UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, 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, ~~2012~~2011

¨ 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) 5834 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 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 ¨ 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 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 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~~ ~~13,~~December ~~2013~~31, 2011, 22,150,200 shares of the registrant’s common stock were outstanding.

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	2122
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	3739
ITEM 4.	CONTROLS AND PROCEDURES	3739
PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	4041
ITEM 1A.	RISK FACTORS	4042
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	4158
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	4158
ITEM 4.	[REMOVED AND RESERVED.]	4158
ITEM 5.	OTHER INFORMATION	4158
ITEM 6.	EXHIBITS	4158
SIGNATURES		4361

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CHINA-BIOTICS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts expressed in US Dollars)

CHINA-BIOTICS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THE THREE AND NINE MONTHS ENDED DECEMBER 31, ~~2012~~2011 AND ~~2011~~2010

TABLE OF CONTENTS

Unaudited Condensed Consolidated Financial Statements	4
Condensed Consolidated Balance Sheets as of December 31, 2012 (Unaudited) and March 31, 2012	5
Condensed Consolidated Balance Sheets as of December 31, 2011 (Unaudited) and March 31, 2011	5
Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income for the three and nine months ended December 31, 2012 and 2011	6
Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the three and nine months ended December 31, 2011 and 2010	6
Unaudited Condensed Consolidated Statements of Changes in Stockholders' Equity for the nine months ended December 31, 2012	7
Unaudited Condensed Consolidated Statements of Stockholders' Equity for the nine months ended December 31, 2011	7
Unaudited Condensed Consolidated Statements of Cash Flow for the nine months ended December 31, 2012 and 2011	8
Unaudited Condensed Consolidated Statements of Cash Flow for the nine months ended December 31, 2011 and 2010	8
Notes to the Unaudited Condensed Consolidated Financial Statements	9

CHINA-BIOTICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts expressed in US Dollars)

	December 31, 2012 (Unaudited)			March 31, 2012
	December 31, 2011 (Unaudited)			March 31, 2011
ASSETS
Current assets
Cash and cash equivalents	$	68121,~~450~~998,~~222~~122		$	70143,~~086~~988,~~074~~348
Accounts receivable, net		2923,~~886~~518,~~710~~371			3326,~~392~~194,~~474~~313
Inventories		23,~~776~~914,~~965~~903			1,~~942~~772,~~549~~321
Deposits - short term		~~366,603~~-			185,~~114,367~~546
Prepayments		~~266,702~~-			~~356~~1,~~157~~245,565
Other receivables		6361,~~651,553~~708			~~102~~276,~~530~~047
Total current assets		~~108~~149,~~398~~793,~~755~~104			~~106~~173,~~994~~562,~~151~~140
Loan receivable		20,~~810~~622,~~652~~788			~~20,753,343~~-
Deposits - long term		25,709,796			30,070,428
Prepayments for equipment and land use rights		5,924,945			3,146,229
Prepayments for equipment		19,895,653			22,007,427
Property, plant and equipment, net		60,389,993			59,142,556
Property, plant and equipment, net		98,174,194			72,080,331
Land use rights		1,804,632			1,780,354
Land use rights		4,993,530			5,056,884
Total assets	$	238,535,462		$	237,631,279
Total assets	$	277,982,580		$	256,962,564
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	24,~~852~~841,~~644~~357		$	25,~~873~~532,~~904~~443
Other payables and accruals		64,~~034~~025,~~769~~613			54,~~425~~439,~~821~~986
Tax payables		31,~~963~~664,~~250~~542			3330,~~364~~942,~~611~~752
Short term loan		15,870,245			3,165,308
Amount due to director		4,881,177			371,623
Amount due to director		574,450			4,954,345
Total current liabilities		45,412,689			41,286,804
Total current liabilities		57,295,358			49,783,989
Long term loan		-			4,747,963
Total liabilities		57,295,358			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 December 31, 2012 and March 31, 2012, respectively		4,237			4,237
Common stock, par value of $0.0001, 100,000,000 shares authorized,42,370,000 shares issued and 22,150,200 outstanding as of December 31, 2011 and March 31, 2011, respectively		4,237			4,237
Additional paid-in capital		8584,~~738~~390,~~454~~669			8483,~~727~~242,~~616~~926
Retained earnings		~~124~~97,~~893~~568,~~719~~157			~~108~~102,~~179~~377,~~075~~471
Treasury stock at cost, 20,219,800 shares as of December 31, 2012 and March 31, 2012, respectively		(2,741,634	)		(2,741,634	)
Treasury stock at cost, 20,219,800 shares as of December 31, 2011 and March 31, 2011, respectively		(2,741,634	)		(2,741,634	)
Accumulated other comprehensive income		1210,~~792~~875,~~446~~550			1210,~~261~~435,~~318~~681
Total stockholders’ equity		220,687,222			202,430,612
Capital and statutory reserve		3,025,794			3,025,794
Total liabilities and stockholders' equity	$	277,982,580		$	256,962,564
Total stockholders’ equity		193,122,773			196,344,475
Total liabilities and stockholders' equity	$	238,535,462		$	237,631,279

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

CHINA-BIOTICS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND OTHER COMPREHENSIVE INCOME (LOSS)

(Amounts expressed in US Dollars)

	Three months ended December 31,						Nine months ended December 31,
	2012			2011			2012			2011
	2011			2010			2011			2010
Net sales	$	2422,~~680~~401,~~142~~455		$	2232,~~401~~384,~~455~~645		$	6235,~~214~~510,~~479~~781		$	3580,~~510~~909,~~781~~011
Cost of sales		8,~~823~~933,~~814~~894			811,~~933~~198,~~894~~703			2316,~~833~~656,~~844~~068			1627,~~656~~317,~~068~~786
Cost of product returns		-			-			-7,143,914			~~7,143,914~~-
Gross profit		1513,~~856~~467,~~328~~561			1321,~~467~~185,~~561~~942			3811,~~380~~710,~~635~~799			1153,~~710~~591,~~799~~225
Operating expenses:
Selling expenses		2328,~~635,966~~459			~~328~~3,~~459~~861,261			94,~~249~~316,~~502~~810			49,~~316~~478,~~810~~797
General and administrative expenses		3,~~390~~439,~~919~~934			35,~~439~~074,~~934~~625			1011,~~994~~826,~~795~~124			1110,~~826~~429,~~124~~910
Total operating expenses		63,~~026~~768,~~885~~393			38,~~768~~935,~~393~~886			2016,~~244~~142,~~297~~934			1619,~~142~~908,~~934~~707
Income (loss) from operations		9,~~829~~699,~~443~~168			912,~~699~~250,~~168~~056			18(4,~~136~~432,~~338~~135	)		(433,~~432~~682,~~135~~518	)
Other income and expenses:
Interest expense		(~~198,705~~16	)		~~(16~~-	)		(~~477,101~~352	)		~~(352~~-	)
Interest income		~~146~~372,~~228~~918			~~372~~103,~~918~~495			~~474~~1,~~447~~158,779			1288,~~158,779~~665
Interest income, net – loan receivable		776,233			-			2,325,218			0
Change in the fair value of embedded derivatives		-			2,847,000			-			14,797,000
Other expenses, net		(131,393	)		(90,695	)		(318,705	)		(545,424	)
Other income (expenses)		(90,695	)		539,451			(545,424	)		894,538
Exchange gain (losses), net		(1215,~~039~~964	)		~~(15,964~~-	)		~~190~~(91,007	)		~~(91,007~~-	)
Total other income		~~580~~266,~~324~~243			~~266~~3,~~243~~489,946			2521,~~004,049~~996			~~521~~15,~~996~~980,203
Income (loss) before taxes		109,~~409~~965,~~767~~411			915,~~965~~740,~~411~~002			20(3,~~140~~910,~~387~~139	)		(349,~~910~~662,~~139~~721	)
Income taxes		1857,~~483,183~~267			~~857~~2,~~267~~476,772			3899,~~425,743~~175			~~899~~6,~~175~~704,028
Net income (loss)		89,~~926~~108,~~584~~144			913,~~108~~263,~~144~~230			16(4,~~714~~809,~~644~~314	)		(442,~~809~~958,~~314~~693	)
Other comprehensive income
Foreign currency translation adjustment		~~550~~1,~~766~~021,657			1,~~021~~837,~~657~~146			~~531~~439,~~128~~869			~~439~~3,~~869~~907,362
Comprehensive income (loss)	$	910,~~477~~129,~~350~~801		$	1015,~~129~~100,~~801~~376		$	17(4,~~245~~369,~~772~~445	)	$	(446,~~369~~866,~~445~~055	)
Weighted average number of shares
Basic		22,150,200			22,150,200			22,150,200			22,~~150~~275,~~200~~758
Diluted		22,150,200			2223,~~150~~712,~~200~~700			22,150,200			2224,~~150~~184,~~200~~848
Income (loss) per common stock
Basic	$	0.4041		$	0.4160		$	(0.7522	)	$	(01.2293	)
Diluted	$	0.4041		$	0.4144		$	(0.7522	)	$	(01.2216	)

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

CHINA-BIOTICS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF ~~CHANGES IN~~ STOCKHOLDERS' EQUITY

(Amounts expressed in US Dollars)

	Common Stock
	Shares		Par value $0.0001		Additional Paid-in Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income		~~Total~~Capital and Statutory Reserve		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
Balance- April 1, 2011		42,370,000	$	4,237	$	83,242,926	$	102,377,471		$	(2,741,634	)	$	10,435,681	$	3,025,794	$	196,344,475
Fair value of vested options		-		-		1,~~010~~147,~~838~~743		-			-			-		~~1,010,838~~-		1,147,743
Net income								16,714,644								16,714,644
Net loss		-		-		-		(4,809,314	)		-			-		-		(4,809,314	)
Foreign currency translation adjustments		-		-		-		-			-			~~531~~439,~~128~~869		~~531,128~~-		439,869
Balance- December 31, 2012 (Unaudited)		42,370,000	$	4,237	$	85,738,454	$	124,893,719		$	(2,741,634	)	$	12,792,446	$	220,687,222
Balance- December 31, 2011 (Unaudited)		42,370,000	$	4,237	$	84,390,669	$	97,568,157		$	(2,741,634	)	$	10,875,550	$	3,025,794	$	193,122,773

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

CHINA-BIOTICS, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Amounts expressed in US Dollars)

	Nine months ended December 31,
	2012			2011
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	16(4,~~714~~809,~~644~~314	)	$	(442,~~809~~958,~~314~~693	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
Amortization		7829,~~665~~064			2928,~~064~~385
Depreciation		32,~~663~~554,~~367~~575			2,~~554~~655,~~575~~372
Provision of allowance for doubtful accounts		~~582~~1,~~973~~228,064			~~1,228,064~~-
Fair value of vested options		1,~~010~~147,~~838~~743			~~1,147,743~~-
Changes in the fair value of embedded derivatives		-			(14,797,000	)
Loss on disposal of plant and equipment		-			272,745
Change in deferred tax		-			298,894
Change in operating assets and liabilities :
- Accounts receivable		2,~~436~~221,~~558~~843			2(17,~~221~~176,~~843~~185	)
- Inventories		(~~830~~2,~~779~~086,945	)		(2376,~~086,945~~618	)
- Deposits		~~752~~88,~~406~~030			~~88,030~~-
- Prepayments		90(306,~~627~~960	)		(~~306~~412,~~960~~593	)
- Other receivables		(277,~~109,456~~260	)		(~~77,~~260,616	)
- Accounts payable		(29856,~~257~~878	)		~~(856~~714,~~878~~883	)
- Other payables and accruals		~~595~~(539,~~202~~792	)		(~~539~~424,~~792~~120	)
- Taxes payable		(1210,~~496,606~~380	)		~~(210~~2,~~380~~854,776	)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		21(1,~~459~~618,~~182~~210	)		(116,~~618~~336,~~210~~616	)
CASH FLOWS FROM INVESTING ACTIVITIES
Issuance of loan receivable		-(20,622,788	)		~~(20,622,788~~-	)
Prepayments for long-term capital expenditures		(131,~~802~~092,~~340~~357	)		~~(1,092,357~~-	)
Purchase of property, plant and equipment		(13,540,379	)		(1,993,893	)
Proceeds from sales of property, plant and equipment		-			976
NET CASH USED IN INVESTING ACTIVITIES		(27,342,719	)		(23,709,038	)
Purchase of property, plant and equipment		(1,993,893	)		(14,402,923	)
Purchase of land use right		-			(1,960,406	)
NET CASH USED IN INVESTING ACTIVITIES		(23,709,038	)		(16,362,353	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of bank loans		20,197,201			-
Advances from director		4,509,554			5,409,787
Repayment of bank loan		(12,245,547	)		-
Repayments to director		-			(3,250,000	)
(Repayment to) advance from director		(4,290,633	)		4,509,554
Redemption of convertible note		-			(25,000,000
NET CASH PROVIDED BY FINANCING ACTIVITIES		3,661,021			4,509,554
Treasury stock acquired		-			(2,739,634	)
Effect of exchange rate changes on cash and cash equivalents		586,664			(1,172,532	)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		4,509,554			(25,579,847	)
NET CHANGES IN CASH AND CASH EQUIVALENTS BALANCES		(1,635,852	)		(21,990,226	)
Effect of exchange rate changes on cash and cash equivalents		(1,172,532	)		2,316,795
CASH AND CASH EQUIVALENTS BALANCES, beginning of period		70,086,074			143,988,348
NET CHANGES IN CASH AND CASH EQUIVALENTS BALANCES		(21,990,226	)		(23,288,789	)
CASH AND CASH EQUIVALENTS BALANCES, end of period	$	68,450,222		$	121,998,122
CASH AND CASH EQUIVALENTS BALANCES, beginning of period		143,988,348			155,579,371
CASH AND CASH EQUIVALENTS BALANCES, end of period	$	121,998,122		$	132,290,582
Supplemental disclosure of cash flow information:
Interest paid	$	~~477,101~~352		$	~~352~~5,148,983
Income taxes paid	$	42,~~356~~601,~~668~~595		$	27,~~601~~549,~~595~~505
Non cash financing and investing activities:
Transfer of prepayments for equipment to property, plant and equipment	$	15,972,578		$	-
Transfer of long term deposit for patent to other receivable		4,452,927			-

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

CHINA-BIOTICS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIODS ENDED DECEMBER 31, ~~2012~~2011 AND 2011

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

China-Biotics, Inc. (sometimes referred to as “China-Biotics” or the “Company”) is engaged in the research, development, production, marketing, 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.

2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES

Basis of presentation

The accompanying unaudited condensed consolidated financial statements as of and for the three and nine months ended December 31, ~~2012~~2011 and ~~2011~~2010 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 (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the financial position, results of operations and cash flows as of December 31, ~~2012~~2011 and for all periods presented. Information as of March 31, ~~2012~~2011 was derived from the audited consolidated financial statements of the Company for the year ended March 31, ~~2012~~2011.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company's Form 10-K filed on ~~September~~May 1421, ~~2012~~2013 for the year ended March 31, ~~2012~~2011. The results of operations for the three and nine months ended ~~December~~ December 31, ~~2012~~2011 are not necessarily indicative of the operating results to be expected for the full year ending March 31, ~~2013~~2012.

The condensed consolidated financial statements and accompanying notes are presented in United States dollars and prepared in conformity with US GAAP which requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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.

Basis of consolidation

The unaudited condensed consolidated financial statements for China-Biotics, Inc. and its subsidiaries are prepared in accordance with accounting principles generally accepted in the United States of America and include the accounts of Sinosmart Group Inc. (“SGI”), Growing State Limited (“GSL”) and King Treasure Group Limited (“KTG”); SGI’s wholly owned subsidiary, Shanghai Shining Biotechnology Co. Ltd. (“Shining”),; ~~Growing~~GSL’s ~~State~~wholly ~~Limited~~owned ~~(“GSL”)~~subsidiary, Growing Bioengineering (Shanghai) Co. Ltd. (“Growing”),; ~~King~~KTG’s ~~Treasure~~wholly ~~Group~~owned ~~Limited (“KTG”)~~subsidiary, Best Design Holdings Limited (“BDH”), ; and BDH’s wholly owned subsidiary, Growing Bio (Yangling) Co. Ltd (“Growing Yangling”). Intercompany accounts and transactions have been eliminated in consolidation.

Fair value of financial instruments

Fair value measurements are determined using authoritative guidance issued by the Financial Accounting Standards Board (“FASB”), with the exception of the application of the guidance to non-recurring, non-financial assets and liabilities as permitted. Fair value is defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

Level 1-Quoted prices in active markets for identical assets or liabilities.

Level 2-Inputs, other than the quoted prices in active markets, are observable either directly or indirectly.

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

9The Company is required to use observable market data if available without undue cost and effort. 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 December 31, 2011:

The Company is required to use observable market data if available without undue cost and effort. 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 December 31, 2012 and March 31, 2012:

	Fair Value Measurements as of December 31, 2011
	Balance at December 31, 2011		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Loan receivable	$	20,622,788	$	-	$	20,622,788	$	-

	Fair Value Measurements as at December 31, 2012
	Balance at December 31, 2012		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Loan receivable	$	20,810,652	$	-	$	20,810,652	$	-

	Fair Value Measurements as at March 31, 2012
	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	$	-

Recent Accounting Pronouncements

In ~~September~~May 2011, the FASB issued ASU No. 2011-~~08,~~ 04 “~~Testing~~Amendments ~~Goodwill for Impairment”, an update~~ to ~~existing~~achieve ~~guidance~~common onfair ~~the~~value ~~assessment~~measurement ~~of goodwill~~and ~~impairment.~~disclosure ~~This~~requirements ~~update~~in ~~simplifies~~US ~~the~~GAAP ~~assessment~~and ofIFRSs” ~~goodwill~~(“ASU ~~for~~2011-04”), which ~~impairment~~clarify byhow ~~allowing companies~~ to ~~consider~~measure ~~qualitative factors~~and todisclose ~~determine~~fair ~~whether~~value. itThe isamendment ~~more~~clarifies ~~likely~~the ~~than~~intent ~~not~~behind ~~that~~ the ~~fair~~application ~~value~~ of aexisting ~~reporting unit is less than its carrying amount~~fair ~~before~~value ~~performing~~measurements ~~the~~and ~~two~~disclosures ~~step~~and ~~impairment~~other ~~review~~amendments ~~process.~~which Itchange ~~also~~principles ~~amends the examples of events~~ or ~~circumstances~~requirements ~~that~~for ~~would~~fair ~~be considered~~value inmeasurements ~~a goodwill impairment evaluation~~or disclosures. The ~~amendments~~amendment ~~are~~becomes effective prospectively for ~~annual~~the ~~and~~Company’s interim ~~goodwill~~period ~~impairment~~ending ~~tests performed~~March 31, ~~for~~2012. ~~fiscal~~Early application ~~years~~is ~~beginning~~not ~~after December 15, 2011~~permitted. The Company ~~adopted~~does ~~ASU 2011-08 effective January 1, 2012. We do~~ not ~~believe~~expect ~~that~~ the ~~adoption~~amendment ofto ~~this new accounting guidance will~~ have a ~~significant~~material ~~effect~~impact on ~~our~~its ~~goodwill~~financial ~~impairment~~position, ~~assessments~~result inof ~~the~~operations ~~future~~or cash flows.

In June 2011, the FASB issued ASU No. 2011-05 “Presentation of Comprehensive Income” (“ASU 2011-05”) to amend ASC 220 “Comprehensive Income”. The amendments require comprehensive income to be presented as either a continuous statement of comprehensive income or two separate but consecutive statements. The amendments do not affect the disclosures required regarding comprehensive income. These amendments are to be applied retrospectively for interim and fiscal year periods beginning after December 15, 2011. The Company believes that its current presentation of comprehensive income has already complied with the amendments and the adoption of such amendments does not have a material impact on its financial results and disclosures.

In September 2011, the FASB issued ASU 2011-08, “Testing Goodwill for Impairment”, an update to existing guidance on the assessment of goodwill impairment. This update simplifies the assessment of goodwill for impairment by allowing companies to consider 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 in a goodwill impairment evaluation. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The Company adopted ASU 2011-08 effective January 1, 2012. The Company does not expect the adoption of this guidance to have a material impact on its financial position, result of operations or cash flows.

In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.” This ASU requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. ASU No. 2011-11 will be applied retrospectively and is effective for annual and interim reporting periods beginning on or after January 1, 2013. The Company does not expect adoption of this standard to have a material impact on its consolidated results of operations, financial condition, or liquidity.

Other recent accounting pronouncements 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.

3. INCOME (LOSS) PER SHARE

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

	Three months ended December 31,				Nine months ended December 31,
	2012		2011		2012			2011
	2011		2010		2011			2010
Income (loss) per share – Basic and Diluted
Income (loss) per share – Basic
Income (loss) for the period	$	89,~~926~~108,~~584~~144	$	913,~~108~~263,~~144~~230	$	16(4,~~714~~809,~~644~~314	)	$	(442,~~809~~958,~~314~~693	)
Basic average common stock outstanding		22,150,200		22,150,200		22,150,200			22,~~150~~275,~~200~~758
Net income (loss) per share	$	0.4041	$	0.4160	$	(0.7522	)	$	(01.2293	)

	Three months ended December 31,					Nine months ended December 31,
	2011		2010			2011			2010
Income (loss) per share –Diluted
Income (loss) for the period	$	9,108,144	$	13,263,230		$	(4,809,314	)	$	42,958,693
Change in fair value of embedded derivates		-		(2,847,000	)		-			(14,797,000	)
		9,108,144		10,416,230			(4,809,314	)		28,161,693

Basic average common stock outstanding		22,150,200		22,150,200			22,150,200			22,275,758
Diluted effect from stock options and conversion shares		-		1,562,500			-			1,909,090
Diluted average common stock outstanding		22,150,200		23,712,700			22,150,200			24,184,848
Net income (loss) per share		0.41		0.44			(0.22	)		1.16

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution, using the treasury stock method that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, or resulted in the issuance of common stock that then shared in the earnings (loss) of the Company. In computing diluted loss per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants.

10For the three and nine month periods ended December 31, 2011, there were 660,000 outstanding stock options and warrants exercisable at $14.81. Since the exercise prices of these options and warrants are greater than the closing market price and the average closing market prices during the period, these options and warrants are deemed “Out of the Money" (exercise price is greater than market price). As such, the effect of these shares in the Company's EPS calculation is anti-dilutive and have been excluded. In 2010, the Company had convertible debt outstanding. The conversion shares are in diluted earnings per share based on the “if converted method”.

For the three and nine month periods ended December 31, 2012, there were 660,000 outstanding stock options and warrants exercisable at $14.81. Since the exercise prices of these options and warrants are greater than the closing market price and the average closing market prices during the period, these options and warrants are deemed “Out of the Money" (exercise price is greater than market price). As such, the effect of these shares in the Company's EPS calculation is anti-dilutive and have been excluded.11

4. RISKS, UNCERTAINTIES, AND CONCENTRATIONS

Economic and political risks

The Company’s operations are conducted in the People’s Republic of China (“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.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. As of of December 31, ~~2012~~2011 and March 31, ~~2012~~2011, the Company had cash deposits of $68121.457 million and $70140.093 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 nine months ended December 31, ~~2012~~2011 and ~~2011~~2010, all of the Company’s sales arose in the PRC. In addition, all accounts receivable as at December 31, ~~2012~~2011 and March 31, 2011 ~~2012~~were ~~are~~ from customers in the PRC.

Concentration of Customers

For the three ~~months ended~~and ~~December 31, 2012, there is one customer that accounted over 5% of our sales revenue. For the~~ nine months ended December 31, ~~2012,~~2011 ~~there is no customer that accounted over 5% of our sales revenue. For the three~~ and ~~nine months ended December 31~~2010, ~~2011,~~ there was no customer that accounted over 5% of our sales revenue. As of December 31, ~~2012~~2011, there is one customer that accounted for 64.58% of our accounts receivable. As of March 31, ~~2012~~2011, there was one customer that accounted for 42.89% of our accounts receivable.

5. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following at:

	December 31, 2012 (Unaudited)			March 31, 2012
	December 31, 2011 (Unaudited)			March 31, 2011
Accounts receivable	$	3224,~~141~~759,~~217~~404		$	3526,~~057~~194,~~662~~313
Less: Allowance for doubtful accounts		(21,~~254~~241,~~507~~033	)		~~(1,665,188~~-	)
	$	2923,~~886~~518,~~710~~371		$	3326,~~392~~194,~~474~~313

6. INVENTORIES

Inventories consisted of the following at:

	December 31, 2012 (Unaudited)		March 31, 2012
	December 31, 2011 (Unaudited)		March 31, 2011
Raw materials	$	~~743~~1,~~625~~866,647	$	~~801~~744,~~288~~667
Work-in-progress		72102,300		9994,~~763~~756
Finished goods		1,~~961~~945,~~040~~956		1932,~~041,498~~898
	$	23,~~776~~914,~~965~~903	$	1,~~942~~772,~~549~~321

7. LOAN RECEIVABLE

On December 19, 2011, the Company entered into an agreement with Jiangxi International Trust Co., Ltd. (“Jiangxi”) to loan $20,810,652 (RMB 131,100,000) to the Jiangxi International Trust of Yinhe #7 Property, an investment fund sponsored by Jiangxi. Jiangxi is a major trust and investment company that is executing different investment projects in the PRC, including real estate projects, listed company restructurings, and other financial services.

The loan principal is due on December 26, 2013, is unsecured, and according to the loan agreement, the Company is to earn 20% interest per annum, less a 5% investment management fee per annum. Interest income for the three and nine months ended December 31, 2012, net of management fees, was $776,233 and $2,325,218 for the three and nine months ended December 31, 2012, respectively. As of December 31, 2012, $2,081,065 of accrued interest income is included in Other Receivables on the accompanying December 31, 2012 balance sheet.

8. DEPOSITS

Deposits for the acquisition of long-term assets and operating trading deposits consisted of the following:

	December 31, 2012 (Unaudited)		March 31, 2012
Long term
Deposit for acquisition of a company	$	23,805,367	$	23,739,812
Deposit for acquisition of patent		-		6,330,616
Deposit for acquisition of technical know-how and processes		1,904,429		-
		25,709,796		30,070,428
Short term
Other operating deposits		366,603		1,114,367
	$	26,076,399	$	31,184,795

On March 27, 2012, the Company made a deposit of $23,805,367 (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 February 13, 2013, the government of Yangling is reviewing bids received for the probiotics company and expects to complete this process by the end of calendar 2013. If the Company does not win the auction to acquire the probiotics company, its deposit will be returned. As of February 6, 2013, the Company and the government of Yangling verbally agreed that if the government of Yangling does not commence the acquisition procedure before the end of March 2013, the Company will withdraw its bid and the deposit will be wholly returned to the Company.

On February 1, 2012, our subsidiary, Growing, entered into an agreement to acquire a patent regarding a production technology, including the related technical know-how and processes, 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 which was initially expected to be 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 24, 2012, because of the unknown timing for the approval of the transfer from the State Intellectual Property Office of the PRC, Growing and the seller mutually agreed and entered into a supplementary agreement to terminate the transfer of the patent and the seller agreed to return $4,443,669 (RMB 28,000,000) of the deposit to the Company. Simultaneously with the termination of the acquisition of the patent, according to the supplementary agreement, the seller agreed to transfer to the Company the technical know-how and processes related to the patent for $1,904,429 (RMB 12,000,000) (paid by the seller retaining this amount of the original deposit) within 60 days, or by February 22, 2013. The amount of the deposit to be retained by the seller of $1,904,429 will be capitalized by the Company when the technical know-how and processes are transferred and is included in Deposits – long term in the accompanying balance sheet as of December 31, 2012.

The balance of the deposit of $4,443,669 (RMB 28,000,000) due the Company will be refunded before March 31, 2013, and is included in Other Current Receivables on the accompanying December 31, 2012 balance sheet. Payments due under the agreement are as (i) RMB11,200,000 on or before Jan 31, 2013, (subsequently collected by the Company), (ii) RMB8,400,000 on or before Feb 20, 2013, and (iii) RMB8,400,000 on or before Mar 31, 2013.

97. ~~LAND USE RIGHTS~~LOAN RECEIVABLE

On December 19, 2011, the Company entered into an agreement with Jiangxi International Trust Co., Ltd. (“Jiangxi”) to loan $20,622,788 (RMB 131,100,000) to the Jiangxi International Trust of Yinhe #7 Property, an investment fund sponsored by Jiangxi. Jiangxi is a major trust and investment company that is executing different investment projects in the PRC, including real estate projects, listed company restructurings, and other financial services.

The loan principal is due on December 26, 2013, is unsecured, and according to the loan agreement, the Company is to earn 20% interest per annum, less a 5% investment management fee per annum.

8. LAND USE RIGHTS

The land use rights consisted of the following:

	December 31, 2012 (Unaudited)			March 31, 2012
	December 31, 2011 (Unaudited)			March 31, 2011
Land use rights	$	51,~~247~~958,~~803~~009		$	51,~~231~~900,~~956~~734
Less: Accumulated amortization		(~~254~~153,~~273~~377	)		(~~175~~120,~~072~~380	)
	$	41,~~993~~804,~~530~~632		$	51,~~056~~780,~~884~~354

On March 21, 2006, GSL, our subsidiary, entered into an agreement, as amended, with Shanghai Qingpu Industrial Park District Development (Group) ~~Company~~ 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. 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, see Note 12) during the period ended December 31, 2012. As such loans were repaid during November 2012, the Qingpu land use right was released accordingly. At December 31, ~~2012~~2011, the net book value of such land use right was $1,~~781~~804,~~554~~632.

InAmortization ~~2012,~~expense amounted ~~our~~to ~~Growing Yangling~~$9,780 ~~subsidiary~~and of$9,488 for the ~~Company~~three ~~that~~months ~~operates~~ended inDecember ~~Yangling~~31, ~~the PRC~~2011, ~~has~~and ~~acquired~~2010, arespectively. ~~land~~Amortization ~~use~~expense ~~right~~amounted to ~~for~~$29,064 aand ~~period of 50 years for~~ $328,~~272,528,~~385 ~~beginning~~for ~~January~~the ~~18,~~nine ~~2012.~~months Atended December 31, ~~2012~~2011, ~~the~~and ~~net book value of the land use right was $3~~2010,~~211,976~~ respectively.

~~Amortization expense amounted to $26,294 and $~~9~~,780 for the three months ended December 31, 2012, and 2011, respectively~~. ~~Amortization expense amounted~~ PROPERTY, toPLANT ~~$78,665~~AND ~~and $29,064 for the nine months ended December 31, 2012, and 2011, respectively.~~EQUIPMENT

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

	December 31, 2012
For the year ended March 31:
2013	$	26,239
2014		104,956
2015		104,956
2016		104,956
2017		104,956
Thereafter		4,547,467
	$	4,993,530

10. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net, consisted of the following:

	December 31, 2012 (Unaudited)			March 31, 2012
	December 31, 2011 (Unaudited)			March 31, 2011
Building	$	6244,~~249~~480,~~835~~956		$	4412,~~754~~047,~~344~~068
Plant and machinery		2623,~~758~~207,~~438~~170			2351,~~963~~430,~~145~~868
Leasehold improvements		21,~~106~~803,~~296~~367			1,~~814~~750,~~783~~615
Office equipment		64,~~281~~818,~~089~~666			4,~~220~~007,~~654~~571
Motor vehicles		~~820~~540,~~677~~150			~~543~~445,~~569~~632
Construction in progress		20743,~~085,100~~276			131,~~217~~762,~~574~~970
		118,301,435			88,514,069
		75,593,585			71,444,724
Less: Accumulated depreciation		(2015,~~127~~203,~~241~~592	)		(1612,~~433~~302,~~738~~168	)
	$	9860,~~174~~389,~~194~~993		$	7259,~~080~~142,~~331~~556

For the three months ended December 31, 2011 and 2010, depreciation expense amounted to $1,007,784 and $1,211,360, respectively. For the nine months ended December 31, 2011 and 2010, depreciation expense amounted to $2,554,575 and $2,653,173, respectively.

As of December 31, 2011, the Company has the following construction projects in process:

~~For~~· ~~the~~The ~~three~~Company ~~months ended~~is ~~December~~currently ~~31,~~in ~~2012~~Phase ~~and~~2 ~~2011,~~construction ~~depreciation~~of ~~expense amounted~~a ~~to $1,295,597~~research and ~~$1,007,784,~~development ~~respectively.~~center ~~For~~and ~~the nine~~other ~~months~~ancillary ~~ended~~facilities in Qingpu. At December 31, ~~2012 and~~ 2011, ~~depreciation~~construction ~~expense amounted~~in ~~to $3,663,367~~progress ~~and~~included $2540,~~554,575,~~818 ~~respectively~~related to the construction of this facility.

At· ~~December~~The ~~31,~~Company ~~2012, the~~is ~~corporate~~in ~~headquarters~~construction ~~office~~of ~~building~~a ~~and~~facility ~~factory buildings~~ in ~~Qingpu~~Yangling ~~were~~that ~~pledged~~is expected to ~~banks~~involve asinvestment ~~security~~of over $58 million over two years. The facility will produce probiotics and probiotics-related biological additives for ~~loans~~the ~~totaling $15~~animal feed industry. During the year ended March 31,~~870~~ 2011,~~245~~ the Company made total payment of approximately $3.25 million (RMB ~~100~~20,~~000~~608,~~000~~112) to acquire the land use right of approximately 122,600 ~~see~~square ~~Note~~meters ~~12)~~(183. At94 ~~December~~mu) ~~31,~~which ~~2012,~~is included in prepayments for equipment and land use rights in the ~~net~~accompanying ~~book~~unaudited ~~value~~condensed ofconsolidated balance sheets.. We received the ~~corporate~~land ~~headquarters~~certificate ~~office building~~on January 28, 2012 and ~~factory~~commenced ~~buildings~~construction in ~~Qingpu~~June ~~was~~2012. ~~$57~~We expect to complete construction by June 2014. As of December 31,~~941~~ 2011,~~220~~ construction in progress included $202,458 related to the construction of this facility.

~~As of December 31,~~10. AMOUNT ~~2012,~~DUE ~~the~~TO ~~Company has the following construction projects in process:~~DIRECTOR

·As ~~The~~of ~~Company~~March is31, ~~currently~~2011, the inamounts ~~Phase~~due 2to ~~construction~~a director, Mr. Song Jinan, of a$371,623 ~~research~~represented ~~and~~advances ~~development~~to ~~center~~the Company which are unsecured, interest-free and ~~other~~repayable ~~ancillary~~on ~~facilities~~demand. The advances from such director were entered into because of the difficulty the Company faced in ~~Qingpu~~paying expenses incurred outside China in non-PRC currency due to the difficulties the Company had in converting currency because of foreign exchange controls. AtDuring ~~December~~the ~~31,~~nine ~~2012~~months ~~and~~ended ~~March~~December 31, ~~2012~~2011, ~~construction~~the indirector ~~progress~~advanced ~~included~~an additional $4,~~324~~509,~~195~~554. ~~and~~As ~~$12~~of December 31,~~978~~ 2011,~~116~~ ~~related~~the amount due to ~~the~~Mr. ~~construction~~Song ofJinan ~~this~~totaled ~~facility~~$4,881,177.

~~· The Company is in construction of a facility in Yangling that is expected to involve investment of over $58 million over two years~~11. The facility will produce probiotics and probiotics-related biological additives for the animal feed industry. 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) (see Note 9). 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 December 31, 2012 and March 31, 2012, construction in progress included $15,760,905 and $239,458 related to the construction of this facility. As of December 31, 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 $20,908,175 and $12,245,481, respectively. INCOME TAXES

AsFor ofthe ~~December~~nine ~~31,~~months ~~2012~~ended ~~and~~December ~~March~~ 31, ~~2012,~~2011 ~~the Company currently had outstanding deposits~~ and ~~prepayments of $19~~2010,~~895,653~~ ~~and~~the ~~$22,007,427~~components ~~relating to delivery~~ of ~~equipment~~income to(loss) bebefore ~~used~~income attaxes ~~these facilities.~~were:

11. AMOUNT DUE TO DIRECTOR

	Nine months ended December 31,
	2011 (Unaudited)			2010 (Unaudited)
Income (loss) before income taxes generated in the PRC	$	(1,428,790	)	$	35,745,215
Income (loss) before income taxes generated in the United States of America		(2,182,029	)		13,626,856
Income (loss) before income taxes generated in the British Virgin Islands		(298,684	)		290,650
Income (loss) before income taxes generated in Hong Kong		(636	)		-
	$	(3,910,139	)	$	49,662,721

AsFor ofthe ~~March~~three ~~31,~~and ~~2012,~~nine ~~the~~months ~~amounts~~ended ~~due~~December ~~to a director~~31, ~~Mr.~~2011 ~~Song~~and ~~Jinan~~2010, ofthere ~~$4,954,345~~was ~~represented~~no ~~advances~~tax toprovision ~~the~~related ~~Company~~to ~~which~~income ~~are~~(loss) ~~unsecured,~~generated ~~interest-free and~~in ~~repayable on demand. The advances from such director were entered into because of~~ the ~~difficulty~~United ~~the~~States ~~Company faced in paying~~of ~~expenses~~America, ~~incurred outside China in non-PRC currency due to~~ the ~~difficulties~~British ~~the~~Virgin ~~Company~~Islands, ~~had~~and inHong ~~converting currency because of foreign exchange controls~~Kong. ~~During~~For the nine months ended December 31, ~~2012~~2011 and 2010, the ~~director~~provision ~~advanced~~for ~~an additional $495,000. In December~~income ~~2012,~~taxes ~~$4,785,633~~relating ofto ~~these~~income ~~advances~~generated ~~was~~in ~~repaid and~~ the ~~amount~~PRC ~~due~~consists ~~the director as~~ of ~~December~~the ~~31, 2012 was $574,450.~~following:

12. LOANS PAYABLE

	Nine months ended December 31,
	2011 (Unaudited)		2010 (Unaudited)
Current-PRC	$	899,175	$	6,704,028
Deferred-PRC		-		-
	$	899,175	$	6,704,028

Short term loan

On March 19, 2012, the Company received a loan from the Bank of China for $3,165,058 (RMB 20,000,000), secured by the corporate headquarters office building of Growing (see Note10), due September 19, 2012. On September 19, 2012 the loan was exchanged for a new loan that was due September 19, 2013. Interest was at 7.08% per annum, based on 118% of the twelve months’ 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. On December 19, 2012, the loan for $3,165,058 (RMB 20,000,000) was fully repaid.

On August 29, 2012, the Company received a loan from Shanghai Rural Commercial Bank for $791,264 (RMB 5,000,000), secured by the land use right in Qingpu of Growing (see Note 9), due August 28, 2013. Interest was 6.90% per annum, based on 118% of the 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 purchase of raw materials. On November 30, 2012, the loan was repaid before due date. Due to the early repayment of this loan and certain other loans with Shanghai Rural Commercial Bank discussed under Long term loan notes below, the Company incurred a penalty for early repayment of $79,517 (RMB 500,000) (the “Single Penalty”).

On September 24, 2012, the Company obtained a bank loan facility from Bank of Jiangsu for $15,870,245 (RMB 100,000,000), secured by the assets of Growing, including the corporate headquarters office building and factory buildings in Qingpu of Growing (see Note10) (“Bank Loan Facility”). The loan consisted of the following advances:

· On October 31, 2012, the Company borrowed $7,935,122 (RMB 50,000,000), under the Bank Loan Facility, with the loan due October 30, 2013. Interest is 6.60% per annum, based on 110% of the 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 interest rate will be reset on the first day of each calendar year. As of February 6, 2013, there was no notice for change of the interest rate. The purpose of this loan was for purchase of raw materials.

·For ~~On December 28, 2012,~~ the ~~Company~~nine ~~borrowed~~months ~~$2,380,537~~ended ~~(RMB~~December 1531,~~000,000),~~ ~~under~~2011 and ~~the Bank Loan Facility~~2010, ~~with~~ the ~~loan~~reconciliation ~~due~~between ~~December 27, 2013. Interest is 6.60% per annum, based on 110% of~~ the ~~one~~PRC ~~year’s~~statutory oftax ~~RMB borrowing prime~~ rate ~~established by the People’s Bank of China at the time of funding,~~ and iseffective ~~due~~tax atrate ~~the~~are ~~end~~as ~~of each calendar quarter. The purpose of this loan was for purchase of raw materials.~~follows:

· On December 31, 2012, the Company borrowed $5,554,586 (RMB 35,000,000), under the Bank Loan Facility, with the loan due December 30, 2013. Interest is 6.60% per annum, based on 110% of the 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 purchase of raw materials.

	Nine months ended December 31,
	2011 (Unaudited)			2010 (Unaudited)
Statutory rate		25.0	%		25.0	%
Preferential tax rate		3.7	%		(8.1	)%
Effect of different tax rates in other jurisdictions		(11.0	)%		-	%
Effect of taxable temporary difference		(27.4	)%		-	%
Change in the fair value of embedded derivatives not subject to tax		-	%		(7.4	)%
Expenses not deductible for tax purpose		-	%		0.9	%
Tax surcharge		-	%		3.3	%
Tax losses not recognized		(13.3	)%		(0.1	)%
Effective tax rate		(23.0	)%		13.6	%

~~Long~~As ~~term~~of ~~loan~~December 31, 2011 and March 31, 2011, the Company had incurred tax losses of approximately $4.38 million and $2.2 million, respectively which can be carried forward in various jurisdictions from five to 25 years. The resulting deferred tax assets have been fully offset by a valuation allowance.

OnThe ~~December~~components 7, 2011, the Company received a loan from Shanghai Rural Commercial Bank for $4,747,963 (RMB 30,000,000), secured by the land use right in Qingpu held by Growing (see Note 9), due May 27, 2014. Interest was at 7.65% per annum, based on 115% of ~~the 1-to-3~~deferred ~~years’~~taxes ~~RMB~~are ~~borrowing~~summarized ~~prime rate set by the People’s Bank of China at the time of funding, and was due at the end of each calendar quarter. The balance outstanding~~ as of March 31, 2012 was $4,747,963. During the nine months ended December 31, 2012 the loan was fully repaid. Due to the early repayment, the Company incurred the Single Penalty to Shanghai Rural Commercial Bank which is discussed in the description of Short term loan notes above.follows:

During September 2012, the Company received loans from Shanghai Rural Commercial Bank totaling $316,506 (RMB 2,000,000), secured by the land use right in Qingpu held by Growing (see Note 9), due December 2014. Interest was 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 was due at the end of each calendar quarter. The purpose of this loan was for financing the costs of a renovation project. On November 30, 2012, the loans were repaid. Due to the early repayment, the Company incurred the Single Penalty to Shanghai Rural Commercial Bank which is discussed in the description of Short term loan notes above.

	December 31, 2011 (Unaudited)			March 31, 2011
Deferred tax assets
Net operating loss carryforwards
- PRC	$	56,559		$	63,970
- United States of America		741,890			-
- Hong Kong		8,816			5,714
Less: Valuation allowance		(807,265	)		(69,684	)
Net deferred tax assets	$	-		$	-

13The Company is incorporated in Delaware and is subject to U. ~~INCOME~~S. ~~TAXES~~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.

For the nine months ended December 31, 2012 and 2011, the components of income (loss) before income taxes were:

	Nine months ended December 31,
	2012 (Unaudited)			2011 (Unaudited)
Income (loss) before income taxes generated in the PRC	$	22,662,054		$	(1,428,790	)
Loss before income taxes generated in the United States of America		(2,221,731	)		(2,182,029	)
Loss before income taxes generated in the British Virgin Islands		(297,857	)		(298,684	)
Loss before income taxes generated in Hong Kong		(2,079	)		(636	)
	$	20,140,387		$	(3,910,139	)

For the three and nine months ended December 31, 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 nine months ended December 31, 2012 and 2011, the provision for income taxes relating to income generated in the PRC consists of the following:

	Nine months ended December 31,
	2012 (Unaudited)		2011 (Unaudited)
Current-PRC	$	3,425,743	$	899,175
Deferred-PRC		-		-
	$	3,425,743	$	899,175

For the nine months ended December 31, 2012 and 2011, the reconciliation between the PRC statutory tax rate and effective tax rate are as follows:

	Nine months ended December 31,
	2012 (Unaudited)			2011 (Unaudited)
Statutory rate		25.0	%		25.0	%
Preferential tax rate		(10.0	)%		3.7	%
Effect of different tax rates in other jurisdictions		2.2	%		(11.0	)%
Effect of taxable temporary difference		(2.3	)%		(27.4	)%
Under provision of income tax in prior year		0.6	%		-	%
Tax losses not recognized		1.5	%		(13.3	)%
Effective tax rate		17.0	%		(23.0	)%

As of December 31, 2012 and March 31, 2012, the Company had incurred tax losses of approximately $6.2 million and $4.2 million, respectively which can be carried forward in various jurisdictions from five to 25 years. The resulting deferred tax assets have been fully offset by a valuation allowance.

There is no income tax for companies not carrying out business activities in the British Virgin Islands or Hong Kong. Accordingly, the Company's financial statements do not present any income tax provisions related to the British Virgin Islands or Hong Kong tax jurisdictions.

The Company has its principal operations in the PRC and is subject to a PRC Enterprise Income Tax (“EIT”) rate of 25% in calendar years ~~2012~~2011 and ~~2011~~2010, subject to certain rate reductions. The Company’s subsidiary Shining is located in the Shanghai Jinqiao Special Economic Zone and was awarded the status of “high technology” enterprise for the calendar years 2007 until 2011. Therefore, Shining enjoyed a preferential income tax rate of 15% in 2007 to 2011. Beginning January 1, 2012, Shining’s EIT rate is 25%.

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

The Company’s subsidiary, Growing Yangling, is located in Yangling and, as of December 31, 2012, its manufacturing plant was under construction. According to the investment agreement with the local government, Growing Yangling is entitled to have a tax incentive that exempts the local portion of EIT for three calendar years from the commencement of production, followed by 50% tax exemption of local portion for the next year. There is no financial effect from the tax holiday as Growing Yangling did not generate any assessable income for the three and nine months ended December 31, 2012 or 2011.15

AtThe ~~December~~Company’s subsidiary, 31Growing Yangling, ~~2012~~is located in Yangling and, ~~March~~as of December 31, ~~2012~~2011, its manufacturing plant was under construction. ~~taxes~~According ~~payable~~to ~~consisted~~ the investment agreement with the local government, Growing Yangling is entitled to have a tax incentive that exempts the local portion of EIT for three calendar years from the ~~following:~~commencement of production, followed by 50% tax exemption of local portion for the next year. There is no financial effect from the tax holiday as Growing Yangling did not generate any assessable income for the three and nine months ended December 31, 2011 or 2010.

	December 31, 2012 (Unaudited)		March 31, 2012
Taxes arising prior to 2005:
Value added tax and other taxes	$	5,723,508	$	5,707,746
Income taxes		3,121,036		3,112,441
Dividends withholding tax		3,925,262		3,914,453
Total taxes prior to 2005		12,769,806		12,734,640
Value added tax and other taxes		1,160,772		1,366,106
Income taxes		855,409		2,100,059
Accrued interest on taxes		17,177,263		17,163,806
	$	31,963,250	$	33,364,611

At December 31, 2011 and March 31, 2011, taxes payable consisted of the following:

	December 31, 2011 (Unaudited)		March 31, 2011

Taxes arising prior to 2005:
Value added tax and other taxes	$	5,067,967	$	5,505,930
Income taxes		4,013,346		3,002,391
Dividends withholding tax		4,232,165		4,095,745
Total taxes arising prior to 2005		13,313,478		12,604,066

Value added tax and other taxes		1,290,414		515,637
Income taxes		56,499		1,317,961
Accrued interest on taxes		17,004,151		16,505,088
	$	31,664,542	$	30,942,752

In addition to the 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~~ 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 $1213,~~769~~313,~~806~~478, 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 nine months ended December 31, ~~2012~~2011, 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 be payable, the length of time the amount has been outstanding, and that there have been no requests from PRC tax authorities ~~for~~ 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.

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.

	Nine months ended December 31,
	2012 (Unaudited)			2011 (Unaudited)
	2011 (Unaudited)			2010 (Unaudited)
Income (loss) per common share-basic	$	(0.7522	)	$	(01.2293	)
Effect of tax holiday		0.01			(0.0118	)
Pro forma income (loss) per common share-basic	$	(0.7621	)	$	(01.2175	)

1412. OPTION INCENTIVE PLAN

On January 16, 2011, the Board adopted the 2010 Equity Incentive Plan (the “2010 Plan”) and reserved 1,500,000 shares of common stock for issuance under the 2010 Plan. On March 9, 2011, the 2010 Plan was approved by the Company’s stockholders at the 2010 Annual Meeting of Stockholders.

On January 16, 2011, the Company granted to the directors and officers an option to purchase 910,000 shares of common stock under the 2010 Plan. The options have exercise price of $14.81 per share, an expiration date of five to ten years from the date of grant, and vest over 48 consecutive months: 20% in the first 12-month period; 20% in the second 12-month period; 30% in the third 12-month period; and 30% in the forth 12-month period. The Company determined the fair value of the options on the date of grant was $9,477,024 using the Black-Scholes-Merton option pricing model with the following assumptions: expected volatility, 76%; risk-free interest rate, 1.95%; expected weighted average life, five to ten years; and expected dividend yield, 0%.

During June 2011, two option holders resigned from their positions 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~~The total number of forfeited and cancelled options was 250,000.

At December 31, 2011, outstanding options were as follows:

	Number of Shares under Options			Weighted Average Exercise Price

Options outstanding at March 31, 2011		910,000		$	14.81
Options granted		-			-
Options expired or forfeited		(250,000	)		14.81
Options exercised		-			-
Options outstanding at December 31, 2011		660,000		$	14.81

The following table summarizes information about options outstanding at December 31, 2011:

		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		7.50	$	14.81		132,000	$	14.81

As of December 31, 2011 and March 31, 2011, the total vested options were 132,000 shares and 45,500 shares, respectively.

At December 31, ~~2012~~2011 and March 31, ~~2012~~2011, ~~outstanding~~the options ~~were~~outstanding asand ~~follows:~~exercisable had no intrinsic value.

	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 December 31, 2012		660,000		$	14.81

For the three months ended December 31, 2011 and 2010, the Company has recorded $$336,946 and $0, respectively, as the fair value of the vested options. For the nine months ended December 31, 2011 and 2010, the Company has recorded $1,147,743 and $0, respectively, as the fair value of the vested options.

As of December 31, 2011, ~~2012~~total compensation cost related to non-vested stock options and ~~March~~restricted ~~31,~~stock ~~2012~~not yet recognized was approximately $5,391,139, ~~the~~which ~~total~~is ~~vested~~expected ~~options~~to ~~were~~be ~~264,000~~recognized ~~shares~~over ~~and~~the ~~165,000~~next ~~shares,~~36 ~~respectively~~months.

~~The following table summarizes information~~13. PRODUCT ~~about~~RETURN ~~options~~CONCESSIONS ~~outstanding at December 31, 2012:~~

		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		6.50	$	14.81		264,000	$	14.81

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.

AtAs ~~December~~a 31result of a product returns after certain of our products did not meet our quality standards, ~~2012~~and in order to improve the confidence of the Company’s distributors and ~~March~~end-user ~~31,~~customers ~~2012~~in our probiotics products, we provided special concession credits to our distributors during August 2011 to address the ~~options~~complaints ~~outstanding~~and concerns of customers worried about food and ~~exercisable~~healthcare ~~had~~products noin ~~intrinsic~~the ~~value~~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 unaudited condensed consolidated financial statements.

~~For the three months ended December 31, 2012 and 2011, the Company has recorded $336,946 and $336,946, respectively, as the fair value of the vested options~~14. ~~For the nine months ended December 31, 2012 and 2011, the Company has recorded $1,010,838 and $1,147,743, respectively,~~ COMMITMENTS asAND ~~the fair value of the vested options.~~CONTINGENCIES

As of December 31, 2012, total compensation cost related to non-vested stock options and restricted stock not yet recognized was approximately $4,043,354, which is expected to be recognized over the next 24 months

15. PRODUCT RETURN CONCESSIONS

For the three and nine months ended December 31, 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 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 nine months ended December 31, 2012. During the three and nine months ended December 31, 2012, the Company recovered special concession credits amounting to $1,947,075 (RMB12,243,208) and $2,940,746 (RMB18,523,208), respectively, and included such amounts in sales for the three and nine months ended December 31, 2012.

16. COMMITMENTS AND CONTINGENCIES

Capital commitments

On August 12, 2010, BDH, a subsidiary of the Company, entered into the agreements with a government agency to establish manufacturing facilities for ~~animal~~ animal probiotics products in the Yangling Agricultural High-tech Industries Demonstration Zone in Shaanxi Province of China. In ~~furtherance~~ furtherance of such agreements, BDH incorporated a foreign, wholly owned subsidiary, Growing Yangling, with a registered capital of $50 million. As of ~~December~~March 31, 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 December 31, 2011, Growing Yangling entered into agreements with contractors related to the construction of the plant and manufacturing facilities for future payments of $2,917,101.

The Company is currently in Phase 2 construction of a research and development center and other ancillary facilities in Qingpu. As of December 31, 2011, agreements with contractors related to the construction of the plant, manufacturing facilities and [purchase of production equipment with future payments of $15,058,987 and $3,917,143, respectively.

Purchase obligations

The Company entered into the agreements with its suppliers to purchase raw materials and packing materials. ~~The~~As of December 31, 2011, the amount of future payments related to these obligations is $9,~~201~~474,~~614~~688.

Other obligations

~~The~~Growing ~~Company~~ entered ~~into~~ into an agreement with a university in the PRC to perform research and development. The aggregate amount of future payments per year is approximately $1,~~428~~407,~~322~~327 (~~RMB~~RMB9 ~~9,000,000~~million).

Pending litigation

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~~ District of New York (Hill v. China-Biotics, Inc., et al., No. 10-cv-7838 (S.D.N.Y.), the “Hill case”, and ~~Casper~~ 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~~ Columbia (Marteney v. Song Jinan, et al., No. 10-cv-1983 (D.D.C.)). The complaint alleges that the directors breached their ~~fiduciary~~ 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 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.

With respect to the 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.

Review of decision ordering that the registration of the Company’s securities be revoked

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 or 13a-16 promulgated thereunder. On October 7, 2011, the SEC issued an Order Instituting Proceedings to determine whether it ~~was~~ was necessary and appropriate to suspend or revoke the registration of the Company’s securities. On February 22, 2012, the ~~administrative~~ 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~~scheduled ~~pending~~oral asargument offor July ~~February 13~~10, 2013.

1715. BUSINESS SEGMENTS

The Company operates two business segments for the three and nine months ended December 31, ~~2012~~2011 and ~~2011~~2010, which are retail probiotics products as a a health supplement and bulk additives for institutional customers in the PRC. The following is the summary information by segment as of December 31, ~~2012~~2011 and ~~2011~~2010, and for the three and nine months ended December 31, ~~2012~~2011 and ~~2011~~2010:

Three months ended December 31, 2012

Retail products

Bulk additives

Segment Total

Corporate

Total

Three months ended December 31, 2011

Retail products

Bulk additives

Segment Total

Corporate

Total

Net revenue

914,~~700~~269,~~472~~805

148,~~979~~131,~~670~~650

2422,~~680~~401,~~142~~455

Income (loss) from operations

46,~~578~~675,~~551~~272

63,~~216~~882,~~201~~732

10,~~794~~558,~~752~~004

(~~965~~858,~~309~~836

)

9,~~829~~699,~~443~~168

Income taxes

~~804~~380,~~839~~347

~~678~~476,~~344~~920

1857,~~483,183~~267

Total assets

~~117~~134,~~602~~859,~~416~~813

~~113~~84,~~263~~508,~~555~~123

~~230~~219,~~865~~367,~~971~~936

4719,~~116~~167,~~609~~526

~~277~~238,~~982~~535,~~580~~462

Depreciation and amortization

~~274~~259,~~212~~049

~~836~~561,~~801~~551

1820,~~111,013~~600

~~210~~196,~~878~~964

1,~~321~~017,~~891~~564

Three months ended December 31, 2011

Retail products

Bulk additives

Segment Total

Corporate

Total

Three months ended December 31, 2010

Retail products

Bulk additives

Segment Total

Corporate

Total

Net revenue

1417,~~269~~669,~~805~~562

814,~~131~~715,~~650~~083

2232,~~401~~384,~~455~~645

Income (loss) from operations

67,~~675~~510,~~272~~322

36,~~882~~315,~~732~~119

1013,~~558~~825,~~004~~441

(~~858~~1,~~836~~575,385

)

912,~~699~~250,~~168~~056

Income taxes

~~380~~1,~~347~~691,938

~~476~~784,~~920~~834

~~857~~2,~~267~~476,772

Total assets

~~134~~139,~~859~~198,~~813~~992

8448,~~508~~940,~~123~~880

~~219~~188,~~367~~139,~~936~~872

1957,~~167~~463,~~546~~931

~~238~~245,~~535~~603,~~482~~803

Depreciation and amortization

~~259~~233,~~049~~896

~~561~~989,~~551~~151

~~820~~1,~~600~~223,047

~~196,964~~-

1,~~017~~223,~~564~~047

Nine months ended December 31, 2012

Retail products

Bulk additives

Segment Total

Corporate

Total

Nine months ended December 31, 2011

Retail products

Bulk additives

Segment Total

Corporate

Total

Net revenue

1619,~~913~~556,~~709~~575

4515,~~300~~954,~~770~~206

6235,~~214~~510,~~479~~781

Income (loss) from operations

(4,~~872~~509,~~955~~625

)

162,~~168~~838,~~632~~585

21(1,~~041~~671,~~587~~040

)

(2,~~905~~761,~~249~~095

)

18(4,~~136~~432,~~338~~135

)

Income taxes

1380,~~286,705~~347

2518,~~139,038~~828

3899,~~425,743~~175

Total assets

~~117~~134,~~602~~859,~~416~~813

~~113~~84,~~263~~508,~~555~~123

~~230~~219,~~865~~367,~~971~~936

4719,~~116~~167,~~609~~526

~~277~~238,~~982~~535,~~580~~462

Depreciation and amortization

~~777~~830,~~529~~047

21,~~322~~168,~~435~~490

31,~~099~~998,~~964~~537

~~642~~585,~~068~~102

32,~~742~~583,~~032~~639

Nine months ended December 31, 2011

Retail products

Bulk additives

Segment Total

Corporate

Total

Nine months ended December 31, 2010

Retail products

Bulk additives

Segment Total

Corporate

Total

Net revenue

1945,~~556~~830,~~574~~039

1535,~~954~~078,~~207~~972

3580,~~510~~909,~~781~~011

Income (loss) from operations

(418,~~509~~200,~~625~~305

)

218,~~838~~065,~~585~~640

(136,~~671~~265,~~040~~945

)

(2,~~761~~583,~~095~~427

)

(433,~~432~~682,~~135~~518

)

Income taxes

~~380~~4,~~347~~341,055

~~518~~2,~~828~~362,973

~~899~~6,~~175~~704,028

Total assets

~~134~~139,~~859~~198,~~813~~992

8448,~~508~~940,~~123~~880

~~219~~188,~~367~~139,~~936~~872

1957,~~167~~463,~~526~~931

~~238~~245,~~535~~603,~~462~~803

Depreciation and amortization

~~830~~996,~~047~~980

1,~~168~~686,~~490~~777

12,~~998~~683,~~537~~757

~~585,102~~-

2,~~583~~683,~~639~~757

Reconciliation is provided for unallocated amounts relating to corporate operations, which is not included in the segment information.

Three months ended December 31,

Nine months ended December 31,

Reconciliation

~~2012~~2011

~~2011~~2010

~~2012~~2011

~~2011~~2010

Total segment operating income

10,~~794~~558,~~752~~004

1013,~~558~~825,~~004~~441

21(1,~~041~~671,~~587~~040

)

(136,~~671~~265,~~040~~945

)

Corporate overhead expenses

(~~965~~858,~~309~~836

)

(~~858~~1,~~836~~575,385

)

(2,~~905~~761,~~249~~095

)

(2,~~761~~583,~~095~~427

)

Other income, net

~~580~~266,~~324~~243

~~266~~3,~~243~~489,946

2521,~~004,049~~996

~~521~~15,~~996~~980,203

Income tax expense

(1857,~~483,183~~267

)

(~~857~~2,~~267~~476,772

)

(3899,~~425,743~~175

)

(~~899~~6,~~175~~704,028

)

Total consolidated net income (loss)

89,~~926~~108,~~584~~144

913,~~108~~263,~~144~~230

16(4,~~714~~809,~~644~~314

)

(442,~~809~~958,~~314~~693

)

16. SUBSEQUENT EVENTS

Subsequent to December 31, 2011, the Company has entered into numerous transactions relating to a loan receivable from a trust, short and long term bank loans, land use rights and deposits on potential acquisitions. We refer the reader to the previously filed Form 10K for the year ended March 31, 2012 filed on September 14, 2012_as well as the interim reports filed on Form 10Q for the period ending June 30, 2012 filed on January 4, 2013; for the period ending September 30, 2012 filed on December 26, 2012, and; for the period ending December 31, 2012 filed on February 14, 2013 for a complete discussion of these transactions, and other matters occurring after December 31, 2011.

ITEM 2.

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

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, contains forward-looking statements which involve risks and uncertainties, including statements regarding our capital needs, business strategy and expectations. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “will,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “forecast,” “project” or “continue,” the negative of such terms or other comparable terminology.

You should not rely on forward-looking statements as predictions of future events or results. Any or all of our forward-looking statements may turn out to be wrong. They can be affected by inaccurate assumptions, risks and uncertainties and other factors which could cause actual events or results to be materially different from those expressed or implied in the forward-looking statements. In evaluating these statements, you should consider various factors, including the risks described in this Form 10-Q under “Risk Factors” and elsewhere. These factors may cause our actual results to differ materially from any forward-looking statement. In addition, new factors emerge from time to time and it is not possible for us to predict all factors that may cause actual results to differ materially from those contained in any forward-looking statements. We disclaim any obligation to publicly update any forward-looking statements to reflect events or circumstances after the date of this report, except as required by applicable law.

Except as otherwise indicated by the context, references in this Quarterly Report on Form 10-Q to “we,” “us,” and “our” are to the combined business of China-Biotics, Inc. (the “Company”) and to the Company’s wholly owned direct subsidiaries, Sinosmart Group Inc. (“SGI”), Growing State Limited (“GSL”) and King Treasure Group Limited (“KTG”); SGI’s wholly owned subsidiary, Shanghai Shining Biotechnology Co. Ltd. (“Shining”); GSL’s wholly owned subsidiary, Growing Bioengineering (Shanghai) Co. Ltd. (“Growing”); KTG’s wholly owned subsidiary, Best Design Holdings Limited (“BDH”); and BDH’s wholly owned subsidiary, Growing Bio (Yangling) Co. Ltd (“Growing Yangling”). References to “China” or to the “PRC” are references to the People’s Republic of China. All references to “dollars” or “$” refers to United States dollars.

Overview

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.

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 to 90 days’ credit is given to the bulk additives products customers. Because of the adverse market environment, the Company has temporarily extended an additional 30 days’ credit to all distributors of retail products and customers of the bulk additives products. As a result, the collection period has also been extended further 30 days to 120 days.

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 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.

Our retail products comprise mainly live bacteria, which are reproduced by fermentation. We have historically had a low cost of production, of which packaging costs, including 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 food and additive markets. For safety purposes, all companies in these affected sectors, including the Company (which has not been linked to any defective or dangerous capsules) suspended the production of products in capsule form until the completion of required government inspection and approval for resuming production. After the clearance of the “poison capsules” issue, the Company gradually improved its sales of retail products during the three months ended December 31, 2012. Our retail sales for the three months ended December 31, 2012 increased 22% over the six months ended September 30, 2012. Although the retail sales have returned to what the Company believes is a reasonable level, there was decrease in retail sales of 14% for the nine months ended December 31, 2012 compared with the same period in 2011. This is primarily attributable to the recapture of sales for the three months ended December 31, 2011 after the implementation of new rules and regulations on health care products, including our probiotics products, in the PRC, during the beginning of 2011.

2122

~~Recently,~~ Shining ~~Probiotics~~ Probiotics Protein Powder has become our best-selling product as of December 31, 2011, representing approximately 3638% and 3822% of our total sales of our retail products for the nine months ended December 31, ~~2012~~2011 and ~~2011~~2010, respectively. As 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 2721% and 218% for the nine months ended December 31, ~~2012~~2011 and ~~2011~~2010, respectively. Shining Essence is still within the top three of our best-selling products. As of December 31, ~~2012~~2011, we had a retail product portfolio of 46approximately 100 products, and we are currently selling 1435 of them in the market.

Sales of our bulk ~~products~~ products contributed 7645% of our gross revenue for the nine months ended December 31, ~~2012~~2011 ~~and~~as ~~contributed~~compared to an43% ~~increase in sales~~ of ~~over~~our ~~100%~~gross ~~from~~revenue for the six ~~same~~months ~~period~~ended inDecember ~~2011~~31, 2010.

In February 2010, 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.

Our management believes that the following trends in China will have an important impact on, and present significant opportunities for, our business:

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.

Curtailment of 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 (MOH) in China announced an 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 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.

Increasing demand for dairy product additives. The demand for functional foods and foods that use probiotics supplements is growing at a significant rate, and our management 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 MOH published a list of probiotics applicable for baby food for babies aged one year or older.

Our management expects to capitalize on the opportunities created by these trends to achieve significant growth through the following:

· We are currently focused on two fast-growing industries in China: the dairy and animal feed sectors. As of December 31, ~~2012~~2011, we had entered into contracts with ~~135~~70 customers, up from 7160 customers at March 31, ~~2012~~2011, for the bulk additives business. In this 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~~We ~~the~~are ~~nine~~planning ~~months~~to ~~ended~~develop ~~December 31, 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 in 2220 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.

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 probiotics-related 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.

22· Wholesale and e-commerce businesses - In our continuing effort to transition from a retail, business-to-consumer model to a wholesale, business-to-business model, and to improve operating efficiency, we have completed the consolidation of our retail outlets. We closed all of our retail outlets by the end of fiscal year 2011, as we believe our distribution network is more efficient for our retail products sales. We have a total of 39 distributors for retail products as of December 31, 2011. In light of increasing online sales of health food and supplements in China and to maintain our existing retail customer base, we launched a “Community Network,” which is dedicated to promoting and selling our retail products online through the Company’s website at http://www.shiningbt.com/Product/. Since its establishment, the in-house e-commerce department is working to better access the market and existing and potential customers. We have also been working with two online selling companies to sell our retail products, including www.ule.com.cn and www.yihaodian.com. In addition, we have established a customer service center to reply to inquiries from our end users.

· Wholesale and e-commerce businesses - In our continuing effort to transition from a retail, business-to-consumer model to a wholesale, business-to-business model, and to improve operating efficiency, we have completed the consolidation of our retail outlets. We closed all of our retail outlets by the end of fiscal year 2011, as we believe our distribution network is more efficient for our retail products sales. We have a total of 43 distributors for retail products as of December 31, 2012. In light of increasing online sales of health food and supplements in China and to maintain our existing retail customer base, we launched a “Community Network,” which is dedicated to promoting and selling our retail products online through the Company’s website at http://www.shiningbt.com/Product/. Since its establishment, the in-house e-commerce department is working to better access the market and existing and potential customers. We have also been working with two online selling companies to sell our retail products, including www.ule.com.cn and www.yihaodian.com. In addition, we have established a customer service center to reply to inquiries from our end users.

Improvement in research and development of new products and services - We continue to develop new retail products aimed at improving general human health conditions, enhancing the immune system, and reducing health problems. To further improve our competitiveness in the bulk additives market, we continue to improve and provide our value-added service to institutional customers by assisting their lab and production testing and providing customized technical support, among other things. In addition, we are also working with certain universities, including Northeast Agricultural University, to carry out research and development projects in order to seek to increase the probiotics industry’s capability.

Our operations are generally not labor-intensive. We employed ~~350~~395 people as of December 31, ~~2012~~2011. With production ramping up in the Phase 1 facility and the construction of Phase 2 in Qingpu, we expect increases in our number of employees over the next two years to meet the ~~increase~~ increase of production capacity and sales demand. We have also been recruiting senior executives to strengthen our management team. However, as wages in China remain relatively low, we expect that labor costs will not materially affect our results of operations in the near term.

23Results of Operations for the Three Months Ended December 31, 2011 Compared with the Three Month Ended December 31, 2010

~~Results~~Our ofresults ~~Operations~~ for the three ~~Three~~months ~~Months~~ended ~~Ended~~ December 31, ~~2012~~2011 ~~Compared~~and ~~with~~2010 ~~the~~are ~~Three~~summarized ~~Month Ended December 31, 2011~~below:

Our results for the three months ended December 31, 2012 and 2011 are summarized below:

	Three months ended December 31,
	2011 Amount			% of Net sales			2010 Amount		% of Net sales
Net sales	$	22,401,455			100.00	%	$	32,384,645		100.00	%
Cost of sales		8,933,894			39.88	%		11,198,703		34.58	%
Gross profit		13,467,561			60.12	%		21,185,942		65.42	%
Operating expenses:
Selling expenses		328,459			1.47	%		3,861,261		11.92	%
General and administrative expenses		3,439,934			15.3	%		5,074,625		15.67	%
Total operating expenses		3,768,393			16.82	%		8,935,886		27.59	%
Income from operations		9,699,168			43.30	%		12,250,056		37.83	%
Other income and expense:
Interest expense		(16	)		(0.00	)%		-		-	%
Interest income		372,918			1.66	%		103,495		0.32	%
Change in fair value of embedded derivatives		-			-	%		2,847,000		8.79	%
Other income (expenses)		(90,695	)		(0.40	)%		539,451		1.67	%
Exchange gain (loss), net		(15,964	)		(0.07	)%		-		-	%
Total other income		266,243			1.19	%		3,489,946		10.78	%
Income before taxes		9,965,411			44.49	%		15,740,002		48.61	%
Income taxes		857,267			3.83	%		2,476,772		7.65	%
Net income	$	9,108,144			40.66	%	$	13,263,230		40.96	%

	Three months ended December 31,
	2012 Amount			% of Net sales			2011 Amount			% of Net sales
Net sales	$	24,680,142			100.00	%	$	22,401,455			100.00	%
Cost of sales		8,823,814			35.75	%		8,933,894			39.88	%
Gross profit		15,856,328			64.25	%		13,467,561			60.12	%
Operating expenses:
Selling expenses		2,635,966			10.68	%		328,459			1.47	%
General and administrative expenses		3,390,919			13.74	%		3,439,934			15.36	%
Total operating expenses		6,026,885			24.42	%		3,768,393			16.82	%
Income from operations		9,829,443			39.83	%		9,699,168			43.30	%
Other income and expense:
Interest expense		(198,705	)		(0.81	)%		(16	)		(0.00	)%
Interest income		146,228			0.59	%		372,918			1.66	%
Interest income, net – loan receivable		776,233			3.15	%		-			-
Other expenses		(131,393	)		(0.53	)%		(90,695	)		(0.40	)%
Exchange gain (loss), net		(12,039	)		(0.05	)%		(15,964	)		(0.07	)%
Total other income		580,324			2.35	%		266,243			1.19	%
Income before taxes		10,409,767			42.18	%		9,965,411			44.49	%
Income taxes		1,483,183			6.01	%		857,267			3.83	%
Net income	$	8,926,584			36.17	%	$	9,108,144			40.66	%

Net sales

Net sales are stated at invoiced value less sales discount and sales tax, and also included the return of deposits of $1,947,075 (RMB 12,243,207) for recovery of special concession credits discussed below. Our net sales for the three months ended December 31, 2012 and 2011 comprised the following:

	Three months ended December 31,
	2012			2011
Invoiced value of sales	$	23,177,428		$	23,346,810
Less: Sales discount		(289,862	)		(779,239	)
Less: Sales tax		(154,499	)		(166,116	)
	$	22,733,067		$	22,401,455
Return of deposits		1,947,075			-
	$	24,680,142		$	22,401,455

Net sales increased by $2,278,687 or 10.17% to $24,680,142 for the three months ended December 31, 2012 from $22,401,455 for the three months ended December 31, 2011. The increase was mainly attributable to the increase of the sales of bulk additive products and the recovery of special concession credits of $1,947,075 (RMB 12,243,207) discussed below.

Excluding the recovery of special concession credits of $1,947,075 (RMB 12,243,207), the contributions of our products as a percentage of invoiced value on sales for the three months ended December 31, 2012 and 2011, respectively, are summarized below.

	Three months ended December 31,
	2012			2011
Retail products		34.11	%		63.70	%
Bulk additives		65.89	%		36.30	%
		100.00	%		100.00	%

Unit volume and unit prices comparatives (on the invoiced value of sales) for the three months ended December 31, 2012 and 2011 are summarized below.

	Percentage increase (decrease) from the prior year
	Three months ended December 31,
	2012									2011
	Unit volume			Selling prices			Overall increase / (decrease)			Unit Volume			Selling prices			Overall increase / (decrease)
Retail products		(52.51	)%		11.20	%		(47.19	)%		(34.49	)%		16.88	%		(23.43	)%
Bulk additives		94.22	%		(5.94	)%		82.68	%		(55.52	)%		17.06	%		(47.94	)%

Net sales

~~Based~~Net onsales ~~the~~are ~~invoiced~~stated at invoiced value ofless sales, ~~the~~discount ~~bulk~~and ~~additive products invoiced~~ sales ~~contribution increased to 65~~tax.~~89%~~ inOur ~~the~~net ~~three~~sales ~~months~~for ~~ended December 31, 2012 from 36.30% in~~ the three months ended December 31, 2011. ~~The~~and ~~increase~~2010 ~~was mainly attributable to the growth of the bulk additive~~comprised ~~products and~~ the ~~transition of the Company’s business model from primarily retail focused to primarily wholesale focused.~~following:

	Three months ended December 31,
	2011			2010
Invoiced value of sales	$	23,346,810		$	33,446,875
Less: Sales discount		(779,239	)		(870,128	)
Less: Sales tax		(166,116	)		(192,102	)
	$	22,401,455		$	32,384,645

Net sales decreased by $9,983,190 or 30.83% to $22,401,455 for the three months ended December 31, 2011 from $32,384,645 for the three months ended December 31, 2010. The decrease was mainly attributable to the implementation by the PRC government of new rules and regulations on health care products, including our probiotics products, during 2011. Certain health care products, including our probiotics products, have been repositioned as food and so are now governed by the PRC’s Food Safety Law, resulting in the Company and its competitors having to adapt to the new rules and regulations.

The contributions of our products as a percentage of invoiced value on sales for the three months ended December 31, 2011 and 2010, respectively, are summarized below.

	Three months ended December 31,
	2011			2010
Retail products		63.70	%		54.64	%
Bulk additives		36.30	%		45.36	%
		100.00	%		100.00	%

Based on the invoiced value of sales, the bulk additive products invoiced sales contribution decreased to 36.30% in the three months ended December 31, 2011 from 45.36% in the three months ended December 31, 2010. After a substantial decrease in our retail sales during the first two quarters of this fiscal year as result of the new rules and regulations on health care products, our retail sales rebounded during the three months ended December 31, 2011.

We operated our own retail outlets for direct sales in the past. With the successful commercial production at the Qingpu facility since February 2010, the Company began a strategic move from retail operations (a business-to-consumer model) to wholesale and bulk product sales (a business-to-business model). Therefore, we also consolidated our retail outlets starting around the beginning of fiscal year 2011 and, by the end of fiscal year 2011, the Company had closed all of its retail outlets.

Cost of sales

Cost of sales for the three months ended December 31, ~~2012~~2011 was $8,~~823~~933,~~814~~894 compared with $811,~~933~~198,~~894~~703 for the three months ended December 31, ~~2011~~2010. The ~~slightly~~ decrease in cost of sales was ~~normal~~primarily ~~fluctuation~~caused by the decrease in sales for the three months ended December 31, ~~2012~~2011.

~~Unit volume and unit costs comparatives for the three months ended December 31, 2012 and 2011 are summarized below.~~25

	Percentage increase (decrease) from the prior year
	Three months ended December 31,
	2012									2011
	Unit volume			Unit Costs			Overall increase / (decrease)			Unit Volume			Unit Costs			Overall increase / (decrease)
Retail products		(52.51	)%		14.46	%		(45.64	)%		(34.49	)%		36.82	%		(10.36	)%
Bulk additives		94.22	%		(8.39	)%		77.92	%		(55.52	)%		33.19	%		(40.76	)%

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 three months ended September 30, 2011. No additional such credits were made available for the three months ended December 31, 2012. During the three months ended December 31, 2012, the Company recovered special concession credits amounting to $1,947,075 (RMB 12,243,207) and recognized such amounts as sales for the period.

Gross profit

Gross profit ~~increased~~decreased by $27,~~388~~718,~~767~~381 or 1736.7443% to $1513,~~856~~467,~~328~~561 for the three months ended December 31, ~~2012~~2011, from $1321,~~467~~185,~~561~~942 for the three months ended December 31, ~~2011~~2010. The increase was mainly attributable to the ~~increase~~decrease in sales volume of bulk additive products, ~~recovery of special concession credits of $1,947,075 (RMB 12,243,207),~~ and noretail ~~significant product returns~~ products for the three months ended December 31, ~~2012~~2011.

Selling expenses

Selling expenses ~~increased~~decreased by $23,~~307~~532,~~507~~802 or ~~702~~91.5349% to $2328,~~635,966~~459 or 101.6847% of net sales for the three months ended December 31, ~~2012~~2011, compared with $~~328~~3,~~459~~861,261 or 111.4792% of net sales for the three months ended December 31, ~~2011~~2010. The ~~increase~~decrease was mainly attributable to ~~the~~decrease ~~issuance~~in of sales commission to staff ~~who~~as ~~engaged~~a ~~the~~result of lower sales and cash collection of outstanding balances from ~~the~~our customers. ~~for~~In addition, we incurred substantially less advertising and promotion expenses during the three months ended December 31, ~~2012~~2011.

General and administrative expenses

General and administrative expenses ~~slightly~~ decreased by $491,~~015~~634,691 or 132.4221% to $3,~~390~~439,~~919~~934 or 1315.7436% of net sales for the three months ended December 31, ~~2012~~2011, ~~compared~~ compared with $35,~~439~~074,~~934~~625 or 15.3667% of net sales for the three months ended December 31, ~~2011~~2010. The ~~slight~~ decrease in general and administrative expenses was mainly attributable to ~~increase~~decrease ofin research and development expenses offrom $~~119~~1,~~150~~876,000 ~~and~~for ~~set~~the ~~off~~three bymonths ~~decrease~~ended ~~of allowance~~December 31, 2010 to $1,183,000 for ~~doubtful~~the ~~accounts~~three months ended December 31, 2011. We paid a bonus in the amount of $~~172~~900,~~824~~000 ~~for~~to a director during the three months ended December 31, ~~2012~~2010.

Income from operations

Income from operations ~~increased~~decreased by $~~130~~2,~~275~~550,888 or 120.3482% to $9,~~829~~699,~~443~~168 for the three months ended December 31, ~~2012~~2011, from $912,~~699~~250,~~168~~056 for the three months ended December 31, ~~2011~~2010. The ~~increase~~decrease iswas mainly attributable to the ~~increase~~decrease in sales and ~~increase~~decrease of gross profit ~~off~~which ~~setting~~was partially offset by the ~~increase~~decrease ofin operating expenses ~~stated above~~ for the three months ended December 31, ~~2012~~2011.

Total other income

Total other income decreased ~~increased~~ by $~~314~~3,~~081~~223,703 or ~~117~~92.9737% to $~~580~~266,~~324~~243 for the three months ended December 31, ~~2012~~2011, from $~~266~~3,~~243~~489,946 for the three ~~months~~ months ended December 31, ~~2011~~2010. ~~The~~We ~~increase~~recognized isincome ~~mainly~~of ~~attributable~~$2,847,000 tofor the ~~investment~~changes ~~income~~in ~~from~~the afair ~~trust~~value ~~and~~of ~~net~~embedded ofderivatives during the ~~relevant~~three ~~handling~~months ~~fee~~ended ~~amounting~~December ~~to $776~~31,~~233~~ ~~and~~2010. ~~off-set~~We ~~the~~did ~~increase~~not ofrecognize ~~interest~~such ~~expenses~~income onin ~~loans to $198,705 for~~ the three months ended December 31, ~~2012~~2011.

Income taxes

Provision for income taxes was $1857,~~483,183~~267 and $~~857~~2,~~267~~476,772 for the three months ended December 31, ~~2012~~2011 and ~~2011~~2010, respectively. The ~~increase~~decrease in the provision for income taxes is primarily attributable to ~~increase~~decrease in operating profit ~~and increase of effective tax rate by termination of tax incentives on Shining~~ for the three months ended December 31, ~~2012~~2011.

Net income

Net income decreased by $~~181~~4,~~560~~155,086 or 140.9996% to $89,~~926~~108,~~584~~144 for the three months ended December 31, ~~2012~~2011 from $913,~~108~~263,~~144~~230 for the three months ended ~~December~~ December 31, ~~2011~~2010. The decrease of net income is mainly attributable to the ~~increase~~decrease of ~~effective~~operating ~~tax~~income ~~rate~~from ~~stated~~$12,250,056 ~~above~~for the three months ended December 31, 2010 to $9,699,168 for the three months ended December 31, 2011. In addition, we recognized income of $2,847,000 in the changes in the fair value of embedded derivatives during the three months ended December 31, 2010. We did not recognize such income in the three months ended December 31, 2011.

Segment reporting

We have adopted the “products and services” approach for segment reporting. For three months ended December 31, ~~2012~~2011 and ~~2011~~2010, 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 three months ended December 31, ~~2012~~2011 and ~~2011~~2010 are summarized as below:

	Three months ended December 31,
	2012		% of				2011		% of
	2011		% of				2010				% of
	Amount		Net sales				Amount		~~Net sales~~		Net sales
Net sales, retail products	$	914,~~700~~269,~~472~~805		100.00	%	$	~~14,269,805~~$	17,669,562		~~100.00~~	%	100.00	%
Cost of sales		35,~~191~~800,~~809~~233		3240.9065	%		~~5,800,233~~	6,093,535		~~40.65~~	%	34.49	%
Gross profit, retail products		68,~~508~~469,~~663~~572		6759.1035	%		~~8,469,572~~	11,576,027		~~59.35~~	%	65.51	%
Operating expenses:
Selling expenses		1710,~~108,362~~231		114.4398	%		~~710,231~~	2,686,728		~~4.98~~	%	15.21	%
General and administrative expenses		~~821~~1,~~750~~084,069		87.4760	%		~~1,084,069~~	1,378,977		~~7.60~~	%	7.80	%
Total operating expenses		1,~~930~~794,~~112~~300		1912.9057	%		~~1,794,300~~	4,065,705		~~12.57~~	%	23.01	%
Income from operations, retail products	$	46,~~578~~675,~~551~~272		4746.2078	%	$	~~6,675,272~~$	7,510,322		~~46.78~~	%	42.50	%

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 $1,947,075 (RMB 12,243,207) for recovery of special concession credits discussed below~~. Our net sales for the three months ended December 31, 2011 ~~2012~~ and ~~2011~~2010 comprised the following:

	Three months ended December 31,
	2011			2010
Invoiced value on sales	$	15,167,950		$	18,653,507
Less: Sales discount		(779,239	)		(870,128	)
Less: Sales tax		(118,906	)		(113,817	)
	$	14,269,805		$	17,669,562

	Three months ended December 31,
	2012			2011
Invoiced value on sales	$	8,109,294		$	15,167,950
Less: Sales discount		(289,862	)		(779,239	)
Less: Sales tax		(66,035	)		(118,906	)
	$	7,753,397		$	14,269,805
Return of deposits		1,947,075			-
	$	9,700,472		$	14,269,805

Net sales decreased by $3,399,757 or 19.24% to $14,269,805 for the three months ended December 31, 2011 from $17,669,562 for the three months ended December 31, 2010. The decrease was mainly attributable to the implementation by the PRC government of new rules and regulations on health care products, including our probiotics products, during 2011. Certain health care products, including our probiotics products, have been repositioned as food and so are now governed by the PRC’s Food Safety Law, resulting in the Company and its competitors having to adapt to the new rules and regulations.

Net sales decreased by $4,569,333 or 32.02% to $9,700,472 for the three months ended December 31, 2012 from $14,269,805 for the three months ended December 31, 2011. The decrease in sales of retails products is primarily attributable to the recapture of sales for the three months ended December 31, 2011 after the adoption of the implementation of new rules and regulations on health care products by the government of the PRC during such period.

Cost of sales

Cost of sales decreased by $2293,~~608,424~~302 or 444.9781% to $35,~~191~~800,~~809~~233 for the three months ended December 31, ~~2012~~2011 from $56,~~800~~093,~~233~~535 for the three months ended December 31, ~~2011~~2010. The decrease in cost of sales was primarily caused by the ~~higher~~decrease ~~costs~~in ~~associated~~sales ~~with the~~for ~~recapture of products sold and increased production activities during~~ the three months ended December 31, 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 nine months ended December 31, 2011. No additional such credits were made available for the three months ended December 31, 2012. During the three months ended December 31, 2012, the Company recovered special concession credits amounting to $1,947,075 (RMB 12,243,207) and recognized such amounts as sales for the period.

Gross profit

Gross profit decreased by $13,~~960~~106,~~909~~455 or 2326.1584% to $68,~~508~~469,~~663~~572 for the three months ended December 31, ~~2012~~2011 from $811,~~469~~576,~~572~~027 for the three months ended ~~December~~ December 31, ~~2011~~2010. The decrease in gross profit was primarily caused by the decrease of products sold for the three months ended ~~December~~ ~~31, 2012, and also the recapture of sales described above for the three months ended~~ December 31, 2011.

Selling expenses

Selling expenses were $1710,~~108,362~~231 or 114.4398% of net sales for the three months ended December 31, ~~2012~~2011, compared with $~~710~~2,~~231~~686,728 or 415.9821% of net sales for the three months ended December 31, ~~2011~~2010. The ~~selling~~decrease ~~expenses~~was mainly ~~included~~attributable ~~salary~~to decrease in sales commission to staff as a result of lower sales and ~~advertising~~cash ~~expenses~~collection of outstanding balances from our customers. ~~This~~In ~~increase~~addition, ~~in selling~~we ~~expenses~~incurred ~~was~~substantially ~~primarily~~less ~~attributable~~advertising expenses toduring anthe ~~increase~~three inmonths ~~promotion~~ended ~~activities~~December 31, 2011.

General and administrative expenses

General and administrative expenses decreased by $~~262~~294,~~319~~908 or 2421.2039% to $~~821~~1,~~750~~084,069 or 87.4760% of net sales for the three months ended December 31, ~~2012~~2011 compared with $1,~~084~~378,~~069~~977 or 7.6080% of net sales for the three months ended December 31, ~~2011~~2010. The decrease in general and administrative expenses was mainly attributable to a decrease in ~~allowance~~research ~~for~~and ~~doubtful~~development ~~accounts~~cost to $0563,000 for the three months ended December 31, ~~2012~~ 2011 from $~~221~~997,~~045~~000 for the three months ended December 3130, ~~2011~~2010.

Income from operations

Income from ~~operations~~ operations decreased by $2835,~~096,721~~050 or 3111.4112% to $46,~~578~~675,~~551~~272 for the three months ended December 31, ~~2012~~2011 from $67,~~675~~510,~~272~~322 for the three months ended December 31, ~~2011~~2010. The decrease is mainly attributable to a decrease in sales for the three months ended December 31, ~~2012~~ 2011 compared with the three months ended December 31, ~~2011~~2010.

Bulk products

The results of bulk additives products segment for the three months ended December 31, ~~2012~~2011 and ~~2011~~2010 are summarized as below:

	Three months ended December 31,
	2011 Amount			% of Net sales			2010 Amount		% of Net sales
Net sales, bulk additives products	$	8,131,650			100.00	%	$	14,715,083		100.00	%
Cost of sales		3,133,661			38.54	%		5,105,167		34.69	%
Gross profit, bulk additives products		4,997,989			61.46	%		9,609,916		65.31	%
Operating expenses:
Selling expenses		(381,772	)		(4.69	)%		1,174,533		7.98	%
General and administrative expenses		1,497,029			18.41	%		2,120,264		14.41	%
Total operating expenses		1,115,257			13.72	%		3,294,797		22.39	%
Income from operations, bulk additives products	$	3,882,732			47.75	%	$	6,315,119		42.92	%

	Three months ended December 31,
	2012 Amount		% of Net sales			2011 Amount			% of Net sales
Net sales, bulk additives products	$	14,979,670		100.00	%	$	8,131,650			100.00	%
Cost of sales		5,632,005		37.60	%		3,133,661			38.54	%
Gross profit, bulk additives products		9,347,665		62.40	%		4,997,989			61.46	%
Operating expenses:
Selling expenses		1,527,604		10.20	%		(381,771	)		(4.69	)%
General and administrative expenses		1,603,860		10.71	%		1,497,028			18.41	%
Total operating expenses		3,131,464		20.90	%		1,115,257			13.72	%
Income from operations, bulk additives products	$	6,216,201		41.50	%	$	3,882,732			47.75	%

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 December 31, ~~2012~~2011 and ~~2011~~2010 comprised the following:

	Three months ended December 31,
	2012			2011
	2011			2010
Invoiced value on sales	$	158,~~068~~178,~~134~~860		$	814,~~178~~793,~~860~~368
Less: Sales tax		(8847,~~464~~210	)		(4778,~~210~~285	)
	$	148,~~979~~131,~~670~~650		$	814,~~131~~715,~~650~~083

Net sales ~~increased~~decreased by $6,~~848~~583,~~020~~433 or 8444.2174% to $148,~~979~~131,~~670~~650 for the three months ended December 31, ~~2012~~2011, from $814,~~131~~715,~~650~~083 for the three months ended December 31, ~~2011~~2010. The ~~increase~~decrease in sales of bulk additive products iswas primarily attributable to the ~~growth~~implementation ofby the ~~business~~government ~~and market demand for additive products. As~~ of ~~December 31, 2012, we had entered into contracts with 135 customers, up from 71 customers at March 31, 2012 for~~ the ~~bulk~~PRC ~~additives~~of ~~business,~~new ~~adding~~rules 64and ~~new~~regulations ~~customers~~on orhealth ~~over~~care aproducts ~~90%~~during ~~increase~~2011.

Cost of sales

Cost of sales ~~increased~~decreased by $21,~~498~~971,~~345~~506 or 7938.7362% to $53,~~632~~133,~~005~~661 for the three months ended December 31, ~~2012~~2011, from $35,~~133~~105,~~661~~ 167 for the three months ended December 31, ~~2011~~2010. The ~~increase~~decrease in cost of sales was primarily caused by the ~~increase~~decrease in products sold ~~for~~during the three months ended December 31, ~~2012~~2011.

Gross profit

Gross profit ~~increased~~decreased by $4,~~349~~611,~~676~~927 or 8747.0399% to $94,~~347~~997,~~665~~989 for the three months ended December 31, ~~2012~~2011, from $49,~~997~~609,~~989~~ 916 for the three months ended December 31, ~~2011~~2010. The ~~increase~~decrease of gross profit was primarily caused by the ~~increase~~decrease in products sold for the three months ended December 31, ~~2012~~2011.

Selling expenses

Selling expenses were negative $1381,~~527,604~~772 or 10-4.2069% of net sales for the three months ended December 31, ~~2012~~2011, compared with ~~negative~~ $~~381~~1,~~771~~174,533 for the three months ended December 31, ~~2011~~2010. The selling expenses mainly included advertising expenses, promotion expenses, commission and salary. ~~This~~The ~~increase~~negative in selling expenses ~~was primarily attributable to increase of commission to $756,229~~ for the three months ended December ~~31,~~ ~~2012. In addition, the negative selling expenses in the three months ended December~~ 31, 2011 included a reversal of an over provision of $1,194,981 for commission expenses for the three months ended December 31, 2011.

General and administrative expenses

General and administrative expenses were $1,~~603~~497,~~860~~029 or 1018.7141% of net sales for the three months ended December 31, ~~2012~~2011, compared with $12,~~497~~120,~~029~~ 264 or 1814.41% of net sales for the three months ended December 31, ~~2011~~2010. The ~~increase~~decrease in general and administrative expenses was mainly attributable to ana ~~increase~~decrease in research and development expenses to $~~744~~619,~~859~~321 for the three months ended December 31, 2011 ~~2012~~ from $~~619~~878,~~321~~881 for the three months ended December 31, ~~2011~~2010.

Income from operations

Income from operations ~~increased~~decreased by $2,~~333~~432,~~469~~387 or 6038.1052% to $63,~~216~~882,~~201~~732 for the three months ended December 31, ~~2012~~2011, from $36,~~882~~315,~~732~~119 for the three months ended December 31, ~~2011~~2010. The ~~increase~~decrease iswas mainly attributable to the ~~increase~~decrease of gross profit ~~of $4,349,676~~ from the ~~increase~~decrease in sales ~~net~~partially offset ofby the ~~increase~~decrease in selling expenses, and general and administrative expenses for the three months ended December 31, ~~2012 stated above~~2011.

Results of Operations for the Nine months Ended December 31, ~~2012~~2011 Compared with the Nine months Ended December 31, ~~2011~~2010

Our results for the nine months ended December 31, ~~2012~~2011 and ~~2011~~2010 are summarized below:

	Nine months ended December 31,
	2012 Amount			% of Net sales			2011 Amount			% of Net sales
	2011 Amount			% of Net sales			2010 Amount			% of Net sales
Net sales	$	6235,~~214~~510,~~479~~781			100.00	%	$	3580,~~510~~909,~~781~~011			100.00	%
Cost of sales		2316,~~833~~656,~~844~~068			3846.3190	%		1627,~~656~~317,~~068~~786			4633.9076	%
Cost of product returns		-7,143,914			-20.12	%		~~7,143,914~~-			~~20.12~~-	%
Gross profit		3811,~~380~~710,~~635~~799			6132.6998	%		1153,~~710~~591,~~799~~225			3266.9824	%
Operating expenses:
Selling expenses		94,~~249~~316,~~502~~810			1412.8716	%		49,~~316~~478,~~810~~797			1211.1672	%
General and administrative expenses		1011,~~994~~826,~~795~~124			1733.6730	%		1110,~~826~~429,~~124~~910			3312.3089	%
Total operating expenses		2016,~~244~~142,~~297~~934			3245.5446	%		1619,~~142~~908,~~934~~707			4524.4661	%
Income (loss) from operations		18(4,~~136~~432,~~338~~135	)		29(12.1548	)%		(433,~~432~~682,~~135~~518	)		~~(12~~41.4863	)%
Other income and expense:
Interest expense		(~~477,101~~352	)		(0.7700	)%		~~(352~~-	)		~~(0.00~~-	)%
Interest income		~~474~~1,~~447~~158,779			03.7626	%		1288,~~158,779~~665			30.2636	%
Interest income, net – loan receivable		2,325,218			3.74	%		-			-
Change in the fair value of embedded derivatives		-			-	%		14,797,000			18.29	%
Other expenses		(318,705	)		(0.51	)%		(545,424	)		(1.54	)%
Other income (expenses)		(545,424	)		(1.54	)%		894,538			1.10	%
Exchange gain (loss), net		~~190~~(91,007	)		(0.0025	)%		~~(91,007~~-	)		~~(0.26~~-	)%
Total other income		2521,~~004,049~~996			31.2247	%		~~521~~15,~~996~~980,203			119.4775	%
Income (loss) before taxes		20(3,~~140~~910,~~387~~139	)		32(11.3701	)%		(349,~~910~~662,~~139~~721	)		~~(11~~61.0138	)%
Income taxes		3899,~~425,743~~175			52.5153	%		~~899~~6,~~175~~704,028			28.5328	%
Net income (loss)	$	16(4,~~714~~809,~~644~~314	)		26(13.8754	)%	$	(442,~~809~~958,~~314~~693	)		~~(13~~53.5410	)%

Net sales

Net sales are stated at invoiced value less sales discount and sales tax, and also included the return of deposits of $2,940,746 (RMB 18,523,208) for recovery of special concession credits discussed below. Our net sales for the nine months ended December 31, 2012 and 2011 comprised the following:

	Nine months ended December 31,
	2012			2011
Invoiced value of sales	$	60,342,921		$	37,083,791
Less: Sales discount		(662,045	)		(1,349,479	)
Less: Sales tax		(407,143	)		(223,531	)
	$	59,273,733		$	35,510,781
Return of deposits		2,940,746			-
	$	62,214,479		$	35,510,781

Net sales increased by $26,703,698 or 75.20% to $62,214,479 for the nine months ended December 31, 2012 from $35,510,781 for the nine months ended December 31, 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 $2,940,746 (RMB18,523,208) of special concession credits.

Excluding the recovery of special concession credits of $2,940,746 (RMB18,523,208), the contributions of our products as a percentage of invoiced value on sales for the nine months ended December 31, 2012 and 2011, respectively, are summarized below.

Nine months ended December 31,
	2012			2011
Retail products		23.57	%		55.07	%
Bulk additives		76.43	%		44.93	%
		100.00	%		100.00	%

Net sales

~~Unit~~Net ~~volume~~sales ~~and~~are ~~unit~~stated ~~prices~~at ~~comparatives~~invoiced ~~(on~~value ~~the~~less ~~invoiced~~sales ~~value~~discount ofand sales) tax. Our net sales for the nine months ended December 31, ~~2012~~2011 and ~~2011~~2010 ~~are~~comprised the ~~summarized below.~~following:

	Percentage increase (decrease) from the prior year
	Nine months ended December 31,
	Nine months ended December 31,
	2011			2010
	2012									2011
Invoiced value of sales	$	37,083,791		$	83,935,719
	Unit volume			Selling prices			Overall increase / (decrease)			Unit Volume			Selling prices			Overall increase / (decrease)
Less: Sales discount		(1,349,479	)		(2,361,521	)
Retail products		(35.96	)%		7.56	%		(31.12	)%		(66.14	)%		20.64	%		(59.15	)%
Less: Sales tax		(223,531	)		(665,187	)
Bulk additives		160.95	%		7.65	%		180.92	%		(56.14	)%		(1.98	)%		(57.01	)%
	$	35,510,781		$	80,909,011

~~Based~~Net onsales ~~the invoiced~~decreased ~~value~~by ~~of sales~~$45,398,230 ~~the~~or ~~bulk additive products invoiced sales contributions increased to 76~~56.4311% into $35,510,781for the nine months ended December 31, ~~2012~~ 2011 from ~~44.93%~~$80,909,011 infor the nine months ended December 31, ~~2011~~2010. The ~~increase~~decrease was mainly attributable to the ~~growth~~implementation ofby the ~~bulk~~PRC ~~additive products~~government of new rules and ~~the~~regulations ~~transition~~on ofhealth care ~~the~~products, ~~Company’s~~including ~~business~~our ~~model~~probiotics ~~from~~products, ~~primarily~~during ~~retail~~2011. ~~focused~~Certain tohealth ~~primarily~~care ~~wholesale~~products, ~~focused. The~~including ~~retail~~our probiotics products, have ~~sales~~been ~~decrease~~repositioned ~~was~~as ~~mainly~~food ~~attributable~~and toso are now governed by the ~~occurrence~~PRC’s ofFood ~~“poison~~Safety ~~capsule~~Law, ~~issue”~~resulting in ~~China~~the ~~during~~Company and its competitors ~~April~~having to ~~June~~adapt ~~2012,~~to asthe ~~noted~~new ~~above~~rules and regulations.

The contributions of our products as a percentage of invoiced value on sales for the nine months ended December 31, 2011 and 2010, respectively, are summarized below:

	Nine months ended December 31,
	2011			2010
Retail products		55.07	%		56.64	%
Bulk additives		44.93	%		43.36	%
		100.00	%		100.00	%

Based on the invoiced value of sales, the bulk additive products invoiced sales contributions increased slightly to 44.93% in the nine months ended December 31, 2011 from 43.36% in the nine months ended December 31, 2010. Our sales substantially declined during the nine months ended December 31, 2011 compared to the same period of 2010 but the ratio between the sales for retail products and bulk additives did not change significantly.

In addition, we operated our own retail outlets for direct sales in the past. With the successful commercial production at the Qingpu facility since February 2010, the Company began a strategic move from retail operations (a business-to-consumer model) to wholesale and bulk product sales (a business-to-business model). Therefore, we also consolidated our retail outlets starting around the beginning of fiscal year 2011 and, by the end of fiscal year 2011, the Company had closed all of its retail outlets.

During June 2011, we found a batch of probiotics products worth $474,505 that were below the Company’s quality standards due to production problems; the Company tracked and destroyed all such products after obtaining them from its distributors.

Cost of sales

Cost of sales for the nine months ended December 31, ~~2012~~2011 was $2316,~~833~~656,~~844~~068 compared with $1627,~~656~~317,~~068~~786 for the nine months ended December 31, ~~2011~~2010. The ~~increase~~decrease in cost of sales was primarily caused by ~~increase~~decrease in sales for the nine months ended December 31, ~~2012~~2011.

Unit volume and unit costs comparatives for the nine months ended December 31, 2012 and 2011 are summarized below.

	Percentage increase (decrease) from the prior year
	Nine months ended December 31,
	2012									2011
	Unit volume			Unit Costs			Overall increase / (decrease)			Unit Volume			Unit Costs			Overall increase / (decrease)
Retail products		(35.96	)%		18.25	%		(24.27	)%		(66.14	)%		45.52	%		(50.72	)%
Bulk additives		160.95	%		85.69	%		152.92	%		(56.14	)%		(43.40	)%		(43.82	)%

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 nine months ended December 31, 2011. No additional such credits were made available for the nine months ended December 31, ~~2012~~2010. ~~During the nine months ended December 31, 2012, the Company recovered special concession credits amounting to $2,940,746 (RMB18,523,208) and recognized such amounts as sales for the period.~~

Gross profit

Gross profit ~~increased~~decreased by $2641,~~669~~880,~~836~~426 or ~~227~~78.7415% to $3811,~~380~~710,~~635~~799 for the nine months ended December 31, ~~2012~~2011, from $1153,~~710~~591,~~799~~225 for the nine months ended December 31, ~~2011~~2010. The ~~increase~~decrease was mainly attributable to the ~~increase~~decrease in sales volume of ~~bulk~~both ~~additive products, the recapture of sales of the~~ retail ~~products following the clearance of “poison capsule issue”~~ and ~~the~~bulk ~~recovery~~additive ~~of special concession~~products ~~credits of $2,940,746 (RMB18,523,208)~~ for the nine months ended December 31, ~~2012~~2011.

Selling expenses

Selling expenses ~~increased~~decreased by $45,~~932~~161,~~692~~987 or ~~114~~54.2746% to $94,~~249~~316,~~502~~810 or 1412.8716% of net sales for the nine months ended December 31, ~~2012~~2011, compared with $49,~~316~~478,~~810~~797 or 1211.1672% of net sales for the nine months ended December 31, ~~2011~~2010. The ~~increase~~decrease was mainly attributable to the ~~issuance~~decrease of sales commission towhich ~~staff~~was ~~who~~based ~~engaged~~on ~~the sales and~~ collection ofon outstanding balances from the customers.

General and administrative expenses

General and administrative expenses ~~decreased~~increased by $~~831~~1,~~329~~396,214 or 713.0339% to $1011,~~994~~826,~~795~~124 or 1733.6730% of net sales for the nine months ended December 31, ~~2012~~2011, compared with $1110,~~826~~429,~~124~~910 or 3312.3089% of net sales for the nine months ended December 31, ~~2011~~2010. The ~~decrease~~increase in general and administrative expenses was mainly attributable to ~~decrease in~~ the write off of returned products of $865,871, and allowance for doubtful accounts of ~~$814,828~~ and ~~salary~~write-off of ~~payments~~accounts ~~and~~receivable ~~relevant~~totaling ~~expenses~~$1,039,853 ~~for~~during the nine months ended December 31, ~~2012~~2011. ~~During~~We ~~the~~did ~~nine~~not ~~months~~incur ~~ended December~~such ~~31,~~costs ~~2011,~~during ~~because~~ the nine ~~Company~~months ~~suspended~~ended ~~production~~December ~~due to the implementation by the government of the PRC of new health and safety rules~~31, ~~$239,087 of original production costs such as salary payments and related expenses were charged as general and administrative expenses~~2010.

Income (loss) from operations

~~Income~~Loss from operations increased by $2238,~~568~~114,~~473~~653 to $184,~~136~~432,~~338~~135 18 for the nine months ended December 31, ~~2012~~2011, from ~~loss~~income from operations of $433,~~432~~682,~~135 for~~518 for the nine months ended December 31, ~~2011~~2010. The increase iswas mainly attributable to the ~~increase~~decrease in sales and ~~increase~~decrease of gross ~~profit~~ profit for the nine months ended December 31, ~~2012~~2011.

Total other income

Total other income decreased ~~increased~~ by $115,~~482~~458,~~053~~207 or ~~283~~96.9273% to $2521,~~004,049~~996 for the nine months ended December 31, ~~2012~~2011, from $~~521~~15,~~996~~980,203 for the nine months ended December 31, ~~2011~~2010. The ~~increase~~decrease iswas mainly attributable to the ~~investment~~change ~~income~~in ~~from~~the afair ~~trust~~value ~~and is net~~ of ~~the~~ ~~relevant~~embedded ~~handling~~derivatives ~~fee~~for ~~amounting to~~ $214,~~325~~797,~~218~~000 during ~~and off-set~~ the ~~increase of interest expenses on loans to $477,101 for the~~ nine months ended December 31, ~~2012~~2010.

Income taxes

Provision for income taxes was $3899,~~425,743~~175 and $~~899~~6,~~175~~704,028 for the nine months ended December 31, ~~2012~~2011 and ~~2011~~2010, respectively. The ~~increase~~decrease in the provision for income taxes iswas primarily attributable to ~~increase~~decrease in operating profit.

Net income (loss)

Net ~~income~~loss increased by $2147,~~523~~768,~~958~~007 to $164,~~714~~809,~~644~~314 for the nine months ended December 31, ~~2012~~2011 from net ~~loss~~income of $442,~~809~~958,~~314~~693 for the nine months ended December 31, ~~2011~~2010. The increase of net ~~income~~loss iswas mainly attributable to the increase of ~~income~~loss from operations of $2238,~~568~~114,~~473 stated above~~653.

Segment reporting

We have adopted the “products and services” approach for segment reporting. For nine months ended December 31, ~~2012~~2011 and ~~2011~~2010, 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 nine months ended December 31, ~~2012~~2011 and ~~2011~~2010 are summarized as below:

	Nine months ended December 31,
	2012			% of				2011	% of
	2011			% of				2010	% of
	Amount			Net sales				Amount	Net sales
Net sales, retail products	$	1619,~~913~~556,~~709~~575			100.00	%	$	1945,~~556~~830,~~575~~039		100.00	%
Cost of sales		610,~~350~~067,~~783~~324			3751.5548	%		1015,~~067~~825,~~324~~029		5134.4853	%
Cost of product returns		-7,143,914			-36.53	%		~~7,143,914~~-		~~36.53~~-	%
Gross profit, retail products		102,~~562~~345,~~926~~337			6211.4599	%		230,~~345~~005,~~337~~010		1165.9947	%
Operating expenses:
Selling expenses		2,~~926~~405,~~690~~691			1712.30	%		27,~~405~~782,~~691~~083		1216.3098	%
General and administrative expenses		24,~~763~~449,~~280~~271			1622.3475	%		4,~~449~~022,~~271~~622		228.7578	%
Total operating expenses		56,~~689~~854,~~970~~962			3335.6405	%		611,~~854~~804,~~962~~705		3525.0576	%
Income (loss) from operations, retail products	$	(4,~~872~~509,~~956~~625	)		28(23.8106	)%	$	(418,~~509~~200,~~625)~~305		~~(23~~39.0671	)%

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 $2,940,746 (RMB18,523,208) for recovery of special concession credits discussed below~~. Our net sales for the nine months ended December 31, ~~2012~~2011 and ~~2011~~2010 comprised the following:

	Nine months ended December 31,
	2012			2011
	2011			2010
Invoiced value on sales	$	1421,~~731~~054,~~877~~755		$	2148,~~054~~659,~~755~~775
Less: Sales discount		(~~662~~1,~~045~~349,479	)		(12,~~349~~361,~~479~~521	)
Less: Sales tax		(96148,~~869~~701	)		(~~148~~468,~~701~~215	)
	$	1319,~~972~~556,~~963~~575		$	1945,~~556~~830,~~575~~039
Return of deposits		2,940,746			-
	$	16,913,709		$	19,556,575

Net sales decreased by $226,~~642~~273,~~866~~464 or 1357.5133% to $1619,~~913~~556,~~709~~575 for the nine months ended December 31, ~~2012~~2011 from $1945,~~556~~830,~~575~~039 for the nine months ended ~~December~~ December 31, ~~2011~~2010. The decrease inwas ~~sales~~mainly attributable to the implementation by the PRC government of ~~retail~~new rules and regulations on health care products, isincluding ~~primarily~~our ~~attributable~~probiotics toproducts, ~~the~~during ~~recapture~~2011. ofCertain ~~sales~~health ~~for~~care ~~the~~products, ~~nine~~including ~~months~~our ~~ended~~probiotics ~~December 31~~products, ~~2011~~have ~~after~~been repositioned as food and so are now governed by the ~~adoption~~PRC’s ofFood Safety Law, resulting in the ~~implementation~~Company ofand its competitors having to adapt to the new rules and regulations. onIn ~~health~~addition, ~~care~~during ~~products~~the three months ended December 31, 2011, the Company suspended production due to the implementation by the government of the PRC ~~during~~of ~~such~~new ~~period~~health and safety rules.

During June 2011, we also found a batch of probiotics products worth $474,505 that were below the Company’s quality standards due to production problems; the Company tracked and destroyed all such products after obtaining them from its distributors.

Cost of sales

Cost of sales decreased by $35,~~716~~757,~~541~~705 or 36.9238% to $610,~~350~~067,~~783~~324 for the nine months ended December 31, ~~2012~~2011 from $1015,~~067~~825,~~324~~029 for the nine months ended December 31, ~~2011~~2010. The decrease in cost of sales was primarily ~~due~~caused toby ~~fewer~~the ~~product~~decrease ~~returns~~in ~~written~~sales ~~off~~ during the nine months ended December 31, ~~2012~~ 2011, as compared to the same period in the prior year.

Cost of product returns

As a result of a ~~product~~ 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 nine months ended December 31, 2011. No ~~additional~~ such credits were made available for the nine months ended December 31, ~~2012~~2010. ~~During the nine months ended December 31, 2012, the Company recovered special concession credits amounting to $2,940,746 (RMB18,523,208) and recognized such amounts as sales for the period.~~

Gross profit

Gross profit ~~increased~~decreased by $827,~~217~~659,~~589~~673 or ~~350~~92.3818% to $102,~~562~~345,~~926~~337 for the nine months ended December 31, ~~2012~~2011 from $230,~~345~~005,~~337~~010 for the nine months ended December 31, ~~2011~~2010. The ~~increase~~decrease in gross profit was primarily caused by the ~~increase~~decrease of products sold and no write-off of a special payment to distributors ~~for~~during the ~~current period, which was occurred, described above, for the~~ nine months ended December 31, 2011.

Selling expenses

Selling expenses were $2,~~926~~405,~~690~~691 or 1712.30% of net sales for the nine months ended December 31, ~~2012~~2011, compared with $27,~~405~~782,~~691~~083 or 1216.3098% of net sales for the nine months ended December 31, ~~2011~~2010. The selling expenses mainly included salary and advertising expenses. ~~This~~The ~~increase~~decrease inwas ~~selling~~mainly ~~expenses~~attributable ~~was~~to ~~primarily~~decrease ~~attributable~~in sales commission to anstaff ~~increase~~as ina result of lower sales ~~promotion~~and ~~activities~~cash collection of outstanding balances from our customers. In addition, we incurred substantially less advertising expenses during the nine months ended December 31, 2011.

General and administrative expenses

General and administrative expenses ~~decreased~~increased by $1426,~~685,991~~649 or 3710.8961% to $24,~~763~~449,~~280~~271 or 1622.3475% of net sales for the nine months ended December 31, ~~2012~~2011 compared with $4,~~449~~022,~~271~~622 or 228.7578% of net sales for the nine months ended December 31, ~~2011~~2010. The ~~decrease~~increase in general and administrative ~~expenses~~ expenses was mainly attributable to anthe ~~allowance~~write off of ~~accounts receivable for the~~ returned products of $865,871, and allowance for doubtful accounts and write-off of accounts receivable totaling $656,907. ~~and~~We ~~expenses~~did ~~transferring~~not ~~from~~incur ~~production~~such costs ofduring ~~$239~~the nine months ended December 31,~~087~~ as2010. These increases were partially offset by the ~~suspension~~decrease of ~~production~~research and development expenses from $2,251,958 for the nine months ended December 31, 2010 to $1,760,335 for the same period in 2011.

3233

Income (loss) from operations

~~Income~~Loss from operations increased by $922,~~382~~709,~~581~~930 to $4,~~872~~509,~~956~~625 for the nine months ended December 31, ~~2012~~2011 from aan ~~loss~~income from operations of $418,~~509~~200,~~625 for~~305 for the nine months ended December 31, ~~2011~~2010. The ~~increase~~decrease iswas mainly attributable to ~~increases~~decreases in revenues and apayments ~~decrease~~to ~~in operating~~our ~~expenses~~distributors ~~for~~as ~~the~~deposits ~~nine~~which ~~months~~were ~~ended~~partially ~~December~~offset ~~31,~~by ~~2012, and~~ the ~~write~~decrease ~~off~~ of ~~returned~~our ~~products~~selling ~~incurred~~expenses ~~for~~as ~~the~~a ~~nine~~result ~~months~~of ~~ended December~~decrease ~~31, 2011, which did not occur~~ in sales during the nine months ended December 31, ~~2012~~2011.

Bulk products

The results of bulk additives products segment for the nine months ended December 31, ~~2012~~2011 and ~~2011~~2010 are summarized as below:

	Nine months ended December 31,
	2012 Amount		% of Net sales			2011 Amount		% of Net sales
	2011 Amount		% of Net sales			2010 Amount		% of Net sales
Net sales, bulk additives products	$	4515,~~300~~954,~~770~~206		100.00	%	$	1535,~~954~~078,~~207~~972		100.00	%
Cost of sales		176,~~483~~588,~~062~~744		3841.5930	%		611,~~588~~492,~~744~~757		4132.3076	%
Gross profit, bulk additives products		279,~~817~~365,~~708~~463		6158.4170	%		923,~~365~~586,~~463~~215		5867.7024	%
Operating expenses:
Selling expenses		61,~~322~~911,~~812~~120		1311.9698	%		1,~~911~~696,~~120~~713		114.9884	%
General and administrative expenses		54,~~326~~615,~~266~~758		1128.7693	%		43,~~615~~823,~~758~~862		2810.9390	%
Total operating expenses		116,~~649~~526,~~078~~878		2540.7191	%		65,~~526~~520,~~878~~575		4015.9174	%
Income from operations, bulk additives products	$	162,~~168~~838,~~630~~585		3517.6979	%	$	218,~~838~~065,~~585~~640		1751.7950	%

Net sales

Net sales in our financial statements are stated at invoiced value less sales discount and sales tax. Our net sales for the nine months ended December 31, ~~2012~~2011 and ~~2011~~2010 comprised the following:

	Nine months ended December 31,
	2012			2011
	2011			2010
Invoiced value on sales	$	4516,~~611~~029,~~044~~036		$	1635,~~029~~275,~~036~~944
Less: Sales tax		(~~310~~74,~~274~~829	)		(74196,~~829~~972	)
	$	4515,~~300~~954,~~770~~207		$	1535,~~954~~078,~~207~~972

Net sales ~~increased~~decreased by $2919,~~346~~124,~~563~~765 or ~~183~~54.9452% to $4515,~~300~~954,~~770~~207 for the nine months ended December 31, ~~2012~~2011, from $1535,~~954~~078,~~207~~972 for the nine months ended December 31, ~~2011~~2010. The ~~increase~~decrease in sales of bulk additive products iswas primarily attributable to the ~~growth~~declines of the ~~business and~~ market demand for the bulk products as a result of the implementation by the PRC government of new rules and regulations on health care products.

Cost of sales

Cost of sales ~~increased~~decreased by $104,~~894~~904,~~318~~013 or ~~165~~42.3567% to $176,~~483~~588,~~062~~744 for the nine months ended December 31, ~~2012~~2011, from $611,~~588~~492,~~744~~757 for the nine months ended ~~December~~ December 31, ~~2011~~2010. The ~~increase~~decrease in cost of sales was primarily caused by the ~~increase~~decrease in products sold for the nine months ended ~~December~~ December 31, ~~2012~~2011.

Gross profit

Gross profit ~~increased~~decreased by $1814,~~452~~220,~~245~~752 or ~~197~~60.0229% to $276,~~817~~588,~~708~~744 for the nine months ended December 31, ~~2012~~2011, from $623,~~588~~586,~~744~~215 for the nine months ended December 31, ~~2011~~2010. The ~~increase~~decrease of gross profit was primarily caused by the ~~increase~~decrease in products sold for the nine months ended December 31, ~~2012~~2011.

Selling expenses

Selling expenses were $61,~~322~~911,~~812~~120 or 1311.9698% of net sales for the nine months ended December 31, ~~2012~~2011, compared with $1,~~911~~696,~~120~~713 or 114.9884% of net sales ~~for~~ for the nine months ended December 31, ~~2011~~2010. 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 $3,870,980 and advertising expenses to $1,164,538 for the nine months ended December 31, ~~2012~~2011.

General and administrative expenses

General and administrative expenses were $54,~~326~~615,~~266~~758 or 1128.7693% of net sales for the nine months ended December 31, ~~2012~~2011, compared with $43,~~615~~823,~~758~~861 or 2810.9390% of net sales for the nine months ended December 31, ~~2011~~2010. The increase in general and administrative expenses was mainly attributable to an increase of ~~depreciation~~research ~~charges~~and development expense to $~~875~~1,~~441~~999,456 for the nine months ended December 31, ~~2012~~2011 from $~~577~~1,~~022~~574,001 for the nine months ended December 31, ~~2011~~2010.

Income from operations

Income from operations ~~increased~~decreased by $1315,~~330~~227,~~045~~055 or ~~469~~84.6029% to $162,~~168~~838,~~630~~585 for the nine months ended December 31, ~~2012~~2011, from $218,~~838~~065,~~586~~640 for the nine months ended December 31, ~~2011~~2010. The ~~increase~~decrease iswas mainly attributable to the ~~increase~~decrease of gross profit ofand ~~$18,452,245 from the~~ increase ~~in sales net~~ of ~~the~~operating ~~increase in selling~~ expenses~~, and general and administrative expenses,~~ for the nine months ended December 31, ~~2012~~ ~~stated above~~2011.

Liquidity and Capital Resources

Liquidity

We had cash of $68122.50 million and working capital of $51104.14 million as of December 31, ~~2012~~2011 and cash of $70144.0 million and working capital of $57132.~~2 million~~3 million as of March 31, ~~2012~~2011.

Our statements of cash flow for the nine months ended December 31, ~~2012~~2011 and ~~2011~~2010 are summarized as below:

	Nine months ended
	December 31,
	2012			2011
	2011			2010
Net cash provided by (used in) operating activities	$	21(1,~~459~~618,~~182~~210	)	$	(116,~~618~~336,~~210~~616	)
Net cash used in investing activities		(2723,~~342~~709,~~719~~038	)		(2316,~~709~~362,~~038~~353	)
Net cash provided by financing activities		3,661,021			4,509,554
Net cash provided by (used in) financing activities		4,509,554			(25,579,847	)
Effect of exchange rate changes on cash		~~586~~(1,~~664~~172,532	)		(12,~~172~~316,~~532~~795	)
Net change in cash and cash equivalents balances	$	(121,~~635~~990,~~852~~226	)	$	(2123,~~990~~288,~~226~~789	)

Operating activities

Net cash ~~provided~~used ~~by operating~~in operating activities was $~~21.5~~1,618,000 ~~million~~ and net cash ~~used~~provided inby operating activities ofwas $116.63 million for the nine months ended December 31, 2011 ~~2012~~ and ~~2011~~2010, respectively. ~~The~~During ~~primary~~the ~~reason~~nine ~~for~~months ended December 31, 2011, net cash provided by operating activities primarily consisted of the ~~increase~~net loss of $4.8 million, provision of allowance for doubtful accounts of $1.2 million, fair value of vested options of $1.1 million, decrease in ~~cash~~accounts ~~flow~~receivable ~~was~~of an$2.2 million which were offset by the increase in ~~net~~inventories ~~income~~of ~~for~~$2.1 million. During the nine months ended December 31, ~~2012~~2010, tonet cash provided by operating activities primarily consisted of net income of $1643.70 million, ~~compared~~which ~~with~~was offset by the ~~net~~change ~~loss~~in the fair value of embedded derivatives of $414.8 million, ~~for~~increase in accounts receivable of $17.2 million. Our overall net cash flow generated by operating activities decreased due to the downturn of our business during the nine months ended December 31, 2011.

Investing activities

We had capital expenditures totaling $~~27.~~3.1 million for the nine months ended December 31, ~~2012~~2011, ~~primarily~~ related to the prepayment of $131.81 million for certain ~~capital~~ capital expenditures with respect to our facility in Yangling and Qingpu and $132.50 million in the acquisition of property, plant and equipment in Yangling, Qingpu and Shining.

In addition, we entered into an agreement with Jiangxi International Trust Co., Ltd. (“Jiangxi”) to loan $20,622,788 (RMB 131,100,000) to the Jiangxi International Trust of Yinhe #7 Property, an investment fund sponsored by Jiangxi. Jiangxi is a major trust and investment company that is executing different investment projects in the PRC, including real estate projects, listed company restructurings, and other financial services. The loan principal is due on December 26, 2013, is unsecured, and according to the loan agreement, the Company is to earn 20% interest per annum, less a 5% investment management fee per annum.

Financing activities

Cash provided ~~from financing~~by financing activities was $34.75 million and cash used in financing activities was $425.56 million for the nine months ended December 31, ~~2012~~ 2011 and ~~2011~~2010, respectively. ~~Details of our financing activities for such periods are as follows:~~

	Nine months ended December 31,
	2012			2011
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds of loans	$	20,197,201		$	-
Repayment of loans		(12,245,547	)		-
(Repayment to) advance from director		(4,290,633	)		4,509,554
NET CASH PROVIDED BY FINANCING ACTIVITIES	$	3,661,021		$	4,509,554

During the nine months ended December 31, 2011, we received advances of $4,509,554 from Mr. Song, a director and stockholder Jinan, and repaid $0 to him.

34During the nine months ended December 31, 2010, we received advances of $5,409,787 from Mr. Song Jinan and repaid $3,250,000 to him. In addition, we repaid the outstanding balance of the convertible note in the amount of $25,000,000 and paid $2,739,634 to acquire treasury stock during the nine months ended December 31, 2010.

~~The~~During ~~net cash provided by financing activities for~~ the ~~nine months~~ periods ended December 31, ~~2012~~2011 ~~was~~and ~~primarily~~2010, ~~from~~ the ~~proceeds~~advance offrom ~~bank~~a ~~loans~~director, ~~of $20~~Mr.2 ~~million (RMB~~Song ~~127~~Jinan, ~~million)~~was ~~net~~entered into because of the ~~repayment~~difficulty ofthe aCompany faced ~~bank~~in ~~loan~~paying ofexpenses ~~$12.2~~incurred ~~million~~outside ~~(RMB~~China 77in ~~million)~~non-PRC ~~and~~currency ~~minus~~due ~~net~~to ~~repayment~~the todifficulties athe ~~director~~Company ~~amounting~~had in converting currency tobecause ~~$4.3~~of ~~million~~foreign exchange controls.

The net cash provided by financing activities for the nine months ended December 31, 2011 was primarily of an advance from a director amounting to $4.5 million to the Company.

During the periods ended December 31, 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

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 ~~September~~June 2012. We expect to complete construction by ~~September~~ June 2014. As of December 31, ~~2012~~2011, Growing Yangling entered into agreements with contractors related to the construction of the plant, ~~manufacturing~~ manufacturing facilities ~~and purchase of production equipment~~ for future ~~payment~~payments of $2,~~548~~917,~~547 and $21,929,973, respectively~~101.

The Company is currently in Phase 2 construction of a research and development center and other ancillary facilities in Qingpu. As of December 31, 2011, agreements with contractors related to the construction of the plant, manufacturing facilities and purchase of production of equipment with future payments of $15,058,987 and $3,917,143, respectively.

Purchase obligations

~~Shining~~The ~~and~~Company ~~Growing have~~ entered into the agreements with its suppliers to purchase raw materials and packing materials,. ~~with~~As ~~respect~~of toDecember ~~which~~31, 2011, the amount of future payments isrelated to these obligations was $9,~~201~~474,~~614~~688.

Other ~~Obligations~~obligations

Growing entered into an agreement with a university in the PRC to perform research and development. The aggregate amount of future payments per year is approximately $1,~~428~~407,~~322~~327 (RMB9 million).

Inflation

We believe that inflation has not had a material impact on our results of operations for the nine months ended December 31, ~~2012~~2011 and ~~2011~~2010.

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 (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~~2011, 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 and nine months ended December 31, ~~2012~~2011 and ~~2011~~2010. 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~~ results may differ from these estimates under different assumptions or conditions.

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 $1213,~~734~~313,~~640~~478, 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.

For the nine months ended December 31, 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.38

For the nine months ended December 31, 2011, 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 Nine months Ended December 31, ~~2012~~2011.

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.

3739

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.

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. 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~~SEC ofscheduled ~~the~~oral ~~SEC’s~~argument ~~review~~for ~~are~~July ~~pending as of February 13~~10, 2013.

ITEM 1A. RISK FACTORS.

~~Not~~ If ~~required~~the SEC revokes the registration of our common stock, the trading market for ~~a smaller~~our ~~reporting~~common ~~company~~stock may cease to exist.

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 order 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 June 21, 2013. The SEC has scheduled oral arguments on the appeal for July 10, 2013. If the registration of the Company’s securities is revoked, no U.S. registered broker-dealer may execute trades in the Company’s shares and the trading market for our common stock may cease to exist. In such event, investors may not be able to liquidate their investment.

Risks Related to Our Business

We have identified material weaknesses relating to: (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 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; (iii) management of the Company did not conduct adequate monitoring and assessments of its accounting and financial statement control processes throughout the reporting periods, which have affected and could continue to affect our ability to ensure timely and reliable financial reports, have affected and could continue to affect the ability of our auditors to attest to the effectiveness of our internal controls should we once again become an accelerated filer in the future, and weaken investor confidence in our financial reporting.

As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies in their annual reports to include a report of management on the reporting company’s disclosure controls and procedures and internal controls over financial reporting. Ater 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 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. Our management has concluded that our disclosure controls and procedures were not effective as of December 31, 2011, and there existed material weaknesses in our internal control over financial reporting as of December 31, 2011. The Company’s Audit Committee and our management are still engaged in discussions about how best to rectify fully such weakness. The Audit Committee has recommended that the Company hire, and management has retained the services of, additional qualified personnel to prepare the Company’s books and records and financial statements in accordance with U.S. GAAP.

We depend on the services of our directors and key employees, the loss of which could harm our business.

We believe our success relies on the strategies, vision, efforts and technical expertise of our directors and key management personnel, including Mr. Song Jinan. The resignation or departure of any of these key people could have a material adverse impact on our operations and future prospects. In addition, if any of these key people join a competitor or form a competing company, we could lose customers and incur additional expenses to recruit replacements and train personnel. We have entered into standard form confidentiality agreements with our technical employees with the exception of our directors and our key executives, which contain non-competition clauses. We do not maintain key-man life insurance for any of our key executives.

Failure to attract and retain qualified employees may adversely affect our business.

Our continued success depends largely on our ability to attract and retain highly skilled executive, managerial and technical employees. We may face difficulties in recruiting skilled personnel in our industry due to its specialized nature. If we are unable to attract and retain a sufficient number of suitably skilled and qualified personnel, our business would be materially and adversely affected. We may also have to pay substantial wages to attract sufficient numbers of skilled employees and professionals, which may adversely affect our operating margins.

We are not insured against potential losses and could be seriously harmed by natural disasters, catastrophes or acts of war.

Our facilities and inventories could be materially damaged by hurricanes, floods and other natural disasters, catastrophes, acts of war or other catastrophic circumstances. We do not maintain insurance covering such events. If any of these events occur, we could incur material losses and liabilities, which could negatively affect our operating results.

We may incur material product liability claims, which could increase our costs and adversely affect our reputation, revenues and operating income.

As a manufacturer of products designed for human consumption, we are subject to product liability claims that the use of our products has resulted in injury. Our products contain three types of live bacteria, lactobacillus acidophilus, bifidobacterium bifidum and bifidobacterium adolescentis, which fall within the nine types of “good” live bacteria that are approved for direct sale to the public in China as health food. We obtain our bacteria from human sources. Although we believe this reduces the risk that it will be rejected by the human body, there can be no assurance that consumption of such bacteria could not result in adverse health effects. We do not maintain any product liability insurance. A product liability claim against us could result in costly litigation and could adversely affect our reputation with our customers, which in turn could adversely affect our revenues and operating income.

Our revenues primarily depend on sales of one product, and a decline in sales of this product could cause our revenues to decrease.

We receive a large portion of our revenue from the sale of our Shining Essence product. Sales of this product represented approximately 21% and 8% of our total sales of our retail products for the nine months ended December 31, 2011 and 2010, respectively, and 19% of our total sales of retail products for the year ended March 31, 2011. We expect that Shining Essence will continue to account for a sizable portion of our revenues for the foreseeable future. In addition to Shining Essence, our research and development team has successfully developed other new retail products, such as Shining Probiotics Protein Powder, which represented 38% and 22% of our total sales of our retail products for the nine months ended December 31, 2011 and 2010, respectively and 24% of our total sales of retail products for the year ended March 31, 2011. Any factors adversely affecting the pricing of, demand for, or market acceptance of, Shining Essence, including increased competition, could cause our revenues to decline and our business and future operating results to suffer.

Consumer concerns regarding the safety and quality of food products or health concerns could adversely affect sales of our products.

Our sales performance could be adversely affected if consumers lose confidence in the safety and quality of our products. Consumers in China are increasingly conscious of food safety and nutrition. Consumer concerns about, for example, the safety of pork products, or the safety of food additives used in processed meat products, could discourage them from buying certain products and cause our results of operations to suffer. Specifically, in 2011, there was some negative publicity regarding the quality and safety of certain meat products which had a broad effect on Chinese consumer habits with respect to many food products. While we believe that we maintain an advanced system for quality assurance and control, our operations may be impacted by the deteriorating reputation of the food industry in China due to recent food safety scandals. In addition, the product return program we commenced at the end of calendar year 2011 in response to certain of our products which were below the Company’s quality standards, and the special concession credits we made to certain of our distributors to address complaints from their customers in respect of such products, could have a negative effect on our customers’ perception of the safety and reliability of our probiotics products.

We are subject to concentrations of credit risk that could adversely affect our operations.

Our principal operations are in China and all of our sales during the interim periods of fiscal year 2012 and fiscal year 2011 arose in China. A significant number of our financial instruments, principally cash and accounts receivable, are located in China. These financial instruments include:

cash deposits in China, 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;

accounts receivable; and

a loan receivable.

The concentration of these financial instruments in China subjects us to concentrations of credit risk that could adversely affect our operating results.

If our products fail to keep pace with advances in the industry, they may be displaced by competitors’ newly developed products.

Other companies in our industry may gain significant competitive advantages by introducing new products to the market, delivering constant innovation in products and techniques and offering competitive prices. Our future growth partially depends on our ability to develop products that are more effective in meeting consumer needs. In addition, we must be able to manufacture and effectively market those products. The sales of our existing products may decline if a competing product is introduced by other companies.

We may have difficulty competing with larger and better-financed companies in our industry, which could require us, among other things, to lower our prices and could result in the loss of our customers.

Some of our existing and future competitors may have greater technical and financial resources than we do and may use these resources to pursue a competitive position that threatens our products. Our products could be rendered obsolete or uneconomical by the development of new products to treat conditions addressed by our products, as a result of technological advances affecting the cost of production, or as a result of marketing or pricing action by one or more of our competitors.

Additionally, with China’s accession to the World Trade Organization, the Chinese government has undertaken to open up the Chinese market to foreign companies. China reduced its average import tariff rate overall to 11.50% in 2003 and has further reduced it to 9.90% in 2005. As a result, foreign competitors may form alliances with or acquire companies in our industry in China. Intensified competition from these foreign competitors may lead to lower profit margins due to price competition, loss of customers and slower than anticipated growth.

Unfavorable publicity or research reports casting a negative light on our industry or our products could change consumer perceptions and have an adverse affect on our ability to market and sell our products.

We believe that our industry is affected by media attention. Future research reports or publicity about the quality of products in our industry generally, or our products in particular, could have a material adverse effect on our business. Scientific research to date is preliminary and there can be no assurance that future scientific research or publicity will be favorable to our industry or any particular product or consistent with earlier favorable research or publicity. Adverse publicity could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products appropriately. Given our dependence upon consumer perceptions, adverse publicity, whether or not accurate, associated with illness or other adverse effects resulting from the consumption of our products or any similar products distributed by other companies could have a material adverse effect on our business.

Our expansion into the bulk additives business may not generate sufficient revenues, and the construction of our new facilities to accommodate this business may result in increased costs and losses.

We are expanding our operations into the bulk additives business through the supply of high quality probiotics to be used as additives in, among other things, dairy products to manufacturers in China. We have completed construction of Phase I of our new Qingpu production plant, which has a 150-metric tons annual capacity that can accommodate our new bulk additives business. We began commercial production at this plant in February 2010. In addition, we commenced construction in June 2012 on a new facility in Yangling related to the production of probiotics and probiotics-related biological additives for the animal feed industries. This will expose us to many risks, including the following:

there may not be sufficient market demand for bulk probiotics additives or our products in particular;

we may experience delays and cost overruns during construction of our new facilities, which may result in losses; and

we may experience substantial start up losses when the plants are first commissioned.

Our shift in focus from retail to the bulk additives business, and the shift from direct selling to selling through a distribution network, may fail.

In our continuing effort to shift our focus from retail to bulk additives business and to improve operating efficiency, we have consolidated our retail outlets, as we believe the distribution network for our retail products is more efficient. Comparatively, directly selling through retail outlets involves increased leasing expenses and large staffing cost. By selecting six 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, hypermarkets, supermarkets, and functional food stores, adding approximately 30 new points of sale. As of December 31, 2011, we had a total of 39 distributors for retail products. In light of the increasing online sales of health food in China, we have started to work with two on-line selling companies, www.ule.com.cn and www.yihaodian.com, to sell our retail products. Furthermore, the Company has established and launched an in-house e-commerce department dedicated to promoting and selling our retail products online through the Company’s website at http://www.shiningbt.com/Product/.

With respect to our bulk additives products business, we had 70 customers for bulk additives probiotics products as of December 31, 2011. Our customers are mainly in the industries of animal feed manufacturers, functional food, nutritional products and pharmaceutical producers, and dairy companies.

As we shift our focus from retail to bulk additives and implement a distribution network selling model, there is a risk that our current systems may not be able to accommodate the increased volume or the complexity of the future business. Our short term operating results may be adversely affected as additional capital investments will have to be made for system upgrades, replacements, or improvements.

We face potential tax exposure.

In addition to the 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 $13,313,478, 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.

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 December 31, 2011, 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 unaudited condensed consolidated statements of operations as a component of its income tax provision.

We may not be able to protect our intellectual property against claims by other parties or enforce our rights with respect to our intellectual property.

Without patents, we may have no legal recourse in the event that our processes and technologies are replicated by other parties. If our competitors are able to replicate our processes, technologies, and systems at lower costs, we may lose our competitive advantage and our profitability will be adversely affected.

In addition, we believe that over the last five years our “Shining” brand has become a highly recognizable brand in our industry in Shanghai. To protect this brand, which we consider important to our continued success, we have registered eight trademarks in China. If our competitors introduce products of inferior qualities to the market using trademarks that are confusingly similar to the “Shining” or “Growing” trademarks, our reputation and operating results will be adversely affected.

From time to time, we may have to resort to litigation to enforce our rights with respect to our intellectual property. This type of litigation could result in substantial costs and diversion of our resources, which would adversely affect our results of operations.

Management by a small team of officers may create conflicts of interests and impede the successful implementation of our growth plans.

Mr. Song and Dr. Chang, our only executive officers, are responsible for all managerial functions of the Company. We have been hiring additional employees to complete our management team, but we cannot assure you that we can assemble a management team that can tackle the expansion plans that we have. The concentration of management could be disadvantageous to stockholders with interests different from those of Mr. Song or Dr. Chang.

Risks Related to Government Regulations

We are subject to government regulation in China, and changes in Chinese regulations may substantially increase the cost of manufacturing and selling our products.

The manufacturing and marketing of our products are subject to various governmental regulations in China. Government regulation includes inspection of and controls over manufacturing, safety and environmental controls, efficacy, labeling and the sale and distribution of wellness products.

As a company which produces probiotics supplements, we are subject to the Law on the Food Conditions of the PRC which became effective on October 30, 1995, the Administrative Rules for Healthy Food promulgated by the Ministry of Health on March 15, 1996 which became effective on June 1, 1996, the Notice of Circulating the Appraisal Standard of Fungal and Good-Live-Bacterial Healthy Food and its appendixes-Appraisal Standard of Fungal and Good-Live-Bacterial Healthy Food, and List of Good-Live-Bacteria Applicable for Healthy Food, promulgated by the Ministry of Health which became effective on March 23, 2001, the Administration Rules for the Registration of Healthy Food (experimental) promulgated by the State Food and Drug Administration on April 30, 2005, which became effective on July 1, 2005, and other relevant rules and regulations issued by the Ministry of Health and the State Food and Drug Administration. In addition, Shining is a Chinese corporation and therefore is subject to the Company Law of China and more specifically to the Foreign Company provisions of the Company Law and the Law on Foreign Capital Enterprises of China.

Our industry is relatively new in China, and the manner and extent to which it is regulated is evolving. Changes in existing laws or new interpretations of such laws may have a significant impact on our methods and costs of doing business. For example, new legislative proposals that affect our product pricing, reimbursement levels, approval criteria and manufacturing requirements may be proposed and adopted.

The costs of compliance with current or future legislation or regulatory requirements may be significant, and could force us to curtail our operations or otherwise have a material adverse effect on our financial condition, results of operations or cash flows. For example, we have obtained three licenses and permits which are required for us to operate our business in China. If the regulations regarding these licenses and permits are changed, it may be materially burdensome for us to obtain or renew these licenses and permits or they may be otherwise unavailable.

Government regulation of our retail prices and advertising methods may adversely affect our results of operations.

We are subject to government regulations with respect to the prices we charge, the rebates we may offer to customers and our marketing methods. In addition, we are required to obtain approval from Chinese government authorities regarding the contents of advertisements related to our products before they can be published. If the Chinese government requires that we set our retail prices at undesirable prices or significantly limits our ability to advertise our products, it could have a material adverse effect on our results of operations.

We may not be able to obtain regulatory approvals for our products or reimbursement from the sale of our products.

The manufacture and sale of our products in China is highly regulated by a number of state, regional and local authorities. These regulations significantly increase the difficulty and costs involved in obtaining and maintaining regulatory approval for marketing new and existing products. In addition, our future growth and profitability are, to a significant extent, dependent upon our ability to obtain timely regulatory approvals from the relevant authorities.

We may not be able to obtain manufacturing or marketing approvals or pass on-site inspections for our current and future products, including re-registration certification and re-evaluation of our products or our production facilities, and failure to obtain the necessary approvals or pass as referenced above could materially harm our business prospects.

Certain capsules that are used by the Company as delivery methods for some of its probiotics products are considered medicines and so are regulated as such. All medicines must be approved by the State Food and Drug Administration (SFDA) before they can be manufactured, marketed or sold in the PRC. The SFDA requires a pharmaceutical manufacturer to successfully complete clinical trials of a new medicine and demonstrate its manufacturing capability before approval to manufacture that new medicine is granted. Clinical trials are expensive and their results are uncertain. It usually takes two to five years for a manufacturer to obtain approval of a typical SFDA production application. However, the SFDA may not strictly adhere to such general timeline and may alter the review procedure. We have no ability to foresee or control any such changes in procedure, which could delay our launch of new products. Furthermore, the SFDA and other regulatory authorities may apply new standards for safety, manufacturing, labeling, marketing and distribution of future products. Complying with these standards may be time-consuming and expensive. In addition, our future products may not be efficacious or may have undesirable or unintended side effects, toxicities or other characteristics that may preclude us from obtaining approval or may prevent or limit their commercial use. As a result, we may not be able to obtain SFDA or other governmental approvals for our future products on a timely basis or at all.

Furthermore, even after we obtain such approvals for a proposed product, we may not be able to pass the on-site inspections required prior to the launch of such proposed product. If we fail to pass the on-site inspection in connection with a production permit application, we will not be able to obtain the production permit and commence production. Failure to obtain or renew approvals or pass on-site inspections for our existing or future products could materially harm our business prospects. In addition, in connection with our manufacture of any new products that will require us to add to or expand our existing production lines or to construct new production lines, we will be required to obtain production permits. Failure to obtain such permits could render us unable to produce any new products.

Failure to comply with applicable GMP standards could have a material adverse effect on our business, financial condition and results of operations.

We are required to comply with applicable GMP regulations, which include requirements relating to personnel, premises and equipment, raw materials and products, qualification and validation, document management, production management, quality control and quality assurance and products distribution and recall. Manufacturing facilities must be approved by governmental authorities before we can use them to commercially manufacture our products and are subject to inspection by regulatory agencies. The SFDA has implemented more stringent GMP standards which are aimed at improving drug production management and controlling risks in the production process and introduce internationally-recognized quality control mechanisms. The latest update to the GMP standards requires increased quality control and documentation and improved overall manufacturing processes, thus causing an increase of cost in manufacturing and decrease of profit margins.

A pharmaceutical manufacturer must meet the new GMP standards, which became effective on March 1, 2011, for each of its production facilities in China with respect to each form of pharmaceutical products it produces within a five-year grace period. Manufacturers of injectables, blood products or vaccines have a three-year grace period to bring existing facilities in line with the revisions.

Although each of our eight production lines meets GMP guidelines promulgated in 1998 and we are in the process of upgrading our production facilities to bring them in line with the new GMP standards, we may not obtain clearance from the SFDA in the event that we are inspected. Any failure to comply with the new GMP standards may subject us to fines or other penalties, which may have a material and adverse impact on our business, financial condition and results of operations.

The PRC Government has focused more on food safety in recent years and we may be subject to substantial liabilities should the consumption of any of our products cause personal injury or illness, and unlike most food processing companies in the United States, we do not maintain product liability insurance to cover our potential liabilities.

The sale of food products for human consumption involves an inherent risk of injury to consumers. Such injuries may result from tampering by unauthorized third parties, product contamination or degeneration, including the presence of foreign contaminants, chemical substances or other agents or residues during the various stages of the procurement and production process. The PRC’s Food Safety Law, which became effective on June 1, 2009, enhances the supervision and examination of PRC governmental authorities over food production and provides that no exemption from such inspections and examinations shall be permitted. While we are subject to governmental inspections and regulations, we cannot assure you that consumption of our products will not cause a health-related illness in the future, or that we will not be subject to claims or lawsuits relating to such matters.

Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertions that our products caused personal injury or illness could adversely affect our reputation with customers and our corporate and brand image. In addition, the product return program we commenced at the end of calendar year 2011 in response to certain of our products which were below the Company’s customary quality standards, and the special credits that were given to certain of our distributors to address complaints from their customers in respect of such products, could have a negative effect on our customers’ perception of the safety and reliability of our probiotics products. Unlike most food processing companies in the United States, but in line with industry practice in China, we do not maintain product liability insurance. Furthermore, our products could potentially suffer from product tampering, contamination or degeneration, or they could be mislabeled or otherwise damaged. Under certain circumstances, we may be required to recall products. Even if a situation does not necessitate a product recall, we cannot assure you that product liability claims will not be asserted against us as a result. A product liability judgment against us or a product recall could have a material adverse effect on our revenues, profitability and business reputation.

Risks Related to Doing Business in China

Adverse changes in China’s economic, political and social conditions and government policies could have a material adverse effect on the overall economic growth of China, which could adversely affect our results of operations and financial condition.

We currently conduct our business solely in China. Changes in the economic and political situation in China and the economic, financial, fiscal and other policies adopted by the Chinese government may affect our operations, performance and profitability. The economy of China differs from the economies of most developed countries in many respects, including:

structure;

extent of government involvement;

level of development;

growth rate;

control of foreign exchange; and

allocation of resources.

China’s economy has traditionally been subject to central planning, with a series of economic plans promulgated and implemented by the Chinese government. Over the past 30 years, the Chinese government has been reforming the economic and political systems in China in an attempt to achieve economic and social advancements. Many of these reforms were unprecedented and are expected to continue while political, economic and social factors may also lead to further adjustments to China’s reform measures. These reforms and adjustments may not always have a positive effect on our operations. Accordingly, we cannot assure you that our performance and profitability will not be adversely affected from these measures. In addition, there is no assurance that the Chinese government will continue to pursue economic liberalization and other reforms.

Macroeconomic measures taken by the Chinese government may cause the Chinese economy to slow down.

In response to concerns relating to China’s high rate of growth in industrial production, bank credit, fixed investment and money supply and growing inflationary pressures, the Chinese government has taken measures to slow economic growth to a more manageable level. Among the measures that the Chinese government has taken are restrictions on bank loans in certain sectors and the increase of interest rates. We cannot assure you that those measures will not result in a slowdown in economic growth and hence a reduction in demand for consumer products in China. These measures and any additional measures could contribute to a slowdown in the Chinese economy and could potentially cause the economy to enter a recession, which could have an adverse impact on demand for a wide range of products in China, including our products.

There are risks inherent in doing business in China.

The PRC is a developing country with a young market economic system overshadowed by the state under heavy regulation and scrutiny. Its political and economic systems are very different from the more developed countries. China also faces many social, economic and political challenges that may produce major shocks and instabilities and even crises, in both its domestic arena and in its relationship with other countries, including but not limited to the United States. Such shocks, instabilities and crises may in turn significantly and adversely affect our performance.

Substantially all of our assets are located in the PRC and all of our revenues are derived from our operations in the PRC. Accordingly, our results of operations and prospects are subject, to a significant extent, to the political and legal developments in the PRC.

Substantially all of our assets are located in the PRC and all of our revenues are derived from our operations in the PRC. Accordingly, our results of operations and prospects are subject, to a significant extent, on the economic, political and legal developments in the PRC. The PRC economy differs from the economies of most developed countries in many respects.

The PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although in recent years the PRC government has implemented measures emphasizing the use of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in the PRC is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. It also exercises significant control over PRC economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. We cannot assure you that changes in the PRC’s economic, political or legal systems will not detrimentally affect our business, prospects, financial conditions and results of operations.

There are uncertainties regarding interpretation and enforcement of Chinese laws and regulations.

China’s legal system is a civil law system based on statutory law. Prior legal decisions and judgments have little precedential value. China is still in the process of developing a comprehensive statutory framework and its legal system is still considered to be underdeveloped in comparison with the legal systems in some western countries. Since 1979, the Chinese government has formulated and enacted a large number of laws and regulations governing economic matters, securities activities and foreign investments.

Despite significant development in its legal system, China does not have a comprehensive system of laws. The interpretation of Chinese law by courts and tribunals may be inconsistent and influenced by government policies and other considerations. In addition, the enforcement of existing laws and regulations can be uncertain and unpredictable. Judgments and arbitration rulings may be unenforceable. The promulgation of new laws, changes to existing laws and inconsistent interpretation of laws could have a negative impact on our business.

Our business may be affected by unexpected changes in regulatory requirements in the jurisdictions in which we operate.

Our company, and its subsidiaries, is subject to many general regulations governing business entities and their behavior in China and in other jurisdictions in which we and our subsidiaries have, or plan to have, operations and market products. In particular, we are subject to laws and regulations covering food, dietary supplements and pharmaceutical products. Such regulations typically deal with licensing, approvals and permits. Any change in product licensing may make our products more or less available on the market. Such changes may have a positive or negative impact on the sale of our products and may directly impact the associated costs in compliance and our operational and financial viability. Such regulatory environment also covers any existing or potential trade barriers in the form of import tariff and taxes that may make it difficult for us to import our products to certain countries and regions, such as Hong Kong, which would limit its international expansion.

All of our officers and directors, and substantially all of our assets, are located in China, thus it may be extremely difficult to acquire jurisdiction and enforce liabilities against our management and our assets.

Because our executive officers and directors are Chinese citizens, it may be difficult, if not impossible, to acquire jurisdiction over them in the event a lawsuit is initiated against us or our management by a stockholder or group of stockholders in the United States. We anticipate that future members of our management will also be Chinese citizens. Because the majority of our assets are located in China, it would also be extremely difficult to access those assets to satisfy an award entered against us in U.S. court.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

Since almost all of our future revenues may be in the form of Renminbi, any future restrictions on currency exchanges may limit our ability to use revenue generated in Renminbi to fund any future business activities outside China or to make dividend or other payments in U.S. dollars. There are significant restrictions on convertibility of the Renminbi for current account transactions, including primarily the restriction that foreign invested enterprises may only buy, sell or remit foreign currencies, after providing valid commercial documents, at those banks authorized to conduct foreign exchange business. In addition, conversion of Renminbi for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the Renminbi, especially with respect to foreign exchange transactions.

Inflation in the PRC could negatively affect our profitability and growth.

While the PRC economy has experienced rapid growth, it has been uneven among various sectors of the economy and in different geographical areas of the country. Rapid economic growth can lead to growth in the money supply and rising inflation. If prices for our products do not rise at a rate that is sufficient to fully absorb inflation-driven increases in our costs of supplies, our profitability can be adversely affected.

In addition, in order to control inflation, the PRC government might impose controls on bank credits, limits on loans for fixed assets and restrictions on state bank lending. The implementation of these and other similar policies may impede economic growth and thereby harm the market for our products in the future.

Deterioration of the PRC’s political relations with the U.S., Europe, or other nations could make Chinese businesses less attractive to Western investors.

The relationship between the U.S. and the PRC is subject to sudden fluctuation and periodic tension. Changes in political conditions in the PRC and changes in the state of Sino-foreign relations are difficult to predict and could cause potential target businesses or services to become less attractive. This could lead to a decline in our profitability. Any weakening of relations between the U.S., Europe, or other nations and the PRC could also have a material adverse effect on our ability to raise additional capital.

The enforcement of new labor contract law and its implementation rules and increase in labor costs in the PRC may adversely affect our business and our profitability.

China adopted the PRC Employment Contract Law, or the new Labor Contract Law, effective January 1, 2008 and the implementation rules effective September 18, 2008. The new Labor Contract Law and its implementation rules impose more stringent obligations on employers for, among others, entering into written employment contracts, hiring temporary employees, dismissing employees, setting compensations for dismissal and protecting certain sick or disabled employees from dismissal and setting forth detailed requirements relating to the contents of the employment contracts. The implementation of the new Labor Contract Law may increase our operating expenses, in particular our personnel expenses, as the continued success of our business depends significantly on our ability to attract and retain qualified personnel. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the new Labor Contract Law may also limit our ability to effect those changes in a manner that we believe to be cost-effective or desirable, which could adversely affect our business and results of operations.

Failure to comply with PRC regulations regarding the registration requirements for employee equity incentive plans may subject our PRC citizen employees or us to fines and other legal or administrative sanctions.

On March 28, 2007, SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan or Share Option Plan of Overseas-Listed Company, or the Share Option Rule. Under the Share Option Rule, PRC citizens who are granted share options or other employee equity incentive awards by an overseas publicly-listed company are required, through a PRC agent who may be a PRC subsidiary of such overseas publicly-listed company, to register with the SAFE and complete certain other procedures related to the share options or other employee equity incentive plans. We and our PRC citizen employees who are granted share options or other equity incentive awards under our 2010 Equity Incentive Plan, or PRC optionees, are subject to the Share Option Rule. If we or our PRC optionees fail to comply with these regulations, we or our PRC optionees may be subject to fines and legal sanctions.

We are subject to environmental regulations and may be exposed to liability and potential costs for environmental compliance.

We are subject to PRC laws and regulations concerning the discharge of waste water, gaseous waste and solid waste during our manufacturing processes. We are required to establish and maintain facilities to dispose of waste and report the volume of waste to the relevant government authorities, which conduct scheduled or unscheduled inspections of our facilities and treatment of such discharge. We may not at all times comply fully with environmental regulations. Any violation of these regulations may result in substantial fines, criminal sanctions, revocations of operating permits, shutdown of our facilities and obligation to take corrective measures. Our cost of complying with current and future environmental protection laws and regulations and our liabilities which may potentially arise from the discharge of effluent water and solid waste may materially adversely affect our business, financial condition and results of operations. The government may take steps towards the adoption of more stringent environmental regulations. Due to the possibility of unanticipated regulatory or other developments, the amount and timing of future environmental expenditures may vary substantially from those currently anticipated. If there is any unanticipated change in the environmental regulations, we may need to incur substantial capital expenditures to install, replace, upgrade or supplement our pollution control equipment or make operational changes to limit any adverse impact or potential adverse impact on the environment in order to comply with new environmental protection laws and regulations. If such costs become prohibitively expensive, we may be forced to cease certain aspects of our business operations.

The 2006 M&A Rule establishes more complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

On August 8, 2006, six PRC regulatory agencies (the Ministry of Commerce, the State Assets Supervision and Administration Commission, or SASAC, the State Administration for Taxation, the State Administration for Industry and Commerce, the CSRC and SAFE) jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the 2006 M&A Rule, which became effective on September 8, 2006. The 2006 M&A Rule establishes additional procedures and requirements that could make some acquisitions of PRC companies by foreign entities, such as our company, more time-consuming and complex, including requirements in some instances that the approval of the Ministry of Commerce be obtained for transactions involving the shares of an offshore-listed company being used as the acquisition consideration by foreign entities, including Sino-foreign joint ventures. In the future, we may grow our business in part by acquiring complementary businesses. Complying with the requirements of the 2006 M&A Rule to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

The increased scrutiny of acquisition transactions by the PRC tax authorities may have a negative impact on our acquisition strategy.

In connection with the new EIT law, the Ministry of Finance and State Administration of Taxation jointly issued the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business, or Circular 59, on April 30, 2009. On December 10, 2009, the State Administration of Taxation issued the Notice on Strengthening the Management on Enterprise Income Tax for Non-resident Enterprises Equity Transfer, or Circular 698. Both Circular 59 and Circular 698 became effective retroactively to January 1, 2008. By promulgating and implementing these circulars, the PRC tax authorities have strengthened their scrutiny over the direct or indirect transfer of equity interest in a PRC resident enterprise by a non-resident enterprise. For example, Circular 698 specifies that the PRC State Administration of Taxation is entitled to redefine the nature of an equity transfer where offshore vehicles are interposed as abusing corporate structures for tax-avoidance purposes and without reasonable commercial intention. We may pursue acquisitions as one of our growth strategies, and may conduct acquisitions involving complex corporate structures. We cannot be assured that the PRC tax authorities will not, at their discretion, adjust the applicable capital gains, tax thus causing us to incur additional acquisition costs.

Our China-sourced income is subject to PRC withholding tax under the new Enterprise Income Tax Law of the PRC, and we may be subject to PRC enterprise income tax at the rate of 25% when more detailed rules or precedents are promulgated.

We are a Delaware holding company with substantially all of our operations conducted through our operating subsidiary in China. Under the new PRC Enterprise Income Tax Law, or the new EIT law, and its implementation rules, both of which became effective on January 1, 2008, China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its overseas parent, is generally subject to a 10% withholding tax. The new EIT law, however, also provides that enterprises established outside China whose “de facto management bodies” are located in China are considered “tax resident enterprises” and will generally be subject to the uniform 25% enterprise income tax rate as to their global income. Under the implementation rules, “de facto management bodies” are defined as the bodies that have, in substance, overall management control over such aspects as the production and business, personnel, accounts and properties of an enterprise. In April 2009, the PRC tax authority promulgated the Notice on Determination of Tax Resident Enterprises of Chinese-controlled Offshore Incorporated Enterprises in accordance with Their De Facto Management Bodies, or Circular 82, to clarify the criteria for determining whether the “de facto management bodies” are located within the PRC for enterprises incorporated overseas with controlling shareholders being PRC enterprises. As all of our operational management is currently based in the PRC, and we expect them to continue to be located in China, our company may be deemed a PRC resident enterprise and therefore be subject to the PRC enterprise income tax at a rate of 25% on our worldwide income, which excludes the dividends received directly from another PRC resident enterprise. Due to the lack of clear guidance on the criteria pursuant to which the PRC tax authorities will determine our tax residency under the new EIT law, it remains unclear whether the PRC tax authorities will treat us as a PRC resident enterprise. Therefore, we are unable to confirm whether we are subject to the tax applicable to resident enterprises or non-resident enterprises under the new EIT law. Furthermore, in connection with the new EIT law and Tax Implementation Regulations, the Ministry of Finance and State Administration of Taxation jointly issued, on April 30, 2009, the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business, or Circular 59, which became effective retroactively to January 1, 2008. As Circular 59 has only recently been promulgated, it is uncertain to us as to how it will be implemented and the respective tax base and the tax exposure cannot be determined reliably at this stage. In case we are required to pay the income tax on capital gains by the relevant PRC tax authorities, our financial conditions and results of operations could be adversely affected.

Dividends payable by us to our foreign investors and gain on the sale of our shares may become subject to taxes under PRC tax laws.

Under the new EIT law, dividends, interests, rent, royalties and gains on transfers of property payable by a foreign-invested enterprise in China to any of its foreign investors who is a non-resident enterprise will be subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with China that provides for a reduced rate of withholding tax. Under the arrangement for avoidance of double taxation between mainland China and Hong Kong, the effective withholding tax applicable to a Hong Kong non-resident company is currently 5% if it directly owns no less than a 25% stake in the Chinese foreign-invested enterprise and meets the definition of “beneficial owner.”

Under the new EIT law and its implementation rules, to the extent that we are considered a “resident enterprise” which is “domiciled” in China, PRC income tax at the rate of 10% (which must be withheld by the Company on all such distributions) is applicable to dividends payable by us to investors that are “non-resident enterprises” so long as such “non-resident enterprise” investors do not have an establishment or place of business in China or, despite the existence of such establishment or place of business in China, the relevant income is not effectively connected with such establishment or place of business in China. Similarly, any gain realized on the transfer of our shares by such investors is also subject to a 10% PRC income tax if such gain is regarded as income derived from sources within China and we are considered a “resident enterprise” which is domiciled in China for tax purposes. Additionally, there is a possibility that the relevant PRC tax authorities may take the view that our purpose is that of a holding company, and the capital gain derived by our overseas stockholders would be deemed China-sourced income, in which case such capital gain may be subject to PRC withholding tax at the rate of up to 10%. It is unclear how this tax would be applied to or enforced against non-PRC citizens or residents. If we are required under the new EIT law to withhold PRC income tax on our dividends payable to our foreign stockholders who are “non-resident enterprises”, or if you are required to pay PRC income tax on the transfer of our shares under the circumstances mentioned above, the value of your investment in our shares may be materially and adversely affected. It is unclear whether, if we are considered a PRC “resident enterprise,” holders of our shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas.

Failure to comply with the United States Foreign Corrupt Practices Act could subject us to penalties and other adverse consequences.

As our ultimate holding company is a Delaware corporation, we are subject to the United States Foreign Corrupt Practices Act, which generally prohibits United States companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some that may compete with our company, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in the PRC. We can make no assurance, however, that our employees or other agents will not engage in such conduct for which we might be held responsible. If our employees or other agents are found to have engaged in such practices, we could suffer severe penalties and other consequences that may have a material adverse effect on our business, financial condition and results of operations.

Because significant portion of our funds are held in banks in the PRC that do not provide insurance, the failure of any bank in which we deposit our funds could affect our ability to continue in business.

Banks and other financial institutions in the PRC do not provide insurance for funds held on deposit. A significant portion of our assets are in the form of cash deposited with banks in the PRC, and in the event of a bank failure, we may not have access to our funds on deposit. Depending upon the amount of money we maintain in a bank that fails, our inability to have access to our cash could impair our operations, and, if we are not able to access funds to pay our suppliers, employees and other creditors, we may be unable to continue in business.

Any outbreak of the Swine Flu (H1N1), severe acute respiratory syndrome, or SARS, the Avian Flu, or another widespread public health problem in the PRC could adversely affect our operations.

There have been recent outbreaks of the highly pathogenic Swine Flu, caused by the H1N1 virus, in certain regions of the world, including parts of China, where all of our manufacturing facilities are located and where all of our sales occur. Our business is dependent upon our ability to continue to manufacture and distribute our products, and an outbreak of the Swine Flu, or a renewed outbreak of SARS, the Avian Flu, or another widespread public health problem in China, could have a negative effect on our operations. Any such outbreak could have an impact on our operations as a result of:

quarantines or closures of our manufacturing or distribution facilities or the retail outlets, which would severely disrupt our operations;

the sickness or death of our key officers and employees; and

a general slowdown in the Chinese economy.

Any of the foregoing events or other unforeseen consequences of public health problems could adversely affect our operations.

Any outbreak of earthquake, tsunami, adverse weather or oceanic conditions or other calamities may result in disruption in our operations and could adversely affect our sales.

We are based in Shanghai, which is situated in southeast China on the coast of the East China Sea. Shanghai is a vital navigation hub between the East China Sea and South China Sea, and is also rich in agricultural and marine resources.

In 2004, an undersea earthquake occurred off the west coast of Sumatra, Indonesia. This earthquake triggered a series of devastating tsunamis along the costs of most landmasses boarding the Indian Ocean. More than 225,000 people in 11 countries were killed, and coastal communities were inundated with waves up to 100 feet.

On May 12, 2008, there was an 8.0 magnitude scale earthquake centered on Sichuan Province of China. It was also known the Wenchuan earthquake, which by any name killed at least 69,000 people and injured more than 374,000 people, with 18,000 listed as missing. The earthquake left about 4.8 million people homeless, thought the number could be as high as 11 million. It was the deadliest earthquake to hit China since the 1976 Tangshan earthquake.

Due to the location of our business, we may be at risk of experiencing another tsunami, earthquake or other adverse weather or oceanic conditions. This may result in the breakdown of our facilities, such as our cold storage facilities, which will in turn lead to deterioration of our products with the potential for spoilage. This could adversely affect our ability to fulfill our sales orders and adversely affect our profitability.

Adverse weather conditions affecting the normal operation order of Shanghai such as storms, heavy rainfall, cyclones and typhoons or cataclysmic events such as heavy rainfall may affect our transportation of products outside Shanghai area.

We may be affected by global climate change or by legal, regulatory or market responses to such changes. The growing political and scientific sentiment is that increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere are influencing global weather patterns. Changing weather patterns, along with the increased frequency or duration of extreme weather conditions, could impact the availability or increase the cost of key raw materials that we use to produce our products.

Concern over climate change, including global warming, has led to legislative and regulatory initiatives directed at limiting greenhouse gas emissions. For example, proposals that would impose mandatory requirements on greenhouse gas emissions may be considered by policy makers in the territories that we operate. Laws enacted that directly or indirectly affect our production, distribution, packaging, cost of raw materials, fuel, ingredients, and water could all impact our business and financial results.

Risks Related to our Common Stock

Shares of our common stock which are eligible for immediate sale by our stockholders may decrease the market price of our common stock.

We had 22,150,200 shares outstanding as of December 31, 2011, including approximately 12,523,745 shares which are free trading and may be sold immediately by our stockholders. If our stockholders sell substantial amounts of our common stock, or there is a perception in the market that such sales may occur, then the market price of our common stock could decrease.

Concentration of our ownership by Mr. Song, our Chairman and Chief Executive Officer and a Director, and his family may dissuade new investors from purchasing our securities, which could result in a lower trading price for our securities than if our ownership was less concentrated.

As of December 31, 2011, Mr. Song, our Chairman and Chief Executive Officer and a Director, owned approximately 23.1% of our issued and outstanding common stock on a fully diluted basis. As a result, Mr. Song has the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors, any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions. This concentration of control could be disadvantageous to other stockholders with interests different from those of Mr. Song. In addition, this concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with a significant concentration of ownership among a limited number of stockholders.

Our preferred stock may make a third-party acquisition of our company more difficult, which in turn would make a purchase of our shares less desirable, thereby potentially reducing our stock price or the liquidity of our shares.

Our Certificate of Incorporation authorizes our Board of Directors to issue up to 10,000,000 shares of preferred stock having such rights as may be designated by our Board of Directors, without stockholder approval. The issuance of preferred stock could inhibit a change in our control by making it more difficult to acquire the majority of our voting stock and thereby making the purchase of our shares by new investors less likely. A lesser interest in the purchase of our shares could reduce our market price or make it more difficult for stockholders to sell their shares. No shares of preferred stock are currently outstanding.

“Penny Stock” rules may make buying or selling our common stock difficult.

Trading in our common stock is subject to the “penny stock” rules. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer that recommends our common stock to persons other than prior customers and accredited investors, must, prior to the sale, make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market price and liquidity of our common stock.

There is currently a limited trading market for our common stock and a more liquid trading market may never develop or be sustained and stockholders may not be able to liquidate their investment at all, or may only be able to liquidate the investment at a price less than the Company’s value.

There is currently a limited trading market for our common stock and a more liquid trading market may never develop. As a result, the price of our shares may not reflect the value of the Company. Consequently, investors may not be able to liquidate their investment at all, or if they are able to liquidate it may only be at a price that does not reflect the value of our business. Because the price for our stock is low, many brokerage firms may not be willing to effect transactions in the securities. Even if an investor finds a broker willing to effect a transaction in our stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of common stock like ours as collateral for any loans. Even if a more active market should develop, the price may be highly volatile.

Our common stock is currently quoted in the Pink Sheets and under “caveat emptor”. We do not satisfy the listing standards of the New York Stock Exchange, The Nasdaq Stock Market or any other U.S. securities exchange. If we never are able to satisfy any of those listing standards our common stock will never be listed on an exchange, or we may choose not to apply for any such listing. As a result, the trading price of our stock may be lower than if we were listed on an exchange. Our stock may be subject to increased volatility. When a stock is thinly traded, a trade of a large block of shares can lead to a dramatic fluctuation in the share price. These factors may make it more difficult for our shareholders to sell their shares.

Restrictions on the use of Rule 144 by shell companies or former shell companies could affect your ability to resale our shares.

Historically, the SEC has taken the position that Rule 144 under the Securities Act, as amended, is not available for the resale of securities initially issued by companies that are, or previously were, blank check companies like us, to their promoters or affiliates despite technical compliance with the requirements of Rule 144. The SEC has codified and expanded this position in its amendments to Rule 144, effective on February 15, 2008, and which apply to securities acquired both before and after that date by prohibiting the use of Rule 144 for resale of securities issued by shell companies (other than business transaction related shell companies) or issuers that have been at any time previously a shell company. The SEC has provided an exception to this prohibition if the following conditions are met: the issuer of the securities that was formerly a shell company has ceased to be a shell company; the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and at least one year has elapsed from the time that the issuer filed current Form 10-type information with the SEC reflecting its status as an entity that is not a shell company. As such, due to the fact that we had been a shell company prior to October 2007, holders of “restricted securities” within the meaning of Rule 144, when they resell their shares pursuant to Rule 144, shall be subject to the conditions set forth in Rule 144.

We do not anticipate paying dividends.

We do not anticipate paying dividends in the foreseeable future. Any dividends which we may pay in the future will be at the discretion of our board of directors and will depend on our future earnings, any applicable regulatory considerations, our financial requirements and other similarly unpredictable factors. For the foreseeable future, we anticipate that we will retain any earnings which we may generate from our operations to finance and develop our growth.

The market price for our common stock may be volatile and subject to wide fluctuations, which may adversely affect the price at which you can sell our shares.

The market price for our common stock may be volatile and subject to wide fluctuations in response to factors including the following:

actual or anticipated fluctuations in our quarterly operating results;

changes in financial estimates by securities research analysts;

conditions in foreign or domestic food processing or agricultural markets;

changes in the economic performance or market valuations of other food processing companies;

announcements by us or our competitors of new products, acquisitions, strategic partnerships, joint ventures or capital commitments;

addition or departure of key personnel;

fluctuations of exchange rates between the RMB and the U.S. dollar;

intellectual property litigation; and

general economic or political conditions in China.

Furthermore, certain short sellers and other funds have in the past, and may again in the future, take a short position or positions in our shares for the specific purpose of driving down our share price. Short sellers may also publish articles or other allegations in conjunction with such attacks. Even when there is no truth to their claims and we rebut their allegations, such attacks can have a material impact on our share price and divert management resources and attention. The securities market has also experienced significant price and volume fluctuations from time to time that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our stock.

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).

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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).
10.1		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).
10.12		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).
10.2		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).
10.13		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).
10.3		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).
10.14		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).
10.4		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).
10.15		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).
10.5		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).
10.16		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).
10.6		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).
10.17		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).
10.7		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).
10.18		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).
10.8		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).
10.19		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).
10.9		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).
10.20		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).
10.10		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).
10.21		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.
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.

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.

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 ~~February~~June 1424, 2013.

/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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