CASH FLOWS FROM INVESTING ACTIVITIES
Prepayments for long-term capital expenditures		(10,089,369	)		(1,108,936	)
Purchase of property, plant and equipment		(13,081,652	)		(108,843	)
NET CASH USED IN INVESTING ACTIVITIES		(23,171,021	)		(1,217,779	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of bank loans		4,272,152			-
Repayment of bank loan		(3,957,226	)		-
Advance from director		127,089			4,632,404
NET CASH PROVIDED BY FINANCING ACTIVITIES		442,015			4,632,404

Effect of exchange rate changes on cash and cash equivalents		394,025			(135,319	)
NET CHANGES IN CASH AND CASH EQUIVALENTS BALANCES		(14,591,598	)		3,970,287
CASH AND CASH EQUIVALENTS BALANCES, beginning of period		70,086,074			143,988,348
CASH AND CASH EQUIVALENTS BALANCES, end of period	$	55,494,476		$	147,958,635

Supplemental disclosure of cash flow information:
Interest paid	$	278,327		$	-
Income taxes paid	$	3,478,634		$	1,553,351

Non cash financing and investing activities:
Transfer of prepayments for equipment to property, plant and equipment	$	14,687,740		$	-

2.The ~~EARNINGS~~accompanying ~~PER~~notes ~~SHARE~~are an integral part of these unaudited condensed consolidated financial statements.

Basic earnings per share is computed in accordance with SFAS No.128 (now known as ASC 260), “Earnings Per Share,” by dividing the net income by the weighted average number of outstanding common stock during the period. The diluted earnings per share calculation includes the impact of dilutive convertible securities, if applicable. The weighted average number of outstanding common stock is determined by relating the portion of time within a reporting period that a particular number of common stock has been outstanding to the total time in that period.6

~~The following~~CHINA-BIOTICS, ~~table~~INC. ~~sets~~AND ~~forth the computation of basic and diluted earnings per share:~~SUBSIDIARIES

	Three months ended December 31,						Nine months ended December 31,
	2010			2009			2010			2009
Earnings per share - Basic
Income for the period	$	13,263,230		$	10,479,082		$	42,958,693		$	12,763,765
Basic average common stock outstanding		22,150,200			21,978,242			22,275,758			18,706,788
Net earnings per share	$	0.60		$	0.48		$	1.93		$	0.68
Earnings per share - Diluted
Income for the period	$	13,263,230		$	10,479,082		$	42,958,693		$	12,763,765
Change in fair value of embedded derivatives		(2,847,000	)		(2,668,000	)		(14,797,000	)		-
	$	10,416,230		$	7,811,019		$	28,161,693		$	12,763,765
Basic average common stock outstanding		22,150,200			21,978,242			22,275,758			18,706,788
Diluted effect from embedded derivatives		1,562,500			2,083,333			1,909,090			-
Diluted average common stock		23,712,700			24,061,575			24,184,848			18,706,788
Net earnings per share	$	0.44		$	0.32		$	1.16		$	*0.68

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

*FOR ~~The effect~~THE ofPERIODS ~~embedded~~ENDED ~~derivatives~~SEPTEMBER ~~was not included for the computation of diluted~~30, ~~earnings~~2012 ~~per~~AND ~~share for the~~2011

~~9-month period~~1. ~~end,~~ORGANIZATION asAND ~~its~~DESCRIPTION ~~inclusion~~OF ~~would be anti-dilutive.~~BUSINESS

3China-Biotics, Inc. (sometimes ~~RISKS~~referred to as “China-Biotics” or the “Company”) is engaged in the research, ~~UNCERTAINTIES~~development, ~~AND~~production, marketing, ~~CONCENTRATIONS~~and distribution of probiotics products (which we sometimes refer to simply as “probiotics”), which are products that contain live microbial food supplements that beneficially affect the host by improving its intestinal microbial balance. The Company was incorporated under the name Otish Resources, Inc. in Delaware in February 2003.

~~(a)~~2. ~~Nature~~SUMMARY ofOF ~~Operations~~PRINCIPAL ACCOUNTING POLICIES

~~Substantially all~~Basis of the Group’s operations are conducted in the People’s Republic of China (the “PRC”) and are subject to various political, economic, and other risks and uncertainties inherent in this country. Among other risks, the Group’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.presentation

The accompanying unaudited condensed consolidated financial statements as of and for the six months ended September 30, 2012 and 2011 have been prepared based upon Securities and Exchange Commission rules that permit reduced disclosure for interim periods and include, in the opinion of management, all adjustments (bconsisting of normal recurring adjustments and reclassifications) ~~Concentration~~necessary to present fairly the financial position, results of ~~Credit~~operations ~~Risk~~and cash flows as of September 30, 2012 and for all periods presented. Information as of March 31, 2012 was derived from the audited consolidated financial statements of the Company for the year ended March 31, 2012.

~~Financial~~Certain information ~~instruments~~and ~~that~~footnote ~~potentially~~disclosures ~~subject~~normally ~~the~~included ~~Group~~in tofinancial ~~concentrations~~statements prepared in accordance with generally accepted accounting principles in the United States of ~~credit~~America ~~risk~~(“US GAAP”) have been condensed or omitted. These condensed consolidated financial ~~consist~~statements ~~principally~~should be read in conjunction with the audited financial statements and notes thereto included in the Company's Form 10-K filed on September 14, 2012 for the year ended March 31, 2012. The results of ~~cash~~operations for the three and ~~accounts~~six ~~receivable~~months ended September 30, 2012 are not necessarily indicative of the operating results to be expected for the full year ending March 31, 2013.

AsThe ofcondensed consolidated ~~December~~financial ~~31,~~statements ~~2010~~and accompanying notes are presented in United States dollars and ~~March~~prepared ~~31,~~in ~~2010,~~conformity ~~the~~with ~~Group~~US ~~had~~GAAP ~~cash~~which requires ~~deposits~~management to make certain estimates and assumptions that affect the reported amounts of ~~$132.29 million~~assets and ~~$155.58~~liabilities ~~million,~~and ~~respectively,~~disclosure of ~~placed~~contingent ~~with~~assets ~~several~~and ~~banks~~liabilities inat the ~~PRC where~~date ~~there~~of ~~are~~financial ~~currently~~statements noand ~~rules~~the orreported ~~regulations~~amounts inof ~~place~~revenues ~~for~~and ~~obligatory~~expenses during ~~insurance~~the ofreporting ~~bank~~period. ~~accounts~~Actual results could differ from those estimates.

8Basis of consolidation

~~For~~The ~~the~~unaudited condensed ~~three~~consolidated ~~months~~financial ~~and~~statements ~~nine~~for ~~months~~China-Biotics, ~~ended~~Inc. ~~December~~and ~~31,~~its ~~2010~~subsidiaries ~~and~~are ~~2009,~~prepared ~~all~~in ofaccordance ~~the Group’s~~with ~~sales~~accounting ~~arose~~principles generally accepted in the ~~PRC. In~~United ~~addition,~~States ~~all~~of ~~accounts~~America ~~receivable as~~and include the accounts of ~~December~~SGI, 31Shining, ~~2010~~Growing, GSL, KTG, BDH and ~~March~~Growing Yangling. ~~31,~~Intercompany ~~2010~~accounts ~~arose~~and intransactions ~~the~~have ~~PRC~~been eliminated in consolidation.

~~(c)~~Fair ~~Concentration~~value of ~~Customers~~financial instruments

AFair value measurements ~~substantial~~are ~~percentage~~determined ofusing ~~the~~authoritative ~~Group’s~~guidance ~~sales~~issued ~~are~~by ~~made~~the toFASB, awith ~~small~~the ~~number~~exception of ~~customers. During~~ the ~~three~~application ~~months~~of ~~and~~the ~~nine~~guidance ~~months~~to ~~ended December 31~~non-recurring, ~~2010,~~ non-financial ~~there~~assets ~~were~~and noliabilities ~~customers~~as ~~that~~permitted. ~~accounted~~Fair ~~for~~value ~~more~~is ~~than~~defined ~~10%~~in ofthe ~~our sales~~authoritative ~~revenue.~~guidance ~~During~~as the ~~three~~price ~~months~~that ~~ended December 31, 2009, there~~would ~~was~~be ~~one~~received ~~customer~~to ~~that~~sell ~~accounted~~an ~~for~~asset ~~12%~~or ofpaid ~~our~~to ~~sales~~transfer ~~revenue. During the~~a ~~nine~~liability ~~months~~in ~~ended~~the ~~December~~principal ~~31,~~or ~~2009,~~most ~~there~~advantageous ~~was~~market ~~one customer who accounted~~ for ~~14%~~the ofasset ~~our~~or ~~sales~~liability in ~~revenue. As~~an oforderly ~~December~~transaction ~~31,~~between ~~2010,~~market ~~there~~participants ~~were~~at ~~no customers~~the ~~that~~measurement ~~accounted~~date. ~~for~~A ~~more~~fair ~~than~~value ~~10%~~hierarchy ofwas ~~our~~established, ~~accounts~~which ~~receivable. As of~~prioritizes ~~March~~the ~~31,~~inputs ~~2010,~~used ~~there~~in ~~was~~measuring ~~one~~fair ~~customer~~value ~~that~~into ~~accounted~~three ~~for~~broad ~~15%~~levels ofas ~~our accounts receivable.~~follows:

4.Level ~~ACCOUNTS~~1-Quoted ~~RECEIVABLE~~prices in active markets for identical assets or liabilities.

~~Accounts~~Level 2-Inputs, other ~~receivable~~than the quoted prices in active markets, are asobservable ~~follows:~~either directly or indirectly.

	December 31, 2010		March 31, 2010
Trade receivables	$	39,371,765	$	21,008,664
Less : Allowances for doubtful debt		-		-
	$	39,371,765	$	21,008,664

Level 3-Unobservable inputs based on the Company’s assumptions

5The Company is required to use observable market data if available without undue cost and effort. ~~INVENTORIES~~The following table presents certain investments and liabilities of the Company’s financial assets measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis and their level within the fair value hierarchy as of September 30, 2012 and March 31, 2012:

~~Inventories consisted of the following:~~7

	December 31, 2010		March 31, 2010
	Fair Value Measurements as at September 30, 2012
Raw materials	$	636,962	$	513,554
	Balance at September 30, 2012		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Work-in-progress		42,153		22,580
Loan receivable	$	20,751,701	$	-	$	20,751,701	$	-
Finished goods		844,924		564,573
	Fair Value Measurements as at March 31, 2012
	$	1,524,039	$	1,100,707
	Balance at March 31, 2012		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Loan receivable	$	20,753,343	$	-	$	20,753,343	$	-

6.Recent ~~AMOUNT~~Accounting ~~DUE FROM A DIRECTOR~~Pronouncements

~~During~~In September 2011, ~~this~~the ~~quarter~~FASB issued ASU 2011-08, ~~Mr.~~“Testing ~~Song~~Goodwill ~~Jinan~~for ~~repaid~~Impairment”, an update to ~~the~~existing ~~Company~~guidance anon ~~aggregate~~the ~~amount~~assessment of goodwill $3impairment.~~7 million,~~ This update simplifies the ~~sum~~assessment of ~~which~~goodwill ~~represented~~for ~~advances~~impairment ~~made~~by allowing companies to ~~Mr.~~consider ~~Song~~qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the two step impairment review process. It also amends the examples of events or circumstances that would be considered ~~used~~in a goodwill impairment evaluation. The amendments are effective for annual and interim goodwill impairment tests ~~the~~performed for fiscal years beginning after December 15, 2011. The Company’s ~~domestic~~adopted ~~business~~ASU ~~interests~~2011-08 ~~related~~effective toJanuary ~~obtaining~~1, ~~intellectual~~2012. We do ~~property~~not ~~and~~believe ~~attracting~~that ~~research~~the ~~and~~adoption ~~development~~of ~~talent~~this new accounting guidance will have a significant effect on our goodwill impairment assessments in the future.

~~The~~In December 2011, ~~Company~~the ~~successfully~~FASB ~~recruited~~issued ~~one~~ASU ofNo. ~~the~~2011-11, ~~top~~“Balance ~~research~~Sheet ~~and~~(Topic ~~development~~210): ~~talents in~~Disclosures ~~the~~about ~~probiotics~~Offsetting ~~industry~~Assets and ~~has~~Liabilities.” This ~~the~~ASU ~~opportunity~~requires an entity to ~~acquire~~disclose ~~intellectual property~~information ~~owned~~about byoffsetting ~~such~~and ~~person.~~related ~~The~~arrangements ~~Company~~to isenable ~~currently~~users inof its financial statements to understand the ~~process~~effect of those arrangements on its financial position. ASU No. 2011-11 will be applied retrospectively ~~evaluating~~and ~~the~~is ~~value~~effective offor ~~the~~annual ~~intellectual~~and ~~property~~interim reporting periods beginning on or after January 1, ~~which~~2013. isThe ~~expected~~Company todoes ~~greatly~~not expect adoption ~~enhance~~of ~~the~~this ~~Company’s~~standard ~~research~~to ~~and~~have ~~development~~a ~~capability~~material impact on its consolidated results of operations, financial condition, or liquidity.

7.Other ~~LAND~~recent ~~USE~~accounting pronouncements ~~RIGHT~~issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the Securities and Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

~~The land use~~3. ~~right~~INCOME ~~consisted~~(LOSS) ofPER ~~the following:~~SHARE

	December 31, 2010			March 31,2010
Land use right	$	3,955,556		$	1,881,207
Less: Accumulated amortization		(116,182	)		(84,125	)
	$	3,839,374		$	1,797,082

The following table sets forth the computation of basic and diluted income (loss) per share:

	Three months ended September 30,					Six months ended September 30,
	2012		2011			2012		2011
Income (loss) per share – Basic
Income (loss) for the period	$	5,716,097	$	(11,860,428	)	$	7,788,060	$	(13,917,458	)
Basic average common stock outstanding		22,150,200		22,150,200			22,150,200		22,150,200
Net income (loss) per share	$	0.26	$	(0.54	)	$	0.35	$	(0.63	)

A subsidiary of the Company operating in Shanghai, the PRC owns factory buildings on certain state-owned land in the PRC and has been assigned the land use right for a period of 50 years commencing on January 15, 2008.

	Three months ended September 30,					Six months ended September 30,
	2012		2011			2012		2011
Income (loss) per share – Diluted
Income (loss) for the period	$	5,716,097	$	(11,860,428	)	$	7,788,060	$	(13,917,458	)
Basic average common stock outstanding		22,150,200		22,150,200			22,150,200		22,150,200
Diluted effect from vested stock options		209,239		-			192,891		-
Diluted average common stock outstanding		22,359,439		22,150,200			22,343,091		22,150,200
Net income (loss) per share	$	0.26	$	(0.54	)	$	0.35	$	(0.63	)

During this quarter, the Company made its first payment in the aggregate amount of RMB13,251,355 (or approximately $2 million) to acquire the land use right of 118.54 mu land (or approximately 79,029.3 square meters). We expect to receive the land certificate by the end of June 2011.8

~~Amortization~~Basic income (loss) ~~expense~~per ~~amounted~~share tois ~~$9,488~~computed ~~and~~by ~~$9,409~~dividing ~~for~~the net income by the ~~three~~weighted ~~months~~average ~~ended~~number ~~December~~of ~~31, 2010~~outstanding ~~and~~common ~~2009,~~stock ~~respectively~~during the period. ~~Amortization~~The diluted ~~expense~~income ~~amounted~~(loss) toper ~~$28~~share calculation includes the impact of dilutive convertible securities,~~385~~ if applicable. The ~~and~~weighted ~~$28,048 for~~average number of outstanding common stock is determined by relating the ~~nine~~portion ~~months~~of ~~ended~~time ~~December~~within ~~31,~~a ~~2010~~reporting ~~and~~period ~~2009,~~that ~~respectively~~a particular number of shares of common stock has been outstanding to the total time in that period.

84. ~~PROPERTY~~RISKS, ~~PLANT~~UNCERTAINTIES, AND ~~EQUIPMENT~~CONCENTRATIONS

~~Property, plant~~Economic and ~~equipment,~~political ~~net, consisted of the following:~~risks

	December 31, 2010			March 31, 2010
Plant and machinery		40,250,159			16,718,856
Office equipment		4,910,962			3,726,978
Motor vehicles		442,802			341,773
Building		9,089,481			-
Leasehold improvements		1,717,837			2,932,937
		56,411,241			23,720,544
Less: Accumulated depreciation	$	(10,279,594	)	$	(8,324,180	)
		46,131,647			15,396,364
Construction in progress	$	17,066,410		$	33,489,713
	$	63,198,057		$	48,886,077

The Company’s operations are conducted in the PRC and are subject to various political, economic, and other risks and uncertainties inherent in this country. Among other risks, the Company’s operations are subject to the risks of restrictions on transfer of funds; export duties, quotas and embargoes; domestic and international customs and tariffs; changing taxation policies; foreign exchange restrictions; and political conditions and governmental regulations.

~~Depreciation expenses~~Concentration ~~were~~of ~~$1,211,360~~Credit and $476,429 for the three months ended December 31, 2010 and 2009, respectively. Depreciation expenses were $2,653,173 and $1,405,039 for nine months ended December 31, 2010 and 2009, respectively.Risk

9Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. ~~TAX~~As of ~~PAYABLES~~September 30, 2012 and March 31, 2012, the Company had cash deposits of $55.49 million and $70.09 million, respectively, placed with several banks in the PRC, which includes the Special Administrative Region of Hong Kong, where there is currently no rule or regulation in place for obligatory insurance of bank accounts. For the three and six months ended September 30, 2012 and 2011, all of the Company’s sales arose in the PRC. In addition, all accounts receivable as at September 30, 2012 and March 31, 2012 are from customers in the PRC.

~~Tax payables~~Concentration ~~consisted~~ of ~~the following:~~Customers

	December 31, 2010		March 31, 2010
Value added tax and other taxes	$	8,067,597	$	6,946,939
Income tax		4,904,013		4,393,520
Surcharge		15,848,551		13,699,611
Dividends withholding tax		4,090,617		3,949,267
	$	32,910,778	$	28,989,337

The Company had no sales to a single customer that accounted for more than 10% of total gross sales. For the three and six months ended September 30, 2012 or 2011, there was no customer that accounted for over 5% of our sales revenue. As of September 30, 2012, there is one customer that accounted for 6.5% of our accounts receivable. As of March 31, 2012, there is one customer that accounted for 4.8% of our accounts receivable.

105. ACCOUNTS RECEIVABLE

~~CHINA-BIOTICS, INC.~~Accounts ~~AND~~receivable ~~SUBSIDIARIES~~consisted of the following:

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	September 30, 2012 (Unaudited)			March 31, 2012

Accounts receivable	$	33,234,729		$	35,057,662
Less: Allowance for doubtful accounts		(2,248,121	)		(1,665,188	)
	$	30,986,608		$	33,392,474

~~(Amounts expressed~~6. ~~in US Dollars)~~INVENTORIES

~~The income/(loss)~~Inventories ~~generated~~consisted inof the ~~United States, the British Virgin Islands, and the PRC before income taxes during the periods as presented in these financial statements is summarized as follows~~following:

	Three months ended December 31,					Nine months ended December 31,
	September 30, 2012 (Unaudited)		March 31, 2012
	2010		2009			2010		2009
Raw materials	$	692,655	$	801,288
Income in the United States before income taxes	$	1,813,945	$	2,392,661		$	13,626,858	$	(7,398,814	)
Work-in-progress		106,201		99,763
Income in the British Virgin Islands before income taxes		209,830		(33,794	)		290,650		(45,662	)
Finished goods		1,146,908		1,041,498
Income in the PRC before income taxes		13,716,229		10,499,828			35,745,215		25,925,087
	$	1,945,764	$	1,942,549
	$	15,740,004	$	12,858,695		$	49,662,723	$	18,480,611

~~The Company, which is incorporated in the United States, is subject to U.S. tax law. Before the Company paid off the 4% Senior Convertible Promissory Note on December~~ 9, 2010, other than legal and professional expenses for the daily operations of the Company, the income generated from the United States was the change in the fair value of the embedded derivatives of the 4% Senior Convertible Promissory Note issued on December 11, 2007.

~~There is no income tax for companies not carrying out business activities in the British Virgin Islands~~7. ~~Accordingly,~~LOAN ~~the Company’s financial statements do not present any income tax provisions/credits related to the British Virgin Islands tax jurisdiction.~~RECEIVABLE

~~The~~On ~~Group~~December 19, 2011, ~~has~~the ~~its~~Company ~~principal~~entered ~~operations~~into inan agreement with Jiangxi International Trust Co., Ltd. (“Jiangxi”) to loan $20,784,923 (RMB 131,100,000) to the ~~PRC~~Jiangxi ~~and~~International Trust of Yinhe #7 Property, an investment fund sponsored by Jiangxi. The loan principal is ~~subject~~due on December 26, 2013, is unsecured, and according to the loan agreement, the Company is to earn 20% interest per annum, less a ~~PRC~~5% ~~Enterprise~~investment management fee per annum. Interest income for the three and six months ended September 30, 2012 includes ~~Income~~$1,037,421 ~~Tax~~and ~~rate~~$2,076,848 of ~~25%~~interest accrued on the outstanding balance, respectively. Such interest income after netting of the management fee were $772,302 and $1,548,985 for the three and six months ended September 30, 2012, respectively. Jiangxi is a major trust and investment company that is executing different investment projects in ~~calendar~~the ~~years~~PRC, ~~2010~~including real estate projects, listed company restructuring, and ~~2009~~other financial services.

However, one of the PRC subsidiaries of the Group, Shining, located in the Shanghai Jinqiao Special Economic Zone, was awarded the status of high technology enterprise for the calendar years 2007 to 20108. ~~Hence, Shining enjoys a preferential income tax of 15%, which represents a tax concession of 10% for the years 2010 and 2009.~~DEPOSITS

~~Moreover, another~~Deposits ~~PRC~~for ~~subsidiary of~~ the ~~Group,~~acquisition ~~GBS, located in Qingpu, Shanghai, enjoys an income tax privilege~~ of ~~‘two years exempt, three years half’ for Foreign~~long-term ~~Invested~~assets ~~Companies located in PRC, which was granted in 2009 by the local tax authority~~ and ~~was~~operating ~~effective~~trading asdeposits ofconsisted ~~January 1, 2008. Given that the current period is within the third year~~ of the ~~award of the tax privilege, the effective tax rate for GBS is 12.5%, which contributes to the concession of the effective tax rate for the Company as a whole, compared to December 31, 2009.~~following:

The provisions for income tax relating to the periods as presented in these financial statements are summarized as follows:

	September 30, 2012 (Unaudited)		March 31, 2012
Long term
Deposit for acquisition of a company	$	23,737,932	$	23,739,812
Deposit for acquisition of patent		6,330,116		6,330,616
		30,068,048		30,070,428
Short term
Other operating deposits		3,135,438		1,114,367
	$	33,203,486	$	31,184,795

	Three months ended December 31,				Nine months ended December 31,
	2010		2009		2010		2009
Current	$	2,476,772	$	2,190,412	$	6,405,195	$	5,660,998
Deferred		-		189,201		298,833		55,848
	$	2,476,772	$	2,379,613	$	6,704,028	$	5,716,846

On March 27, 2012, the Company made a deposit of $23,737,932 (RMB 150,000,000) to the government of Yangling for a bid to acquire a probiotics company located in Yangling, Shaanxi Province that is in receivership. According to the relevant regulations, the deposit will be treated as part of the purchase price of the acquisition if the transaction is approved. As of December 21, 2012, the government of Yangling is reviewing bids received for the probiotics company and expects to complete this process by the end of calendar year 2012. If the Company does not win the auction to acquire the probiotics company, its deposit will be returned.

11On February 1, 2012, our subsidiary, Growing, entered into an agreement to acquire a patent regarding a production technology for $6,657,262 (RMB 42,000,000) from an unrelated PRC company. Growing made a deposit of $6,330,116 (RMB 40,000,000) to the seller for the transfer of the patent within 210 days, or by August 30, 2012. The original terms of the agreement were that if the patent cannot be transferred to Growing within 210 days, Growing will be refunded the deposit paid and also be compensated an additional $159,000 (RMB 1,000,000) for damages. The transfer was not completed by August 30, 2012, and on September 3, 2012, Growing and the seller mutually agreed to extend the completion date to December 30, 2012. As of December 21, 2012, the transfer had not yet been completed because the Company is waiting for approval of the transfer from the State Intellectual Property Office of the PRC. The Company has no information to allow it to estimate when such confirmation will be obtained, but expects the transaction to close in 2013, after which the patent is planned to be used in the Company’s operations.

~~CHINA-BIOTICS, INC~~9. ~~AND~~LAND ~~SUBSIDIARIES~~USE RIGHTS

~~NOTES~~The ~~TO UNAUDITED~~land use ~~CONDENSED~~rights ~~CONSOLIDATED~~consisted ~~FINANCIAL~~of ~~STATEMENTS~~the following:

(Amounts expressed in US Dollars)

	September 30, 2012 (Unaudited)			March 31, 2012

Land use rights	$	5,232,938		$	5,231,956
Less: Accumulated amortization		(227,388	)		(175,072	)
	$	5,005,550		$	5,056,884

10On March 21, 2006, GSL, our subsidiary, entered into an agreement, as amended, with Shanghai Qingpu Industrial Park District Development (Group) Company Limited for the lease of 36,075 square meters of land in the Shanghai Qingpu Industrial Park District on which we constructed our 300-metric ton capacity production plant for a term of 50 years beginning January 15, 2008. ~~COMMITMENTS~~The agreement provides for the payment of leasing fees of approximately $1.8 million. In February 2009, the formal land use right certificate was issued. There are no future lease payments under this land lease. The Qingpu land use right was pledged to a bank as a credit guarantee for a loan of $4,747,587 (RMB 30,000,000 million, see Note 12). At September 30, 2012, the net book value of such land use right was $1,786,359.

(In 2012, our Growing Yangling, subsidiary of the Company that operates in Yangling, the PRC, has acquired a) ~~Operating~~land ~~Leases~~use right for a period of 50 years, beginning January 18, 2012. At September 30, 2012, the net book value of the land use right was $3,219,191.

The Group leases office space, warehouse facilities, and retail outlets under various operating leases, certain of which contain escalation clauses. Rental expenses under operating leases included in the statement of income were 222,967 and 955,377 for the quarters ended December 31, 2010 and 2009, respectively.10

AsAmortization ofexpense ~~December~~amounted 31to $26,115 ~~2010~~and $9,707 for the ~~Group~~three ~~was~~months ~~obligated~~ended ~~under~~September ~~operating~~30, ~~leases~~2012, ~~requiring~~and 2011, respectively. Amortization expense amounted ~~minimum~~to ~~rental~~$52,321 asand ~~follows:~~$19,284 for the six months ended September 30, 2012, and 2011, respectively.

	December 31, 2010
Payable within
the next 12 months	$	607,417
the next 13 to 24 months		-
the next 25 to 36 months		-
the next 37 to 48 months		-
the next 49 to 60 months		-
Thereafter		-
	$	607,417

The estimated amortization expense for the land use rights over each of the five years and thereafter is summarized as below:

(b) Capital commitments

	September 30, 2012
For the year ended March 31:
2013	$	52,329
2014		104,659
2015		104,659
2016		104,659
2017		104,659
Thereafter		4,534,585
	$	5,005,550

~~The Company entered into an agreement with a government agency to establish a company for the manufacture of animal pro-biotic products~~10. ~~The initial~~ ~~investment cost is no less than $50 million. During the quarter~~PROPERTY, ~~the~~PLANT ~~Company~~AND ~~injected $7.5 million as capital.~~EQUIPMENT

AsProperty, ~~of December~~plant 31and equipment, ~~2010~~net, consisted of the ~~Group has a total capital commitment on manufacturing facilities of $5,234,381.~~following:

	September 30, 2012 (Unaudited)			March 31, 2012

Building	$	47,953,611		$	44,754,344
Plant and machinery		25,086,583			23,963,145
Leasehold improvements		2,100,329			1,814,783
Office equipment		6,263,085			4,220,654
Motor vehicles		818,352			543,569
Construction in progress		34,189,952			13,217,574
		116,411,912			88,514,069
Less: Accumulated depreciation		(18,785,948	)		(16,433,738	)
	$	97,625,964		$	72,080,331

~~The~~For ~~Group~~the three months ~~entered~~ended ~~into~~September ~~agreements~~30, ~~with~~2012 ~~suppliers~~and to2011, ~~purchase~~depreciation ~~raw~~expense amounted ~~materials~~to $1,190,367 and ~~packing materials~~$754,468, respectively. ~~The~~For ~~amount~~the ofsix months ~~future~~ended ~~payment~~September is30, 2012 and 2011, depreciation expense amounted to $82,~~168~~367,~~154~~770 and $1,546,791, respectively.

~~(d)~~The ~~Other~~Company is currently ~~obligations~~in Phase 2 construction of a research and development center and other ancillary facilities in Qingpu. At September 30, 2012 and March 31, 2012, construction in progress included $18,734,220 and $12,978,116 related to the construction of this facility.

~~The~~At ~~Group~~September 30, 2012, ~~entered~~the ~~into~~corporate anheadquarters ~~agreement~~office ~~with~~building anwas ~~university~~pledged to ~~perform~~banks ~~research~~as ~~and development.~~a ~~The~~guarantee ~~amount~~for ofa ~~future~~total ~~payment~~of isloans of $13,~~920~~165,~~808~~058 as(RMB 20,000,000, see Note 12). The net book value of ~~December~~the 31building was $8, ~~2010~~693,912.

11The cost for constructing the Yangling facility is expected to be over $58 million invested over two years, which would be mainly facilitated by the capital injection from BDH. ~~CONVERTIBLE~~The ~~NOTES~~facility will produce probiotics and probiotics-related biological additives for the animal feed industry. Currently, the facility is in its construction stage. During the year ended March 31, 2011, the Company made total payment of approximately $3.25 million (RMB 20,608,112) to acquire the land use right of approximately 122,600 square meters (183.94 mu). We received the land certificate on January 28, 2012 and commenced construction in June 2012. We expect to complete construction by June 2014. As of September 30, 2012 and March 31, 2012, construction in progress included $15,455,732 and $239,458 related to the construction of this facility. As of September 30, 2012, Growing Yangling entered into agreements with contractors related to the construction of the plant, manufacturing facilities and purchase of production equipment for future payment of $2,548,547 and $21,929,973, respectively.

~~On December~~As ~~11, 2007, the Company sold a 4% Senior Convertible Promissory Note in the amount~~ of ~~$25,000,000~~September ~~(the “Note”)~~30, ~~with a maturity date of December 11,~~ ~~2010,~~2012 toand ~~Pope~~March ~~Investments II LLC~~31, ~~an affiliate of Pope Investments~~2012, ~~LLC, in a private placement. In connection with~~ the ~~sale, the~~ Company ~~entered into~~currently anhas ~~Investment~~outstanding ~~Agreement~~deposits and aprepayments ~~Registration~~of ~~Rights Agreement. In addition~~$17, ~~Mr. Song Jinan~~443,346 ~~the~~and ~~Company’s Chief Executive Officer~~$22, ~~Chairman~~007,427 ~~and~~relation ~~largest stockholder, entered into a Guaranty Agreement and a Pledge Agreement pursuant~~ to ~~which~~delivery ~~Mr.~~of ~~Song~~equipment ~~agreed~~ to ~~guaranty~~be ~~the~~used ~~Company’s~~at ~~obligations~~these ~~under the Note and to secure such guaranty with a pledge of 4,000,000 shares of China-Biotics’ common stock owned by Mr~~facilities. ~~Song.~~

1211

~~Net proceeds~~11. ofAMOUNT ~~the~~DUE ~~Note~~TO ~~are being used to fund the construction of a 150-metric-ton-per-year manufacturing facility and for other capital expenditures.~~DIRECTOR

~~The Company~~As ~~accounted~~of ~~for~~September ~~the~~30, 2012 ~~net~~and ~~proceeds~~March ~~from~~31, 2012, the ~~issuance~~amount ofdue ~~the~~to ~~Note~~a asdirector, ~~two separate~~Mr. ~~components:~~Song anJinan, ~~embedded~~represented ~~derivative~~advances ~~component~~to ~~(conversion~~the ~~option~~Company ~~with mandatory~~which ~~conversion~~are ~~feature)~~unsecured, interest-free and arepayable ~~debt~~on ~~component~~demand. The ~~Company~~advances ~~determined~~from ~~the initial~~such ~~carrying~~director ~~value~~were ofentered ~~the~~into ~~debt~~because ~~component~~of bythe ~~subtracting~~difficulty the ~~fair~~Company faced ~~value~~in ~~of embedded~~paying ~~derivatives~~expenses ~~amounted~~incurred tooutside ~~$9,118,000~~China ~~from~~in ~~the~~non-PRC ~~net~~currency ~~proceeds~~due ~~received~~to ~~from~~ the ~~issuance~~difficulties of the ~~Note.~~Company ~~This~~had ~~resulted~~ in aconverting ~~$15,882,000 initial carrying amount~~currency because of ~~the~~foreign ~~debt~~exchange ~~component~~controls.

~~On April 1, 2008, the Company adopted ASC Topic 820, “Fair Value Measurements and Disclosures” (formerly, SFAS No~~12. ~~157~~LOANS “Fair Value Measurements”), which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. In February 2008, the FASB deferred the effective date of ASC 820 by one year for certain non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at lease annually). The Company adopted the provisions of ASC 820, except as it applies to those non-financial assets and non-financial liabilities for which the effective date has been delayed by one year.PAYABLE

~~ASC~~Short ~~820 establishes~~term ~~a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:~~loan

~~Level~~On 1March -19, 2012, ~~Quoted~~the ~~prices~~Company inreceived ~~active~~a ~~markets~~loan from the Bank of China for ~~identical~~$3,165,058 ~~assets~~(RMB or20,000,000), secured by the corporate headquarters office ~~liabilities;~~building of Growing (see Note10), due September 19, 2012. Interest is 7.2% per annum, based on 118% of the six months’ of RMB borrowing prime rate established by the People’s Bank of China at the time of funding. Total principal and interest are due September 19, 2012. On September 19, 2012, the loan for $3,165,058 (RMB 20,000,000) was fully repaid.

~~Level~~On 2September -19, ~~Inputs~~2012, ~~other~~a ~~than~~new ~~Level~~loan 1from ~~that~~the ~~are~~Bank ~~observable,~~of ~~either~~China ~~directly~~for or$3,165,058 ~~indirectly~~(RMB 20, ~~such~~000,000) aswas ~~quoted~~borrowed ~~prices~~with ~~for~~the ~~similar~~same terms, secured by the same assets, orcorporate ~~liabilities;~~headquarters ~~quoted~~office ~~prices~~building ~~in markets~~of ~~that~~Growing ~~are~~(see ~~not~~Note10), ~~active;~~and oris ~~other~~due ~~inputs~~on ~~that~~September ~~are~~19, ~~observable~~2013. orInterest ~~can~~is be7.08% ~~corroborated~~per byannum, ~~observable~~based ~~market~~on ~~data~~118% ~~for~~of ~~substantially~~ the ~~full~~twelve ~~term~~months’ of RMB borrowing prime rate established by the People’s Bank of ~~assets~~China orat ~~liabilities;~~the time of funding, and is due at the end of each calendar quarter. The loan is renewable with the bank upon maturity.

~~Level~~On 3August -29, 2012, ~~Unobservable~~the ~~inputs~~Company ~~that~~received ~~are~~a ~~supported~~loan from Shanghai Rural Commercial Bank for $791,264 (RMB 5,000,000), secured by ~~little~~the orland nouse ~~market~~right ~~activity~~in Qingpu ~~and~~of ~~that~~Growing (see Note 9), due August 28, 2013. Interest is 6.90% per annum, based on 118% of the one year’s of RMB ~~are~~borrowing ~~significant~~prime torate established by the ~~fair~~People’s ~~value~~Bank of China at the ~~assets~~time orof ~~liabilities~~funding, and is due at the end of each calendar quarter. The purpose of this loan was for purchase of raw materials.

~~Classification within~~Long ~~the~~term ~~hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.~~loan

On December 97, ~~2010~~2011, the Company ~~repaid~~received ina ~~full~~loan ~~its~~from ~~obligations~~Shanghai ~~under~~Rural ~~the Note. As~~Commercial ofBank ~~December~~for 31$4,747,963 ~~2010~~(RMB 30,000,000), ~~the~~secured ~~Company~~by ~~had~~the noland ~~assets~~use orright ~~liabilities~~in ~~that~~Qingpu ~~are~~of ~~required~~Growing to(see beNote ~~measured~~9), atdue ~~fair~~May ~~value~~27, on2014. aInterest ~~recurring~~is ~~basis~~7.65% per annum, ~~including~~ ~~its~~based ~~derivative~~on ~~instruments~~115% ~~related~~of the 1-to-3 ~~the~~years’ ~~Note~~RMB borrowing ~~issued~~prime inrate ~~2007.~~set ~~The fair~~by ~~value~~the People’s Bank of China at the ~~embedded~~time ~~derivatives~~of ~~was~~funding, ~~determined~~and ~~using~~is due at the ~~following~~end ~~inputs~~of each calendar quarter. inOn ~~accordance~~May ~~with~~25, ~~ASC~~2012, ~~820~~the Company repaid $792,531 (RMB 5,000,000) of the loan and the balance outstanding as of ~~December~~September 3130, ~~2010:~~2012 was $3,956,322 (RMB 25,000,000).

	Fair Value Measurements
	Balance		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Embedded derivatives - conversion right
As of March 31, 2010	$	14,797,000	$	-	$	-	$	14,797,000
As of December 31, 2010	$	-		-	$	-	$	-

On September 17, 2012, the Company received a loan from Shanghai Rural Commercial Bank for $158,253 (RMB 1,000,000), secured by the land use right in Qingpu of Growing (see Note 9), due December 17, 2014. Interest is 7.36% per annum, based on 118% of one year’s of RMB borrowing prime rate established by the People’s Bank of China at the time of funding, and is due at the end of each calendar quarter. The purpose of this loan was for financing the costs of a renovation project.

13On September 26, 2012, the Company received a loan from Shanghai Rural Commercial Bank for $158,253 (RMB 1,000,000), secured by the land use right in Qingpu of Growing (see Note 9), due December 26, 2014. Interest is 7.36% per annum, based on 118% of one year’s of RMB borrowing prime rate established by the People’s Bank of China at the time of funding, and is due at the end of each calendar quarter. The purpose of this loan was for financing the costs of a renovation project.

~~The following~~13. ~~table~~INCOME ~~presents a reconciliation of the assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) from March 31, 2010 to December 31, 2010:~~TAXES

	Derivative Liability - Conversion Rights
	2010			2009
Balance on March 31	$	14,797,000		$	2,660,000
Adjustment to fair value included in earnings		(14,797,000	)		6,248,000
Balance on December 31	$	-		$	8,908,000

For the six months ended September 30, 2012 and 2011, the components of income (loss) before income taxes were:

The embedded derivatives are revalued at the end of each reporting period and the resulting difference is included in the results of operations. The estimated fair value of the embedded derivatives as of December 31, 2010 and March 31, 2010 was Nil and $14,797,000, respectively. The change in the fair value of the embedded derivatives amounted to $2,847,000 for the quarter ended December 31, 2010, and $2,668,000 for the quarter ended December 31, 2009 were charged to the consolidated statement of operation.

	Six months ended September 30,
	2012 (Unaudited)			2011 (Unaudited)
Income before income taxes generated in the PRC	$	11,411,914		$	(12,152,175	)
(Loss) income before income taxes generated in the United States of America		(1,481,052	)		(1,522,818	)
Loss before income taxes generated in the British Virgin Islands		(198,241	)		(199,871	)
Loss before income taxes generated in Hong Kong		(2,001	)		(686	)
	$	9,730,620		$	(13,875,550	)

~~The fair value of the embedded derivatives was determined using the Binomial Model based on the following assumptions:~~12

	December 31, 2010		March 31, 2010
Risk-free rate of return		-		0.33	%
Time to expiration	-		0.75years
Volatility rate		-		68	%
Dividend yield		-		-

For the three and six months ended September 30, 2012 and 2011, there was no tax provision related to income (loss) generated in the United States of America, the British Virgin Islands, and Hong Kong. For the six months ended September 30, 2012 and 2011, the provision for income taxes relating to income generated in the PRC consists of the following:

On December 9, 2010, the Company repaid in full its obligations under the Note, which was due December 11, 2010, in the original aggregate principal amount of $25,000,000. The payoff amount of $29,684,932, consisting of $25,000,000 of outstanding principal and $4,684,932 of accrued interest, was paid to Pope Investments II LLC, an affiliate of Pope Investments, LLC, and all security interests and liens held by Pope Investments II LLC were terminated and released, including (1) a guaranty by Mr. Song Jinan of the Company’s obligations under the Note backed by a pledge of 4,000,000 shares of China-Biotics’ common stock owned by Mr. Song; and (2) a pledge by the Company of 100% of the stock of SGI to Pope Investments II LLC.

	Six months ended September 30,
	2012 (Unaudited)		2011 (Unaudited)
Current-PRC	$	1,942,560	$	41,908
Deferred-PRC		-		-
	$	1,942,560	$	41,908

AsFor ~~of December~~the ~~31,~~six ~~2010~~months ~~and~~ended ~~March~~September 3130, 2012 ~~2010~~and 2011, the ~~Note~~reconciliation ~~interest amounting~~between ~~to $16,613,259~~the ~~and~~PRC ~~$11,727,789,~~statutory ~~respectively,~~tax ~~was~~rate ~~capitalized~~and ~~under~~effective ~~construction~~tax ~~in progress.~~ rate are as follows:

12. TREASURY STOCK

	Six months ended September 30,
	2012 (Unaudited)			2011 (Unaudited)
Statutory rate		25.0	%		25.0	%
Preferential tax rate		(13.7	)%		(7.5	)%
Effect of different tax rates in other jurisdictions		3.0	%		(2.1	)%
Expenses not deductible for tax purpose		-	%		(0.7	)%
Effect of taxable temporary difference		2.2	%		(7.1	)%
Under provision of income tax in prior year		1.2	%		-	%
Tax losses not recognized		2.0	%		(7.5	)%
Effective tax rate		19.7	%		(0.1	)%

OnAs ~~July 7, 2010, the Company’s Board~~ of ~~Directors~~September ~~approved~~30, a2012 ~~share~~and ~~repurchase~~March ~~program~~31, ~~under~~2012, ~~which~~ the Company ~~may~~had ~~purchase~~incurred uptax tolosses ~~$20 million shares~~ of ~~the~~approximately ~~Company’s outstanding~~$1.0 ~~common~~million ~~stock~~and ~~from time-to-time until July 7, 2011~~$4. ~~Repurchases~~2 ~~will be made pursuant to Rule 10b5-1 or 10b-18 of the Securities Exchange Act of 1934~~million, asrespectively ~~amended~~which ~~(the~~can ~~“Exchange Act”), and will~~ be ~~made~~carried ~~on the open market at prevailing market prices or~~ forward in ~~block~~various ~~trades, subject~~jurisdictions tofrom ~~the~~five ~~restrictions relating~~ to ~~volume,~~25 ~~price, and timing~~years. ~~The Company plans to fund repurchases from its available cash balance. During the quarter ended December 31, 2010, the Company did not repurchase any shares of its common stock.~~

	September 30, 2012 (Unaudited)			March 31, 2012
Deferred tax assets
Net operating loss carryforwards
- PRC	$	30,556		$	320,292
- United States of America		64,426			334,633
- Hong Kong		-			132
Less: Valuation allowance		(94,982	)		(655,057	)
Net deferred tax assets	$	-		$	-

13The Company is incorporated in Delaware and is subject to U.S. ~~LITIGATION~~tax law. The daily operations of the Company in the United States principally relate to payment of legal and professional fees. The income generated from the United States in 2011 primarily related to the change in the fair value of derivative liability, which is a permanent difference between book and tax reporting. The Company has no taxable income in the United States and does not expect it will be able to realize the U.S. tax losses.

~~China Biotics,~~There ~~Inc.~~is ~~and~~no ~~certain of its current and former officers and directors have~~income ~~been~~tax ~~named as defendants in two putative shareholder class action lawsuits, one in the United States District Court~~ for ~~the~~companies ~~Central~~not ~~District~~carrying ~~of California (Mohapatra~~out v.business ~~China-Biotics,~~activities ~~Inc., et al. No. 10-cv-6954 (C.D. Cal.), the “California Action”) and the other~~ in the ~~United~~British ~~States~~Virgin ~~District~~Islands ~~Court~~or ~~for~~Hong ~~the Southern District of New York (Hill v~~Kong. ~~China-Biotics,~~ ~~Inc.~~Accordingly, ~~et al. No. 10-cv-7838 (S.D.N.Y.),~~ the ~~“New~~Company's ~~York Action”). After~~financial ~~certain~~statements ~~shareholders~~do ~~filed~~not ~~motions~~present ~~for appointment~~any asincome ~~lead~~tax ~~plaintiff~~provisions inrelated ~~both lawsuits, the plaintiff in the California Action voluntarily dismissed its case. The plaintiff in the New York Action, who seeks~~ to ~~represent a class of those who bought China-Biotics securities between July 10, 2008 and August 30, 2010, alleges that~~ the ~~defendants~~ ~~violated~~British ~~Section~~Virgin ~~10(b) and Section~~Islands ~~20(a) of the Exchange Act, and the rules and regulations promulgated thereunder, by making material misstatements~~ or ~~failing~~Hong toKong ~~disclose certain~~tax material information regarding, among other things, China-Biotics’ financial condition, operations, and future business prospects, and the quality, nature, and quantity of China-Biotics’ retail outlets and storesjurisdictions. ~~The complaint seeks unspecified damages. China-Biotics intends to defend this action vigorously.~~

~~China-Biotics, Inc.~~The ~~and~~Company has its principal ~~directors~~operations ~~have~~in ~~been~~the ~~named~~PRC asand ~~defendants~~is insubject to a ~~derivative~~PRC ~~lawsuit filed~~Enterprise inIncome ~~the~~Tax ~~United~~(“EIT”) ~~States~~rate ~~District~~of ~~Court~~25% ~~for~~in ~~the~~calendar ~~District~~years 2012 ofand ~~Columbia~~2011, ~~(Marteney~~subject v.to ~~Song~~certain ~~Jinan,~~rate ~~et al~~reductions.~~, No.~~ ~~10-cv-1983 (D.D.C.)).~~ The ~~complaint~~Company’s ~~alleges that the~~subsidiary ~~directors~~Shining ~~breached~~is ~~their~~located ~~fiduciary~~in ~~duties~~the byShanghai ~~disseminating~~Jinqiao ~~false~~Special Economic Zone and ~~misleading~~was ~~financial~~awarded ~~statements~~the ~~and seeks~~status ~~unspecified~~of ~~damages~~“high technology” enterprise for the calendar year 2007 until 2011. Therefore, ~~The~~Shining ~~defendants~~enjoyed ~~intend~~a preferential income tax rate of 15% in 2007 to ~~defend~~2011. ~~this~~Beginning ~~action~~January ~~vigorously~~1, 2012, Shining’s EIT rate is 25%.

14The Company’s subsidiary Growing is located in Qingpu and has similar business operations as Shining, but with a larger production scale. Growing ~~SUBSEQUENT~~was ~~EVENTS~~exempted from PRC Enterprise Income Tax in calendar 2008 and 2009, followed by 50% tax exemption for calendar 2010 to 2012.

~~On January~~The 16Company’s subsidiary, ~~2011~~Growing Yangling, ~~the~~is ~~Board~~located ofin ~~Directors~~Yangling and as of ~~the~~March ~~Company~~31, on2012, ~~the~~its ~~recommendation~~manufacturing plant was under construction. ofAccording to the ~~Company’s~~investment ~~Compensation~~agreement ~~Committee~~with the local government, ~~authorized~~Growing ~~and~~Yangling ~~approved~~is ~~the~~entitled ~~2010~~to ~~equity incentive~~have ~~plan~~a ~~(the~~tax ~~“Plan”).~~incentive ~~The~~that ~~purpose~~exempts local portion of ~~the~~EIT ~~Plan~~for isthree tocalendar ~~retain~~years from the ~~services~~ commencement of ~~eligible recipients~~production, tofollowed ~~secure~~by ~~and~~50% ~~retain~~tax ~~the~~exemption ~~services~~ of ~~new~~local ~~eligible~~portion ~~recipients,~~for ~~and~~the tonext ~~provide~~year. ~~incentives~~There ~~for~~is ~~eligible~~no ~~recipients~~financial toeffect ~~exert~~from ~~maximum efforts~~the tax holiday as Growing Yangling did not generate any assessable profit for the ~~success~~three ofand ~~the~~six ~~Company~~months ended September 30, 2012 or 2011.

Awards under the Plan may be in the form of (i) incentive stock options; (ii) nonstatutory stock options; (iii) restricted stock grants; (iv) restricted stock unit grants; and (v) stock appreciation rights.13

AAt ~~total of~~September 130,~~500,000~~ ~~shares~~2012 ofand ~~common~~March ~~stock~~31, ~~are available for issuance under the~~2012, ~~Plan. The~~taxes ~~Company~~payable ~~intends to seek stockholder approval~~ consisted of the ~~Plan at the 2010 Annual Meeting of Stockholders, which is to be held on March 9, 2011.~~following:

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

	September 30, 2012 (Unaudited)		March 31, 2012
Taxes arising prior to 2005:
Value added tax and other taxes	$	5,707,294	$	5,707,746
Income taxes		3,112,195		3,112,441
Dividends withholding tax		4,455,277		3,914,453
		13,274,766		12,734,640
Total:
Value added tax and other taxes		274,726		1,366,106
Income taxes		250,806		2,100,059
Accrued interest on taxes		17,347,258		17,163,806
	$	31,147,556	$	33,364,611

~~NOTE~~In addition to the ~~REGARDING~~EIT, ~~FORWARD-LOOKING~~companies ~~STATEMENTS~~in the PRC that are engaged in the sale of goods are generally required to pay value added taxes (“VAT”) at a rate of 17% of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayer.

~~This~~Our management believes ~~Quarterly~~that ~~Report~~our onoperations ~~Form~~in ~~10-Q,~~China ~~including~~were ~~the~~exempted ~~following~~from ~~“Management’s~~EIT ~~Discussion~~ and ~~Analysis~~VAT offor ~~Financial~~all ~~Condition~~years ~~and~~prior ~~Results~~to of2005 ~~Operations,”~~because ~~contains~~we had been recognized by the ~~forward-looking~~local ~~statements~~government ~~which~~as ~~involve~~an ~~risks~~advanced ~~and~~technology ~~uncertainties~~enterprise. However, ~~including statements~~the ~~regarding~~Company ~~our~~never ~~capital~~received ~~needs,~~a ~~business~~written ~~strategy~~confirmation ~~and~~from ~~expectations.~~the ~~Any~~appropriate ~~statements~~tax ~~contained~~authorities ~~herein~~for ~~that~~the ~~are~~tax ~~not~~exemption ~~statements~~status of ~~historical~~our ~~fact~~operations ~~may~~in ~~be deemed~~China prior to ~~be forward-looking statements~~2005. InAs ~~some~~a ~~cases~~result, ~~you~~there ~~can~~is ~~identify~~no way to ascertain ~~forward-looking~~the ~~statements~~ultimate position which may be taken by ~~terminology~~the ~~such~~relevant asPRC ~~“may,”~~tax ~~“should,”~~authorities ~~“will~~in the future and accordingly,” full provisions for ~~“expect,”~~tax ~~“plan,”~~liabilities ~~“intend,”~~in ~~“anticipate,”~~the ~~“believe,”~~amount ~~“estimate,”~~of ~~“predict~~$12,~~” “potential~~734,~~” “forecast~~640,” ~~“project”~~for orall ~~“continue~~years prior to 2005 have been recorded by the Company. Beginning in January 2006,” we made tax payments to the ~~negative~~PRC oftax ~~such~~authorities ~~terms~~for or2005 and we have made regular tax payments to the PRC tax authorities ~~other~~for ~~comparable~~all ~~terminology~~subsequent periods.

15In addition, in connection with dividends paid to the Shining shareholders between April 2003 to June 2005, Shining did not deduct a withholding tax at the rate of 20% as required by applicable Chinese laws and regulations. The Company has accrued the dividend withholding tax and interest on the dividend withholding tax.

~~You~~According ~~should~~to ~~not~~PRC ~~rely~~tax onregulations, ~~forward-looking~~the ~~statements~~overdue astax ~~predictions~~liabilities ofin ~~future~~the ~~events~~PRC ~~or results.~~for ~~Any~~the orcalendar ~~all~~years ofprior ~~our~~to ~~forward-looking~~2005 ~~statements~~ may ~~turn~~be ~~out~~subject to ~~be wrong.~~interest ~~They~~at ~~can~~the be0.05% ~~affected~~per ~~by inaccurate assumptions~~day, ~~risks~~ and ~~uncertainties~~potential ~~and other~~penalties ~~factors~~for ~~which~~the ~~could~~late ~~cause~~payment ~~actual~~of ~~events~~taxes orwhich ~~results~~is tocalculated beon ~~materially different~~the ~~from~~basis ~~those~~of ~~expressed~~0.5 ortimes ~~implied~~to infive times the ~~forward-looking~~amount ~~statements~~of taxes payable. ~~In evaluating~~Through ~~these~~March ~~statements~~31, ~~you should consider various factors~~2011, ~~including~~ the ~~risks~~ ~~described~~Company inaccrued ~~this~~the ~~Form~~interest ~~10-Q~~that ~~under “Risk Factors” and elsewhere. These factors~~ may ~~cause~~be ~~our~~potentially ~~actual~~payable ~~results to differ materially from any~~upon ~~forward-looking~~these ~~statement.~~taxes Inincurred ~~addition,~~prior ~~new factors emerge from time~~ to ~~time~~2005 and it isthe ~~not~~unpaid ~~possible~~dividend ~~for~~withholding ustax. toInterest ~~predict~~related ~~all factors that may cause actual results~~ to ~~differ~~the ~~materially~~unpaid ~~from~~taxes ~~those~~was ~~contained~~ recognized in ~~any~~the ~~forward-looking~~Company’s ~~statements.~~consolidated ~~We disclaim any obligation to publicly update any forward-looking~~ statements ~~to reflect~~of ~~events~~operations oras ~~circumstances~~a ~~after~~component ~~the date~~ of ~~this~~its ~~report,~~income ~~except~~tax ~~as required by applicable law~~provision.

~~Except as~~For ~~otherwise~~the ~~indicated~~six bymonths ~~the~~ended ~~context~~September 30, ~~references~~2012, inmanagement ~~this~~made ~~Quarterly~~an ~~Report~~assessment onof ~~Form 10-Q~~whether toit ~~“we,”~~was ~~“us,”~~necessary orto ~~“our”~~provide ~~are~~a tofurther ~~the~~provision for ~~combined~~interest ~~business~~and ofpenalties ~~China-Biotics,~~on ~~Inc~~these unpaid amounts. ~~(the~~ ~~“Company”)~~Management ~~and~~determined ~~its~~that ~~wholly-owned~~no ~~direct~~further ~~subsidiaries,~~provision ~~Sinosmart~~for ~~Group~~interest ~~Inc.~~and penalties ~~(“SGI”),~~was ~~Growing~~necessary ~~State~~given ~~Limited~~the ~~(“GSL”),~~unlikelihood of payment of the amount already accrued and ~~King~~provided ~~Treasure~~in ~~Group~~the ~~Limited~~financial ~~(“KTG”)~~statements. This assessment ~~and~~was ~~KTG’s~~based ~~wholly-owned~~upon ~~subsidiary,~~receipt ~~Best~~by ~~Design~~the ~~Holdings~~company ~~Limited~~of ~~(“BDH”),~~a ~~and SGI’s~~report ~~wholly-owned~~by ~~subsidiary,~~an ~~Shanghai~~independent ~~Shining~~tax ~~Biotechnology~~expert ~~Co.~~that ~~Ltd. (“Shining”),~~the ~~and~~amount ~~GSL’s~~of ~~wholly-owned~~taxes ~~subsidiary,~~prior ~~Growing~~to ~~Bioengineering (Shanghai)~~2005 ~~Co.~~may ~~Ltd.~~not be ~~(“GBS”)~~payable, ~~and~~the ~~BDH’s~~length ~~wholly-owned~~of ~~subsidiary,~~time ~~Growing~~the ~~Bio (Yangling)~~amount ~~Co.~~has ~~Ltd~~been ~~(“GBY”).~~outstanding, ~~References~~and tothat ~~“China”~~there orhave tobeen ~~the~~no “requests from PRC” ~~are~~tax ~~references~~authorities tofor payment of the ~~People’s~~unpaid ~~Republic~~taxes ofoutstanding ~~China~~amounts. ~~All~~As ~~references~~such, tomanagement ~~“dollars”~~believes orthat ~~“$”~~the ~~refers~~previously torecorded amounts are sufficient ~~United~~to ~~States~~cover ~~dollars~~any settlement of this liability.

~~Overview~~The Company’s PRC subsidiaries are deemed “high technology” enterprises subject to preferred tax rates (tax holiday). The table below shows the effect of using the higher rates and earnings per share.

We manufacture and sell probiotics products. Probiotics comprise mainly live bacteria, which we produce using advanced proprietary fermentation technology. Currently, our products are primarily sold in the Chinese domestic market.

	Six months ended September 30,
	2012 (Unaudited)		2011 (Unaudited)

Income (loss) per common share-basic	$	0.35	$	(0.63	)
Effect of tax holiday		0.01		0.01
Pro forma income (loss) per common share-basic	$	0.36	$	(0.62	)

Our retail products are mainly sold to distributors, who then distribute them to various retail outlets such as drug stores and supermarkets or sell directly to enterprise accounts. Typically, 60 to 90 days’ credit is given to the distributors. Our bulk additives products are primarily sold to institutional customers, such as dairy manufacturers, animal feed manufacturers, pharmaceutical companies, and food companies. Typically, 60 days’ credit is given to the bulk customers.14

~~We intend to expand our retail products sales to other cities in China through our growing distribution network~~14. ~~Our~~OPTION ~~management~~INCENTIVE ~~believes that as China becomes more affluent, its citizens are becoming more health conscious, which has led to higher demand for health and functional food such as probiotics and yogurt.~~PLAN

~~In addition,~~On ~~probiotics~~January ~~are increasingly used as additives in a variety of industries~~16, ~~including~~ 2011, the ~~dairy~~Board ~~and~~adopted ~~animal~~the ~~feed~~2010 ~~industries.~~Equity ~~According~~Incentive ~~to statements~~Plan ~~made by~~ (the ~~Nutrition~~“2010 ~~Development~~Plan”) ~~Centre of National Development~~ and ~~Reform~~ ~~Commission~~reserved ~~in China, effective April~~ 1, ~~2007~~500,000 ~~probiotics~~shares ~~will~~of ~~be added~~common tostock ~~baby~~for issuance ~~milk~~under ~~powders produced in China. Currently,~~ the ~~probiotics~~2010 ~~used in China for such purposes are imported~~Plan. ToOn ~~capitalize~~March on9, ~~what we believe is a significant opportunity in those industries~~2011, ~~our~~the ~~newly~~2010 ~~built~~Plan ~~plant~~was ~~enables~~approved usby ~~to capture~~ the ~~anticipated~~Company’s ~~demand~~stockholders ~~for~~at ~~food~~the ~~additives~~2010 ~~and~~Annual Meeting ~~animal~~of ~~feed additives~~Stockholders.

~~The Company’s~~On ~~construction~~January of16, ~~its new production facility has been on schedule since~~2011, the ~~most recent year-end report. The~~ Company ~~commenced~~granted ~~commercial production~~to at the ~~Phase~~directors 1and ~~facility~~officers inan ~~February~~option ~~2010. Phase~~to 1purchase of910,000 ~~the project~~shares ~~involves constructing a facility with a capacity~~ of ~~150~~common ~~tons~~stock ~~of probiotics~~under ~~per year and costs $36 million in total,~~ the ~~sum~~2010 ofPlan. ~~which was~~The ~~paid~~options ~~off~~have inexercise ~~calendar~~price ~~year 2010. Phase 2~~ of ~~this project commenced in September 2010 and is expected to cost~~ $1814.81 ~~million~~per share, ~~$11~~an ~~million~~expiration ofdate ~~which was paid in calendar year 2010 and $7 million~~ of ~~which~~five ~~is scheduled~~ to beten ~~paid by~~years from the ~~end~~date of ~~June 2011~~grant, ~~the~~and ~~date~~vest ~~when Phase 2 is expected to be~~over ~~completed. The~~48 ~~construction~~consecutive ofmonths: ~~Phase~~20% 1in of the ~~plant~~first ~~was~~12-month ~~funded~~period; ~~by cash~~20% ~~received~~in ~~from~~ the ~~sale~~second of12-month aperiod; ~~convertible~~30% ~~promissory~~in ~~note~~the tothird ~~Pope~~12-month ~~Investments~~period; IIand ~~LLC~~30% onin ~~December~~the ~~11,~~forth ~~2007~~12-month ~~and~~period. ~~the~~The ~~proceeds~~Company ofdetermined the ~~public~~fair ~~offering~~value of ~~our common~~the ~~stock~~options inon ~~October~~the ~~2009. The~~date ~~construction cost~~ of ~~Phase~~grant 2was of$9,477,024 using the ~~plant~~ isBlack-Scholes-Merton ~~being~~option ~~funded~~pricing bymodel ~~cash~~with ~~received~~the ~~from~~following ~~the~~assumptions: ~~public~~expected ~~offering~~volatility, of76%; ~~our~~risk-free ~~common~~interest ~~stock~~rate, in1.95%; ~~October~~expected ~~2009. In~~weighted ~~this~~average ~~regard~~life, wefive ~~have~~to ~~acquired~~ten ~~the~~years; ~~land~~and ~~use right~~expected ofdividend 36yield,~~075~~ ~~square~~0%. ~~meters~~As of ~~land~~September in30, ~~the~~2012 ~~Shanghai Qingpu Industrial Park~~and ~~District~~March on31, ~~which~~2012, the ~~new~~total ~~bulk~~vested ~~manufacturing~~options ~~facilities~~were ~~are~~231,000 ~~located.~~shares ~~The~~and ~~plant has~~165,000 anshares, ~~initial capacity of 150 tons per year with room for expansion to 300 tons per year~~respectively.

16During June 2011, two candidates resigned from their position and terminated their services to the Company. They also did not exercise their vesting options within three months from the date of their termination. According to the option agreement, their options were forfeited and cancelled; the total number of forfeited and cancelled options was 250,000.

~~Encouraged by~~During the ~~growing~~six ~~demand for the animal feed market in China, the Company plans to~~months ~~leverage~~ended ~~its~~September technology and R&D capability in probiotics-based animal feed applications to build a new facility in the Yangling Agricultural High-tech Industries Demonstration Zone (“Yangling”). The Yangling facility is expected to spend over $58 million in two years. The facility will produce probiotics and probiotics-related biological additives for the animal feed industry. Currently30, ~~the~~2012 ~~facility is in the design stage,~~ and ~~the plan is subject to government approval prior to implementation. During this quarter~~2011, ~~the Company~~no ~~made~~vested ~~its~~options ~~first~~were ~~payment of RMB13,251,355 (or approximately $ 2 million) to acquire the land use right of 118~~exercised.~~54 mu land (or approximately 79,029.3 square meters).We expect to received the land certificate by the end of June 2011.~~

AsAt ~~of December~~September 3130, ~~2010,~~2012 we have entered into contracts with 49 customers for the bulk additives business. In this regard, we have created a number of formulations for testing by many potential customers. We have established an array of business relationships with commercial customers located in some major cities, including Beijing, Tianjin, and ~~Shanghai,~~March ~~and 14 provinces including Jiangsu and Jiangxi~~31, ~~among others. These growing companies are among the leaders in the dairy~~2012, ~~animal feed, baked foods, and pharmaceutical~~ ~~industries.~~outstanding ~~The~~options ~~Company’s~~were Pudong manufacturing and packaging facility is used to produce retail products. In late February 2010, we commenced commercial production at our new facility in Qingpu, Shanghai, and we expect the volume of production to ramp up gradually. We have reached the production run-rate of 75 metric tons/year as of the end of 2010. We have been carefully managing the use of our production capacity and adjusting our products mix to make sure that we strike a balance between achieving current and future sales.follows:

In our continuing effort to shift our focus from retail to bulk business and to improve operating efficiency, we plan to consolidate our retail outlets. We currently have a total of 15 retail outlets. On the retail business front, we believe the distribution network for our retail products is more efficient than directly selling through retail outlets, which involves increased leasing expenses and large staffing cost. By selecting four new distributors, we have expanded our distribution network into the Pan-Beijing area to sell the Company's retail products. The local distributors sell the Company’s retail probiotics products through established distribution networks, including malls, supermarkets, and functional food stores adding approximately 30 new points of sale. During the quarter ended December 31, 2010, we added 5 more distributors. We now have a total of 34 distributors for retail products. In light of increasing online sales of health food in China, we have started to work with two on-line selling companies to sell our retail products. Further more, the Company established an e-commerce department this quarter, which will be dedicated to selling our retail products online. We plan to build our own online selling platform, which will be launched by the end of fiscal year 2011 to promote our retail products sales.

	Number of Shares under Options			Weighted Average Exercise Price

Options outstanding at April 1, 2011		910,000		$	14.81
Options granted		-			-
Options expired or forfeited		(250,000	)		14.81
Options exercised		-			-
Options outstanding at March 31, 2012		660,000			14.81
Options granted		-			-
Options expired or forfeited		-			-
Options exercised		-			-
Options outstanding at September 30, 2012		660,000		$	14.81

OnThe ~~the bulk~~following ~~business~~table ~~front,~~summarizes ~~we signed 12 new customers for bulk additives~~information ~~probiotics~~about ~~products~~options inoutstanding ~~this~~at ~~quarter.~~September ~~Among the 12 small to medium sized new customers~~30, ~~one is an animal feed manufacturer, five are functional food, nutritional products, and pharmaceutical producers, and the remaining six are dairy companies.~~ 2012:

Results of Operations

		Options Outstanding						Options Exercisable
Exercise price		Number of shares under Option		Weighted average remaining contractual life (years)		Weighted Average Exercise Price		Number of shares under Option		Weighted Average Exercise Price

$	14.81		660,000		6.75	$	14.81		231,000	$	14.81

~~Quarter Ended~~At ~~December~~September 3130, ~~2010~~2012 ~~Compared~~and ~~with~~March 31, 2012, the ~~Quarter~~options ~~Ended~~outstanding ~~December~~and ~~31, 2009~~exercisable had no intrinsic value.

~~Our~~For ~~net~~the three months ~~profit~~ended ~~was~~September ~~$13.3~~30, ~~million~~2012 inand 2011, the ~~quarter~~Company ~~ended~~has ~~December~~recorded 31$336,946 ~~2010. This includes~~and a $~~2.85~~336,946, ~~million~~respectively, ~~surplus~~as ~~arising from~~ the ~~change~~fair ~~in the~~ value of ~~derivatives. Excluding~~ the ~~value~~vested options. ~~change~~For of the ~~derivatives~~six ~~and~~months ~~fair value~~ended ~~change~~September of30, ~~the~~2012 ~~Note~~and 2011, ~~our~~the ~~net~~Company ~~income~~has ~~was~~recorded $~~10.45 million~~673,892 ~~which~~and is$810,797, ~~33.4%~~respectively, as ~~higher~~the ~~than~~fair ~~our~~value ~~net~~of ~~income for~~ the ~~quarter~~vested ~~ended December 31, 2009~~options.

17As of September 30, 2012, total compensation cost related to non-vested stock options and restricted stock not yet recognized was approximately $4,380,301, which is expected to be recognized over the next 27 months

~~Our results~~15. ~~for~~PRODUCT ~~the~~RETURN ~~three months and nine months ended December 31, 2010 and 2009 are summarized below:~~CONCESSIONS

	Three months ended December 31, 2010						Three months ended December 31, 2009
	Amount			% of Net sales			Amount			% of Net sales
Net sales	$	32,384,645			100	%	$	23,294,321			100	%
Cost of sales		(11,198,703	)		(34.58	)%		(6,780,161	)		(29.11	)%
Gross profit	$	21,185,942			65.42	%	$	16,514,160			70.89	%
Operating expenses:
Selling expenses	$	(3,861,261	)		(11.92	)%	$	(4,140,738	)		(17.78	)%
General and administrative expenses		(3,190,506	)		(9.85	)%		(1,366,243	)		(5.86	)%
Research and development costs		(1,884,119	)		(5.82	)%		(894,101	)		(3.84	)%
Other income/(expense), net		539,451			1.66	%		3,179			0.01	%
Total operating expenses	$	(8,396,435	)		(25.93	)%	$	(6,397,903	)		(27.47	)%
Income from operations	$	12,789,507			39.49	%	$	10,116,257			43.43	%
Other income and expenses:
Change in the fair value of embedded derivatives	$	2,847,000			8.79	%	$	2,668,000			11.45	%
Interest income		103,495			0.32	%		74,438			0.32	%
Total other income	$	2,950,495			9.11	%	$	2,742,438			11.77	%
Income before taxes	$	15,740,002			48.61	%	$	12,858,695			55.20	%
Provision for income taxes		(2,476,772	)		(7.65	)%		(2,379,613	)		(10.22	)%
Net income	$	13,263,230			40.96	%	$	10,479,082			44.99	%

For the three months ended June 30, 2011 and six months ended September 30, 2011, product returns of $474,505 were deducted from sales due to a batch of probiotics products produced in June 2011 that were below the Company’s quality standards due to production problems.

1815

	Nine months ended December 31, 2010						Nine months ended December 31, 2009
	Amount			% of Net sales			Amount			% of Net sales
Net sales	$	80,909,011			100	%	$	55,855,442			100	%
Cost of sales		(27,317,786	)		(33.77	)%		(16,259,457	)		(29.11	)%
Gross profit	$	53,591,225			66.23	%	$	39,595,985			70.89	%
Operating expenses:
Selling expenses	$	(9,478,797	)		(11.72	)%	$	(9,221,564	)		(16.51	)%
General and administrative expenses		(5,870,538	)		(7.26	)%		(3,649,818	)		(6.53	)%
Research and development costs		(4,559,372	)		(5.64	)%		(2,282,409	)		(4.09	)%
Other income/(expense), net		894,538			1.10	%		72,110			0.13	%
Total operating expenses	$	(19,014,169	)		(23.50	)%	$	(15,081,681	)		(27.00	)%
Income from operations	$	34,577,056			42.74	%	$	24,514,304			43.89	%
Other income and expenses:
Change in the fair value of embedded derivatives	$	14,797,000			18.29	%	$	(6,248,000	)		(11.19	)%
Interest income	$	288,665			0.36	%		214,307			0.38	%
Total other (expenses)/ income	$	15,085,665			18.65	%	$	(6,033,693	)		(10.81	)%
Income before taxes	$	49,662,721			61.38	%	$	18,480,611			33.08	%
Provision for income taxes		(6,704,028	)		(8.29	)%		(5,716,846	)		(10.24	)%
Net income	$	42,958,693			53.10	%	$	12,763,763			22.84	%

As a result of a product returns after certain of our products did not meet our quality standards, and in order to improve the confidence of the Company’s distributors and end-user customers in our probiotics products, we provided special concession credits to our distributors during August 2011 to address the complaints and concerns of customers worried about food and healthcare products in the PRC. Such credits were made available for our distributors to reimburse end-user customers for products which were recalled. We treated these special credits as being comparable to a warranty on our probiotics products, and we incurred a cost of $7,143,914 for these credits for the three months ended September 30, 2011 that has been reflected as an additional cost of product returns in the accompanying consolidated financial statements. No additional such credits were made available for the three and six months ended September 30, 2012. During the three months ended September 30, 2012, the Company recovered special concession credits amounting to $993,671 (RMB6,280,000) and included such amounts in sales for the three months ended September 30, 2012.

1916. COMMITMENTS AND CONTINGENCIES

~~Net sales~~Capital commitments

~~Net~~On ~~sales~~August 12, 2010, BDH, a subsidiary of the Company, entered into the agreements with a government agency to establish manufacturing facilities for animal probiotics products in ~~our~~the ~~financial~~Yangling ~~statements~~Agricultural ~~are~~High-tech ~~stated~~Industries atDemonstration ~~invoiced~~Zone ~~value~~in ~~less~~Shaanxi ~~sales~~Province ~~discount~~of ~~and~~China. ~~sales~~In ~~tax~~furtherance of such agreements, BDH incorporated a foreign, wholly owned subsidiary, Growing Yangling, with a registered capital of $50 million. ~~Our~~As ~~net~~of ~~sales~~March ~~for~~31, 2012, the ~~three~~Company ~~months~~had ~~ended~~injected ~~December~~into 31Growing Yangling $7.5 million as registered capital. According to the approval from the government agency dated October 12, 2010, ~~and~~the ~~2009~~remaining balance of Growing Yangling’s registered ~~comprised~~capital ~~the~~of ~~following:~~$42.5 million must be injected before July 13, 2013.

	Three months ended December 31,						Nine months ended December 31,
	2010			2009			2010			2009
Invoiced value on sales	$	33,446,875		$	24,668,040		$	83,935,719		$	59,340,475
Less: sales discount		(870,128	)		(1,216,044	)		2,361,521			(2,943,740	)
Less : sales tax		(192,102	)		(157,675	)		(665,187	)		(541,293	)
	$	32,384,645		$	23,294,321		$	80,909,011		$	55,855,442

On February 1, 2012, our subsidiary, Growing, entered into an agreement to acquire a patent regarding a production technology for $6,657,262 (RMB 42,000,000) from an unrelated PRC company. Growing made a deposit of $6,330,616 (RMB 40,000,000) to the seller for the transfer of the patent within 210 days, or by August 30, 2012. The original terms of the agreement were that if the patent cannot be transferred to Growing within 210 days, Growing will be refunded the deposit paid and also be compensated an additional $159,000 (RMB 1,000,000) for damages. The transfer was not completed by August 30, 2012, and on September 3, 2012, Growing and the seller mutually agreed to extend the completion date to December 30, 2012. As of December 21, 2012, the transfer had not yet been completed because the Company is waiting for approval of the transfer from the State Intellectual Property Office of the PRC. The Company has no information to allow it to estimate when such confirmation will be obtained, but expects the transaction to close in 2013, after which the patent is planned to be used in the Company’s operations. Subject to the completion of the transfer of the patent, the Company will have to pay the balance, the future payment of which amounts to $316,506 (RMB2,000,000), which amount was contracted but not provided for as of September 30, 2012.

~~Net~~Purchase sales of $32,384,645 for the quarter ended December 31, 2010 were 39.0% above the net sales of $23,294,321 for the quarter ended December 31, 2009. The increase was primarily due to the increase in the sales of bulk additive products, which was 133.1% compared with the same period last fiscal year, while the increase in retail net sales was 1.8%. The increase in sales of bulk addictives products is a result of increasing demand from both existing customers and newly developed customers. On the one hand, sales of human-used bulk products accounted for approximately 75.3% of sales of bulk additives, including culture products sold to dairy manufacturers to produce yogurt, which caused the sale of bulk additive products to ramp up significantly during this quarter. Sales of animal-used bulk products, on the other hand, maintained a steady growth pace during this quarter.obligations

The ~~contributions~~ ofCompany ~~the retail products as a percentage of the total value on sales~~entered ~~were~~into ~~approximately 55.8% and 74.3% for~~ the ~~three~~agreements ~~months~~with ~~ended~~its ~~December~~suppliers ~~31,~~to ~~2010 and~~purchase ~~2009,~~raw ~~respectively,~~materials and ~~were~~packing ~~approximately 58~~materials.0% ~~and 73% for the nine months ended December 31, 2010 and 2009, respectively.~~ The ~~contributions~~amount of ~~the~~future ~~bulk additives~~payments ~~products~~is ~~as a percentage of the total value on sales were approximately 44.2% and 25.7% for the three months ended December 31~~$13, ~~2010 and 2009~~361, ~~respectively, and were approximately 42~~138.0% and 27% for the nine months ended December 31, 2010 and 2009, respectively. The percentage weight increase of bulk additives in total sales over the nine month period of fiscal year 2011 represented the Company’s strategic shift from retail products to bulk additive products. We expect the trend will continue in both the short-term and long-term.

~~Cost of~~Other ~~Sales~~obligations

~~Cost~~The ofCompany entered ~~sales~~into ~~for~~an ~~the~~agreement ~~three months ended December 31, 2010 was $11,198,703 compared~~ with ~~$6,780,161~~ ~~for~~a ~~the~~university ~~three~~to ~~months~~perform ~~ended~~research ~~December~~and ~~31, 2009~~development. The ~~increase~~amount ~~in cost~~ of ~~sales~~future ~~was~~payments ~~primarily~~is ~~due~~$1,424,389 to(RMB ~~the increase in the production of bulk additive products~~9,000,000).

~~Gross profit~~Pending litigation

~~Gross~~The Company and certain ~~profit~~of ~~for~~its ~~the~~current and former officers and directors have been named as defendants in three ~~months~~putative ~~ended~~shareholder ~~December~~class 31action lawsuits, one ~~2010~~in ~~was~~the ~~$21~~United States District Court for the Central District of California (Mohapatra v. China-Biotics,~~185~~ Inc.,~~942~~ ~~compared~~et al., ~~with~~No. ~~$16~~10-cv-6954 (C.D. Cal.),~~514~~ the “Mohapatra case”),~~160~~ and two in the United States District Court for the ~~three~~Southern ~~months~~District of ~~ended~~New ~~December~~York 31(Hill v. China-Biotics, ~~2009~~Inc., ~~Gross~~et ~~profit~~al., ~~for the~~No. ~~nine~~10-cv-7838 ~~months~~(S.D.N.Y.), ~~ended~~the ~~December~~“Hill 31case”, ~~2010~~and ~~was~~Casper v. ~~$53~~Jinan,~~591~~ et al.,~~225~~ No. 12-cv-4202 (S.D.N.Y.), ~~compared~~the ~~with~~“Casper case”). After certain shareholders filed motions for appointment ~~$39~~as lead plaintiff,~~595,985~~ ~~for~~the plaintiff in the ~~nine~~Mohapatra ~~months~~case ~~ended~~voluntarily ~~December~~dismissed 31its case and the plaintiff in the Hill case, ~~2009~~together with another shareholder, were appointed as lead plaintiffs. The ~~increase~~lead plaintiffs filed an amended complaint in which they allege that the defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, and Sections 10(b) ~~gross~~and ~~profit~~20(a) ~~was~~of ~~primarily~~the ~~due~~Securities Exchange Act of 1934 by making material misstatements or failing to disclose certain material information regarding, among other things, the ~~increase~~Company’s infinancial condition, operations, and future business prospects, and the ~~sales~~quality, nature, and quantity of ~~bulk~~the ~~additives~~Company’s retail outlets. The lead plaintiffs seek to represent a class of shareholders who bought ~~products~~the Company’s securities between July 10, 2008 and August 27, 2010.

On August 18, 2011, the Company filed a motion to dismiss the lead plaintiffs’ amended complaint. The court dismissed the lead plaintiffs’ ~~average~~Section ~~gross~~11 ~~profit~~claim, ~~percentage~~but ~~for~~gave ~~all~~them ofleave ~~our~~to ~~products~~replead. ~~for~~The court did not rule on the ~~three~~motion ~~months~~to dismiss the Section 10(b) claim. On January 9, 2012, the lead plaintiffs filed a second amended complaint that included a new named plaintiff and new allegations for the Section ~~nine~~11 ~~months~~claim. ~~ended~~On ~~December~~February 3127, ~~2010~~2012, the Company filed a motion to dismiss the amended Section 11 claim. Both that motion and ~~2009~~the original motion to dismiss the Section 10(b) and Section 20(a) claims are ~~summarized~~currently ~~below:~~pending before the court. The Company intends to defend this action vigorously.

	Three months ended December 31,						Nine months ended December 31,
	2010			2009			2010			2009
Average for all products		65	%		71	%		66	%		71	%

~~Gross profit~~In ~~margin decreased from 71% in~~ the ~~quarter~~Casper ~~ended December 31~~case, the ~~2009~~plaintiff toalleges ~~65% this~~that ~~quarter,~~the ~~which~~defendants ~~was~~violated ~~primarily~~Sections ~~due~~10(b) toand 20(a) ~~change~~ of ~~product mix, increasing production labor cost in~~ the ~~Shanghai~~Securities ~~area,~~Exchange ~~and~~Act ~~increasing~~of ~~raw~~1934 ~~material~~by ~~cost.~~making Onmaterial ~~the~~misstatements ~~retail~~and ~~products~~seeks ~~front,~~to ~~sales~~represent ~~volume~~a ofclass ~~one~~ of ~~our~~stockholders ~~lower~~who ~~margin~~bought ~~retail products~~the ~~increased~~Company’s ~~significantly~~securities ~~while~~between ~~gross~~February ~~margin~~9, ~~of other products remained~~2011 ~~flat~~and ~~over~~July ~~the~~1, ~~year~~2011. On ~~the~~October ~~bulk~~18, ~~products front~~2012, wethe ~~added~~Hill 20case ~~production workers during this quarter~~ and ~~reached~~the aCasper ~~total~~case ofwere ~~176 workers~~consolidated, ~~compared~~but ~~with~~no aconsolidated ~~total~~amended ofcomplaint ~~109~~has ~~workers~~yet abeen ~~year ago~~filed. We ~~are~~The ~~experiencing~~Company ~~steadily~~intends ~~increasing wages of our skilled workers in the Shanghai area. We also introduced some new ingredients, which increased the production cost,~~ to ~~improve~~defend ~~the quality of the bulk products. We expect the overall gross margin will remain stable at~~ this ~~level~~ inaction ~~near term~~vigorously.

20The Company and its directors have been named as defendants in a derivative lawsuit filed in the United States District Court for the District of Columbia (Marteney v. Song Jinan, et al., No. 10-cv-1983 (D.D.C.)). The complaint alleges that the directors breached their fiduciary duties by disseminating false and misleading financial statements and seeks unspecified damages. On March 26, 2012, the plaintiff filed an amended complaint in which he added Roth Capital Partners LLC and Maxim Group LLC (the “Underwriters”) as defendants. On September 7, 2012, the Underwriters filed a motion to dismiss. On October 23, 2012, the court approved a stipulation in which the plaintiff voluntarily dismissed the claim against the Underwriters. On November 13, 2012, the clerk entered a default against the director defendants. On December 7, 2012, the parties submitted a stipulation lifting the clerk’s entry of default. The defendants intend to defend this action vigorously.

~~Selling~~With respect to the ~~expenses~~above-referenced litigation matters, the Company is unable at this time to estimate possible losses, if any, or any other impact of the outcome of the litigation matters on the consolidated financial statements.

~~Selling expenses~~Review ~~were $3,861,261 or 11.92%~~ of ~~net~~decision ~~sales~~ordering ~~for~~that the ~~three months ended~~ ~~December~~registration ~~31, 2010, compared with $4,140,738 or 17.78%~~ of ~~net sales for~~ the ~~three~~ months ended December 31, 2009. Selling expenses were $9,478,796 or 11.78% of net sales for the nine months ended December 31, 2010, compared with $9,221,564 or 16.51% of net sales for the nine months ended December 31, 2009. The decrease of selling expenses as a percentage of total sales was primarily due to the decrease of operating costs of retail outlets. As of December 31, 2010, we had a total of 15 retail outlets in operation compared with 111 outlets as of December 31, 2009. The Company’s ~~had~~securities 59be ~~employees~~revoked working for retail outlet operations as of December 31, 2010, compared with 222 employees in retail outlet operations as of December 31, 2009. The operating costs of the retail outlets, including both rental and hiring expenses, dropped significantly when the Company closed the majority of its retail outlets in 2010. For the bulk business, our selling expense is slightly lower this quarter, but we expect it will increase slightly in the future as we will have more spending in sales promotion.

~~General~~On September 15, 2011, the staff of the SEC informed the Company that it intended to recommend that the SEC institute a public administrative proceeding against the Company for alleged violations of Section 13(a) of the Securities Exchange Act of 1934 and Rules 13a-1 and 13a-13 or 13a-16 promulgated thereunder. On October 7, 2011, the SEC issued an Order Instituting Proceedings to determine whether it was necessary and appropriate to suspend or revoke the registration of the Company’s securities. On February 22, 2012, the administrative law ~~expenses~~judge overseeing the proceedings issued a decision ordering that the registration of the Company’s securities be revoked. On March 26, 2012, the SEC granted the Company’s petition for review of this decision. The results of the SEC’s review are pending as of December 24, 2012.

~~General and administrative expenses were $3,190,506 or 9~~17.~~85%~~ ofBUSINESS net sales for the three months ended December 31, 2010, compared with $1,366,243 or 5.86% of net sales for the three months ended December 31, 2009. General and administrative expenses were $5,870,538 or 7.26% of net sales for the nine months ended December 31, 2010, compared with $3,649,818 or 6.53% of net sales for the nine months ended December 31, 2009. The increase of general and administrative expenses was primarily due to the increased operating costs of our newly established bulk addictives products business, combined with an increase of general and administrative expenses at the holding company level, such as the legal and consulting expenses. As of December 31, 2010, although the total number of employees was decreased, this did not result in the decrease in relative general and administrative expenses because the decrease in the number of employees resulted from a combined effect of a decrease in the number of employees for retail outlets, the expenses of which were included in selling expenses, and an increase in the number of employees for our bulk addictives business.SEGMENTS

~~Provision~~The Company operates two business segments for ~~income~~the ~~taxes~~three and six months ended September 30, 2012 and 2011, which are retail probiotics products as a health supplement and bulk additives for institutional customers in the PRC. The following is the summary information by segment as of September 30, 2012 and 2011, and for the three and six months ended September 30, 2012 and 2011:

Provision for income taxes was $2.48 million and $2.38 million for the three months ended December 31, 2010 and 2009, respectively. Income before taxes was $12.89 million for the three month period ended December 31, 2010, compared with a $10.42 million profit, excluding the $2.85 million surplus on revaluation of the Note, for the three month period ended December 31, 2009. The increase in income tax payable is attributable to an increase in operating profit. (See Note 9)

Three months ended September 30, 2012	Retail products		Bulk additives		Segment Total		Corporate			Total

Net revenue	$	4,709,139	$	15,442,715	$	20,151,584	$	-		$	20,151,584
Income from operations		1,092,515		5,775,283		6,867,798		(969,547	)		5,898,251
Income taxes		249,362		624,226		873,588		-			873,588
Total assets		104,865,019		110,231,152		215,096,171		47,675,910			262,772,081
Depreciation and amortization		238,961		767,644		1,006,605		209,877			1,216,482

Segment reporting

Three months ended September 30, 2011	Retail products			Bulk additives			Segment Total			Corporate			Total

Net revenue	$	744,672		$	3,405,429		$	4,150,101		$	-		$	4,150,101
Loss from operations		(9,947,427	)		(1,134,475	)		(11,081,902	)		(905,380	)		(11,987,282	)
Income taxes		-			41,908			-			-			-
Total assets		100,846,541			79,276,118			180,122,659			43,336,994			223,459,653
Depreciation and amortization		267,082			302,966			570,048			194,127			764,175

We have adopted the “products and services” approach for segment reporting. For the three months ended December 31, 2010 and 2009, the Company had only one category of products and services, the probiotics products as a health supplement, which is manufactured, delivered, and sold in one geographic area, the PRC. Moreover, all of our long-lived assets are physically located in China.

Six months ended September 30, 2012	Retail products		Bulk additives		Segment Total		Corporate			Total

Net revenue	$	7,213,237	$	30,321,100	$	37,534,337	$	-		$	37,534,337
Income (loss) from operations		294,405		9,952,430		10,246,835		(1,939,940	)		8,306,895
Income taxes		481,866		1,460,694		1,942,560		-			1,942,560
Total assets		104,865,019		110,231,152		215,096,171		47,675,910			262,772,081
Depreciation and amortization		502,995		1,599,498		2,102,493		317,598			2,420,091

~~Liquidity and Capital Resources~~17

We had cash of $132.29 million and working capital of $133.27 million as of December 31, 2010. Cash generated from operations was $18.17 million in the nine months ended December 31, 2010.

Six months ended September 30, 2011	Retail products			Bulk additives			Segment Total			Corporate			Total

Net revenue	$	5,286,770		$	7,822,556		$	13,109,326		$	-		$	13,109,326
Loss from operations		(11,184,896	)		(1,044,147	)		(12,229,043	)		(1,902,260	)		(14,131,303	)
Income taxes		-			41,908			41,908			-			41,908
Total assets		100,846,541			79,276,118			180,122,659			43,336,994			223,459,653
Depreciation and amortization		570,998			606,938			1,177,936			388,139			1,566,075

WeReconciliation ~~had capital~~is ~~expenditures~~provided ~~totaling~~for ~~$16.36~~unallocated ~~million~~amounts inrelating to ~~the~~corporate ~~nine~~operations, ~~months~~which ~~ended~~is ~~December 31,~~not ~~2010,~~included ~~mainly~~ in ~~connection with~~ the ~~construction~~segment ~~of the new plant~~information.

Our Pudong facility commenced operations in 2000. With the increases in sales volume in the last couple of years, the Pudong facility is reaching its full production capacity. We are constructing a new Phase 2 plant with an overall project size of $54 million. (See Overview)

	Three months ended September 30,						Six months ended September 30,
Reconciliation	2012			2011			2012			2011

Total segment operating income	$	6,867,798		$	(11,081,902	)	$	10,246,835		$	(12,229,043	)
Corporate overhead expenses		(969,547	)		(905,380	)		(1,939,940	)		(1,902,260	)
Other income, net		691,434			126,854			1,423,725			255,753
Income tax expense		(873,588	)		-			(1,942,560	)		(41,908	)
Total consolidated net income (loss)	$	5,716,097		$	(11,860,428	)	$	7,788,060		$	(13,917,458	)

2118

AtITEM ~~our Pudong~~2. ~~plant,~~MANAGEMENT’S ~~the~~DISCUSSION ~~Company~~AND ~~plans~~ANALYSIS toOF ~~expand~~FINANCIAL ~~the~~CONDITION ~~retail~~AND ~~product~~RESULTS ~~packaging~~OF ~~facility and make technical improvements to the existing fermentation facility, which will cost approximately $3 million~~OPERATIONS.

~~During the~~NOTE ~~quarter~~REGARDING ~~ended September 30, 2010, the Company obtained admission to enter the Yangling Agricultural High~~FORWARD-~~tech~~LOOKING Industries Demonstration Zone. The Company will inject the full amount of registered capital, an amount no less than $50 million, within 24 months of the project commencement date. The Company plans to fund this project with its cash reserves.STATEMENTS

OnThis Quarterly Report ~~October~~on 5,Form ~~2009~~10-Q, including the ~~Company~~following ~~closed~~“Management’s anDiscussion ~~underwritten~~and ~~public~~Analysis ~~offering~~ of ~~4,600,000 shares~~Financial ofCondition ~~its~~and ~~common~~Results ~~stock at a price~~ of Operations”, ~~$15.00~~contains ~~per~~forward-looking ~~share.~~statements Onwhich ~~October~~involve ~~26,~~risks ~~2009, an~~and ~~additional 690~~uncertainties,~~000~~ ~~shares~~including ~~were~~statements ~~sold~~regarding ~~pursuant to the exercise of an~~our ~~over-allotment~~capital ~~option~~needs, atbusiness ~~the~~strategy ~~same~~and ~~price~~expectations. ~~Net~~Any ~~proceeds~~statements ofcontained ~~the~~herein ~~offering,~~that ~~including the~~are ~~over-allotment,~~not ~~after~~statements ~~deducting~~of ~~underwriting~~historical ~~discounts,~~fact may ~~and~~be ~~offering expenses,~~deemed ~~were~~to ~~approximately~~be ~~$74.9~~forward-looking ~~million~~statements. ~~The~~In ~~Company~~some ~~expects~~cases, toyou ~~use~~can ~~the~~identify ~~net proceeds~~forward-looking ~~from~~statements ~~the~~by ~~offering~~terminology ~~for~~such as ~~general~~“may,” ~~corporate~~“should,” ~~purposes~~“will,” ~~including~~“expect,” ~~expanding~~“plan,” “intend,” ~~its~~“anticipate,” ~~retail~~“believe,” ~~operations~~“estimate,” ~~expanding~~“predict,” ~~its products~~“potential,” ~~funding Phase 2 of our bulk~~“forecast,” ~~manufacturing~~“project” ~~facility~~or “continue,” ~~funding~~the ~~our~~negative ~~newly~~of ~~announced~~such ~~Yangling~~terms ~~project,~~or ~~and~~other ~~for general~~comparable ~~working capital purposes~~terminology.

~~The~~You should not rely ~~offering~~on ~~was~~forward-looking ~~made~~statements ~~pursuant~~as topredictions anof ~~Underwriting~~future ~~Agreement,~~events ~~dated~~or ~~September~~results. ~~29,~~Any or all of our forward-looking statements may turn ~~2009,~~out byto ~~and~~be ~~between~~wrong. ~~the~~They ~~Company~~can ~~and~~be ~~Roth~~affected ~~Capital~~by ~~Partners,~~inaccurate ~~LLC~~assumptions, asrisks ~~sole~~and ~~manager~~ uncertainties and ~~representative~~other offactors ~~the~~which ~~underwriters~~could ~~named~~cause ~~therein.~~actual events ~~The~~or ~~offering~~results ofto ~~the~~be ~~shares was~~materially ~~registered~~different ~~under~~from those expressed or implied in the ~~Securities~~forward-looking ~~Act~~statements. ofIn ~~1933~~evaluating these statements, asyou ~~amended,~~should ~~pursuant~~consider tovarious factors, including the ~~Company’s~~ ~~shelf~~risks ~~registration~~described ~~statement~~in onthis Form S10-3,Q asunder ~~amended~~“Risk byFactors” and ~~Amendment~~elsewhere. NoThese factors may cause our actual results to differ materially from any forward-looking statement. In addition, 1new factors emerge from time to time and ~~Amendment~~it ~~No.~~is 2not possible for us to ~~Form~~predict ~~S-3~~all ~~(File~~factors Nothat may cause actual results to differ materially from those contained in any forward-looking statements. ~~333~~We disclaim any obligation to publicly update any forward-~~160519)~~looking statements to reflect events or circumstances after the date of this report, except as required by applicable law.

OnExcept as otherwise ~~December~~indicated ~~11,~~by ~~2007~~the context, wereferences ~~issued~~in ~~the~~this ~~Note~~Quarterly toReport ~~Pope~~on ~~Investments~~Form II10-Q ~~LLC~~to “we,” an“us,” ~~affiliate~~and “our” are to the combined business of ~~Pope~~China-Biotics, ~~Investments~~Inc. (the “Company”) and to the Company’s wholly owned direct subsidiaries, ~~LLC~~Sinosmart Group Inc. (“SGI”), ~~with~~Growing aState ~~maturity~~Limited ~~date~~(“GSL”) ofand ~~December~~King 11Treasure Group Limited (“KTG”); SGI’s wholly owned subsidiary, ~~2010~~Shanghai Shining Biotechnology Co. ~~The principal~~Ltd. ~~amount~~(“Shining”); ofGSL’s wholly ~~the~~owned ~~Note~~subsidiary, ~~was~~Growing ~~convertible~~Bioengineering ~~into~~(Shanghai) ~~shares~~Co. ofLtd. ~~our~~(“Growing”); ~~common~~KTG’s ~~stock~~wholly atowned subsidiary, anBest ~~exercise~~Design ~~price~~Holdings ofLimited ~~$12.00~~(“BDH”); ~~per~~and ~~share~~BDH’s atwholly ~~any~~owned ~~time~~subsidiary, ~~until~~Growing ~~the~~Bio ~~maturity~~(Yangling) ~~date~~Co. Ltd (“Growing ~~Net~~Yangling”). ~~proceeds~~References ofto “China” or to the ~~Note~~“PRC” ~~were~~are ~~used~~references to ~~fund~~ the ~~construction~~People’s Republic of ~~the 150-metric-ton-per-year~~China. ~~manufacturing~~All ~~facility~~references into ~~Qingpu~~“dollars” ~~and~~or ~~other~~“$” ~~capital expenditures~~refers to United States dollars.

On December 9, 2010, the Company repaid in full its obligations under the Note in the original aggregate principal amount of $25,000,000. The payoff amount of $29,684,932, consisting of $25,000,000 of outstanding principal and $4,684,932 of accrued interest, was paid to Pope Investments II LLC, and all security interests and liens held by Pope Investments II LLC were terminated and released, including (1) a guaranty by Mr. Song Jinan of the Company’s obligations under the Note backed by a pledge of 4,000,000 shares of China-Biotics’ common stock owned by Mr. Song; and (2) a pledge by the Company of 100% of the stock of SGI to Pope Investments II LLC.Overview

~~Inflation~~We manufacture and sell probiotics products. Probiotics comprise mainly live bacteria, which we produce using advanced proprietary fermentation technology. Currently, our products are sold primarily in the Chinese domestic market.

~~During~~Our ~~the~~retail ~~quarter~~products ~~ended~~are ~~December~~mainly ~~31,~~sold ~~2010~~to distributors, ~~there~~who ~~were~~then ~~small~~distribute ~~increases~~them into ~~cost~~various ofretail ~~pulp,~~outlets such as drug stores ~~paper,~~and ~~other~~supermarkets ~~raw~~or ~~materials~~sell directly to enterprise accounts. We ~~also~~Typically, ~~saw~~60 ~~price~~to ~~increases~~90 indays’ ~~the~~credit ~~lease~~is given to the ~~market~~distributors. ~~The~~ ~~closure~~Our ofbulk aadditives ~~number~~products ofare ~~retail~~primarily ~~outlets,~~sold ~~however~~to institutional customers, ~~reduced~~such ~~the~~as dairy manufacturers, animal ~~leasing~~feed ~~costs~~manufacturers, pharmaceutical companies, and ~~staff~~food ~~cost~~companies. ~~and~~Typically, ~~overall~~60 weto ~~believe~~90 ~~that~~days’ ~~inflation~~credit ~~did~~is ~~not~~given ~~have~~to the abulk ~~significant~~additives ~~impact~~products oncustomers. ~~our~~Because ~~results~~of the adverse market environment, the Company has temporarily extended an additional 30 days’ credit to all distributors of ~~operations~~retail ~~for~~products and customers of the ~~quarter~~bulk additives products. As a result, the collection period has also been extended further 30 days to 120 days.

~~Seasonality~~Because of the increasing cost of rents and sales personnel in recent years, since January 2011 we have expanded our retail product sales in China through our growing distribution network and via internet sales. Our management believes that as China has become more affluent, the number of Chinese internet users has increased and Chinese citizens have become more health conscious, resulting in higher demand for healthy and functional foods such as probiotics and yogurt.

~~Typically~~As our retail products comprise mainly live bacteria, which are reproduced by fermentation, we have historically had a low cost ~~60%~~of production, of ~~our~~which ~~retail~~packaging ~~sales~~costs, ~~take~~including ~~place~~the cost of capsules, represent the largest cost item. During April to June 2012, there was a public health issue relating to so-called “poison capsules” in China that adversely affected all related industries that produce or distribute products in capsule form, including the ~~second~~food ~~half~~and ofadditive markets. For safety purposes, all companies in these affected sectors, including the ~~fiscal~~Company ~~year~~(which ~~because~~has not been linked to any ~~many~~defective ofor ~~our~~dangerous ~~customers~~capsules) ~~purchase~~suspended ~~our~~the production of products toin ~~give~~capsule asform ~~gifts~~until ~~during~~the completion of required government inspection and approval for resuming production. After the ~~Chinese~~clearance of the “poison capsules” ~~festivals~~issue, ~~that~~the ~~occur~~Company ~~during~~gradually improved ~~this~~its ~~time~~sales of retail products during the ~~year.~~three ~~While~~months itended isSeptember ~~still~~30, ~~too~~2012, ~~early~~our toretail ~~tell~~sales for the six months ended September 30, we2012 ~~expect~~had ~~that~~slightly ~~our~~increased ~~bulk~~2% ~~additive~~compared ~~sales~~with ~~will~~the ~~not~~same beperiod ~~seasonal~~the prior ~~in nature~~year. ~~because~~Sales of the ~~bulk~~Company’s retail products ~~are~~in ~~purchased~~capsule byform ~~food~~rebounded ~~manufacturers~~over 37% in the three months ended September 30, ~~consistently~~2012 ~~over~~comparing with the ~~year~~three months ended June 30, 2012.

~~Off~~Recently, Shining Probiotics Protein Powder has become our best-~~Balance~~selling product, representing approximately 33% and 38% of our total sales ~~Sheet~~of ~~Arrangements~~our retail products for the six months ended September 30, 2012 and 2011, respectively. Although we have released new products, the percentage contribution of Shining Essence, for many years our biggest-selling retail product, to our total retail sales has decreased, representing approximately 28% and 20% for the six months ended September 30, 2012 and 2011, respectively. Shining Essence is still within top three of our best-selling products. As of September 30, 2012, we had a retail product portfolio of 46 products, and we are currently selling 14 of them in the market.

~~We do not have any off-balance sheet arrangements.~~19

22Sales of our bulk products contributed 82% of our gross revenue for the six months ended September 30, 2012 and contributed to an increase in sales of over 97% from the same period in 2011.

~~Contractual~~In February 2010, ~~Obligations~~our new bulk production facility in Qingpu commenced commercial production. The state-of-the-art bulk additives production facility has a full capacity of 150 metric tons. Management believes our new facility will help us to continue to meet the increasing market demand for high quality and low cost products.

~~The~~Our management believes ~~following~~that ~~table~~the ~~summarizes~~following ~~our~~trends ~~principal~~in ~~contractual~~China ~~obligations~~will ~~and~~have ~~commercial commitments~~an ~~over~~important ~~various~~impact ~~future~~on, ~~periods~~and aspresent ofsignificant ~~December 31~~opportunities for, ~~2010.~~ our business:

Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Capital Lease Obligations(2)	$	5,234,381	$	5,234,381	$	-	$	-	$	-
Operating Lease Obligations(1)	$	607,417	$	607,417	$	-	$	-	$	-
Capital Commitment(2)	$	42,500,000	$	21,250,000	$	21,250,000	$	-	$	-
Purchase Obligations(3)	$	8,168,154	$	8,168,154	$	-	$	-	$	-
Loan(4)	$	-	$	-	$	-	$	-	$	-
Other obligation	$	1,920,808	$	1,920,808	$		$	-	$	-
Total	$	58,430,760	$	37,180,760	$	21,250,000	$	-	$	-

Increasing demand for functional food and health supplement products. As the discretionary income and health-consciousness of the average Chinese consumer increase, we expect the demand for functional foods and health supplements to increase.

~~(1)~~· ~~See Note~~Curtailment 10of the use of antibiotics and preservatives and government support for probiotics. China has the highest per capita consumption of antibiotics in the world. To curtail the overuse of antibiotics, the Chinese government has taken steps to limit the use of antibiotic drugs and preservatives for both humans and animals. Moreover, the Chinese State Food and Drug Administration has also acknowledged that probiotics are beneficial for human health. Recently, the Ministry of Health (aMOH) toin ~~our~~China ~~consolidated~~announced ~~financial~~an ~~statements~~expanded list of probiotics strains allowed to be used in the food industry. The number of probiotics strains on the list has doubled. Management believes that this ~~Quarterly Report~~reflects that the Chinese government is encouraging wider uses of probiotics products in the food industry. Management also believes that it also demonstrates the rapidly expanding probiotics market in China.

~~(2)~~· ~~See Note~~Increasing ~~10(b)~~demand tofor dairy product additives. The demand for functional foods and foods that use probiotics supplements is growing at a significant rate, and our ~~consolidated~~management ~~financial~~believes that it will continue to do so. According to statements made by the Nutrition Development Centre of National Development and Reform Commission in China, effective April 1, 2007, probiotics would be required to be added to baby milk powders produced in China. On October 24, 2011, the ~~Quarterly Report~~MOH published a list of probiotics applicable for baby food for babies aged one year or older.

~~(3)~~Our management expects ~~Estimated~~to ~~contractual~~capitalize ~~purchases~~on ~~with~~the ~~suppliers~~opportunities ascreated ofby ~~December~~these ~~31, 2010.~~trends to achieve significant growth through the following:

~~(4)~~· ~~See Note11~~We toare ~~our~~currently ~~consolidated~~focused ~~financial~~on ~~statements~~two fast-growing industries in China: the dairy and animal feed sectors. As of September 30, 2012, we had entered into contracts with 112 customers, up from 71customers at March 31, 2012 for the bulk additives business. In this ~~Quarterly Report~~regard, we have created a number of formulations for testing by many potential customers. We have established business relationships with a variety of commercial customers located in major cities, including Beijing, Tianjin, Chongqing, and Shanghai. During the six months ended September 30, 2012, we developed sales plans for new customers in four additional provinces: Gansu, Hebei, Heilongjiang and Shanxi. Besides the major cities mentioned above in which we do business, our customers are now covering 20 provinces, including Guangdong, Jiangsu and Jiangxi, among others. These growing companies are among the leaders in the dairy, animal feed, baked foods, and pharmaceutical industries.

~~Research~~ · Construction of a new facility in Yangling - Encouraged by the growing demand for the animal feed market in China, the Company commenced construction of a new facility in the Yangling Zone in the Shaanxi Province of China in June 2012. The cost for constructing the Yangling facility is expected to be over $58 million invested over two years. The facility will produce probiotics and ~~Development~~probiotics-related ~~Expenditures~~biological additives for the animal feed industry. Currently, the facility is in the construction stage, and the plan is subject to government approval prior to implementation. During the year ended March 31, 2011, the Company made total payments of approximately $3.25 million (RMB 20,608,112) to acquire the land use right of approximately 122,600 square meters (183.94 mu). We received the land use right certificate on January 28, 2012 and commenced construction in June 2012. We expect to complete construction by June 2014 and trial production is expected to commence in 2015. In the existing market environment, the Company will utilize its available cash and bank facilities to fund such construction.

We· ~~have~~Wholesale ~~a strong research~~ and ~~development~~e-commerce ~~team~~businesses ~~supported~~- byIn aour ~~technical~~continuing ~~advisory~~effort ~~board~~to ~~of experts.~~transition Infrom ~~addition~~a retail, business-to-consumer ~~having~~model ~~advanced~~to ~~technology~~a inwholesale, ~~bacteria~~business-to-business ~~culturing~~model, and ~~protection~~ to improve operating efficiency, we ~~also~~have ~~conduct~~completed ~~research~~the toconsolidation ~~develop~~of ~~products~~our ~~that~~retail ~~address~~outlets. ~~specific health~~We ~~problems~~closed ~~using~~all of our ~~core~~retail ~~technology~~outlets ~~and~~by ~~Chinese~~the ~~medicine~~end toof ~~create genetically~~fiscal ~~engineered~~year ~~drugs~~2011, ~~and~~as ~~drug~~we ~~delivery~~believe ~~solutions~~our ~~and~~distribution ~~expand~~network is more efficient for our ~~product line~~retail products sales. We ~~incurred~~have ~~research~~a ~~and~~total ~~development~~of ~~costs~~42 distributors for retail products as of ~~approximately~~September $130,~~884,119~~ ~~and $894,101~~2012. inIn ~~the~~light ~~three~~of ~~months~~increasing ~~ended~~online ~~December~~sales ~~31,~~of ~~2010~~health food and ~~December~~supplements ~~31,~~in ~~2009, respectively. Research~~China and ~~development~~to ~~costs~~maintain ~~for~~our ~~the~~existing ~~nine~~retail ~~months~~customer ~~ended December 31~~base, ~~2010~~we ~~and~~launched ~~December~~a 31“Community Network,” ~~2009~~which ~~were~~is ~~$4,559,372~~dedicated to promoting and ~~$2,282,409, respectively~~selling our retail products online through the Company’s website at http://www. ~~The~~shiningbt.com/Product/. ~~significant~~Since ~~increase~~its establishment, the in-house ~~expenditures~~e-commerce ~~was~~department ~~primarily~~is ~~due~~ working to better access the ~~newly~~market ~~established~~and ~~production~~existing ~~facilities,~~and ~~combined~~potential customers. We have also been working with ~~increased~~two ~~research on~~online ~~markets~~selling companies to sell our retail products, ~~demands~~including www.ule.com.cn and ~~customer~~www.yihaodian.com. ~~consumption~~In ~~habits~~addition, ~~various~~we ~~inspections~~have ofestablished ~~the new~~a ~~products,~~customer ~~and~~service ~~relevant~~center ~~general~~to ~~and~~reply ~~administrative~~to ~~expenses~~inquiries from our end users.

~~Critical Accounting Policies~~20

~~Our critical~~· ~~accounting~~Improvement ~~policies are described~~ in ~~the~~research ~~Notes~~and todevelopment ~~the~~of ~~Financial Statements~~new ~~included~~products ~~in our Annual Report filed with the SEC on Form 10-K for the fiscal year ended March 31, 2010,~~ and ~~this~~services ~~Form 10~~-Q ~~should~~We becontinue ~~read~~to ~~in conjunction~~develop ~~with~~new ~~that~~retail ~~Annual~~products ~~Report.~~aimed ~~This~~at ~~MD&A~~improving ~~discusses~~general ~~our~~human ~~consolidated financial~~health ~~statements~~conditions, ~~for~~enhancing the ~~three~~immune ~~months ended December 31~~system, ~~2010~~ and ~~2009. These~~reducing ~~financial~~health ~~statements~~problems. ~~have~~To ~~been~~further ~~prepared~~improve inour ~~accordance~~competitiveness ~~with generally accepted accounting principles~~ in the ~~United~~bulk ~~States.~~additives ~~In preparing these financial statements~~market, we ~~are~~continue ~~required~~ to ~~make~~improve ~~estimates~~ and ~~assumptions affecting~~provide ~~the~~our ~~reported~~value-added ~~amounts~~service ofto ~~assets~~institutional ~~and~~customers ~~liabilities~~by ~~and~~assisting ~~the~~their ~~disclosure~~lab ~~of contingent assets~~ and ~~liabilities~~production attesting ~~the date of the financial statements~~ and ~~the~~ ~~reported~~providing ~~amounts~~customized oftechnical ~~revenues~~support, ~~and~~among ~~expenses~~other ~~during the reporting period~~things. OnIn ~~an ongoing basis~~addition, we ~~evaluate~~are ~~our~~also ~~estimates~~working ~~and~~with ~~judgments.~~certain Weuniversities, ~~base~~including ~~our~~Northeast ~~estimates and~~Agricultural ~~judgments on historical experience and on various other factors we believe are reasonable under the circumstances~~University, ~~the~~to ~~results~~carry ofout ~~which~~research ~~form the basis for making judgments about the carrying values of assets~~ and ~~liabilities~~development ~~not~~projects ~~readily apparent~~in ~~from~~order ~~other~~to ~~sources.~~seek ~~Actual~~to ~~results~~increase ~~may~~the ~~differ~~probiotics ~~from~~industry’s ~~these estimates under different assumptions or conditions~~capability.

WeOur operations are ~~consider~~generally ~~accounting~~not ~~policies~~labor-intensive. ~~related~~We toemployed ~~(a)~~358 ~~allowance~~people ~~for~~as ~~doubtful~~of ~~accounts~~September 30, ~~and~~2012. With production ramping up in the Phase 1 facility ~~(b)~~and ~~use~~the construction of ~~estimates~~Phase as2 ~~applied~~in toQingpu, ~~potential~~we ~~penalties~~expect ~~for~~increases in our number of employees over the ~~late~~next ~~payment~~two years to meet the increase of production capacity and sales demand. We have also been recruiting senior executives to strengthen our management ~~taxes~~team. However, toas bewages ~~critical~~in ~~accounting~~China ~~policies~~remain ~~due~~relatively tolow, ~~the~~we ~~estimation~~expect ~~process~~that ~~involved~~labor costs will not materially affect our results of operations in ~~each~~the near term.

~~Allowance for doubtful accounts~~21

~~We maintain~~Results anof ~~allowance~~Operations for ~~doubtful accounts for estimated losses that may result from~~ the ~~inability~~Three ofMonths ~~our~~Ended ~~customers to make required payments. Such allowances~~September ~~are based upon several factors including~~30, ~~but~~2012 ~~not~~Compared ~~limited~~with ~~to, historical experience and~~ the ~~current~~Three ~~and~~Month ~~projected~~Ended ~~financial~~September ~~condition of specific customers. We had trade receivables totaling $39~~30,~~371,765~~ as of December 31, 2010. We have considered all relevant factors, including the financial conditions, affecting the payment abilities of customers comprising these receivables up to the date of this Form 10-Q and we believe these customers are able to make required payments. We, however, cannot give assurance that these factors, including the financial conditions of these customers, will not change adversely in the future. We will continue to evaluate the ability of all our customers to make required payments. Were the financial condition of a customer to deteriorate, resulting in an impairment of its ability to make payments, allowances may be required.2011

23Our results for the three months ended September 30, 2012 and 2011 are summarized below:

Use of estimates as applied to potential penalties for the late payment of taxes

	Three months ended September 30,
	2012 Amount			% of Net sales			2011 Amount			% of Net sales
Net sales	$	20,151,854			100.00	%	$	4,150,101			100.00	%
Cost of sales		7,731,652			38.37	%		3,239,758			78.06	%
Cost of product returns		-			-	%		7,143,914			172.14	%
Gross profit (loss)		12,420,202			61.63	%		(6,233,571	)		(150.20	)%
Operating expenses:
Selling expenses		2,577,171			12.79	%		2,018,182			48.63	%
General and administrative expenses		3,944,780			19.58	%		3,735,529			90.01	%
Total operating expenses		6,521,951			32.36	%		5,753,711			138.64	%
Income (loss) from operations		5,898,251			29.27	%		(11,987,282	)		(288.84	)%
Other income and expense:
Interest expense		(132,936	)		(0.66	)%		(66	)		(0.00	)%
Interest income		133,246			0.66	%		397,921			9.59	%
Interest income, net – loan receivable		772,302			3.83	%		-			-
Other expenses		(84,420	)		(0.42	)%		(233,093	)		(5.62	)%
Exchange gain (loss), net		3,242			0.02	%		(37,908	)		(0.91	)%
Total other income		691,434			3.43	%		126,854			3.06	%
Income (loss) before taxes		6,589,685			32.70	%		(11,860,428	)		(285.79	)%
Income taxes		873,588			4.34	%		-			-	%
Net income (loss)	$	5,716,097			28.37	%	$	(11,860,428	)		(285.79	)%

~~Our principal~~Net operations are in the PRC. Business enterprises established in the PRC are subject to income taxes and value added taxes under PRC tax laws and regulations unless they have exemptions. We have made tax payments to the PRC tax authorities since 2005. We believe that our operations in the PRC were exempted from income taxes and value added taxes for all prior years because we had been recognized by the local government as an advanced technology enterprise. However, we have never received a written confirmation from the appropriate tax authorities for the tax exemption status of our operations in the PRC. As a result, there is no way to ascertain the position which may be taken by the relevant PRC tax authorities in the future. Accordingly, our financial statements contain full provisions for all applicable tax liabilities for all prior calendar years. Such provisions for tax liabilities will be reversed out of the financial statements at the appropriate point in the future.sales

~~According to PRC~~Net ~~tax~~sales ~~regulations,~~in our ~~overdue~~ ~~tax liabilities in the PRC~~financial ~~for~~statements ~~the~~are ~~calendar~~stated ~~years~~at ~~prior~~invoiced tovalue ~~2005~~less ~~may~~sales bediscount ~~subject~~and tosales ~~potential penalties for the late payment of taxes which is calculated on the basis of 0.5 times to five times the amount of overdue~~ tax ~~liabilities~~, ~~which~~and ~~amounts~~also toincluded ~~$4.9 million (if calculated based on 0.5 times of taxes payable) to $49 million (if calculated based on five times of~~ the ~~amount~~return of ~~taxes~~deposits ~~payable) as~~ of ~~December~~ 31$993, ~~2008~~671 ~~and 2009. The Group has reserved~~ for ~~the~~recovery ~~payment~~ of ~~taxes~~special ~~that~~concession ~~may~~credits bediscussed ~~owed for calendar years prior to 2005 and any associated interest surcharges (which are calculated at 0~~below.~~05%~~ ~~per~~Our ~~day~~net onsales ~~the~~for ~~accrued tax liabilities) in its financial statements until~~ the ~~matter~~three ismonths ~~fully~~ended ~~resolved.~~September ~~Following the adoption of FIN48 (now known as ASC 740)~~30, ~~the~~2012 ~~Group has reserved for the surcharges payable for~~and ~~this~~2011 ~~reporting~~comprised ~~period. We consider it is more likely than not that~~ the ~~associated~~ ~~penalty will not need to be paid.~~following:

Embedded derivatives

	Three months ended September 30,
	2012			2011
Invoiced value of sales	$	19,386,329		$	4,254,187
Less: Sales discount		(110,287	)		(83,880	)
Less: Sales tax		(117,859	)		(20,206	)
	$	19,158,183		$	4,150,101
Return of deposits		993,671			-
	$	20,151,854		$	4,150,101

OnNet sales ~~December~~increased ~~11,~~by ~~2007~~$16, ~~the Company issued the Note~~001,753 ~~which~~or ~~was due on December 11, 2010~~385. ~~Pursuant~~58% to ~~SFAS~~$20,151,854 ~~No.~~for ~~133~~the ~~(now~~three ~~known~~months asended ~~ASC~~September ~~816)~~30, ~~“Accounting~~2012 ~~For Derivatives~~from ~~Instruments~~$4,150,101 ~~And~~for ~~Hedging~~the three ~~Activities”~~months ~~and~~ended ~~EITF~~September ~~Issue~~30, No2011. ~~00-19~~The ~~(now known~~increase aswas ~~ASC~~mainly ~~815)~~attributable ~~“Accounting~~to ~~For~~the ~~Derivatives~~normal ~~Financial~~increase ~~Instruments~~of ~~Indexed To And Potentially Settled In A Company’s Own Stock,”~~ the ~~Company~~sales ~~bifurcates~~of ~~the~~bulk ~~conversion~~additive ~~options~~product, ~~with~~which awas ~~mandatory~~enough ~~conversion~~to ~~feature~~compensate ~~(“embedded~~for ~~derivatives”) from~~ the ~~Note~~decrease asin ~~the~~sales ~~embedded~~of ~~derivatives~~retail ~~are~~products ~~determined~~due to bethe ~~not~~occurrence ~~clearly and~~of ~~closely related to~~ the ~~host~~“poison ~~contract.~~capsules ~~The~~issue” ~~embedded~~in ~~derivatives~~China ~~are~~during ~~recorded~~April ~~at fair value, mark-~~to~~-market~~ atJune ~~each reporting period~~2012, and ~~are~~the ~~carried~~recovery onof ~~a separate~~special ~~line~~concession incredits ~~the~~of $993,671 ~~balance~~(RMB6,280,000) ~~sheet~~discussed below.

~~Recent~~Excluding the recovery ~~Accounting~~of ~~Pronouncements~~the special concession credits of $993,671 (RMB6,280,000), the contributions of our products as a percentage of invoiced value on sales for the three months ended September 30, 2012 and 2011, respectively, are summarized below.

See Note 1 of the December 31, 2010 Interim Financial Statements. Other new pronouncements issued, but not yet effective until after December 31, 2010, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

	Three months ended September 30,
	2012			2011
Retail products		19.39	%		17.94	%
Bulk additives		80.61	%		82.06	%
		100.00	%		100.00	%

~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~22

WeUnit ~~are exposed~~volume toand ~~various~~unit prices ~~market~~comparatives ~~risks,~~(on ~~including~~the ~~changes~~invoiced ~~in foreign currency exchange rates and fair~~ value. Weof dosales) ~~not~~for ~~enter~~the ~~into~~three ~~derivatives~~months orended ~~other~~September ~~financial instruments~~30, ~~for~~2012 ~~trading~~and or2011 ~~speculative~~are ~~purposes~~summarized ~~in the normal course of business~~below.

	Percentage increase (decrease) from the prior year
	Three months ended September 30,
	2012									2011
	Unit volume			Selling prices			Overall increase / (decrease)			Unit Volume			Selling prices			Overall increase / (decrease)
Retail products		332	%		5	%		350	%		(96	)%		28	%		(94	)%
Bulk additives		302	%		12	%		352	%		(67	)%		(2	)%		(68	)%

~~Foreign~~Based on the invoiced ~~Currency~~value ~~Exchange~~of ~~Rate~~sales, ~~Risk~~the retail products invoiced sales contributions increased to 19.39% in the three months ended September 30, 2012 from 17.94% in the three months ended September 30, 2011. The increase was mainly attributable to the recapture of sales of retail products after the clearance of “poison capsule issue” in China during April to June 2012, as noted above. With respect to the sales mix of bulk additive products, there was a decrease to 80.61% for the three months ended September 30, 2012 from 82.06% for the three months ended September 30, 2012 which was attributable to the increase of sales of retail products.

~~Our operations~~Cost ~~are~~of ~~conducted mainly in the PRC. As such, our earnings are subject to movements in foreign currency exchange rates when transactions are denominated in RMB, which is our functional currency.~~sales

~~Therefore, changes~~Cost ~~in the rate~~ of ~~exchange~~sales for ~~between~~ the ~~U.S.~~three ~~dollar~~months ~~and~~ended ~~the~~September ~~RMB~~30, in2012 ~~which the~~was ~~financial~~$7,731,652, ~~statements~~compared ofwith ~~our~~$3,239,758 ~~operations~~for ~~are~~the ~~maintained,~~three ~~affect~~months ~~our~~ended ~~results of~~September ~~operations~~30, ~~and~~2011. ~~financial~~The ~~position~~increase ~~as reported~~ in ~~our~~cost ~~consolidated financial statements. We have consolidated the balance sheets~~ of ~~our~~sales ~~RMB-denominated operations~~was ~~into~~primarily ~~U.S.~~caused ~~dollars~~by at the ~~exchange~~increase ~~rates~~in ~~prevailing~~sales atfor the ~~balance sheet~~three ~~date.~~months ~~Revenues~~ended ~~and expenses are translated at the average exchange rates~~September ~~for~~30, ~~the period~~2012.

~~These changes~~Unit ~~result~~volume inand ~~cumulative~~unit costs ~~translation~~comparatives ~~adjustments,~~for ~~which~~the ~~are~~three ~~included~~months ~~in “Accumulated~~ended ~~other~~September ~~comprehensive income~~30,” 2012 and ~~potentially~~2011 ~~result in gains or losses, which~~ are ~~included~~summarized ~~in our earnings~~below.

Fair Value Risk

	Percentage increase (decrease) from the prior year
	Three months ended September 30,
	2012									2011
	Unit volume			Unit Costs			Overall increase / (decrease)			Unit Volume			Unit Costs			Overall increase / (decrease)
Retail products		332	%		22	%		426	%		(96	)%		48	%		(94	)%
Bulk additives		302	%		(11	)%		258	%		(67	)%		52	%		(50	)%

WeCost ~~record an adjustment on our convertible notes adjusting the fair value~~ of ~~the~~product embedded conversion options. The change in the value of these instruments is primarily impacted by the price of our stock at the end of each reporting period. This adjustment creates a non-cash effect on our statement of operations which may have a significant impact.returns

~~ITEM~~For ~~4. CONTROLS~~the ~~AND~~three months ~~PROCEDURES~~ended September 30, 2011, product returns of $474,505 were deducted from sales due to a batch of probiotics products produced in June 2011 that were below the Company’s quality standards due to production problems.

~~Evaluation~~As a result of a product returns after certain of ~~Disclosure~~our ~~Controls~~products did not meet our quality standards, and ~~Procedures~~in order to improve the confidence of the Company’s distributors and end-user customers in our probiotics products, we provided special concession credits to our distributors during August 2011 to address the complaints and concerns of customers worried about food and healthcare products in the PRC. Such credits were made available for our distributors to reimburse end-user customers for products which were recalled. We treated these credits as being comparable to a warranty on our probiotics products, and we incurred a cost of $7,143,914 for these credits for the three months ended September 30, 2011. No additional such credits were made available for the three months ended September 30, 2012. During the three months ended September 30, 2012, the Company recovered special concession credits amounting to $993,671 (RMB6,280,000) and recognized such amounts as sales for the period.

~~The Company~~Gross ~~maintains~~profit a system of disclosure controls and procedures that are designed to provide reasonable assurance that information that is required to be timely disclosed is accumulated and communicated to management in a timely fashion. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. An evaluation was performed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (~~as defined in Rules 13a-15(e~~loss) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our management, including our principal executive officer and principal financial officer, concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

~~Changes~~Gross profit increased by $18,653,773 to $12,420,202 for the three months ended September 30, 2012, from gross loss of $6,233,571 for the three months ended September 30, 2011. The increase was mainly attributable to the increase in ~~Internal~~sales ~~Controls~~volume ~~over~~of ~~Financial~~both ~~Reporting~~retail and bulk additive products, recovery of special concession credits of $993,671 (RMB6,280,000), and no significant product returns for the three months ended September 30, 2012.

~~The Company’s~~Selling internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There have been no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) or 15d-15(d) under the Exchange Act that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. However, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within the Company have been detected. expenses

25Selling expenses increased by $558,989 or 27.70% to $2,577,171 or 12.79% of net sales for the three months ended September 30, 2012, compared with $2,018,182 or 48.63% of net sales for the three months ended September 30, 2011. The increase was mainly attributable to the issuance of sales commission to staff who engaged the sales and collection of outstanding balance from the customers.

~~PART II - OTHER INFORMATION~~23

~~ITEM~~General ~~1. LEGAL~~and ~~PROCEEDINGS~~administrative expenses

~~China Biotics,~~General ~~Inc.~~ and ~~certain of its current and former officers and directors have~~administrative ~~been~~expenses ~~named~~increased asby ~~defendants in two putative shareholder class action lawsuits~~$209,251 ~~one in~~or ~~the United States District Court for the Central District of California (Mohapatra v~~5.60% ~~China-Biotics~~to $3, ~~Inc.~~944,780 etor al19.58% ~~No.~~of ~~10-cv-6954~~net ~~(C.D.~~sales ~~Cal.), the "California Action") and the other in the United States District Court~~ for the ~~Southern~~three ~~District~~months ~~of New~~ended ~~York~~September ~~(Hill v. China-Biotics~~30, ~~Inc.~~2012, etcompared with ~~al. No. 10-cv-7838 (S.D.N.Y.)~~$3,735,529 ~~the~~or ~~"New York Action")~~90. ~~After~~01% ~~certain~~of ~~shareholders~~net ~~filed~~sales ~~motions~~ for ~~appointment~~ asthe ~~lead~~three ~~plaintiff~~months inended ~~both~~September ~~lawsuits~~30, ~~the plaintiff in the California Action voluntarily dismissed its case~~2011. The ~~plaintiff~~increase in ~~the~~general ~~New~~and ~~York~~administrative ~~Action,~~expenses ~~who~~was ~~seeks~~mainly attributable to ~~represent~~increase ~~a class~~ of ~~those~~ ~~who bought China-Biotics securities~~depreciation ~~between~~charge ~~July~~of 10$119,150 ~~2008~~ and ~~August~~increase ~~30, 2010, alleges~~of ~~that~~allowance ~~the defendants~~for ~~violated~~doubtful ~~Section 10(b)~~accounts ~~and Section 20(a)~~ of ~~the Securities Exchange Act of 1934~~$172,824 ~~and~~for the ~~rules~~three ~~and regulations~~months ~~promulgated~~ended ~~thereunder,~~September ~~by making material misstatements or failing to disclose certain material information regarding~~30, ~~among other things, China-Biotics' financial condition, operations, and future business prospects, and the quality, nature, and quantity of China-Biotics' retail outlets and stores~~2012. ~~The complaint seeks unspecified damages. China-Biotics intends to defend this action vigorously.~~

~~China-Biotics, Inc.~~Income ~~and its directors have been named as defendants in a derivative lawsuit filed in the United States District Court for the District of Columbia~~ (~~Marteney v. Song Jinan, et al., No. 10-cv-1983 (D.D.C.~~loss)~~). The~~ ~~complaint~~from alleges that the directors breached their fiduciary duties by disseminating false and misleading financial statements and seeks unspecified damages. The defendants intend to defend this action vigorously.operations

~~ITEM~~Income 1Afrom operations increased by $17,885,533 to $5,898,251 for the three months ended September 30, 2012, from loss from operations of $11,987,282 for the three months ended September 30, 2011. ~~RISK~~ ~~FACTORS~~The increase is mainly attributable to the increase in sales and increase of gross profit for the three months ended September 30, 2012.

~~The information~~Total ~~set~~other forth in this report should be read in conjunction with the risk factors discussed in Item 1A of our Annual Report on Form 10-K for the year ended March 31, 2010, which could materially impact our business, financial condition or future results. The risks described in the Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known by the Company or that are currently deemed to be immaterial also may materially adversely affect our business, financial condition and/or operating results.income

~~ITEM~~Total 2other income increased by $564,450 or 445. ~~UNREGISTERED~~06% ~~SALES~~to OF$691,434 ~~EQUITY~~for the three months ended September 30, 2012, from $126,854 for the three months ~~SECURITIES~~ended ~~AND~~September ~~USE~~30, OF2011. ~~PROCEEDS~~The increase is mainly attributable to the investment income for trust and net off the relevant handling fee amounting to $772,302 for the three months ended September 30, 2012.

OnIncome July 7, 2010, the Company’s Board of Directors approved a share repurchase program under which the Company may purchase up to $20 million of the Company’s outstanding common stock from time-to-time until July 7, 2011. During the quarter ended December 31, 2010, the Company did not repurchase any of its shares.taxes

~~ITEM~~Provision 3for income taxes was $873,588 and $0 for the three months ended September 30, 2012 and 2011, respectively. ~~DEFAULTS~~ ~~UPON~~The ~~SENIOR~~increase in the provision for ~~SECURITIES~~income taxes is primarily attributable to the increase in operating profit.

~~None.~~Net income (loss)

~~ITEM~~Net ~~4. [REMOVED~~income ~~AND~~increased ~~RESERVED~~by $17,576,525 to $5,716,097 for the three months ended September 30, 2012 from net loss of $11,860,428 for the three months ended September 30, 2011.] The increase of net income is mainly attributable to the increase of income from operations of $17,885,533.

~~ITEM~~Segment ~~5. OTHER INFORMATION~~reporting

~~None~~We have adopted the “products and services” approach for segment reporting. For three months ended September 30, 2012 and 2011, the management considers there to be two reporting segments: retail products and bulk additive products, as the new bulk production plant commenced operations in February 2010 with a separate production and distribution channel. There are also separate operational management teams and operations and marketing strategies for each segment. Therefore, we have used the segment reporting since fiscal year 2011.

~~ITEM~~Retail ~~6. EXHIBITS~~products

Number		Exhibit
3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006) as amended by the Amendment to the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to China-Biotics, Inc.’s Form 10-Q filed on November 10, 2008).

The results of retail products segment for the three months ended September 30, 2012 and 2011 are summarized as below:

	Three months ended September 30,
	2012 Amount		% of Net sales			2011 Amount			% of Net sales
Net sales, retail products	$	4,709,139		100.00	%	$	744,672			100.00	%
Cost of sales		1,877,330		39.87	%		1,665,750			223.69	%
Cost of product returns		-		-			7,143,914			959.34	%
Gross profit (loss), retail products		2,831,809		60.13	%		(8,064,992	)		(1,083.03	)%
Operating expenses:
Selling expenses		912,339		19.37	%		562,389			75.52	%
General and administrative expenses		826,955		17.56	%		1,320,046			177.27	%
Total operating expenses		1,739,294		36.93	%		1,882,435			252.79	%
Income (loss) from operations, retail products	$	1,092,515		23.20	%	$	(9,947,427	)		(1,335.81	)%

10.1		Securities Exchange Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.1 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
10.2		Form of Lockup Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.2 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
10.3		Put Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.3 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
10.4		Registration Rights Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.4 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).

10.5		Investors’ Rights Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.5 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
10.6		Stan Ford Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.6 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
10.7		Summary of English translation of Investment Agreement for lease of land dated March 21, 2006 (incorporated by reference to Exhibit 10.7 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).
10.8		Escrow Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.8 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).
10.9		Stock Purchase Agreement with Fred Cooper dated February 6, 2006 (incorporated by reference to Exhibit 10.9 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).
10.10		Loan agreement dated as of September 22, 2005 (incorporated by reference to Exhibit 10.10 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).
10.11		Convertible Bond dated as of September 22, 2005 (incorporated by reference to Exhibit 10.11 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).
10.12		Subscription Agreement dated as of September 22, 2005 (incorporated by reference to Exhibit 10.12 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).
10.13		English Translation of Equity Transfer Agreement dated August 11, 2005 (incorporated by reference to Exhibit 10.13 to China-Biotics, Inc.’s Amendment No. 2 to Form SB-2 filed on November 13, 2006).
10.14		English Translation of Subscription Agreement dated August 11, 2005 (incorporated by reference to Exhibit 10.14 to China-Biotics, Inc.’s Amendment No. 2 to Form SB-2 filed on November 13, 2006).
10.15		Form of Purchase Agreement dated January 21, 2009 (incorporated by reference to Exhibit 10.15 to China-Biotics, Inc.’s Form 10-Q filed on February 13, 2009).
10.16		Form of Purchase Agreement dated May 19, 2009 (incorporated by reference to Exhibit 10.1 to China-Biotics, Inc.’s Form 8-K filed on May 20, 2009).
10.17		Share Charge dated September 21, 2009 (effective as of January 24, 2008) (incorporated by reference to Exhibit 10.1 to China-Biotics, Inc.’s Form 10-Q filed on November 16, 2009).
10.18		Underwriting Agreement dated September 29, 2009 (incorporated by reference to Exhibit 1.1 to China-Biotics, Inc.’s Form 8-K filed on September 30, 2009).
10.19		District Entrance Project Agreement dated August 12, 2010*

Net sales

27Net sales in our financial statements are stated at invoiced value less sales discount and sales tax, and also included the return of deposits of $993,671 for recovery of special concession credits discussed below. Our net sales for the three months ended September 30, 2012 and 2011 comprised the following:

14.1	Code of Ethics (incorporated by reference to Exhibit 14.1 to China-Biotics, Inc.’s Form 10-KSB for the year ended March 31, 2006).
	Three months ended September 30,
21.1	List of subsidiaries (incorporated by reference to Exhibit 21.1 to China-Biotics, Inc.’s Form SB-2 filed on March 24, 2006).
	2012			2011
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
Invoiced value on sales	$	3,835,237		$	835,900
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
Less: Sales discount		(110,287	)		(83,880	)
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
Less: Sales tax		(9,482	)		(7,348	)
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**
	$	3,715,468		$	744,672
Return of deposits		993,671			-
	$	4,709,139		$	744,672

*Net ~~Filed~~sales ~~herewith~~increased by $3,964,467 or 532.38% to $4,709,139 for the three months ended September 30, 2012 from $744,672 for the three months ended September 30, 2011. The increase in sales of retails products is primarily attributable to the recapture of sales after resolution of the “poison capsule issue” during April to June 2012 and the recovery of special concession credits of $993,671 (RMB6,280,000) discussed below. In addition, the lower comparative sales amount for the three months ended September 30, 2011 was the result of the implementation of new rules and regulations on health care products by the government of the PRC during such period.

** FurnishedCost ~~herewith~~of sales

*Cost *of *sales *increased *by $211,580 or 12.70% to $1,877,330 for the three months ended September 30, 2012 from $1,665,750 for the three months ended September 30, 2011. The increase in cost of sales was primarily caused by the increase of products sold and increased production activities during the three months ended September 30, 2012.

28Cost of product returns

~~SIGNATURES~~For the six months ended September 30, 2011, product returns of $474,505 were deducted from sales due to a batch of probiotics products produced in June 2011 that were below the Company’s quality standards due to production problems.

~~Pursuant~~As a result of a product returns after certain of our products did not meet our quality standards, and in order to improve the ~~requirements~~ confidence of the ~~Securities~~Company’s ~~Exchange~~distributors ~~Act~~and ofend-user ~~1934~~customers in our probiotics products, we provided special concession credits to our distributors during August 2011 to address the ~~registrant~~complaints ~~has~~and concerns of customers worried about food and ~~duly~~healthcare ~~caused~~products ~~this~~in ~~report~~the PRC. Such credits were made available for our distributors to bereimburse ~~signed~~end-user customers for products which were recalled. We treated these credits as being comparable to a warranty on ~~its~~our ~~behalf~~probiotics byproducts, and we incurred a cost of $7,143,914 for these credits for the ~~undersigned~~three ~~thereunto~~months ended September 30, 2011. No additional such credits ~~duly~~were ~~authorized~~made available for the three months ended September 30, 2012. During the three months ended September 30, 2012, the Company recovered special concession credits amounting to $993,671 (RMB6,280,000) and recognized such amounts as sales for the period.

	CHINA-BIOTICS, INC.
	(Registrant)
	/s/ Song Jinan
Date: February 14, 2011	Song Jinan
	Chief Executive Officer
	/s/ Travis Cai
	Travis Cai
	Chief Financial Officer

Gross profit (loss)

29Gross profit increased by $10,896,801 to $2,831,809 for the three months ended September 30, 2012 from a gross loss of $8,064,992 for the three months ended September 30, 2011. The increase in gross profit was primarily caused by the increase of products sold and the recovery of special concession credits of $993,671 (RMB6,280,000) for the three months ended September 30, 2012, and also the write-off of a special payment to distributors, which we consider a cost of the product returns described above for the three months ended September 30, 2011.

Selling expenses

Selling expenses were $912,339 or 19.37% of net sales for the three months ended September 30, 2012, compared with $562,389 or 75.52% of net sales for the three months ended September 30, 2011. The selling expenses mainly included salary and advertising expenses. This increase in selling expenses was primarily attributable to an increase in sales activities.

General and administrative expenses

General and administrative expenses decreased by $493,091 or 17.56% to $826,955 or 22.26% of net sales for the three months ended September 30, 2012 compared with $1,320,046 or 177.27% of net sales for the three months ended September 30, 2011. The decrease in general and administrative expenses was mainly attributable to a decrease in salary payments and relevant expenses for the three months ended September 30, 2012. During the three months ended September 30, 2011, because the Company suspended production due to the implementation by the government of the PRC of new health and safety rules, $239,087 of original production costs such as salary payments and related expenses were charged as general and administrative expenses.

Income (loss) from operations

Income from operations increased by $11,039,942 to $1,092,515 for the three months ended September 30, 2012 from a loss from operations of $9,947,427 for the three months ended September 30, 2011. The increase is mainly attributable to a decrease in operating expenses for the three months ended September 30, 2012 and the decease in general and administrative expenses stated above for the three months ended September 30, 2011.

Bulk products

The results of bulk additives products segment for the three months ended September 30, 2012 and 2011 are summarized as below:

	Three months ended September 30,
	2012 Amount		% of Net sales			2011 Amount			% of Net sales
Net sales, bulk additives products	$	15,442,715		100.00	%	$	3,405,429			100.00	%
Cost of sales		5,854,322		37.91	%		1,574,008			46.22	%
Gross profit, bulk additives products		9,588,393		62.09	%		1,831,421			53.78	%
Operating expenses:
Selling expenses		1,664,832		10.78	%		1,455,793			42.75	%
General and administrative expenses		2,148,278		13.91	%		1,510,103			44.34	%
Total operating expenses		3,813,110		24.69	%		2,965,896			87.09	%
Income (loss) from operations, bulk additives products	$	5,775,283		37.40	%	$	(1,134,475	)		(33.31	)%

Net sales

Net sales in our financial statements are stated at invoiced value less sales discount and sales tax. Our net sales for the three months ended September 30, 2012 and 2011 comprised the following:

	Three months ended September 30,
	2012			2011
Invoiced value on sales	$	15,551,092		$	3,418,287
Less: Sales tax		(108,377	)		(12,858	)
	$	15,442,715		$	3,405,429

Net sales increased by $12,037,286 or 353.47% to $15,442,715 for the three months ended September 30, 2012, from $3,405,429 for the three months ended September 30, 2011. The increase in sales of bulk additive products is primarily attributable to the normal growth of the business and market demand for additive products.

Cost of sales

Cost of sales increased by $4,280,314 or 271.94% to $5,854,322 for the three months ended September 30, 2012, from $1,574,008 for the three months ended September 30, 2011. The increase in cost of sales was primarily caused by the increase in products sold for the three months ended September 30, 2012.

Gross profit

Gross profit increased by $7,756,972 or 423.55% to $9,588,393 for the three months ended September 30, 2012, from $1,831,421 for the three months ended September 30, 2011. The increase of gross profit was primarily caused by the increase in products sold for the three months ended September 30, 2012.

Selling expenses

Selling expenses were $1,664,832 or 10.78% of net sales for the three months ended September 30, 2012, compared with $1,455,793 or 42.75% of net sales for the three months ended September 30, 2011. The selling expenses mainly included advertising expenses, promotion expenses, commission and salary. This increase in selling expenses was primarily attributable to increase of commission to $780,188 for the three months ended September 30, 2012.

General and administrative expenses

General and administrative expenses were $2,148,278 or 13.91% of net sales for the three months ended September 30, 2012, compared with $1,510,103 or 44.34% of net sales for the three months ended September 30, 2011. The increase in general and administrative expenses was mainly attributable to an increase in depreciation charges to $292,067 for the three months ended September 30, 2012 from $172,917 for the three months ended September 30, 2011 and increase of allowance for doubtful accounts of to $582,974 for the three months ended September 30, 2012 from $190,755 for the three months ended September 30, 2011.

Income (loss) from operations

Income from operations increased by $6,909,758 to $5,775,283 for the three months ended September 30, 2012, from loss from operations of $1,134,475 for the three months ended September 30, 2011. The increase is mainly attributable to the increase of gross profit of $7,756,972 from the increase in sales and net of the increase in selling expenses, and general and administrative expenses for the three months ended September 30, 2012 stated above.

Results of Operations for the Six Months Ended September 30, 2012 Compared with the Six Month Ended September 30, 2011

Our results for the six months ended September 30, 2012 and 2011 are summarized below:

	Six months ended September 30,
	2012 Amount			% of Net sales			2011 Amount			% of Net sales
Net sales	$	37,534,337			100.00	%	$	13,109,326			100.00	%
Cost of sales		15,010,030			39.99	%		7,722,174			58.91	%
Cost of product returns		-			-	%		7,143,914			54.49	%
Gross profit (loss)		22,524,307			60.01	%		(1,756,762	)		(13.40	%
Operating expenses:
Selling expenses		6,613,536			17.62	%		3,988,351			30.42	%
General and administrative expenses		7,603,876			20.26	%		8,386,190			63.97	%
Total operating expenses		14,217,412			37.88	%		12,374,541			94.39	%
Income (loss) from operations		8,306,895			22.13	%		(14,131,303	)		(107.80	)%
Other income and expense:
Interest expense		(278,396	)		(0.74	)%		(336	)		(0.00	)%
Interest income		328,219			0.87	%		785,861			5.99	%
Interest income, net – loan receivable		1,548,985			4.13	%		-			-
Other expenses		(187,312	)		(0.50	)%		(454,729	)		(3.47	)%
Exchange gain (loss), net		12,229			0.03	%		(75,043	)		(0.57	)%
Total other income		1,423,725			3.79	%		255,753			1.95	%
Income (loss) before taxes		9,730,620			25.92	%		(13,875,550	)		(105.84	)%
Income taxes		1,942,560			5.18	%		41,908			0.32	%
Net income (loss)	$	7,788,060			20.75	%	$	(13,917,458	)		(106.16	)%

Net sales

Net sales in our financial statements are stated at invoiced value less sales discount and sales tax, and also included the return of deposits of $993,671 for recovery of special concession credits discussed below. Our net sales for the six months ended September 30, 2012 and 2011 comprised the following:

	Six months ended September 30,
	2012			2011
Invoiced value of sales	$	37,165,493		$	13,736,981
Less: Sales discount		(372,183	)		(570,240	)
Less: Sales tax		(252,644	)		(57,415	)
	$	36,540,666		$	13,109,326
Return of deposits		993,671			-
	$	37,534,337		$	13,109,326

Net sales increased by $24,425,011 or 186.32% to $37,534,337 for the six months ended September 30, 2012 from $13,109,326 for the six months ended September 30, 2011. The increase was mainly attributable to the normal increase of the sales of bulk additive products, recapture of sales of retail products after the clearance of the “poison capsules issue” in China during April to June 2012 and recovery of the deposit of $993,671 (RMB6,280,000) of special concession credits.

Excluding the recovery of special concession credits of $993,671 (RMB6,280,000), the contributions of our products as a percentage of invoiced value on sales for the six months ended September 30, 2012 and 2011, respectively, are summarized below.

	Six months ended September 30,
	2012			2011
Retail products		17.02	%		40.33	%
Bulk additives		82.98	%		59.67	%
		100.00	%		100.00	%

Unit volume and unit prices comparatives (on the invoiced value of sales) for the six months ended September 30, 2012 and 2011 are summarized below.

	Percentage increase (decrease) from the prior year
	Six months ended September 30,
	2012									2011
	Unit volume			Selling prices			Overall increase / (decrease)			Unit Volume			Selling prices			Overall increase / (decrease)
Retail products		7	%		2	%		10	%		(85	)%		25	%		(81	)%
Bulk additives		210	%		23	%		282	%		(57	)%		(16	)%		(63	)%

Based on the invoiced value of sales, the retail products invoiced sales contributions decreased to 14.41% in the six months ended September 30, 2012 from 50.70% in the six months ended September 30, 2011. The decrease was mainly attributable to the occurrence of “poison capsule issue” in China during April to June 2012, as noted above. Compared with our retail products, our bulk additive products were not directly impacted by the poison capsule issue. Further, as we have developed more bulk products customers, the increased sales of bulk additive products have more than compensated for the decrease in the sales of retail products.

Cost of sales

Cost of sales for the six months ended September 30, 2012 was $15,010,030 compared with $7,722,174 for the six months ended September 30, 2011. The increase in cost of sales was primarily caused by increase in sales for the six months ended September 30, 2012.

Unit volume and unit costs comparatives for the six months ended September 30, 2012 and 2011 are summarized below.

	Percentage increase (decrease) from the prior year
	Six months ended September 30,
	2012									2011
	Unit volume			Unit Costs			Overall increase / (decrease)			Unit Volume			Unit Costs			Overall increase / (decrease)
Retail products		7	%		17	%		25	%		(85	)%		61	%		(76	)%
Bulk additives		210	%		3	%		219	%		(57	)%		23	%		(46	)%

Cost of product returns

For the six months ended September 30, 2011, product returns of $474,505 were deducted from sales due to a batch of probiotics products produced in June 2011 that were below the Company’s quality standards due to production problems.

As a result of a product returns after certain of our products did not meet our quality standards, and in order to improve the confidence of the Company’s distributors and end-user customers in our probiotics products, we provided special concession credits to our distributors during August 2011 to address the complaints and concerns of customers worried about food and healthcare products in the PRC. Such credits were made available for our distributors to reimburse end-user customers for products which were recalled. We treated these credits as being comparable to a warranty on our probiotics products, and we incurred a cost of $7,143,914 for these credits for the six months ended September 30, 2011. No additional such credits were made available for the six months ended September 30, 2012. During the six months ended September 30, 2012, the Company recovered special concession credits amounting to $993,671 (RMB6,280,000) and recognized such amounts as sales for the period.

Gross profit (loss)

Gross profit increased by $24,281,069 to $22,524,307 for the six months ended September 30, 2012, from a gross loss of $1,756,762 for the six months ended September 30, 2011. The increase was mainly attributable to the increase in sales volume of bulk additive products, the recapture of sales of the retail products following the clearance of “poison capsule issue” and the recovery of special concession credits of $993,671 (RMB6,280,000) for the six months ended September 30, 2012.

Selling expenses

Selling expenses increased by $2,625,185 or 65.82% to $6,613,536 or 17.62% of net sales for the six months ended September 30, 2012, compared with $3,988,351 or 30.42% of net sales for the six months ended September 30, 2011. The increase was mainly attributable to the issuance of sales commission to staff who engaged the sales and collection of outstanding balance from the customers.

General and administrative expenses

General and administrative expenses decreased by $782,314 or 9.33% to $7,603,876 or 20.26% of net sales for the six months ended September 30, 2012, compared with $8,386,190 or 63.97% of net sales for the six months ended September 30, 2011. The decrease in general and administrative expenses was mainly attributable to decrease in the write off of returned products of $865,871, allowance for doubtful accounts of $814,828 and salary payments and relevant expenses for the six months ended September 30, 2012. During the six months ended September 30, 2011, because the Company suspended production due to the implementation by the government of the PRC of new health and safety rules, $239,087 of original production costs such as salary payments and related expenses were charged as general and administrative expenses.

Income (loss) from operations

Income from operations increased by $22,438,198 to $8,306,895 for the six months ended September 30, 2012, from loss from operations of $14,131,303 for the six months ended September 30, 2011. The increase is mainly attributable to the increase in sales and increase of gross profit for the six months ended September 30, 2012.

Total other income

Total other income increased by $1,167,972 or 456.68% to $1,423,725 for the six months ended September 30, 2012, from $255,753 for the six months ended September 30, 2011. The increase is mainly attributable to the investment income for trust and net off the relevant handling fee amounting to $1,548,985 for the six months ended September 30, 2012.

Income taxes

Provision for income taxes was $1,942,560 and $41,908 for the six months ended September 30, 2012 and 2011, respectively. The increase in the provision for income taxes is primarily attributable to increase in operating profit.

Net income (loss)

Net income increased by $21,705,518 to $7,788,060 for the six months ended September 30, 2012 from net loss of $13,917,458 for the six months ended September 30, 2011. The increase of net income is mainly attributable to the increase of income from operations of $22,438,198.

Segment reporting

We have adopted the “products and services” approach for segment reporting. For six months ended September 30, 2012 and 2011, the management considers there to be two reporting segments: retail products and bulk additive products, as the new bulk production plant commenced operations in February 2010 with a separate production and distribution channel. There are also separate operational management teams and operations and marketing strategies for each segment. Therefore, we have used the segment reporting since fiscal year 2011.

Retail products

The results of retail products segment for the six months ended September 30, 2012 and 2011 are summarized as below:

	Six months ended September 30,
	2012 Amount		% of Net sales			2011 Amount			% of Net sales
Net sales, retail products	$	7,213,237		100.00	%	$	5,286,770			100.00	%
Cost of sales		3,158,974		43.79	%		4,267,091			80.71	%
Cost of product returns		-		-	%		7,143,914			135.13	%
Gross profit (loss), retail products		4,054,263		56.21	%		(6,124,235	)		(115.84	)%
Operating expenses:
Selling expenses		1,818,328		25.21	%		1,695,460			32.07	%
General and administrative expenses		1,941,530		26.92	%		3,365,202			63.65	%
Total operating expenses		3,759,858		52.12	%		5,060,662			95.72	%
Income (loss) from operations, retail products	$	294,405		4.08	%	$	(11,184,897	)		(211.56	)%

Net sales

	Six months ended September 30,
	2012			2011
Invoiced value on sales	$	6,622,583		$	5,886,805
Less: Sales discount		(372,183	)		(570,240	)
Less: Sales tax		(30,834	)		(29,796	)
	$	6,219,566		$	5,286,770
Return of deposits		993,671			-
	$	7,213,237		$	5,286,770

Net sales increased by $1,926,467 or 36.44% to $7,213,237 for the six months ended September 30, 2012 from $5,286,770 for the six months ended September 30, 2011. The increase in sales of retails products is primarily attributable to the recapture of sales after resolution of the “poison capsule issue” during April to June 2012 and the recovery of the deposit of $993,671 (RMB6,280,000) of special concession credits for the six months ended September 30, 2012.

Cost of sales

Cost of sales decreased by $1,108,117 or 25.97% to $3,158,974 for the six months ended September 30, 2012 from $4,267,091 for the six months ended September 30, 2011. The decrease in cost of sales was primarily because of a decrease in products returns and write offs during the six months ended September 30, 2012 from the same period in 2011.

Cost of product returns

As a result of a product returns after certain of our products did not meet our quality standards, and in order to improve the confidence of the Company’s distributors and end-user customers in our probiotics products, we provided special concession credits to our distributors during August 2011 to address the complaints and concerns of customers worried about food and healthcare products in the PRC. Such credits were made available for our distributors to reimburse end-user customers for products which were recalled. We treated these credits as being comparable to a warranty on our probiotics products, and we incurred a cost of $7,143,914 for these credits for the six months ended September 30, 2011. No additional such credits were made available for the six months ended September 30, 2012. During the six months ended September 30, 2012, the Company recovered special concession credits amounting to $993,671 (RMB6,280,000) and recognized such amounts as sales for the period.

Gross profit (loss)

Gross profit increased by $10,178,498 to $4,054,263 for the six months ended September 30, 2012 from a gross loss of $6,124,235 for the six months ended September 30, 2011. The increase in gross profit was primarily caused by the increase of products sold and no write offs special payments to distributors for the current period (which did occur, as described above, for the six months ended September 30, 2011).

Selling expenses

Selling expenses were $1,818,328 or 25.21% of net sales for the six months ended September 30, 2012, compared with $1,695,460 or 32.07% of net sales for the six months ended September 30, 2011. The selling expenses mainly included salary and advertising expenses. This increase in selling expenses was primarily attributable to an increase in sales.

General and administrative expenses

General and administrative expenses decreased by $1,423,672 or 42.31% to $1,941,530 or 26.92% of net sales for the six months ended September 30, 2012 compared with $3,365,202 or 63.65% of net sales for the six months ended September 30, 2011. The decrease in general and administrative expenses was mainly attributable to decrease in the write off of returned products of $865,871, allowance for doubtful accounts of $435,862 and salary payments and relevant expenses for the six months ended September 30, 2012. During the six months ended September 30, 2011, because the Company suspended production due to the implementation by the government of the PRC of new health and safety rules, $239,087 of original production costs such as salary payments and related expenses were charged as general and administrative expenses.

Income (loss) from operations

Income from operations increased by $11,479,302 to $294,405 for the six months ended September 30, 2012 from a loss from operations of $11,184,897 for the six months ended September 30, 2011. The increase is mainly attributable to increases in revenues and a decrease in operating expenses for the six months ended September 30, 2012, and the write off of returned products incurred for the six months ended September 30, 2011, which did not occur in the six months ended September 30, 2012.

Bulk products

The results of bulk additives products segment for the six months ended September 30, 2012 and 2011 are summarized as below:

	Six months ended September 30,
	2012 Amount		% of Net sales			2011 Amount			% of Net sales
Net sales, bulk additives products	$	30,321,100		100.00	%	$	7,822,557			100.00	%
Cost of sales		11,851,056		39.09	%		3,455,083			44.17	%
Gross profit, bulk additives products		18,470,044		60.91	%		4,367,474			55.83	%
Operating expenses:
Selling expenses		4,795,208		15.81	%		2,292,891			29.31	%
General and administrative expenses		3,722,406		12.28	%		3,118,729			39.87	%
Total operating expenses		8,517,614		28.09	%		5,411,620			69.18	%
Income (loss) from operations, bulk additives products	$	9,952,430		32.82	%	$	(1,044,146	)		(13.35	)%

Net sales

Net sales in our financial statements are stated at invoiced value less sales discount and sales tax. Our net sales for the six months ended September 30, 2012 and 2011 comprised the following:

	Six months ended September 30,
	2012			2011
Invoiced value on sales	$	30,542,910		$	7,850,176
Less: Sales tax		(221,810	)		(27,619	)
	$	30,321,100		$	7,822,557

Net sales increased by $22,498,543 or 287.61% to $30,321,100 for the six months ended September 30, 2012, from $7,822,557 for the six months ended September 30, 2011. The increase in sales of bulk additive products is primarily attributable to the normal growth of the business and market demand on the additive products.

Cost of sales

Cost of sales increased by $8,395,973 or 243.00% to $11,851,056 for the six months ended September 30, 2012, from $3,455,083 for the six months ended September 30, 2011. The increase in cost of sales was primarily caused by the increase in products sold for the six months ended September 30, 2012.

Gross profit

Gross profit increased by $14,102,570 or 322.90% to $18,470,044 for the six months ended September 30, 2012, from $4,367,474 for the six months ended September 30, 2011. The increase of gross profit was primarily caused by the increase in products sold for the six months ended September 30, 2012.

Selling expenses

Selling expenses were $4,795,208 or 15.81% of net sales for the six months ended September 30, 2012, compared with $2,292,891 or 29.31% of net sales for the six months ended September 30, 2011. The selling expenses mainly included advertising expenses, promotion expenses, commission and salary. This increase in selling expenses was primarily attributable to increase of commission to $3,114,751 for the six months ended September 30, 2012.

General and administrative expenses

General and administrative expenses were $3,722,406 or 12.28% of net sales for the six months ended September 30, 2012, compared with $3,118,729 or 39.87% of net sales for the six months ended September 30, 2011. The increase in general and administrative expenses was mainly attributable to an increase of depreciation charges to $575,869 for the six months ended September 30, 2012 from $340,113 for the six months ended September 30, 2011.

Income (loss) from operations

Income from operations increased by $10,996,576 to $9,952,430 for the six months ended September 30, 2012, from a loss from operations of $1,044,146 for the six months ended September 30, 2011. The increase is mainly attributable to the increase of gross profit of $14,102,570 from the increase in sales and net of the increase in selling expenses, and general and administrative expenses for the six months ended September 30, 2012 stated above.

Liquidity and Capital Resources

Liquidity

We had cash of $55.5 million and working capital of $44.8 million as of September 30, 2012 and cash of $70.0 million and working capital of $57.2 million as of March 31, 2012.

Our statements of cash flow for the six months ended September 30, 2012 and 2011 are summarized as below:

	Six months ended September 30,
	2012			2011
Net cash provided by (used in) operating activities	$	7,743,383		$	690,981
Net cash used in investing activities		(23,171,022	)		(1,217,779	)
Net cash provided by financing activities		442,015			4,632,404
Effect of exchange rate changes on cash		394,025			(135,319	)
Net change in cash and cash equivalents balances	$	(14,591,589	)	$	3,970,287

Operating activities

Net cash provided by operating activities was $7.7 million and net cash used in operating activities was $690,981 for the six months ended September 30, 2012 and 2011, respectively. The primary reason for the increase in cash flow was an increase in net income for the six months ended September 30, 2012 to $7.8 million, comparing with the net loss of $13.1 million for the six months ended September 30, 2011.

Investing activities

We had capital expenditures totaling $23.2 million for the six months ended September 30, 2012, primarily related to the prepayment of $10.0 million for certain capital expenditures with respect to our facility in Yangling and $13.1 million for the acquisition of property, plant and equipment in Yangling, Qingpu and Shining.

Financing activities

Cash provided from financing activities was $442,015 for the six months ended September 30, 2012, and we used net cash of $4.6 million in financing activities in the six months ended September 30, 2011. Details of our financing activities for such periods are as follows:

	Six months ended September 30,
	2012			2011
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of loans	$	4,272,152		$	-
Repayment of loans	$	(3,957,226	)	$	-
Advance from director		127,089			4,632,404
NET CASH PROVIDED BY FINANCING ACTIVITIES	$	442,015		$	4,632,404

The net cash provided by financing activities for the six months ended September 30, 2012 was primarily from the proceeds of bank loans of $4,272,152 (RMB 27 million) net of the repayment of a bank loan of $3,957,226 (RMB 25 million) and plus an advance from a director to the Company amounting to $127,089.

The net cash provided by financing activities for the six months ended September 30, 2011 was derived primarily from an advance from a director to the Company amounting to $4.6 million.

During the periods ended September 30, 2012 and 2011, the advance from a director, Mr. Song Jinan, was entered into because of the difficulty the Company faced in paying expenses incurred outside China in non-PRC currency due to the difficulties the Company had in converting currency because of foreign exchange controls.

Commitments

Capital commitments

On August 12, 2010, BDH, a subsidiary of the Company, entered into agreements with a government agency to establish manufacturing facilities for animal probiotics products in the Yangling Agricultural High-tech Industries Demonstration Zone in Shaanxi Province of China. In furtherance of such agreements, BDH incorporated a foreign, wholly owned subsidiary, Growing Yangling, with a registered capital of $50 million. As of September 30, 2012, the Company had injected into Growing Yangling $7.5 million as registered capital. According to the approval from the government agency dated October 12, 2010, the remaining balance of Growing Yangling’s registered capital of $42.5 million must be injected before July 13, 2013

The cost for constructing the Yangling facility is expected to be over $58 million invested over two years, which would be mainly facilitated by the capital injection from BDH. The facility will produce probiotics and probiotics-related biological additives for the animal feed industry. Currently, the facility is in its construction stage. During the year ended March 31, 2011, the Company made total payment of approximately $3.25 million (RMB 20,608,112) to acquire the land use right of approximately 122,600 square meters (183.94 mu). We received the land certificate on January 28, 2012 and commenced construction in June 2012. We expect to complete construction by June 2014. As of September 30, 2012, Growing Yangling entered into agreements with contractors related to the construction of the plant, manufacturing facilities and purchase of production equipment for future payment of $2,548,547 and $21,929,973, respectively.

On February 1, 2012, our subsidiary, Growing, entered into an agreement to acquire a patent relating to a production technology for $6,647,147 (RMB 42,000,000) from an unrelated PRC company. Growing made a deposit of $6,330,616 (RMB 40,000,000) to the seller for the transfer of the patent within 210 days, or by August 30, 2012. The original terms of the agreement were that if the patent cannot be transferred to Growing within 210 days, Growing will be refunded the deposit paid and also be compensated an additional $159,000 (RMB 1,000,000) for damages. The transfer was not completed by August 30, 2012, and on September 3, 2012, Growing and the seller mutually agreed to extend the completion date to December 30, 2012. As of December 21, 2012, the transfer had not yet been completed because the Company is waiting for approval of the transfer from the State Intellectual Property Office of the PRC. The Company has no information to allow it to estimate when such confirmation will be obtained, but expects the transaction to close in 2013, after which the patent is planned to be used in the Company’s operations. Subject to the completion of the transfer of the patent, the Company will have to pay the balance, the future payment of which amounts to $316,506 (RMB2 million), which amount was contracted but not provided for as of September 30, 2012.

Purchase obligations

Shining and Growing have entered into agreements with suppliers to purchase raw materials and packing materials, with respect to which the amount of future payments is $13,361,138.

Other Obligations

Growing entered into an agreement with a university in the PRC to perform research and development. The amount of future payments is $1,424,389 (RMB9 million).

Inflation

We believe that inflation has not had a material impact on our results of operations for the six months ended September 30, 2012 and 2011.

Seasonality

Regarding our retail products, many of our customers purchase our products as gifts during the Chinese festivals and holidays, and the seasonal effect is correlated to these holidays during the year. For the first two fiscal quarters, there are no major Chinese festivals or holidays, except for the Dragon Boat Festival (June) and mid-Autumn Festival (September). However, in the last two fiscal quarters, there are some major Chinese festivals and holidays, including National Day (October), Christmas (December), New Year’s Day (January), and Chinese New Year (January to February).

With respect to our bulk additive products, while it is still too early to tell, we expect that our bulk additives sales will not be seasonal in nature because the bulk products are purchased by food manufacturers consistently over the year. Except for the possibility of the PRC government implementing from time to time new or different rules and regulations for the food industry, including with respect to additives and related products, we are not aware of and do not foresee any seasonal effects on our bulk additive products business.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Critical Accounting Policies

Our critical accounting policies are described in the Notes to the Financial Statements included in our Annual Report filed with the SEC on Form 10-K for the fiscal year ended March 31, 2012, and this Form 10-Q should be read in conjunction with that Annual Report. This MD&A discusses our consolidated financial statements for the three months ended September 30, 2012 and 2011. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States. In preparing these financial statements, we are required to make estimates and assumptions affecting the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates and judgments on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Those estimates and assumptions include estimates for allowance for doubtful accounts, inventory valuation, impairment consideration, assumptions used in the valuation of derivative liabilities, and estimates for potential penalties for late payment of taxes.

Revenue Recognition

Revenues of the Company are from the sale of our probiotics products. We recognize revenue from the sale of goods when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the sales price is fixed or determinable; and (4) collectability is reasonably assured. Revenues are presented net of value added tax (VAT”). In our revenue arrangements, physical delivery is the point in time when customer acceptance occurs since title and risk of loss are transferred to the customer.

Stock based compensation

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board, whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board, whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

The fair value of the Company’s common stock option grant is estimated using the Black-Scholes-Merton option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton option pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton option pricing model could materially affect compensation expense recorded in future periods.

Use of estimates as applied to potential penalties for the late payment of taxes

In addition to the PRC Enterprise Income Tax (“EIT”), companies in the PRC that are engaged in the sale of goods are generally required to pay value added taxes (“VAT”) at a rate of 17% of the gross sales proceeds received, less any deductible VAT already paid or borne by the taxpayer.

Our management believes that our operations in China were exempted from EIT and VAT for all years prior to 2005 because we had been recognized by the local government as an advanced technology enterprise. However, the Company never received a written confirmation from the appropriate tax authorities for the tax exemption status of our operations in China prior to 2005. As a result, there is no way to ascertain the ultimate position which may be taken by the relevant PRC tax authorities in the future and accordingly, full provisions for tax liabilities in the amount of $12,734,640, for all years prior to 2005 have been recorded by the Company. Beginning in January 2006, we made tax payments to the PRC tax authorities for 2005 and we have made regular tax payments to the PRC tax authorities for all subsequent periods.

In addition, in connection with dividends paid to the Shining shareholders between April 2003 to June 2005, Shining did not deduct a withholding tax at the rate of 20% as required by applicable Chinese laws and regulations. The Company has accrued the dividend withholding tax and interest on the dividend withholding tax.

According to PRC tax regulations, the overdue tax liabilities in the PRC for the calendar years prior to 2005 may be subject to interest at the 0.05% per day, and potential penalties for the late payment of taxes which is calculated on the basis of 0.5 times to five times the amount of taxes payable. Through March 31, 2011, the Company accrued the interest that may be potentially payable upon these taxes incurred prior to 2005 and the unpaid dividend withholding tax. Interest related to the unpaid taxes was recognized in the Company’s consolidated statements of operations as a component of its income tax provision.

For the six months ended September 30, 2012, management made an assessment of whether it was necessary to provide a further provision for interest and penalties on these unpaid amounts. Management determined that no further provision for interest and penalties was necessary given the unlikelihood of payment of the amount already accrued and provided in the financial statements. This assessment was based upon receipt by the company of a report by an independent tax expert that the amount of taxes prior to 2005 may not be payable, the length of time the amount has been outstanding, and that there have been no requests from PRC tax authorities for payment of the unpaid taxes outstanding amounts. As such, management believes that the previously recorded amounts are sufficient to cover any settlement of this liability.

Recent Accounting Pronouncements

See Note 2 to the Notes to the Unaudited Condensed Consolidated Financial Statements for the Three and Six months Ended September 30, 2012.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rates Risk

Our exposure to interest rate risk for changes in interest rates relates primarily to the interest-bearing bank loans and interest income generated by our bank deposits. We have not used any derivative financial instruments in our investment portfolio or for cash management purposes. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in interest rates. Nevertheless, our future interest expense or interest income may expect to be decreased due to changes in interest rates in the PRC.

Foreign Exchange Rates Risk

We do not hold any derivative instruments and do not engage in any hedging activities. Because most of our purchases and sales are made in RMB, any exchange rate change affecting the value of the RMB relative to the U.S. Dollar could have an effect on our financial results as reported in U.S. Dollars. If the RMB were to depreciate against the U.S. Dollar, amounts reported in U.S. Dollars would be correspondingly reduced. If the RMB were to appreciate against the U.S. Dollar, amounts reported in U.S. Dollars would be correspondingly increased.

ITEM 4. CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures

In a letter to the Company on January 9, 2012, the SEC concluded that the Company’s lack of U.S. GAAP experience is a material weakness in our disclosure controls and procedures. The SEC required the Company to include disclosure about this material weakness in subsequent filings. For information on the Company’s correspondence with the SEC with respect to the Company’s internal controls over financial reporting, see “– Management’s Quarterly Report on Internal Control over Financial Reporting” below.

Since the SEC’s letter of January 9, 2012, the Company has endeavored to address the concerns raised by the SEC. The Company’s Audit Committee and our management are still engaged in discussions about how best to rectify fully the material weakness in our disclosure controls and procedures. The Audit Committee has recommended that the Company hire additional qualified personnel to prepare the Company’s books and records and financial statements in accordance with U.S. GAAP. The Company has retained the services of an accounting professional to perform our internal audit and assist with SEC compliance for purposes of all future reporting. Management believes that these remediation measures have improved and will materially improve the Company’s disclosure controls and procedures for periods subsequent to March 31, 2012, and that the corresponding material weaknesses are being addressed with respect to periods subsequent to March 31, 2012.

An evaluation was performed under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our management, including our principal executive officer and principal financial officer, concluded that, as of such date, our disclosure controls and procedures were not effective and suffered from a material weakness because of the Company’s lack of training and/or experience with preparing financial statements in accordance with U.S. GAAP.

Management’s Quarterly Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of published financial statements in accordance with generally accepted accounting principles. However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or the degree of compliance with policies may deteriorate.

In a letter dated January 7, 2011, the SEC commented on the Company’s Annual Report on Form 10-K for Fiscal Year ended March 31, 2010 and Quarterly Report for the Period Ended September 30, 2010. The SEC asked the Company a number of questions about how we prepare financial statements and how we assess our internal controls over financial reporting. The Company replied to the SEC’s comment letter on February 16, 2011, and the SEC and the Company subsequently exchanged numerous comment and reply letters, respectively, through January 9, 2012. In a letter to the Company on that date, the SEC concluded that the Company’s lack of U.S. GAAP experience is a material weakness in our internal control over financial reporting. For information on the Company’s correspondence with the SEC with respect to the Company’s disclosure controls and procedures, see “Disclosure Controls and Procedures” above.

In reaching such decision, the SEC concluded that those primarily responsible for the preparation of the Company’s books and records and financial statements do not have the requisite U.S. GAAP experience to prepare financial statements in accordance with U.S. GAAP. The SEC noted that the Company’s former and interim Chief Financial Officers do not hold a license such as that of a Certified Public Accountant in the U.S. and have not attended U.S. institutions or extended educational programs that would provide sufficient relevant education relating to U.S. GAAP; the SEC also noted that most of the U.S. GAAP audit experience, if any, of the Company’s former and interim Chief Financial Officers consists of audits of subsidiary financial information that supports or is included in the U.S. GAAP financial statements of parent registrants. The SEC also noted that the Company’s retention of a consultant to assist with the preparation and fulfillment of all SEC and U.S. GAAP reporting requirements was further evidence that our accounting department does not possess the requisite U.S. GAAP knowledge to prepare financial statements in accordance with U.S. GAAP. The SEC required the Company to file an amended Annual Report on Form 10-K for the year ended March 31, 2010 disclosing such material weakness, which the Company intends to file as promptly as is reasonably practicable, and also required the Company to include disclosure about this material weakness in subsequent filings.

Since the SEC’s letter of January 9, 2012, the Company has endeavored to address the concerns raised by the SEC. The Company’s Audit Committee and our management are still engaged in discussions about how best to rectify fully the material weakness in our internal control over financial reporting. The Audit Committee has recommended that the Company hire additional qualified personnel to prepare the Company’s books and records and financial statements in accordance with U.S. GAAP. The Company has retained the services of an accounting professional to perform our internal audit and assist with SEC compliance for purposes of all future reporting. Management believes that these remediation measures have improved and will materially improve the Company’s internal control over financial reporting for periods subsequent to March 31, 2012, and that the corresponding material weaknesses are being addressed with respect to periods subsequent to March 31, 2012.

Management is continuing its review of the Company’s internal control over financial reporting as it believes the following material weaknesses still exist: (i) a lack of senior management personnel who have the requisite U.S. GAAP experience to prepare financial statements in accordance with U.S. GAAP; (ii) the Company did not maintain an adequate financial reporting organizational structure (in part due to the turnover of the executives in the CFO and Interim CFO positions) to support the complexity and operating activities of the Company resulting in a weakness in efficiency and controls related to the financial statement closing process; and (iii) the Company may not have maintained sufficiently consistent corporate governance (including proper recording of minutes of meetings and decisions of the Company’s Board of Directors) and financial controls to ensure proper delegation of authority limits and timeliness of Board approval for significant transactions. However, the Company has taken steps described above to remediate these deficiencies.

Inherent Limitations on the Effectiveness of Controls

Management does not expect that the Company’s disclosure controls and procedures or its internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

The Company and certain of its current and former officers and directors have been named as defendants in three putative shareholder class action lawsuits, one in the United States District Court for the Central District of California (Mohapatra v. China-Biotics, Inc., et al., No. 10-cv-6954 (C.D. Cal.), the “Mohapatra case”), and two in the United States District Court for the Southern District of New York (Hill v. China-Biotics, Inc., et al., No. 10-cv-7838 (S.D.N.Y.), the “Hill case”, and Casper v. Jinan, et al., No. 12-cv-4202 (S.D.N.Y.), the “Casper case”). After certain shareholders filed motions for appointment as lead plaintiff, the plaintiff in the Mohapatra case voluntarily dismissed its case and the plaintiff in the Hill case, together with another shareholder, were appointed as lead plaintiffs. The lead plaintiffs filed an amended complaint in which they allege that the defendants violated Sections 11, 12(a)(2), and 15 of the Securities Act of 1933, and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making material misstatements or failing to disclose certain material information regarding, among other things, the Company’s financial condition, operations, and future business prospects, and the quality, nature, and quantity of the Company’s retail outlets. The lead plaintiffs seek to represent a class of shareholders who bought the Company’s securities between July 10, 2008 and August 27, 2010.

On August 18, 2011, the Company filed a motion to dismiss the lead plaintiffs’ amended complaint. The court dismissed the lead plaintiffs’ Section 11 claim, but gave them leave to replead. The court did not rule on the motion to dismiss the Section 10(b) claim. On January 9, 2012, the lead plaintiffs filed a second amended complaint that included a new named plaintiff and new allegations for the Section 11 claim. On February 27, 2012, the Company filed a motion to dismiss the amended Section 11 claim. Both that motion and the original motion to dismiss the Section 10(b) and Section 20(a) claims are currently pending before the court. The Company intends to defend this action vigorously.

In the Casper case, the plaintiff alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by making material misstatements and seeks to represent a class of stockholders who bought the Company’s securities between February 9, 2011 and July 1, 2011. On October 18, 2012, the Hill case and the Casper case were consolidated, but no consolidated amended complaint has yet been filed. The Company intends to defend this action vigorously.

The Company and its directors have been named as defendants in a derivative lawsuit filed in the United States District Court for the District of Columbia (Marteney v. Song Jinan, et al., No. 10-cv-1983 (D.D.C.)). The complaint alleges that the directors breached their fiduciary duties by disseminating false and misleading financial statements and seeks unspecified damages. On March 26, 2012, the plaintiff filed an amended complaint in which he added Roth Capital Partners LLC and Maxim Group LLC (the “Underwriters”) as defendants. On September 7, 2012, the Underwriters filed a motion to dismiss. On October 23, 2012, the court approved a stipulation in which the plaintiff voluntarily dismissed the claim against the Underwriters. On November 13, 2012, the clerk entered a default against the director defendants. On December 7, 2012, the parties submitted a stipulation lifting the clerk’s entry of default. The defendants intend to defend this action vigorously.

On September 15, 2011, the staff of the SEC informed the Company that it intended to recommend that the SEC institute a public administrative proceeding against the Company for alleged violations of Section 13(a) of the Securities Exchange Act of 1934 and Rules 13a-1 and 13a-13 or 13a-16 promulgated thereunder. On October 7, 2011, the SEC issued an Order Instituting Proceedings to determine whether it was necessary and appropriate to suspend or revoke the registration of the Company’s securities. On February 22, 2012, the administrative law judge overseeing the proceedings issued a decision ordering that the registration of the Company’s securities be revoked. On March 26, 2012, the SEC granted the Company’s petition for review of this decision. The results of the SEC’s review are pending as of December 24, 2012.

ITEM 1A. RISK FACTORS.

Not required for a smaller reporting company.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

As discussed further in the report of our management included under Item 4. “Controls and Procedures” of Part I of this Quarterly Report on Form 10-Q, after reviewing our Annual Report on Form 10-K for the year ended March 31, 2010 and our Quarterly Report on Form 10-Q for the period ended December 31, 2010, the SEC concluded in a letter to the Company dated as of January 9, 2012, that the Company’s lack of U.S. GAAP experience is a material weakness in our disclosure controls and procedures and in our internal control over financial reporting. In its letter, the SEC also directed the Company to file an amended Form 10-K for the year ended March 31, 2010 identifying the Company’s lack of U.S. GAAP experience as a material weakness in our disclosure controls and procedures and in our internal control over financial reporting, which the Company intends to file as promptly as is reasonably practicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Number		Exhibit
3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).

3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006) as amended by the Amendment to the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to China-Biotics, Inc.’s Form 10-Q filed on November 10, 2008).

10.1		Securities Exchange Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.1 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).

10.2		Form of Lockup Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.2 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).

10.3		Put Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.3 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).

10.4		Registration Rights Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.4 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).

10.5		Investors’ Rights Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.5 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).

10.6		Stan Ford Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.6 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).

10.7		Summary of English translation of Investment Agreement for lease of land dated March 21, 2006 (incorporated by reference to Exhibit 10.7 to China-Biotics, Inc.’s Form 8-K filed on March 23, 2006).

10.8		Escrow Agreement dated March 22, 2006 (incorporated by reference to Exhibit 10.8 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).

10.9		Stock Purchase Agreement with Fred Cooper dated February 6, 2006 (incorporated by reference to Exhibit 10.9 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).

10.10		Loan agreement dated as of September 22, 2005 (incorporated by reference to Exhibit 10.10 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).

10.11		Convertible Bond dated as of September 22, 2005 (incorporated by reference to Exhibit 10.11 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).

10.12		Subscription Agreement dated as of September 22, 2005 (incorporated by reference to Exhibit 10.12 to China-Biotics, Inc.’s Form 10-KSB filed on June 30, 2006).

10.13		English Translation of Equity Transfer Agreement dated August 11, 2005 (incorporated by reference to Exhibit 10.13 to China-Biotics, Inc.’s Form SB-2/A filed on April 27, 2007).

10.14		English Translation of Subscription Agreement dated August 11, 2005 (incorporated by reference to Exhibit 10.13 to China-Biotics, Inc.’s Form SB-2/A filed on April 27, 2007).

10.15		Investment Agreement dated December 11, 2007 (incorporated by reference to Exhibit 10.1 to China-Biotics, Inc’s Form 8-K filed on December 12, 2007).

10.16		Registration Rights Agreement dated December 11, 2007 (incorporated by reference to Exhibit 10.2 to China-Biotics, Inc.’s Form 8-K on December 12, 2007).

10.17		4% Senior Convertible Promissory Note dated December 11, 2007 (incorporated by reference to Exhibit 10.3 to China-Biotics, Inc.’s Form 8-K filed on December 12, 2007).

10.18		Guaranty by Song Jinan in favor of Pope Investments II LLC dated December 11, 2007 (incorporated by reference to Exhibit 10.5 to China-Biotics, Inc.’s Form 8-K filed on December 12, 2007).

10.19		Pledge Agreement between Song Jinan and Pope Investments II LLC dated December 11, 2007 (incorporated by reference to Exhibit 10.5 to China-Biotics, Inc.’s Form 8-K filed on December 12, 2007).

10.20		Form of Purchase Agreement dated January 21, 2009 (incorporated by reference to Exhibit 10.15 to China-Biotics, Inc.’s Form 10-Q filed on February 13, 2009).

10.21		Form of Purchase Agreement dated May 19, 2009 (incorporated by reference to Exhibit 10.1 to China-Biotics, Inc.’s Form 8-K filed on May 20, 2009).

10.22		Share Charge dated September 21, 2009 (effective as of January 24, 2008) (incorporated by reference to Exhibit 10.22 to China-Biotics, Inc.’s Form 10-Q filed on November 16, 2009).

10.23		Underwriting Agreement dated September 29, 2009 (incorporated by reference to Exhibit 1.1 to China-Biotics, Inc.’s Form 8-K filed on September 30, 2009).

10.24		District Entrance Project Agreement dated August 12, 2010 (incorporated by reference to Exhibit 10.19 to China-Biotics, Inc.’s Form 10-Q filed on February 14, 2011).

10.25		2010 Equity Incentive Plan (incorporated by reference to Exhibit 4.1 to China-Biotics, Inc.’s Registration Statement on Form S-8 filed on March 11, 2011).

14.1		Code of Ethics (incorporated by reference to Exhibit 14.1 to China-Biotics, Inc.’s Form 10-KSB for the year ended March 31, 2006).

16.1		Letter dated April 13, 2006 from Malone & Bailey PC to the United States Securities and Exchange Commission (incorporated by reference to Exhibit 16.1 to China-Biotics, Inc.’s Form 8-K filed on May 31, 2006).

16.2		Resignation Letter of BDO Limited, dated June 22, 2011 (incorporated by reference to Exhibit 16.1 to China-Biotics, Inc.’s Form 8-K filed on June 23, 2011).

23.1		Letter from BDO Limited, dated June 23, 2011, to the United States Securities and Exchange Commission (incorporated by reference to Exhibit 16.2 to China-Biotics, Inc.’s Form 8-K filed on June 23, 2011).

23.2		Letter from Thornhill Capital LLC to the United States Securities and Exchange Commission, dated September 10, 2012 (incorporated by reference to Exhibit 16.3 to China-Biotics, Inc.’s Form 10-K filed on September 14, 2012).

31.1		Certification of CEO pursuant to Rule 13a-14(a)/15(d)-14(a).

31.2		Certification of CFO pursuant to Rule 13a-14(a)/15(d)-14(a).

32.1		Certification of CEO pursuant to Section 1350.

32.2		Certification of CFO pursuant to Section 1350.

SIGNATURES

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

	CHINA-BIOTICS, INC.

	By:	/s/ Song Jinan
		Mr. Song Jinan
		Chairman of the Board, Chief Executive Officer, Treasurer and Secretary (Principal Executive Officer)

Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on December 24, 2012.

/s/ Song Jinan		Chairman of the Board and Chief Executive Officer
Song Jinan		(Principal Executive Officer)

/s/ Yan Yihong		Chief Financial Officer
Yan Yihong		(Principal Financial and Accounting Officer)

/s/ Chin Ji Wei		Director
Chin Ji Wei

/s/ Du Wen Min		Director
Du Wen Min

/s/ Ivan Chu		Director
Ivan Chu

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